What are the Tax Filing Requirements of a Partnership?
Partnerships, and LLCs taxed as partnerships (MMLLCs), do not pay tax at the partnership level. Instead their income and losses are passed through to the individual partners, and reported on their individual or corporate tax return.
Despite the partnership not being taxed at the partnership level, it is still required to file its own tax return called Form 1065.
Filing Form 1065
On Form 1065, a partnership will report its income and losses for its business activities for the year. It will also report the assets and liabilities of the partnership.
To report this, you will need to provide your tax preparer a profit and loss statement, balance sheet, and potentially additional supporting documentation.
Other common information reported on Form 1065 include:
- Partnership types (general vs limited)
- Percentage of ownership
- Tax credits
Partnerships may also have state filing requirements that will vary state to state.
Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc. is completed and distributed to each partner. Each partner will then file their K-1 with their individual (Form 1040), or corporate tax return (1120 or 1120S).
Form 1065 is due March 15th, but can be extended to September 15th.
For corporate partners, Schedule K-1 must be filed on Form 1120 or 1120S, due March 15th, but can be extended until September 15th.
For individual partners, Schedule K-1 must be filed on Form 1040, due April 15th, but can be extended until October 15th.
Related Issues & Tips
If you raise capital from limited partners (i.e. a syndication or fund) it is in your best interest to keep very clean records so your tax preparer can file Form 1065 and issue K-1s to those limited partners prior to the April 15th filing deadline for individuals (Form 1040).
This is a good investor relations practice that will keep your investors from continually asking for their K-1, make your company look professional, and increase the likelihood of receiving repeat investments and referrals from your current investors.
Since the partnership pays no tax, individuals will pay the 15.3% self-employment tax if applicable.
The Bottom Line
Even though partnerships do not pay income tax at the partnership level, they are still required to file Form 1065 due on March 15th of each year.
Schedule K-1 reports each partner’s share of income, deductions, and other important information. If you raise capital from limited partners to fund your business or investment, it is a good investor relations practice to have your tax preparer file Form 1065 and distribute K-1s prior to April 15th.
Author: Thomas Castelli, CPA is a Tax Strategist and member of The Real Estate CPA, an accounting firm that helps real estate investors keep more of their hard earned dollars in their pockets, and out of the government’s, by using creative tax strategies and planning.