Preparing a partnership return in ProSeries

If you use ProSeries Basic, you have an automatic FastPath license for ProSeries Professional. To complete business returns, install ProSeries Professional for your business return. You'll be charged pay-per-return pricing when printing or e-filing the return.

Down below we'll briefly go over the general flow of completing a partnership (Form 1065) return in ProSeries, as well as some potential next steps.

1. Create the client in ProSeries. To do so, from the HomeBase view, if not selected already, select Form 1065: Partnerships from the dropdown menu.
2. Create a new tax return for the client. To do so, go to File ⮕ New client. When prompted, select 20XX US Form 1065: Partnership Return of Income and click OK.
3. Starting on the Partnership Information Worksheet, complete Parts I-V. This will inform the main form of the 1065 return.
4. From the Forms bar on the left, under Common Forms, select Sch K-1 Wks to open the Schedule K-1 Worksheet. Complete this worksheet for each partner.
   • For more info on this, see here.
5. Now that you’ve set up their partnership return, to begin reporting for the main form, info and amounts may be entered as follows.
   • If there was a change in ownership, press F6 and type "addl" and select OK. This will open the Additional Special Allocation and Weighted Average Worksheet.
     • For more info on this, see here.
   • From the Forms bar on the left, under Common Forms, select Form 1065 p1-4 to open Form 1065 p1-4: Return of Partnership Income. Inputs for reporting income (lines 1a-8) and deductions (lines 9-22), as well as relating to tax and payments (lines 24-32) can be found on Page 1.
   • If you need to perform special allocations, use the SA column by the line item to allocate by either ratio or amount.
     • For more info on this, see here.
   • For some general information about partnership returns in ProSeries, see here.
6. As for Schedule B, scroll down to Page 2 of Form 1065 p1-4: Return of Partnership Income. An important consideration being:
   • If you need to suppress Schedules L, M-1, and M-2.
     • For more info on this, see here.
7. As for Schedule K, from the Forms bar on the left, under Common Forms, select Form 1065 p5-6 to open Form 1065 p5-6: Return of Partnership Income and complete Page 5 as needed.
   • Amounts from the Schedule K will flow to the partner's Schedule K-1 based on their ownership % from their respective Schedule K-1 Worksheet.
   • If you have other deductions or income (loss) that you need to report at the Schedule K-1 level, use the Other Items to be Reported on Schedule K-1 Smart Worksheet at the bottom of Page 5.
8. As for Schedules L, M-1, and M-2, you'll want to complete Schedules M-1 and M-2 first, and then scroll back up to the Schedule L to balance your balance sheet. That said, you may need to do the following, depending on the situation:
   • If you need to manually enter items on Schedule M-1, from the Forms bar, under Main Forms, select to Sch M-1 Wks to open the Schedule M-1 Items Worksheet. Entries here flow to Schedule M-1 on Page 6.
   • If you need to report an analysis of the partners' Capital Accounts, scroll down Page 6 of Form 1065 p5-6: Return of Partnership Income until you get to Schedule M-2.
     • If you need to compute net income (loss), use the Schedule M-2, Line 3 Smart Worksheet at the top of Schedule M-2.
     • If applicable, complete Other increases, line 4 and Other decreases, line 7.
   • If this is the partnership’s final year, zero out their Capital Accounts.
   • To balance your Schedule L, scroll down to Page 6 of Form 1065 p5-6: Return of Partnership Income.
     • For more info on this, see here.
9. Depending on the situation, additional forms and schedules may need to be completed. Down below are a couple common scenarios:
   • If you need to generate Schedules K-2 and K-3, you can do so by selecting Where do I enter? above the Forms bar, and type "k-2" to bring up and select K-2, Schedule K-2, Partners' Distributive Share Items - International.
     • For more info on this, including info on who must file, see here.
   • Add state-specific inputs.
10. With the return being largely done, you can now use the Schedule K by Activity Worksheet. To access, press F6 on your keyboard and from there, type "ka" to highlight K By Activity. Select OK to open the worksheet.
    • This worksheet is designed to help you separate the income, deductions, gains, losses, credits, and other items reported on Schedule K, for the partnership as a whole, into separate activities as required by the passive activity rules.
    • For more info on this, see here.
11. Once you’ve completed the return and validated all required information is entered with the required forms and schedules generating, you can either e-file the return, or print it for the purpose of review or paper-filing.