LLC 1065: Everything You Need to Know
Form LLC 1065, or Return of U.S. Partnerships Income, is required when filing earnings for a business partnership.3 min read
Updated November 2, 2020:
What Is an LLC 1065?
Form LLC 1065, or Return of U.S. Partnerships Income, is required when filing earnings for a business partnership. A business may choose to be an LLC under their state, but the government won't let them file federal income taxes when they're an LLC. A business can file taxes as either a corporation or a partnership.
Default Form of LLC
The standard filling status for an LLC is the partnership structure. If the partnership doesn't file Form 8832 specifically, it will be taxed by the IRS as it's a partnership with multiple owners. Some states will let one person own an LLC, which means they have sole proprietorship. Form 8832 must be filed by the LLC in order to pay income taxes.
If an LLC isn't classified as a corporation automatically, they can file Form 8832 to choose the classification of their business entity. When a business has a minimum of two members, they can decide to be classified as either a partnership or a corporation. If a business entity has a sole member, it can be disregarded as an entity that's different from its owner, known as a disregarded entity. They can also choose to be an association taxable.
It's necessary to fill out Form 8832 when filing to change what the LLC's classification is. The LLC will automatically be classified under the default rules if they don't file Form 8832. It will be necessary to file Schedule SE if the business has over $400 of net income.
Partnership vs. Corporation
It's normally a better option for an LLC to be a partnership instead of a corporation for the purpose of income tax. Federal taxes must be paid by the income that corporations earn. Shareholders will need to pay taxes again when dividends are received. A benefit of how the LLC structure works is that under state law, the owner can have a limited liability of the corporate shareholder. They also have the option as a partner to file an income tax return.
The LLC should file Form 1120 if it's a corporation. This is the tax return for corporate income, and no flow-through items to Form 1040. When an LLC files as an S corporation, they will need to file Form 1120S, which is the U.S. Income Tax Return for S corporations. Every owner will report their prorate share for credits, deductions, and corporate income on this form.
Filing of Form 1065
Form 1065 can be filed online by the LLC. If there are more than 100 members, it needs to be filed online. A hardship waiver can be requested from the IRS if it will be too difficult to file Form 1065 online. For states that let businesses form LLCs online, they may also need the company to report their income by filing Form 1065. The state and federal versions of Form 1065 are similar. A Schedule K and Schedule K-1 must also be prepared when Form 1065 is filled.
On Schedule K, the partnership's income will be available to every partner. The partner's individual share of the income will be shown on Schedule K-1. A copy of Schedule K-1 must be attached by the partnership to Form 1065 on different pieces of paper for each partner. Every partner will get a copy of their K-1 and use it to figure out what their income tax liability is.
Do I Have to File Form 1065 if LLC Has No Income or Expenses?
An informational partnership tax return must be filed by the LLC unless no income occurred during the year and there were no expenses that will be claimed as credits or deductions. An LLC that doesn't have business activity and is taxed as a partnership won't need to file a partnership tax return unless the LLC wants to claim credits or expenses.
What Is Included in the Income Statement?
An income statement should include the following:
- Fees for gifts, janitorial, legal/professional, and credit cards
- Time and business name at the top
- A section of all expenses
- A section with all revenue
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