The Complexities of Partnerships

Author: Keith Huggett

Tax preparation for partnerships is more complicated than preparing taxes for sole proprietorships or single-member entities. If you are in a partnership, you have to file extra tax paperwork for your entity. You also will need to provide additional returns to your partners as well as employment returns for any income that you pay them as employees.

You have to file a Form 1065 partnership return every year by April 15. The 1065 contains information on your partnership's income, expenses and, hopefully, profits. Since partnerships are pass-through entities, you also need to file K-1 forms. The K-1 is an information return that you provide to your partners that shows them what proportional share of the partnership's income, loss and write-offs they are able to claim. You and your partners then use that information to complete your tax returns.

To file the 1065, you need to have your partnership's books in order. To file your personal tax return, though, you need your K-1 from the partnership. This can cause a timing issue. If you are used to filing extensions for your personal tax return to get more time to file, you still can. You cannot, however, file an extension for your partnership since it needs to get its K-1 returns out to the partners. You can end up under even more tax preparation time pressure if you or your partners do not want to file extensions for your personal taxes since the partnership will then need to get its K-1s out well in advance of April 15.

Given the timing issues, filing all of the necessary returns for a partnership can be a daunting task. The Tax Office, Inc. can help. Please contact us so that we can get started on the tax preparation of your returns.