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The Complete Guide on Form 1065

The Complete Guide on Form 1065

Do you run a business that is a partnership or LLC?

If yes, you will need to submit form 1065 to the IRS every tax season to report your business income. In this post, we will tell you exactly how to fill in the form.

A Step by Step Guide on Form 1065

Form 1065 U.S. Return of Partnership Income is a tax return form to report the profits and losses of your business to the federal government. You will need to file form 1065 if you have a “pass-through” entity where profits and losses pass through directly to owners. This includes all types of partnerships and LLCs. Form 1065 is the official proof that you filed your taxes accurately.

What form 1065 looks like

Step by step guide on form 1065

Form 1065 contains 5 pages.

Important Documents Needed for Form 1065

Collect all the information and documents needed before you start, the nature of your business will dictate the documents you need. This is a crucial step that will make the rest of the task A LOT easier.

How to Fill in Form 1065 – Page 1

Fields A – K

Provide your-

  • Primary business activity
  • Business code number (use page 56 of the IRS instructions or google- ex. Uber driver business code number)
  • Product or services offered
  • EIN or federal ID number
  • Date of commencement of business
  • All assets as per your financial information
  • The nature of tax return you are filing
  • Method of bookkeeping
  • Mention the number of Schedule K-1s sent (you will get to know in details a bit later)
  • Now, move forward to fill out the information in the Income section below (1 – 8).
  • Then, proceed with the Deductions section (9 – 22).
  • Lastly, complete the Tax and Payment section (23 – 30).

Page 2

Fill in Schedule B

From page 2 to 3, you will have to describe your procedures. Just tick the correct answer (Yes/No) for each question and provide additional details if asked for, like-

  • Ownership percentage
  • Business debts
  • Investments
  • International partners

Page 4

Fill in Schedule K

This section is dedicated to reporting each individual partner’s financials. Fill in the required fields like income and deductions.

Next, proceed to the following section.

Schedule K-1

Schedule K-1 is for each partner to report his share. You have to submit schedule K-1 along with your individual tax filings and form 1065.

You can refer to form 1065’s earnings and expenses part to fill in your Schedule K-1. Additionally, you will also need to report any extra income or expenses like-

  • Interests earned
  • Capital gains
  • Income from properties
  • Dividends received

Schedule L

Skip this section if you have answered “yes” to all questions in Schedule B part 4 of form 1065.

If you haven’t, use this section to back up your business’s balance sheet. Fields 1 to 22 are used to report your capital, along with your assets and liabilities. 

You will need to explain if any mismatch happens with your balance sheet. 

Schedule M-1

Skip this section if you have answered “yes” to all questions in Schedule B part 4 of form 1065.

Schedule M-1 is useful for explaining any discrepancies between your accounting records and tax reports. Many elements, like depreciation or tax exemptions, can create such discrepancies. 

You have to fill in this section even if everything matches perfectly. 

Schedule M-2

Skip this section if you answered “yes” on all questions in Schedule B part 4. 

Use Schedule M-2 to report any changes in equity or capital accounts of partners. However, the figure in M-2 should be equal to the numbers you cited in Item L of your Schedule K-1. This is applicable for each partner in your business.

Don’t Miss the Deadline

The due date for filing your form 1065 is March 16. But the IRS has extended the due date to September 15 for 2020. 

So, submit your form within the deadline to avoid penalties or late fees!

Key Updates:

  • Learn more about disregarded entity partner reporting
  • Know how to report income/loss effect of section 743(b) adjustments 
  • Details on reporting 704(c) on Line 20AA with examples
  • Learn how section 743(b) adjustments affect your share of net positive income at Line 11F
  • Learn how section 743(b) adjustments affect your share of negative income at Line 13V