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General information about Form 1065 in ProSeries Professional

by Intuit Updated 5 months ago

This article will assist you with understanding general information about Form 1065 in ProSeries Professional.

Use Form 1065 to report income, deductions, gains, losses, etc. from the operation of a partnership. A partnership doesn't pay tax on its income. Instead, it "passes through" any profits or losses to its partners. Partners must include partnership items on their individual income tax returns.

If you receive a Schedule K-1 from another partnership, you can enter its contents on a K-1 Partner worksheet. Except in rare cases, information entered on this worksheet will be transferred to the correct line of the return where it will be combined with other amounts entered in the return.

Partners' liabilities

The program allocates liabilities to all partners based on their year-end profit ratio. The program allocates all other liabilities only to the general partners based on their year-end loss ratio. If you want to allocate the liabilities in a different manner, use the special allocation boxes.

  • Loans from partners on line 19a, column d are treated as recourse debt on line D of the Partner's Liabilities Smart Worksheet.
  • Schedule K is a summary schedule of all the partners' distributive shares of the partnership's income, deductions, gains, losses, etc. Amounts from Schedule K are allocated to a Schedule K-1 for each partner.
  • Schedule L (page 5) is a record of the partnership's balance sheets at the beginning and end of the tax year. These balance sheets should agree with the partnership's books and records. If transfer was used, the beginning of year amounts come from last year's Schedule L end of year amounts.
  • Schedule M-1 (page 5) is a reconciliation of the income (loss) recorded on the partnership's books with the income (loss) on the partnership income tax return. The taxable income (loss) on Schedule M-1, line 9, must equal the Analysis of Net Income (Loss), line 1, at the top of Form 1065, page 5.
  • Schedule M-2 (page 5) shows the changes in capital accounts from the beginning to the end of the tax year. The ending capital balance on Schedule M-2, line 9, must equal the sum of the ending capital balances on Schedules K-1, line L, row (5). This amount must also equal the end-of-year capital balance on Schedule L, line 21(d).

You don't have to complete page 5 if the partnership meets the requirements shown on Form 1065, page 2, Schedule B, question 6. These requirements are as follows:

  • Total receipts for the tax year are less than $250,000.
  • Total assets at the end of the tax year are less than $1 million.
  • All Schedules K-1 are filed with the return and furnished to the partners on or before the due date (including extensions) of the return.
  • The partnership is not filing and is not required to file Schedule M-3.

The program continues to calculate Schedules L, M-1, and M-2 unless you also check the No box on page 2, Schedule B, Completion of Schedules L, M-1, M-2, etc. Smart Worksheet.

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