What Tax Forms Do Partners Receive?

Understanding tax season as a law firm partner isn’t just about checking a box for the IRS. The forms you receive each year have real implications for your finances, the future of your practice, and your peace of mind. Mid-Atlantic Law & Tax will unpack exactly what tax forms you’ll encounter as a partner, what they mean for you, and how to leverage tax benefits by staying compliant.

Whether you’re a new partner navigating your first filing or a seasoned attorney seeking a refresher, you’ll learn the essentials of partnership taxation, Form 1065, Schedule K-1, and critical filing tips. We’ll also cover how professional help can remove the guesswork from your tax strategy.

How Partnerships Are Taxed

Partnerships occupy a unique space in federal tax law. Unlike corporations, partnerships — including most law firms — aren’t subject to income tax as entities. Instead, income, credits, deductions, and losses “flow through” to each partner. Each partner then reports their share of these amounts on their individual tax returns.

This pass-through tax treatment avoids double taxation but also adds complexity for each partner. A partnership’s profits aren’t automatically reinvested; instead, they are allocated to each partner, which triggers personal tax liabilities, even if profits aren’t distributed in cash. That’s why understanding the tax forms you receive is crucial for financial planning.

Partnerships vs. Corporations

• Corporations pay taxes on corporate income; distributions, such as dividends, are taxed again at the shareholder level, resulting in double taxation.
• Partnerships do not pay income tax at the business level. Instead, all tax obligations are handled by the partners, based on their share of the business.

Form 1065: The Partnership Tax Return

Form 1065, also known as the U.S. Return of Partnership Income, is the central tax form that every partnership must file annually. This document summarizes the partnership’s total income, deductions, credits, gains, and losses for the year. It’s an informational return, meaning the partnership itself doesn’t directly pay tax. However, the IRS requires it to ensure that all income is reported and allocated properly to its partners.

Who Must File?

You’re required to file Form 1065 if your firm is structured as:

• A general, limited, or limited liability partnership (LLP)
• A multi-member LLC that has not elected to be taxed as a corporation or S corporation
• A foreign partnership with gross income from sources within the U.S.
• Certain joint ventures or section 501(d) entities (like religious organizations)

Key Filing Requirements and Deadlines

• Due Date: Form 1065 is due by the 15th day of the third month following the partnership’s tax year-end (typically March 15 for calendar-year firms).
• Information Needed:
  • Gross receipts and sales
  • Operating expenses
  • Partner details and ownership percentages
  • Balance sheet and income statement data

Common Filing Mistakes (and How to Avoid Them)

• Failing to report all partnership income and deductions
• Listing incorrect partner information (such as Social Security numbers or ownership percentages)
• Missing the filing deadline can result in penalties
• Omitting required attachments, such as Schedules K-1 for each partner

Double-check all partner information and reconcile the numbers on Form 1065 with your firm’s records to avoid common pitfalls.

Schedule K-1 (Form 1065): What It Means for Law Firm Partners

For every partner, the partnership must prepare and issue a personalized Schedule K-1. This critical form details your share of the partnership’s income, deductions, credits, and other items. You’ll use the information from your K-1 to complete your individual tax return.

Think of it as your tax “report card” for the year’s business activity.

What’s Included in a K-1?

The Schedule K-1 is organized into sections reflecting your share of:

• Ordinary business income (or loss)
• Rental income, interest, and dividends
• Capital gains and losses
• Deductions and credits (like depreciation or foreign tax credits)
• Alternative minimum tax items
• Self-employment earnings (for general partners)

It also lists your capital account changes (your share of the partnership’s capital), partner type, and beginning/end-of-year balances.

How to Use Your K-1

• Attach the K-1 to your tax return (Form 1040).
• Enter the relevant numbers into the corresponding lines on your return (see instructions on the K-1 itself).
• Retain the K-1 in your tax records in case the IRS has questions or your state tax authority requests details.

Understanding K-1 Sections

• Part III – Partner’s Share of Income, Deductions, Credits, etc. These details are the amounts allocated to you.
• Part II – Information About the Partner. This ensures the IRS tracks your specific tax obligations.
• Section L summarizes capital account activity, which can have significant tax implications if you sell your partnership interest or if the firm liquidates.

Tax Benefits and Considerations for Law Firm Partners

Law firm partners and business partners are treated nearly identically by the IRS. Both groups enjoy tax benefits like:

• Pass-through taxation (avoiding double taxation on earned income)
• Distributed deductions for business expenses, including legal research costs, office expenses, and continuing education
• Claiming business tax credits directly

How to File Form 1065

Form 1065 is five pages long and can be complex. Here’s a quick overview:

1. Page 1 summarizes ordinary business income/loss, operational expenses, and bottom-line profit or loss.
2. Pages 2–5 cover reconciliation schedules, analysis of net income, and additional information, such as payments to partners.

Each partner receives their K-1 only after the partnership return is prepared, so accuracy and timing from your firm’s accounting team are crucial.

When to Seek Professional Tax Help

Navigating partnership taxes can be overwhelming, especially for law firm partners with complex compensation agreements, multiple K-1s, and potentially international income. Mistakes can lead to IRS notices, interest, or even audits.

Partnering with a knowledgeable advisor like Mid-Atlantic Law & Tax means:

• Access to up-to-date experience on tax laws and changing regulations
• Hands-on support for filling out Form 1065, Schedule K-1, and related filings
• Help optimizing your tax benefits at both the federal and state levels
• Guidance for law firms with cross-border or out-of-state partners

Mid-Atlantic Law & Tax works with individuals, law firms, and professional partnerships across the Mid-Atlantic region. Our team is skilled at managing a wide range of tasks, from straightforward filings to complex international compliance requirements.

If you need guidance or want to ensure your partnership meets every obligation, don’t hesitate to schedule a consultation with Mid-Atlantic Law & Tax. Contact us today.

James A. Kraehenbuehl

James A. Kraehenbuehl, founder of Mid-Atlantic Law and Tax, is an experienced business attorney, tax lawyer, and executive who has represented hundreds of clients, from individuals with simple tax preparation to global companies with complex legal issues.

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