Filing Partnership Tax Returns

Filing taxes for a partnership can be a complex process that requires attention to detail and an understanding of tax regulations. We'll walk you through the steps of filing partnership taxes and provide helpful tips to make the process easier.

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Filing partnership taxes can be complicated and time-consuming, but it’s a necessary step for any business operating as a partnership. In this guide, we’ll provide a step-by-step breakdown of how to file partnership taxes, including important details about pass-through taxation, Form 1065, Schedule K-1, and state and local tax obligations.

How is a partnership taxed?

Partnerships have a way of being taxed known as “pass-through taxation.” This means that the partnership itself does not pay income taxes, but instead, the profits and losses of the partnership are passed through to the partners, who then report their share on their personal tax returns.

However, even though the partnership itself doesn’t pay federal income taxes, it must file an informational tax return (Form 1065) with the IRS.

Partnerships vs. Multi-Member LLCs

Multi-member LLCs are also taxed this way, but legally they are treated differently from partnerships. Limited liability companies (LLCs) are separate legal entities and can choose to be taxed as a partnership. The main difference is that LLCs provide their members with limited liability protection, meaning that members are typically not personally liable for the debts and obligations of the LLC. On the other hand, in a general partnership, the partners are personally liable for the partnership’s debts and obligations.

Partnerships vs. C Corporations

It’s important to note that partnerships and multi-member LLCs are not subject to double taxation like C corporations. Double taxation occurs when a corporation pays taxes on its profits, and then the shareholders pay taxes on the dividends they receive from the corporation. This is one of the reasons why pass-through taxation is a popular choice for small businesses.

How to File Partnership Taxes

Step 1: Complete Form 1065

The first step in filing partnership taxes is to complete Form 1065, also known as the U.S. Return of Partnership Income. This form is used to report the partnership’s income, deductions, and credits. It’s important to fill out this form accurately and completely to avoid errors and penalties.

Step 2: Complete Schedule K-1

After completing Form 1065, you’ll need to provide each partner with a Schedule K-1. This form reports each partner’s share of the partnership’s income, losses, deductions, and credits. Partners use this information to complete their personal tax returns.

Step 3: File tax forms

Once you’ve completed Form 1065 and Schedule K-1, you’ll need to file them with the IRS. The deadline for filing partnership tax returns is March 15th, although extensions are available. It’s important to file your tax forms on time to avoid penalties and interest.

Step 4: Meet state and local tax obligations

Meeting state and local tax obligations is another important step in filing partnership taxes. Although the federal government taxes partnerships as a pass-through entity, states and local jurisdictions may have their own tax requirements for partnerships.

State Income Tax

One common state tax that partnerships may have to pay is the state income tax. The state income tax is similar to the federal income tax in that it is a percentage of the partnership’s income. Each state sets its own income tax rate, so the amount of tax owed will vary depending on the state in which the partnership is located.

Sales Tax

Another state tax that partnerships may have to pay is the state sales tax. Partnerships that sell goods or services in certain states may be required to collect and remit sales tax to the state. The rules around sales tax can be complicated, and partnerships should consult with an accountant or tax professional to determine their specific sales tax obligations.

Local Taxes

In addition to state taxes, partnerships may also be subject to local taxes, such as property tax or local business taxes. Local tax requirements will vary depending on the jurisdiction in which the partnership is located.

It’s important for partnerships to research their state and local tax obligations and make sure they are in compliance. Failure to pay state and local taxes can result in penalties and fines. Consulting with a tax professional can help ensure that partnerships are meeting all of their tax obligations.

Step 5: Complete and file personal tax returns

Finally, each partner must report their share of the partnership’s income on their personal tax return, using the information provided on Schedule K-1. Partners may also be responsible for paying self-employment taxes on their share of the partnership’s income.

We can help!

Starting and running a company can be a daunting task, but ZenBusiness is here to help. Our platform offers support and guidance to help your business stay compliant and avoid penalties. With our affordable pricing and streamlined process, you can focus on running your business while we handle the paperwork. Get started today and see how ZenBusiness can help you achieve success.

Disclaimer: The content on this page is for informational purposes only and doesn’t constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

Partnership Taxes FAQs

  • You report partnership income on your personal tax return using Form 1040, Schedule E, Supplemental Income and Loss. The partnership will provide each partner with a Schedule K-1, which shows the partner’s share of income, deductions, and credits from the partnership.

  • Yes, a partnership is required to file a tax return using Form 1065, regardless of whether the partnership had any income or losses during the year.

  • You file Form 1065, U.S. Return of Partnership Income, to report the partnership’s income, deductions, gains, losses, and credits. The partnership must also provide each partner with a Schedule K-1, which shows the partner’s share of income, deductions, and credits from the partnership.

Tax Information and Resources