What are the importance of partnership tax?
In this paragraph, we are going to talk about partnership tax preparation. IRS does not require partnerships to pay federal taxes. Federal income tax is not applied to partnerships. The partnership’s income, deductions, credits, and losses pass through partners themselves. They pay taxes like an individual.
Since partnerships don’t pay taxes, the partners must file a tax return each year. Tax return shows the partnership’s total revenue. It also shws credits, and deductions. Partnerships should also prepare a complete list showing each partner’s share of income or loss. There is also matter of state taxes.
As, general partnership, you’ll need to follow the same procedure to file business taxes. but, limited partners face a slightly different tax treatment compared to general partners.
Below are some important steps you will need to keep in mind while filing taxes for partnership.
Who should report a partnership return?
Notably, every firm with multiple partners must prepare a federal partnership tax return. For one thing, they should report on Form 1065. This form talks about the partnership’s total revenue and loss. You’ll need to list deductions including rent, salaries, payments to partners. Some other information can be added are taxes, employee benefit programs, depreciation, and taxes. Apart from deductions, your partnership’s total revenue is its business revenue or income.
What is Schedule K-1?
The IRS requires partnerships to prepare a Schedule K-1. This is to show that, partner’s deductions, shares of income and credits. It applies to each person who is involved in the business as a partner during the tax year.
Significantly this form consists of a partner’s address, shares of profits, liabilities, capital, and losses. It also lists the share of business loss of income. Then, it may include interest income, rental income, credits, self-employment, and distributions. After completing Schedule K-1, send a copy to each of the partners that they can use to prepare their tax returns.
File Form 1065 & Copies of K-1 Forms
Every partnership operating in the U.S. must file form 1065 with the copies of K-1 forms. As it happens the last date for filling the form 1065 is April 15. The same goes for individual tax returns. You can file these forms either by mail or electronically.
File Your State tax
Since every state has its own rules, you should search your state’s requirements before filing any tax return. Many states could require partnerships to file a state tax return.
Finally, file your individual income tax returns
Whether you’re a general or limited partner, you need to report your partnership income on the tax return. The K-1 form you receive contains all the information necessary to do this.
Furthermore, if you’re a general partner, your partnership revenue is part of self-employment income. So, you’ll need to report this on your individual tax returns and estimate your self-employment taxes.
Why Contact Green Tree in Houston?
Finally, Green Tree Tax offers all-inclusive partnership tax preparation. In fact, our experience and price is unbeatable. So, contact us and we help you start the process.