Filing Taxes As A Partnership When You’re An LLC

The IRS generally doesn’t consider partnerships to be separate from their owners for tax purposes. Instead, they’re treated as "pass-through" entities. This means that all the profits and losses of the partnership pass through the business directly to the partners. Each partner then reports their share of the profits or losses on their personal income tax returns. This share is typically outlined in a written partnership agreement. When it comes to filing taxes as a partnership LLC, the partnership tax filing deadline is usually March 15th each year. By this date, you need to submit Form 1065, which reports your partnership’s income, deductions, gains and losses to the IRS. This deadline applies whether your LLC operates on a calendar year or a fiscal year. If you can’t meet the March 15th deadline, you can request an extension by filing Form 7004. This extension gives you six more months, moving the deadline to September 15th, but it only applies to the filing deadline, not any taxes owed. After filing taxes as a partnership LLC, each partner receives a Schedule K-1, with their share of the business income. You’ll need this form to file your personal tax return.

When filing taxes as a partnership LLC, the key tax form you’ll need is Form 1065 (U.S. Return of Partnership Income). This form is major for partnership LLC tax filing, as it reports your financial share of the partnership to the IRS. While the partnership itself doesn’t pay taxes, Form 1065 ensures that the financial details are correctly divided among the partners. Each partner in the LLC will receive a Schedule K-1 from the partnership. You’ll need Schedule K-1 when filing Form 1040, as it shows what you need to report on your own taxes. When filing taxes as a partnership LLC, partners are also responsible for paying self-employment taxes on their share of the income. You'll need to use Schedule SE to calculate and report these taxes on your individual tax return. This ensures you’re covering your Social Security and Medicare contributions. If your partnership LLC needs more time, you can file Form 7004 to request an extension. This gives you an additional six months for your partnership LLC tax filing, extending the deadline for submitting Form 1065. Keep in mind, though, that this extension doesn’t apply to any taxes owed. Additionally, if your partnership LLC has employees, you’ll need to file employment tax forms, like Form 941 for quarterly payroll taxes and Form 940 for annual federal unemployment taxes.

As a partnership LLC, you can deduct many business expenses to reduce your taxable income. Here are some expenses you can claim for partnership LLC tax filing: Business meals: When you entertain clients and discuss business, you can deduct 50% of the meal costs. Keep detailed records of the meal and its business purpose for accurate filing LLC partnership taxes. Home office expenses: If you use part of your home exclusively for business, you can deduct a portion of your home expenses, like mortgage interest, utilities and repairs. This deduction is relevant for your Form 1065 filing if you operate your partnership LLC from home. Education and training: Costs for courses, seminars or workshops that enhance your business-related skills are deductible. This includes industry-specific training, which you can report in your partnership LLC tax filing. Business start-up costs: If your partnership LLC is newly established, you can deduct up to $5,000 of start-up costs, such as market research or advertising, in the first year. Any remaining costs can be amortized over 15 years, which you’ll need to detail on Form 1065. Interest on Business loans: Interest paid on loans used for business purposes, including equipment or operational financing is deductible. Research and development costs: Expenses related to research and development for improving products or services are deductible. Subscriptions and memberships: Fees for industry magazines, trade associations or professional memberships that are ordinary and necessary to your business are deductible. Software and technology: Costs for business-related software, cloud services and technology tools are deductible.

Paying taxes as a partnership LLC involves several key steps. The IRS requires each partner to pay taxes on their "distributive share" of the partnership’s profits. This distributive share is the portion of profits each partner is entitled to, as defined by the partnership agreement or state law if no agreement exists. For partnership LLC tax filing, you should report this share on Form 1065. This form details the total sales minus expenses, and each partner pays taxes on their share of these profits, regardless of how much money they actually withdraw from the business. Even if the partnership needs to keep profits in the business for future expenses or growth, each partner still owes taxes on their distributive share. If retaining profits is a regular part of your business, you might consider incorporating, as corporations can offer some relief from this tax issue. Unlike a partnership, a corporation pays taxes on its own profits, while the owners pay income taxes only on salaries, bonuses or dividends they receive. Incorporating can be a good idea if you plan to keep profits in the business. While many small businesses might avoid corporate tax returns, incorporating can offer a tax benefit compared to the "pass-through" taxation of a partnership. Say your business earns $60,000 in a year and you decide to leave $20,000 in the company for future expansion. This retained profit will be taxed at a lower corporate rate of around 15% if you're incorporated. If you're operating as a partnership, that $20,000 would be taxed at your personal tax rate, which might be higher than 25%. This means incorporating could save you money on taxes for the profits you choose to keep in the business. In addition to income taxes, if you are actively involved in running the partnership, you need to pay self-employment taxes on your share of the profits. Self-employment taxes cover Social Security and Medicare contributions, similar to payroll taxes for employees. Since there’s no employer to withhold these taxes, you must pay them with your regular income taxes. Partners end up paying twice the amount of self-employment taxes compared to regular employees because employees' contributions are matched by their employers. However, you can deduct half of your self-employment tax contribution from your taxable income. Since there’s no employer to handle tax withholding, partners also need to set aside enough money to cover taxes on their distributive share, along with making estimated tax payments to the IRS (and usually to your state tax agency) each quarter to stay current with filing LLC partnership taxes.

Partnerships must file Form 1065 along with K-1 forms by the March 15 deadline. You can file these forms electronically or by mail. If you miss the deadline, you may face a partnership late filing penalty. Check if your state requires a separate tax return, as states might have additional taxes like franchise or sales taxes.