Tax and Compliance — 3 min

Filing Form 1065 instructions: Partnerships and taxation made easy

Written by Ana Vieira

October 14, 2024

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Partnerships can be an excellent way to distribute business responsibilities and profits, but they come with their own set of tax obligations.

Filing your partnership's income tax return, specifically Form 1065, can feel daunting, with multiple sections and details to consider. Yet, Form 1065 plays a critical role in ensuring compliance with IRS regulations for partnerships.

Understanding this tax form is essential for any partnership to stay on top of their tax responsibilities. In this guide, we’ll break down what Form 1065 is, who needs to file it, how to avoid common mistakes, and how to optimize your partnership’s tax strategy.

Jump straight to a key chapter

What is Form 1065?
Filing instructions for Form 1065
Common pitfalls while filing Form 1065 and how to avoid them
How to optimize your partnership's tax strategy
How Remote makes tax compliance simple

What is Form 1065?

Form 1065 is a US tax return that partnerships file to report their income, deductions, and credits to the IRS. Unlike other business entities, partnerships don’t pay income taxes directly. Instead, profits and losses pass through to individual partners, who then report them on their tax returns.

Filing Form 1065 ensures that the IRS has an accurate record of the partnership’s financial activities for the year, while also detailing each partner’s share of income and deductions. This transparency is key to compliance with federal tax laws.

Who needs to file Form 1065?

Most US-based partnerships are required to file Form 1065. This includes general partnerships, limited liability companies (LLCs) with more than one member, and certain foreign partnerships with U.S.-based income.

Some common misconceptions surround which partnerships must file. For instance, partnerships with no income may assume they don’t need to file a return‌ — ‌this is false. Even if a partnership hasn’t generated income, it is still required to file Form 1065 to report any activities and potential expenses for the year.

Key components of Form 1065

To ensure your Form 1065 is completed correctly, it helps to understand the key components and sections that make up the document.

1. Partnership information

The first section of Form 1065 requires basic partnership details, including the business name, address, and Employer Identification Number (EIN). This is the foundation of the form and sets up the IRS’s record of your partnership.

2. Income and deductions

Partnerships must report their total income and deductible expenses. This section covers the partnership’s gross income, from revenue earned to any additional gains, followed by allowable deductions like business expenses, employee salaries, and more.

3. Partners' distributive shares

Each partner's share of the partnership’s income, deductions, and credits is calculated and allocated in this section. These amounts are distributed according to the partnership agreement, which should detail each partner's percentage ownership or income share.

4. Schedule K-1

One of the most critical components of filing Form 1065 is Schedule K-1. After filing Form 1065, each partner receives a K-1 form, which outlines their individual share of income, credits, and deductions. Partners then use the K-1 to report this information on their personal tax returns.

Pro Tip: Be sure to double-check the accuracy of your partnership agreement, as any errors in partner percentages or income shares can lead to filing mistakes.

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Filing instructions for Form 1065

Now that you know what’s on the form, here’s a simple step-by-step guide to filing Form 1065:

1. Gather required documents

Before starting the form, collect all necessary documents. These include financial statements, partnership agreements, and any additional paperwork related to the partnership’s income, deductions, and credits.

2. Fill out the form

Start with the partnership’s details, then work through the income and deduction sections. Carefully allocate each partner’s distributive share, ensuring it aligns with the partnership agreement.

3. Submit the form

Once the form is complete, choose your submission method. Partnerships can file electronically via the IRS’s e-file system or submit a paper return. Electronic submissions are typically faster and confirm receipt. Don’t forget the deadline: Form 1065 is due by March 15th of each year for most partnerships, though extensions are available.

Pro Tip: Need more time? You can apply for an extension using Form 7004, giving you an additional six months to file.

Common pitfalls while filing Form 1065 and how to avoid them

Errors in partnership tax returns are common, but they can lead to costly penalties. Here are a few common pitfalls to watch for:

1. Late-filing penalties

The IRS imposes penalties for late filing—$210 per month (per partner) for each month the return is late. These fees add up quickly, especially for large partnerships, so timely filing is essential.

2. Incorrect partner percentages

One of the most frequent errors involves misreporting partner ownership percentages. Always double-check these figures against your partnership agreement.

3. Incorrect forms or sections

Filing the wrong form or leaving out critical sections, like Schedule K-1, can lead to rejected filings. Make sure every required section is filled out correctly.

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How to optimize your partnership's tax strategy

While Form 1065 is a requirement, partnerships can also take advantage of certain tax benefits.

1. Tax deductions for partnerships

Partnerships can claim deductions for a variety of business expenses, including operating costs, travel, and employee benefits. Taking full advantage of these deductions reduces your taxable income.

2. Multi-state and international partnerships

For partnerships operating across state or country lines, tax compliance becomes more complicated. It’s essential to understand the tax rules in each location and how they impact your overall tax liability.

Expert Tip: If your partnership involves international partners, consult a tax professional to navigate the complexities of multi-jurisdictional taxation.

3. Future tax considerations

Planning ahead is essential for partnerships with complex tax obligations. Consider tax-saving strategies like deferring income, taking advantage of tax credits, or restructuring the partnership to optimize tax outcomes for all partners.

How Remote makes tax compliance simple

Navigating the complexities of Form 1065 is a vital step in ensuring your partnership remains compliant with IRS regulations. While filing the partnership income tax return may seem challenging, understanding the key components and avoiding common mistakes can simplify the process.

Ultimately, professional guidance can make all the difference in complex situations. Whether you’re filing your first Form 1065 or managing a growing international team, having the right support is crucial for both compliance and growth.

Enter Remote.

Remote can help companies manage their tax obligations by providing expert guidance and tools tailored to global and multi-state partnerships. With Remote’s comprehensive global employment solutions, businesses can navigate the complexities of international tax compliance, ensuring that each partnership’s unique structure is aligned with local tax laws.

For more information on managing tax obligations across borders, download Remote’s Global Tax Management guide. If you need professional help with your tax compliance strategy, contact one of Remote's global employment experts or book a demo.