What tax forms do I need for my Partnership?

Partnership Tax Forms

1040 U.S. Individual Income Tax Return

You are still required to file a 1040 individual tax return even though the partnership files it’s own return. A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it “passes through” any profits or losses to the individual partners. Each partner includes their share of the partnership’s income or loss on his or her individual income tax return.

1065 U.S. Return of Partnership Income

A Partnership files Form 1065 to report it’s income or losses from the business to the IRS. There is no payment made with the 1065 form. The partners then report the income or loss from the 1065 on their 1040 Individual tax return. The income or loss from the partnership is split between the partners. How the income or loss is divided is controlled by the partners in an agreement.  If there is no formal agreement then the income or loss is usually divided equally between the partners and reported to them on a K-1.

Schedule K-1 Form 1065 for Small Business Partnerships
Schedule K-1

Each Partner gets a K-1 and uses it to complete their 1040 Individual Tax Return. A partnership can have different types of income and each type of income has a separate line on the K-1. The reason for this is the IRS treats different types of income differently and has different tax rates for them. The IRS also treats some deductions differently and these deductions also have separate lines on the K-1. There are 20 lines on the K-1 form for income and deductions. Your K-1 may not have a number on every line, but it is important the numbers are entered in your individual return correctly. The IRS gets a copy of the K-1 and will match the numbers up to your tax return

Schedule SE (Form 1040), Self Employment Tax

Depending on what kind of business your partnership is in and they type of income it has, you may be required to file Schedule SE. The Social Security Administration uses the Schedule SE to figure your Social Security Benefits. You pay this tax no matter how old you are and even if you are already getting social security or Medicare benefits. File Schedule SE with your 1040.

1040-ES, Estimated Tax for Individuals

The 1040-ES is the form you use to make your estimated tax payments. Estimated taxes are due Quarterly in April, June, September and January.  You should check your partnerships income and losses each quarter. If you are going to have a profit, you should pay quarterly tax payments. Paying your estimated taxes quarterly can help you avoid penalties and interest.

941, Employer’s Quarterly Federal Tax Return & 944, Employer’s Annual Federal Tax Return

These forms are only necessary if your partnership has employees. Form 941 is due quarterly in April, July, October, and January. Use Form 941 to report and pay the taxes you withheld from your employee’s paychecks (income taxes, social security taxes and Medicare tax). If your annual withholding taxes are less than $1,000 you can use Form 944. Form 944 is due annually by January 31st. As an Employer you must also pay Social Security tax and Medicare tax on the wages you pay employees. Use these forms to pay those taxes as well.

There is also a form 943, Employer’s Annual Federal Tax Return for Agricultural Employees that farmers use.

940, Employer’s Annual Federal Unemployment (FUTA) Tax Return

If your partnership has employees, use form 940 to report and pay your Federal Unemployment Tax. Unemployment tax is paid by employers, your employees do not pay unemployment taxes.

W-2, Wage and Tax Statement and W-3, Transmittal of Wage and Tax Statements

If your partnership has employees, you will need to file W-2’s and a W-3. Any one who has had a job and didn’t get paid “under the table” or on a 1099, has received a W-2. The W-2 form is a record of an employees wages and taxes that were withheld for the year and the forms are due to the employees by January 31st. A W-3 form with copies of all your W-2’s must be filed with the Social Security Administration by January 31st. 

1099-MISC and 1096 Transmittal

When you pay an individual contractor or unincorporated business, more than $600, you are required to file form 1099-MISC and form 1096 Transmittal. The 1099-MISC gets sent to the person you paid and the 1096 gets gets filed with the IRS. If you decide to file the 1099-MISC’s by yourself, do not forget to file the 1096. A lot of people do not know about the 1096 and get in trouble when they don’t file it. I had a client that got audited and because they did not file a 1096 and the IRS took away all their deductions for contracted labor. You are required to give your contractors a copy of the 1099 by January 31st. Form 1096 is due February 28th.

Other 1099 Forms

There are other 1099 forms that your partnership may need to file, depending on your business. 1099-INT is required if you pay interest. 1099-S may be required if you sell or buy Real Estate. 1099-C is required if you cancel a debt that you are owed.

Additional Tax Forms

Depending on your personal situation you may need some additional forms. If you have depreciation expenses you will need form 4562. Depreciation can be complicated. Excessive depreciation is also a flag for an audit. If you sell property that you use in your business you will need form 4797. If you have a home office, use form 8828 to deduct expenses for the use of your home in your business.

This is not a complete list of all the forms you may need for every situation. I always recommend that you talk with a CPA if you are unsure about what to file and where. But you should also be as informed as possible before you talk to a tax professional. When you have a good idea of what you need, you can explain the issue better and have a better understanding of what your CPA says.



Nathan

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