From partnership tax concepts to a completed Form 1065

Partnership returns have a way of showing up right when you least expect them. Maybe a client's small business took on a partner this year, or a longtime individual client suddenly has a Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc. in hand. If you don't prepare Form 1065 often, it's easy to feel a little rusty on the details: separately stated items, partner allocations, debt basis, all the pieces that make this return different from anything else on your desk. None of it is impossible to figure out, but it helps to have someone walk you through it before you're doing it under a deadline. 

Watching a return come together 

NATP built an on-demand course around exactly that problem. It's a walkthrough of preparing Form 1065, U.S. Return of Partnership Income, built less like a lecture on the rules and more like watching someone actually prepare the return in front of you. 

The course starts where any solid understanding has to start: the core principles behind partnership reporting. From there, it moves into the return itself, schedule by schedule. You'll see how common income and deduction items get reported, how to sort out ordinary business activity from separately stated items, and where partner information needs to be entered carefully, so nothing gets missed along the way.  

One example, start to finish 

What sets it apart is the example that runs through the whole thing. Instead of a list of rules followed by a list of forms, you follow one scenario from start to finish and watch it turn into a completed return. It's the kind of thing you can pull up months later when a similar situation lands in front of you and you need a reminder of how the pieces fit together, rather than starting from scratch each time.  

Why a client chooses a partnership in the first place 

Before you can prepare the return well, it helps to understand why the entity exists the way it does. The course spends time on the advantages and disadvantages of forming a partnership: the flexibility it offers in how profits, losses and management responsibilities get split up, set against the exposure partners can face and the added complexity of tracking basis and allocations correctly over time. It also covers what happens tax-wise when a partner contributes property or services to get the partnership off the ground, and how income, deductions and credits get divided among partners once liabilities enter the picture. Knowing the reasoning behind the structure makes the numbers on the return a lot less arbitrary. 

The part before the form 

There's more to partnership taxation than the return itself, though, and the course doesn't skip that part. It gets into why someone would choose a partnership structure in the first place, and where the tradeoffs are. It covers what happens tax-wise when a partner contributes property or services to get the partnership off the ground. And it works through how income, deductions and credits get divided among partners, along with how partnership liabilities factor into all of it. These are the things that shape a return long before you ever open the form and understanding them tends to make the rest of the preparation make a lot more sense. 

Come and go as you need to 

Since it's on demand, there's no set schedule to work around. Watch it in one sitting or break it up over a few days, whatever fits your week. The slides, exam questions, recordings and review questions stick around afterward too, so it's not something you watch once and set aside. It's easy enough to come back to the next time a partnership return needs a second look, or when a detail from Schedule K-1 just isn't ringing a bell.  

Getting more comfortable with partnership returns 

Partnership returns probably won't ever feel routine, and that's fine. But with a clearer sense of how the pieces connect, they don't have to feel like a scramble either. For anyone who wants to get more comfortable with this side of the practice, this is a solid place to start. 

Taught by someone who’s actually done it 

Kathryn Keane, EA, NTPI Fellow, teaches the Preparing Partnership Returns online workshop. She's the principal tax professional at Macanta Corporation in Brooklyn, where her work spans individuals, businesses and nonprofits. Her experience brings a practical perspective to the course, as she walks through what actually happens when a partnership return crosses your desk, missing information and all.