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CGCPA
CGCPA, CPA
Category: Tax
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Experience:  over 40 years experience in tax matters
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Hi steven, Thanks for your help last year. I have another question

Resolved Question:

Hi steven, Thanks for your help last year. I have another question this year. in 2009. Myself and a friend created a General partnership and on my EIN Notice when the EIN was requested. It says File form 1065. My Question is they call form 1065 a K-1 issued by the partnership. I am assuming the K1 is created when I file my return, and is this supposed to be filed with a Schedule C for my share of the profit and Expenses? All the information I am reading dosen't exactly state how to correctly file this on my personal tax return. We split the income which was only about 553 and the expenses down the middle. My thought was I file the 1065 and a schedule C that shows my half of the expenses for the partnership. Is that correct?
Submitted: 3 years ago.
Category: Tax
Expert:  CGCPA replied 3 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

 

The tax treatment for a partnership is a bit different than you think although you are on the right track.

 

In a partnership a form 1065 is prepared. This is the partnership return. On the 1065 you report the income, expenses, and other information. (When you finish reading this you may want to view 1065 and the other pages to which I will refer. You can download them at www.irs.gov) On page 1 you will determine the partnerships net income. This will also include depreciation and amortization, if any from form 4562. The net profit is then distributed to Form 1065 Schedule K-1 (1 form per partner) depending on their shares of ownership which is in your case 50/50.

 

The information from the K-1 is then reported by you, as individuals, on Form 1040 Schedule E page 2.

 

Here is a short example:

 

If the sales were $500, expenses $300, net profit $200. The 1065 would show, on page 1, sales of $500, expenses by line item totaling $300 and a net income of $200. The $200 would transfer to Schedule K (of the 1065 itself) and then to each partner's K-1 as $100. Each partner would then report $100 in income on his/her 1040 Schedule E page 2. It would transfer to page 1 of form 1040 be added to other income items and, after deductions, exemptions be a part of the tax determination.

 

After you have had the opportunity to look over the various forms mentioned above, please feel free to ask if you need additional assistance.

CGCPA, CPA
Category: Tax
Satisfied Customers: 3740
Experience: over 40 years experience in tax matters
CGCPA and 4 other Tax Specialists are ready to help you
Customer: replied 3 years ago.
Hi Charles, So your report the total income and expenses to get the partnership's net income which is then divided 50/50. I am using Taxact which chows the schedule E to be rental income and loss?
Expert:  CGCPA replied 3 years ago.

The first part is correct. In Tax Act you need to go to Schedule E page 2. Page 1 is for rent and royalty income. Page 2 is for partnerships, S Corporations, and other specified income/loss reporting.

CGCPA, CPA
Category: Tax
Satisfied Customers: 3740
Experience: over 40 years experience in tax matters
CGCPA and 4 other Tax Specialists are ready to help you
Customer: replied 3 years ago.
ok maybe I am making it harder than it is. I am using Tax Act deluxe. The 1065 form in the program is a little different then the IRS form thus I keep getting confused. So basically I will have a 1065(k-1) and a Schedule E. I will report 554 total income and expenes of 414 with a net profit of 140 split by 2 for a net share of 70 business income? That sound about right?
Customer: replied 3 years ago.

or Am I supposed to File the 1065 separate from my personal Tax Return and then this is how I get the information for the K-1

Expert:  CGCPA replied 3 years ago.

The 1065 and its related pages (including Form 1065 Schedule K-1) are a completely separate and distinct set of return documents and must be filed separately from your personal returns.

 

In preparing your personal returns, using your example, the $70 gets reported on Form 1040 Schedule E page 2.

 

The essential thing to understand is that the partnership and its owners are 3 different beings for tax purposes. That is why each files its own return.

CGCPA, CPA
Category: Tax
Satisfied Customers: 3740
Experience: over 40 years experience in tax matters
CGCPA and 4 other Tax Specialists are ready to help you
Customer: replied 3 years ago.
ok I think I got it now. Thanks for your patience one last question. Lets say I put in $100.00 Dollars to open the bank account and then pulled that $100 dollars out. Do I count that towards the Income for the Buisness. Then as a Expense for me in the Buisness?

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