If your business operates as a partnership, Form 1065 is one of the most important tax forms you’ll need to file. If you’re not sure how your entity should be structured or taxed, Lazo can help you incorporate correctly and stay tax compliant from day one.

Form 1065 is how partnerships report their annual financial activity to the IRS—but since partnerships are "pass-through" entities, they don’t pay taxes. Instead, the profits and losses flow through to the individual partners, who report them on their tax returns.

In this guide, we’ll walk you through each section of Form 1065, with a step-by-step breakdown to make it easier for you to complete and file the tax return for your partnership yourself.

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What is Form 1065?

IRS Form 1065, officially called the U.S. Return of Partnership Income, is used to report a partnership’s income, deductions, gains, and losses for the year.

Why does the IRS require it?

Unlike corporations, partnerships don’t pay corporate income taxes. Instead, their income "flows through" to the partners, who pay taxes individually. The IRS uses Form 1065 to track a partnership’s financial activity and ensure each partner correctly reports their share of profits or losses on their personal tax return.

This form also helps the IRS ensure that all income is properly accounted for and that partnerships comply with tax laws.

The image above shows the first page of Form 1065. The form consists of five pages, with additional schedules depending on your business structure. 

While all five pages must be filed, some schedules may not apply to your partnership. It’s okay to leave those sections blank when submitting the form.

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Filing deadlines for Form 1065

• Standard deadline: March 15, following the end of the tax year.
• Extension deadline: If you request an extension, you have until September 15 to file.
• Penalties: If you miss the deadline, the IRS imposes a penalty of $220 per partner, per month (for up to 12 months). Even if your partnership had no income, failing to file on time can still result in penalties.

Avoid costly penalties and missed deadlines with Lazo’s Tax filing support. We help founders stay compliant and on time—every time.

Who needs to file Form 1065?

If your business is structured as a partnership, you’re required to file Form 1065. This includes:

• Domestic General Partnerships
• Domestic Limited Partnerships
• Domestic Limited Liability Partnerships (LLPs)
• Some Domestic Limited Liability Companies (LLCs)
• Foreign Partnerships conducting business in the U.S.

What about LLCs?

• If you’re not sure whether your LLC should file as a partnership or corporation, Lazo can guide your entity structure and help you choose the best path for your startup.
• Single-member LLCs are considered "disregarded entities" and report income on Schedule C of Form 1040 instead.

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Filing Form 1065 isn’t rocket science, but getting it right can save you thousands in penalties. With Lazo, you get expert support for your tax filings and entity compliance—so you can focus on growing your business.

📅 Schedule your free consultation today and file with confidence

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Information you need to file Form 1065

Before filling out Form 1065, gather the following:

• Employer Identification Number (EIN)
• Business name and address
• Principal business activity code (a six-digit code that classifies your primary service or product)
• Partner details (name, address, EIN, and tax forms like W-9 or W-8BEN)
• Financial statements: Profit & Loss statement and Balance Sheet
• Prior-year Form 1065 (if applicable)
• Cash payments made to partners, including guaranteed payments
• Accounting method: Cash or Accrual
• Inventory values (beginning and ending inventory for cost of goods sold calculations)
• Partnership start date

With all this information ready, let’s move to the actual filing process.

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How to File Form 1065

1. General information

The first section of Form 1065 requires basic business details, including:

• Principal business activity and business code number
• Employer Identification Number (EIN)
• Date the partnership started
• Total assets (if your partnership’s receipts exceed $250,000 or total assets are over $1 million)

Most small businesses won’t need to fill in Line K unless they have multiple business activities across different industries.

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2. Income, deductions, and taxes & payments

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Income

• Line 1a: Enter your gross receipts or income, depending on whether you use the cash or accrual method.
• Line 1b: Record returns and allowances (products returned by customers or financial settlements for defective goods).
• Line 7: Report other income sources, such as interest or investment income.

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Deductions

Here, you’ll list business expenses that reduce taxable income. Some common deductions include:

• Salaries & wages (Line 9)
• Guaranteed payments to partners (Line 10)
• Rent (Line 13)
• Taxes & licenses (Line 14)
• Interest expenses (Line 15)
• Depreciation (Line 16)
• Retirement plans (Line 18)
• Employee benefit programs (Line 19)
• Other expenses (Line 20)—use an itemized statement if needed.

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Taxes and Payments

Most partnerships aren’t directly taxed, but partners pay income tax on their share of profits. In rare cases where a partnership owes taxes, consult a CPA for guidance.

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3. Schedule B: Additional Information

This two-page section contains 30 questions about your partnership. Most require "Yes" or "No" answers, but some may need extra details.

🚨 Important: This section designates a "partnership representative"—a person authorized to act on behalf of the partnership. They must:

• Have a U.S. street address
• Have a U.S. taxpayer ID
• Be available to meet with the IRS if needed

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4. Schedule K: Partner Distributions

This section (on page 4) summarizes each partner’s share of income, deductions, and credits.

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5. Schedule L: The Balance Sheet

Your business balance sheet goes here. If you answered “Yes” to question 4 on Schedule B, you can skip this section.

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6. Schedule M-1: Reconciling Financial Discrepancies

If your tax return shows a different net income than your financial statements, this is where you explain the difference. This section is only required if you answered "No" to question 4 on Schedule B.

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7. Schedule M-2: Partner Capital Accounts

This section tracks changes in partner capital accounts and is only required if you answered “No” to question 4 on Schedule B.

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Need help filing Form 1065?

Filing Form 1065 isn’t rocket science, but making sure everything is accurate can be overwhelming—especially when it comes to tracking income, deductions, and partner allocations.

If you want to avoid tax headaches and ensure compliance, let Lazo’s Tax team handle the hard work for you. We make tax filing seamless and cost-effective compared to traditional CPA firms.

📅 Book a free consultation today and get your partnership taxes sorted before the deadline!

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