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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.
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.
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
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.