Form 1065 and Schedule K-1 for US partnerships

A partnership does not pay income tax itself. It files Form 1065 to report what it earned and then hands each partner a Schedule K-1 setting out that partner's share, which the partner reports on their own return. This pass-through structure is also the default for a multi-member LLC, which makes Form 1065 one of the most commonly filed business returns. This guide explains the return, the K-1, and how the tax actually lands on the partners.

What Form 1065 does

Form 1065, the U.S. Return of Partnership Income, is an information return. The partnership uses it to report its total income, deductions, gains, and losses for the year, but it does not compute a tax the partnership pays — because a partnership is not a separate taxpayer for income tax. The purpose of the return is to determine each item of partnership income and deduction and then allocate those items among the partners according to the partnership agreement. A multi-member LLC files Form 1065 by default, because absent an election it is taxed as a partnership.

Schedule K-1: the partner's share

The mechanism that carries the income out to the partners is Schedule K-1. The partnership prepares one K-1 for each partner, showing that partner's distributive share of ordinary business income, separately stated items such as interest, dividends, and capital gains, deductions, credits, and guaranteed payments. Each partner takes the figures from their K-1 onto their own return and pays tax there. A point that surprises many new partners: the share on the K-1 is taxed to the partner whether or not the cash was distributed. A partnership that retains its profit to reinvest still passes the income out on K-1s, and the partners owe tax on it even though they did not receive it.

Self-employment tax and guaranteed payments

A general partner active in the business is treated as self-employed on their share of the partnership's ordinary business income, so that share is generally subject to self-employment tax as well as income tax. Payments to a partner for services or capital that are fixed without regard to profit — guaranteed payments — are treated separately: they are deductible by the partnership and ordinary income to the partner, and are also subject to self-employment tax. These are not wages and are not reported on a W-2; a partner is not an employee of their own partnership.

Deadline and penalty

For a calendar-year partnership, Form 1065 is due by March 15, the 15th day of the third month after year-end. The date is deliberately a month ahead of the individual deadline so partners have their K-1s before their own returns are due. A six-month extension to September 15 is available on Form 7004. Filing late is costly in a way that catches people out: the late-filing penalty is charged per partner, for each month or part-month the return is late, so even a small partnership that files a few months late can face a substantial penalty. Furnishing the K-1s late has its own consequences, because it holds up every partner's return.

Basis and capital accounts

Behind the K-1 sits each partner's basis in their partnership interest, which broadly tracks what they contributed plus their share of income, less their share of losses and distributions. Basis matters because a partner can generally only deduct partnership losses to the extent of basis, and because distributions in excess of basis can be taxable. The partnership also maintains capital accounts for the partners. These figures are not merely bookkeeping detail — they determine the tax outcome when a partner is allocated a loss or takes a large distribution, so keeping them current through the year is part of running the partnership properly rather than a filing-season afterthought.

Sources

This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.

• About Form 1065, U.S. Return of Partnership Income (IRS)
• Partnerships (IRS)
• Businesses (Internal Revenue Service)

Questions people also ask