Accounting Articles > LLCs, LLPs, and Partnerships:
Form 1065 and individual taxes
Form 1065 is the Internal Revenue Service partnership return. Regular partnerships, along with limited liability companies and limited liability partnerships are reported on this return.
What is difficult for most taxpayers to understand is the fact that from a taxation standpoint, a partnership is nothing more than two or more sole proprietorships put together.
Even if you are a corporation, under the Limited Liability Company Act, you are still, from a taxation standpoint, considered a bunch of sole proprietors. As such, the partnership return is nothing more than a conduit of taxable income or loss to your personal return. Many people call Form 1065 the Limited Liability Tax Return because it limits liability in between partners or owners, although it is simply the partnership return.
Any income or loss flows through to your 1040 via Schedule K-1.
The biggest problem generally caused by partnerships is the payroll taxes that they create. Social Security and Medicare taxes are currently 15.3% of a partner’s income. Here’s the problem: you will pay that 15.3% not only on the guaranteed payments coming out of the partnership, but also on your portion of the partnership profits, whether you have received the money, or not.
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