Forming a partnership can have its advantages for your small business. It also means a different way of completing your taxes.

Partnerships, as pass-through entities, report their adjusted gross income, tax deductions and credits to partners who in turn report those items on their personal tax returns. The partnership will also file one partnership return for information purposes on Form 1065. In fact, one partner is designated to sign on behalf of the partnership. Each partner will then report individually on their Form 1040.

Form 1065, U.S. Return of Partnership Income is used to report your partnership’s income, gains, losses, deductions, and credits along with general business information to the IRS.

You won’t determine how much tax is owed on this form – that happens as items on a Schedule K-1 (Form 1065). The partnership tax owed is reported by individual partners on their tax returns. That’s where the “pass-through” part mentioned above comes in.

Think of it this way–if four individuals form a partnership, Form 1065 outlines the business’ reportable activity as a whole. Then each of the four partners will receive their own Schedule K-1 (Form 1065) to report their personal share of each category (income, gains, losses, deductions).  The Schedule K-1s are prepared together with the 1065 partnership. Then, the partnership issues the K-1s to its partners.

• Partnerships, including general, limited partnerships and limited liability partnerships
• Limited Liability Corporations (LLCs) with multiple members that haven’t elected to be taxed as a corporation or S corporation
• Foreign partnerships with income in the U.S.

Being a small business owner comes with many tax nuances. If you need any help filing taxes for on behalf of a partnership, contact us for help.