So, you started a business with someone else, but now you’re stumped trying to figure out your partnership tax filing. Partnership tax requirements are different in a lot of ways from individual ones, which can be confusing for a lot of new partnerships. Luckily, you’re in the right place.
In this tax guide, we’ll go through the basic things you should know and point you in the right direction to stay compliant with your partnership tax filings.
Think you’ll need more help? That’s why we’re here. Our team of tax professionals at Gordon Law can take some of the work off your plate by preparing your partnership’s tax return.
What is a Partnership?
Let’s start with the basics. Essentially, a partnership is a business formed with more than one person. The partners agree to work together and share the profits and losses.
Some people are surprised to learn they started a partnership unintentionally, even without a formal agreement, simply by agreeing to work together in a profit-seeking activity. Many people formally set up partnerships, too. Either way, if you’ve started a business with someone else, you may have a partnership and need to complete a separate tax filing.
Some common types of partnerships you can form include:
- General Partnership: If you never registered the business, and there are multiple owners, this is the default.
- Limited Liability Company (LLC): A multi-member LLC is a partnership by default.
- Limited Partnership
- Limited Liability Partnership (LLP)
How Are Partnerships Taxed?
Partnerships are pass-through entities, meaning there is no entity-level tax. Instead, the income from the business flows from the entity to the individual partners, and each partner reports their share of the income on their individual tax return. So how does that work?
You use the partnership tax form, Form 1065, to calculate the partnership’s net income or loss, capital gains, and any business credits and deductions. However, no tax gets calculated on this form.
Instead, the partnership splits this income up based on each partner’s share of the business, reporting this information to each partner on Schedule K-1. Then, you take this information and report it on your individual tax return, where your income tax is calculated.
There are different types of income that you can receive from a partnership, including self-employment income, capital gain income or loss, and passive income. The type of income you receive, as well as any other income sources, will determine how much tax you owe.
What Partnership Tax Forms Do You Need to Complete?
You’re probably familiar with the individual tax form (Form 1040). Well, the partnership tax form is Form 1065, U.S. Return of Partnership Income. All U.S. partnerships must file this form unless they meet the exception for not filing. However, this form is essentially for informational purposes since there is no partnership entity-level tax.
Some information reported on the partnership tax form includes:
- Name of partnership, EIN, principal business activity, etc.
- Income and expenses
- Assets, liabilities, and stockholder’s equity
What Partnership Tax Form is Used to Report Your Portion of the Partnership Income?
Once your partnership completes Form 1065, each partner will receive a Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc.
This is the form each partner uses to report their share of the partnership activity on their individual tax return, typically on Schedule E.
When is the Partnership Tax Deadline?
This is where things can get even more confusing because Form 1065 is not due at the same time as Form 1040.
The partnership tax deadline (Form 1065) is the 15th day of the 3rd month following the close of the partnership tax year. For most partnerships, this ends up being March 15th each year.
If you can’t file by March 15th, make sure you file for an extension using Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, beforehand to give yourself an additional 6 months to file. This will make the extended Form 1065 due date September 15th.
Meanwhile, your personal tax return is typically due April 15th.
Pro Tip: Don’t worry too much if you need to file for an extension. It is common for partnerships to do this. You should, however, make sure you have at least an estimate of your partnership’s net income so you can make any individual tax payments by the April 15th deadline to avoid late payment penalties.
What Other Partnership Tax Forms Do You Need to Complete?
Along with Form 1065, you may need to file a few other forms depending on your partnership’s situation.
- State Partnership Tax Filings: Whether your partnership needs to file a state partnership tax return can depend on factors like where partners live, if the partnership does business in the state, or if it owns property in the state. Be sure to review your partnership activity (or consult a professional) to ensure you don’t miss any required partnership tax filings.
- Informational Tax Forms: Your partnership may need to file Forms W-2 or Forms 1099 if you have employees or contractors performing services for your business.
- Pass-Through Entity Tax: This is an option for your partnership to pay state tax at the entity level, which may require additional filings.
Still Confused? Gordon Law Can Help!
If you think partnership tax is a little too complicated for you to handle on your own, we can help. Gordon Law has helped hundreds of business owners stay compliant and maximize their tax returns. With comprehensive accounting, tax planning, and tax preparation services, you can count on our team to make your tax filing a breeze!
