IRS Form 1065 is the return for partnership income. Partnerships don't pay taxes; instead, individual partners pay tax on their share of the firm's income. The partnership does file a return though. The Internal Revenue Service compares the 1065 to the partner returns to see if everything matches up.
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What It Says
The first section of the 1065 reports total partnership income, including sales, gross receipts and ordinary income. From this, the partnership subtracts deductions, such as the cost of goods sold. The second section reports partnership expenses, including salaries, payments to partners, bad debts, rent, taxes and repairs to company property. The second section is subtracted from the first to get the partnership's net income or net loss.
Back of the Form
The back of the 1065, Section B, is where the partnership reports various other details. This is where it identifies whether it's a domestic partnership, foreign partnership or limited partnership. If any of the partners is a foreign individual, foreign government or S corporation, this is also reported on the back. Section B includes many more questions that can affect how the IRS determines the partnership's tax treatment.