The IRS and government sure do ask quite a bit of us, don’t they? Sometimes, we get so caught up in the paperwork, the questions, and all the blank spaces on tax forms, we’re not even sure which way is up. With so many questions, there has to be answers right? Well, that’s exactly what we’re here for. One government form we’re sure business owners have become familiar with is Form 1065, but they likely find themselves wishing they knew just a little bit more about it. Let’s look at some questions you may have about Form 1065. There are no stupid questions when it comes to tax time, so let’s answer them:
What is Form 1065?
Form 1065, US Return of Partnership Income, is used to report a business’ income, profits, losses, income deductions, and any credits from your operations. It is an informational form, not a tax form. Why? A partnership is what is known as a pass-through entity which reports its financial information so partners can enter their share of it in their personal tax returns. As a note, each partner will get a K-1 Form from Form 1065 to complete their personal tax returns.
Who/What Should Fill Out Form 1065?
Form 1065 is a business entity form, this means that if your business is a domestic partnership (in which two or more people create a business and each person contributes money, property, money, or skill); an LLC that has not filled out Form 2553; a 501(d) non-profit religious or apostolic organization; or a foreign partnership which has earned more than $20,000 in annual gross income from US sources, then your business should complete Form 1065. Oftentimes, the responsibility of filling out Form 1065 falls to the business owner.
When Should Form 1065 be Completed?
In an ordinary tax year, Form 1065 is due on March 15th for the previous tax year. But, as we know, 2020 has been anything but an ordinary year. Partnerships have been allowed a six-month extension, pushing the due date for the 2019 Tax Year to September 15, 2020. The fee for a late form is $210 for every month the Form is late. This penalty is administered to every partner who owns the business. So, if you and two other people co-own the business (3 partners), then the fee is $630 per month.
Why Should Form 1065 be Filled Out?
So, Form 1065 is not used to show you owe any taxes, so why is it important? Why does the government penalize $210/partner/month for late Forms? Form 1065 allows the IRS to verify that business owners have paid their taxes properly. This makes Form 1065 an essential part of owning a business and helping you to avoid tax issues in the future.
How Do I Complete Form 1065?
Form 1065 is a 5-page form which requires you to fill out all blanks, sections, and Schedules revealing how the business operates. It would be advisable to collect all relevant documents like your W2s, W3s, Form 114, Form 720, Form 941, and FUTA tax returns. It can be a time-consuming, exacting process, especially if you’re filing by hand. This is why investing in a payroll and CPA service may just be the right solution for you. As a business owner, you know that accurately filling out each and every tax form every single year is crucial to the sustained well-being of your business.