Brief Guide to Form 1065

What is Form 1065?

When individuals come together to transact business or share profits in any fashion, a legal partnership is formed. Although the Internal Revenue Service does not regard nor treat partnerships as separate taxable entities, it will require those involved in a partnership to submit and supply the taxation service with information concerning the formation’s finances. Following the submission of this information the partners, on an individual level, will be taxed according to their specific profits or losses generated from the business formation.

The Form 1065 is the official IRS document needed to report financial information--for tax purposes--regarding a partnership. When a partnership earns income, the Internal Revenue Service will treat the profits as income shared by the individual partners. Each partner’s share is directly proportional to his or right to receive profits from the partnership. For instance, a partner with the right to receive 20 percent of the formation’s profits will be treated as if he or she earned $20,000 if the partnership generated $100,000 in the taxable year. The tax is applied regardless of whether the partnership distributes profits to the business itself or among its shareholders.

Form 1065 is the fundamental tax document needed for individuals in a partnership business. Form 1065 is used to provide the Internal Revenue Service with the vital information necessary to determine total partnership profits and losses for tax purposes.

What is on Form 1065?

Form 1065 requires the individual of the partnership to file detailed financial information concerning the business, including all income, profits and losses generated by the formation. As a result of these mandates, the partnership’s financial statement is required to complete Form 1065. The Internal Revenue Service will likely scrutinize a partnership’s finances in stringent detail; the review process is required to resolve any potential discrepancies regarding the partnership’s profits.

A primary compliment to the Form 1065 is the Schedule K-1. This schedule will allocate the partnership’s profits and losses, as stated on Form 1065, between the partners for individual income tax purposes. Schedule K-1 must be submitted along with the Form 1065--a copy must be supplied to the partners to calculate their respective income tax. Although several versions of Schedule K-1 exist, only one is specifically designed to be used in conjunction with Form 1065.

The Internal Revenue Service does not recognize--in regards to tax purposes--the LLC as a business organization. Instead, the LLC is regarded as a partnership for tax purposes; an LLC, similar to a partnership, will file Form 1065 and Schedule K-1.That being said, one-member LLCs, which are excluded from IRS taxation and LLCs that have elected to be taxed as corporations, will not be taxed as a partnership would.