Annual Federal Tax Return for Partnerships 1065

Each partnership must file a federal form 1065. Each partner's share of net income is reported to the IRS and to the partners using Schedule K-1. Partners pay income tax on their portion of net income by attaching Schedule K-1 and IRS 1040 Schedule E to their federal 1040 tax return.

Forms to use

IRS 1065 Annual Tax Return for Partnerships

Schedule K-1 forms for partners

How often?

Annual reporting requirement

Good news for small businesses!

If your partnership:

  • Had less than $250,000 total receipts
  • Had less than $600,000 in assets AND
  • Filed Schedules K-1 with the IRS and all partners on time

Then you can check "Yes" for question 5 on page 2 and ignore one third of the 1065 form. You won't have to complete:

  • The balance sheet information (Schedule L on page 4)
  • Reconciliation of book income versus tax income (Sch. M-1)
  • Analysis of partners' capital (Schedule M-2)
  • Section J of Schedule K-1.

How to complete IRS 1065

Page 1

  • Calculating net income. Your tax preparer will need:
  • Income and expense statement
  • List of any equipment you bought or used, the purchase price and date and the percentage use for business purposes;
  • List of start-up expenses (do not include items in your income and expense statement above)
  • Whether any guaranteed payments were made to partners (payments for services or investment return made regardless of the business' profits). These payments cannot be interest or repayment of start-up costs that you are amortizing. Guaranteed payments should also be reported on line 4 of both Schedule K and K-1.
  • Do not include: charitable deductions, section 179 expenses, depreciation, or investment income such as interest or dividends.

Page 2

  • Sch. A: backup for cost of goods sold. You will need to provide:
  • Beginning and end of year inventory
  • Selection of inventory methods (cost, LIFO, etc.)

Page 3

  • Sch. K: the partnerships' taxable bottom line. This page starts with the net income from page 1 and
  • Adds investment income (interest, etc.)
  • Deducts special tax credits.
  • Line 4 should include all payments guaranteed to partners, even the ones you included on page 1. That is because these payments are only deductible as expenses for certain purposes and thus the payments must be added back in this section of the form.
  • Line 14 self-employment tax. Report the same net income as on line 1 of this page plus any guaranteed payments to partners. Divide this amount between partners to use on line 1 of their Schedule SE. Put your total income before expenses on line 14b.Schedule SE to calculate social security self-employment tax.
  • Report how much of your net income was distributed to your members (see lines 19a and b).


  • Each partner's share of IRS 1065 Schedule K. Results from lines 1-20 of Schedule K (page 3 of form 1065) are allocated to each partner on the K-1 forms. Your tax preparer needs the percentage ownership of each partner.

Partners...what to do with your K-1

1065 Schedule K-1 information should be entered on IRS 1040, Schedule E, Part II. The information from Schedule E is entered on line 17 of form 1040.

Due date

Forms 1065 and the partners' Schedule K-1s are due April 15. To help your partners meet their tax deadline, complete the forms as soon as possible.

How to submit

Mail 1065 with copies of your partners' Schedule K-1s to the IRS. Do not pay any tax.

Click here for the mailing address for IRS 1065.

Give your members their Schedule K-1s. They should pay any tax due with their IRS 1040.

Partners should attach Schedule SE, and Schedule E with their 1040 return.

Questions? Call the IRS information hotline (800) 829-4933. For forms, call (800) 829-3676 or obtain them online at

Business Property Tax

Business Property Tax

Business real property (land, buildings, etc.) and business equipment are subject to an ad-valorem tax in the State of Montana. All non-exempt property is taxed based on its full market value. Different classes of property are subject to different assessment rates. As an example, real property (land and buildings) in the City and County of Butte-Silver Bow is currently taxed at 1.54% of its market value annually (prior to any incentives).

Equipment taxes

Business equipment taxes have been declining in recent years because of actions of the Legislature. In 1995, the Legislature enacted a law which results in a continued decline in business equipment property taxes. In 1999, this legislative action has resulted in a decrease in business equipment taxes to 2.39% of the market value annually, prior to the application of any tax incentives.

Tax on inventory

Business inventories, goods-in-transit, intangible assets and freeport merchandise are statutorily exempt from property taxation. In addition, business equipment belonging to qualified research and development companies may be taxed at approximately 1% of market value in perpetuity.

1099M Statement for Independent Contractors

This form is used to report business you have done with independent contractors (who are not corporations) and medical corporations. Complete Form 1099-Misc:

  • For every individual, sole proprietorship, partnership or medical corporation which you purchased $600 or more for services (not products);
  • If you purchased $5,000 or more of consumer products from a non-corporation that you intend to resell outside a permanent retail establishment;
  • If you paid a non-corporation $10 or more in royalties; or
  • If you paid a landlord $600 or more (and your landlord is not a corporation).

If you paid over $600 in interest (to a non-corporation), you must file IRS form 1099-I. To request this form, call the IRS at (800) 829-3676 or go to

Forms to use

1099-M Annual Information Form for Independent Contractors

1096 Transmittal Form

Preparing 1099s is not user-friendly. The IRS does not have a direct way to input the information online. Instead, it has authorized companies to be 1099 providers. Do a search on the Internet for current providers and prices.

How often?

Annual reporting requirement

Due date

January 31 to the recipient

February 28 to the IRS

To do it yourself

Doing it yourself is possible, but not user-friendly. You have to use official IRS forms and must prepare them using a computer or typewriter (remember those?). Here is how to do it:

Prepare 1 form for each payee.

Lines and what to do

Left side

  • Payer is your company
  • Recipient is the person you paid.
  • Payer's federal identification number is your social security number.
  • Recipients' identification number is their social security (if you paid an individual or sole proprietorship), or their SS-4 number if you paid a partnership.
  • Remember, if you paid a corporation, you do not have complete a 1099-Misc.
  • Leave "Account Number" blank unless you use vendor account numbers.

Right side

  • Fill in the relevant boxes. Here are the most commonly used.
  • 1. Rent to landlords (if you paid more than $600).
  • 7. Compensation to independent contractors for services (if you paid them more than $600).
  • 9. Check the box if you purchased over $5,000 of products for resale from this (non-corporate) vendor.

How to complete form 1096

1096 is the transmittal form. It must also be prepared on a computer or typewriter. Prepare one form to transmit all the 1099-Misc.

Lines and what to do


  1. Leave blank
  2. Your social security number
  3. Enter the number of 1099s you are enclosing
  4. 0, unless you withheld income tax (line 4 on each 1099-Misc)
  5. Add up boxes, 1,2,3,5,6,7,8, and 10 for all the 1099-Misc's Usually all but 1 and 7 are 0.

Bottom Check box 1099-MISC - 95

How to submit

  1. Mail Copy A of 1099-M (the red page) to the IRS with transmittal Form 1096
  2. Mail or deliver Copy B and Copy 2 to the receipient (the person or company you paid)
  3. Keep copy C for your records
  4. The IRS will automatically send your 1099-M information to the state tax authority.

A few more rules $50 fine for ignoring these rules:

  • Type forms - regular type style
  • Use original forms - no copies
  • Submit entire 8 x 11 page - don't cut it up
  • Don't staple
  • Don't use dollar signs, commas or other symbols, except you should use decimal points to show dollars and cents.

Questions? For forms call (800) 829-3676. You cannot obtain original forms from the Internet. For information, call (800) 829-4933 or read Publication 937 Business Reporting.