How to File Partnership Taxes

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A limited partnership is a business structure that limits the legal and financial liabilities of passive investors, also called limited partners. Typically, limited partners fund the partnership’s operations or underlying investment, and a general partner is responsible for the partnership’s day-to-day management. The general partner must ensure the partnership’s tax returns are filed on time and see that limited partners get all related forms and correspondence. This means filing Form 1065, U.S. Return of Partnership Income, with the Internal Revenue Service and distributing K-1 schedules that detail individual partners’ share of the partnership’s income or loss.

Informational Return

  • Limited partnerships are “pass-through” entities that go untaxed at the corporate level. The Form 1065 is an informational return that contains a profit and loss statement, a balance sheet and an analysis of partners’ capital accounts. The partnership's accounting records are used to prepare the income statement and balance sheet for tax purposes. Partners’ capital accounts can change frequently, based on returns of capital, cash distributions and additionally required capital contributions. Form 1065 makes these changes easier to track. Once the partnership’s net income is calculated, it is allocated to each partner as ordinary income. The partnership must distribute K-1 schedules to each partner, detailing his current ownership position and allocated ordinary income. The partners then use the K-1 schedules to report his share of partnership income on his personal income tax return -- typically the Form 1040 -- at the federal and state level.

Submitting Returns

  • Obtain the actual tax forms from the IRS website by clicking on "Forms and Publications." Certain partnerships with more than 100 limited partners are required to file electronically, which can be done by visiting www.irs.gov/filing and selecting "Corporations" and then "Partnerships." If you file physical returns, they must be sent to the address listed under "Where to File" on the Form "Instructions for Form 1065." The partnership's taxes must be filed by the 15th day of the fourth month following the date its tax year ended. You can use regular mail or private delivery services such as Federal Express or UPS. Obtain proof of sending by using certified mail through the U.S. Postal Service, and keep all records and tracking information when using private delivery services.

References

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