A very important part of Form 1065 is the Schedule K-1 that each partner receives. The IRS receives a copy of all Schedules K-1 for the partnership. Each partner uses his or her Schedule K-1 to report their share of the various items of income, expense, and deductions on their personal income tax return. The partnership is considered a pass-through entity, since the income or loss is passed through to the individual partners.
The partners are taxed on their share of the profit or loss of the partnership, even though the profits may not have been distributed. The partner reports his or her share of income on Schedule E, and is normally liable for self-employment tax, depending on the dollar amount of the net earnings from self-employment.
Since the Internal Revenue Service receives a copy of all Schedules K-1, they are able to match up the Schedules K-1 with the income tax returns of the partners to verify that each partner has reported their correct share of partnership income.
Another important point to remember is that the Form 1065 must be signed by a general partner. For an LLC being treated as a partnership, the Form 1065 must be signed by one of the members.
If you need help with figuring out your income taxes, including which schedules you might need to file and which expenses are allowed as deductions, you are in the right place. Try out the CPA search feature on this website to find a qualified professional in your area to assist you with all your tax and accounting needs.