What IRS Form 1065 (2018) Is For
IRS Form 1065 (2018) is the U.S. Return of Partnership Income that partnerships must file to report annual partnership income, deductions, credits, and other financial details to the Internal Revenue Service. Partnerships do not pay federal income tax directly. Instead, profits and losses are passed through to individual partners, who report their share of net income or loss on their personal tax returns for the same tax year that ended.
All domestic partnerships, including multi-member LLCs treated as partnerships, must file this partnership tax return unless they neither earn income nor incur deductible expenditures. The form is also used to report qualified business income and provide the necessary information for claiming the Qualified Business Income Deduction (QBI deduction).
When to File Form 1065 for 2018 (Late or Amended Filing)
You must file a late 2018 Form 1065 if your partnership missed the original due date of March 15, 2019, or the extended due date of September 15, 2019. If either date fell on a Saturday, Sunday, or legal holiday, the deadline moved to the next business day. The late filing penalty was $210 per partner, per month, up to 12 months.
Under the Bipartisan Budget Act (BBA) audit rules, many partnerships had to use Form 1065-X instead of the older amended Form 1065. Partnerships with 100 or fewer eligible partners that opted out of BBA could still amend using Form 1065.
For complete details on wage reporting, withholdings, and unemployment tax filings, see our guide to Business Income Tax Forms.
Key Rules for the 2018 Tax Year
The 2018 tax year introduced several new compliance rules for partnerships and related entities:
- BBA audit rules: Each partnership had to designate a partnership representative with a substantial U.S. presence to correspond with the Internal Revenue Service.
- Qualified Business Income Reporting: Schedule K-1 is required for new reporting of the Section 199A deduction, which applies to skilled trades or businesses.
- Business interest limitation: Section 163(j) required partnerships to calculate limits using Form 8990.
- Carried interest rules: Section 1061 introduced a three-year holding period for specific partnership interests.
- Repeal of Section 199: The domestic production activities deduction was eliminated effective January 1, 2018.
- Hybrid transactions: Section 267A introduced anti-hybrid rules to prevent double deductions.
These rules affected partnerships, S corporations, and some sole proprietorships that qualified for the QBI deduction.
Step-by-Step: How to File IRS Form 1065 (2018)
1. Gather Records
Collect all partnership books, prior filings, and IRS transcripts. Ensure you have the correct Employer Identification Number (EIN) and up-to-date partner information. Include all property transactions, gains, and losses related to the partnership’s operations.
2. Prepare the Form
Use the official 2018 version and designate the partnership representative. Enter business income, deductions, credits, and the net amount for each category. Confirm that the calendar year or fiscal year information matches the partnership’s accounting period.
3. Reconcile to Books
Complete Schedule M-1 to reconcile book-to-tax differences such as depreciation, guaranteed payments, and nondeductible expenses. Adjust all figures carefully to ensure that total income and deductions match the accounting records.
4. Prepare Partner Schedules (K-1s)
Issue Schedule K-1s to all partners. Each K-1 must include the partner’s share of income, deductions, and qualified items needed to claim the qualified business income deduction.
5. File and Submit
File electronically if required for partnerships with 100 or more partners. Others may mail returns to the correct IRS service center. If you use the mail option, always sign and date the form before submission. Filers who need more time may request an extension before the third month following the close of the tax year.
6. Retain Documentation
Keep all returns, K-1s, correspondence, and proof of submission for at least three years. This documentation safeguards the partnership in the event of an IRS review.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Incomplete Schedule K-1 reporting: Missing Section 199A details or misclassifying business income can delay processing. Partnerships should always verify entries with the IRS instructions.
- Reconciliation errors: Partnerships frequently misreport depreciation or guaranteed payments on Schedule M-1. Each entry must reconcile with the books.
- Omitting the partnership representative: Partnerships must appoint a representative, not a “tax matters partner,” to comply with BBA rules.
- Incorrect classification of activities: Passive versus active income must be identified correctly in Section 469 to determine the correct deductions.
- Missing elections: File all required elections under the BBA centralized audit rules and include Schedule B-2 when applicable to avoid unexpected IRS adjustments.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
The Internal Revenue Service generally processes partnership tax returns within eight to twelve weeks, though late or amended filings may take longer. Partnerships should note that penalties, appeal rights, installment agreements, and partner-level adjustments may apply if corrections or payments are required.
FAQs
What is IRS Form 1065 (2018), and who must file it?
IRS Form 1065 (2018) is used by partnerships, domestic partnerships, and multi-member LLCs to report partnership income, deductions, and credits to the Internal Revenue Service. All partnerships with income earned during the 2018 tax year must file. The due date was March 15, 2019, unless an extension was granted.
How does the qualified business income deduction work for partnerships?
The qualified business income deduction allows eligible partners engaged in a skilled trade or business to deduct up to 20 percent of their qualified business income. Partnerships must report qualified items on Schedule K-1 so each partner can claim the deduction on their personal income tax return.
What is qualified business income, and how is it calculated?
Qualified business income is the net income, gain, deduction, and loss from a qualified trade or business. It does not include dividends, wages, or investment income. The deduction is limited by factors such as the type of business, employee wages, and property used in the trade.
How should partnerships report partnership income and business income on the return?
Partnerships must report total business income, deductions, and credits on Form 1065. The form calculates net income after subtracting allowable deductions such as rent, guaranteed payments, and depreciation. Each partner’s share of profit or loss is reported on Schedule K-1.
What was the due date for IRS Form 1065 (2018)?
For partnerships using a calendar year, the due date was March 15, 2019. If the due date fell on a Saturday, Sunday, or a legal holiday, the filing deadline was extended to the next business day. Partnerships could request an automatic six-month extension by filing Form 7004 before the original deadline.
How is net income determined on a partnership return?
Net income is the result of total partnership income minus deductions and adjustments. Partnerships must consider guaranteed payments, depreciation, and Section 179 deductions. The resulting net amount is divided among partners in proportion to their ownership percentages.
Can partners claim the QBI deduction on a late 2018 return?
Yes, partners can still claim the QBI deduction when filing a late IRS Form 1065 (2018) as long as all qualified business income items are correctly reported. Partners should confirm that each Schedule K-1 includes accurate information for the qualified trade or business.
