Form 1065 and Schedule K-1: How Partnership Income Passes Through to Partners

If you and a business partner run a two-member LLC that's taxed as a partnership, the partnership generally files Form 1065 to report its income, and then hands each of you a Schedule K-1 showing your personal share to report on your own Form 1040. That pass-through structure can feel confusing the first time you see it, so this walkthrough uses a simple example where the LLC's $120,000 of net income is split equally between two partners, yielding a $60,000 distributive share for each, to show exactly how the numbers move from the partnership's books to each partner's individual tax return.

What Form 1065 actually does

For a multi-member LLC that's classified as a partnership for tax purposes, the IRS requires the business to file Form 1065 and to give each member a Schedule K-1 showing that member's pro-rata share of income, credits and deductions. The members then generally owe self-employment tax on their share of the partnership's earnings, though exceptions can apply to certain limited-partner-type income.

Schedule K-1: the document that connects the partnership to you

Schedule K-1 is the document the partnership prepares for each partner, showing that partner's separate share of the partnership's income, deductions, credits, and similar items for the year. A copy of every partner's K-1 gets attached to the Form 1065 that the partnership files with the IRS. The partnership also keeps a copy with its own records and sends a copy directly to each partner, which is the document you'll actually use when you sit down to do your personal taxes.

Who decides how the income gets split

Under the tax code, each partner's distributive share of income, gain, loss, deduction or credit is generally determined by the terms of the partnership agreement itself. That means if your LLC's operating agreement spells out a specific split — whether that's an even division or one tied to how much capital each partner contributed — the agreement's terms generally govern how the partnership's income is divided among the partners, except that this default rule can be overridden if the agreement is silent on an allocation or if an allocation lacks 'substantial economic effect,' in which case the allocation instead follows each partner's interest in the partnership. This is why it's worth having a written operating agreement that spells out profit and loss allocations clearly.

Worked example: splitting $120,000 between two members

Picture a two-member LLC, taxed as a partnership, that ends the year with $120,000 of net income after all business expenses are deducted. For this example, assume the two members' operating agreement allocates profits and losses equally between them, matching their equal ownership interests and the default rule that the partnership agreement controls allocations. Dividing $120,000 evenly between the two members yields a $60,000 distributive share for each partner. That $60,000 is the figure that would appear in Box 1 of each partner's Schedule K-1 as ordinary business income, and it then flows through to each partner's own individual Form 1040. Neither partner is taxed on the full $120,000 — each is taxed only on their own $60,000 share.

• net income: 120000
• number of partners: 2
• Formula: net income / number of partners
• Result: 60000

A $120,000 net income split evenly between two LLC members under a 50/50 operating agreement.

Where the K-1 numbers land on your personal return

Once you have your Schedule K-1, the ordinary business income or loss in Box 1 doesn't just disappear into a lump sum on your 1040 — it has a specific destination, since it generally gets reported on Schedule E of Form 1040, line 28, and the exact column depends on whether you materially participated in the business and whether the amount is income or a loss, with publicly traded partnership interests following separate rules. In the worked example above, each partner's $60,000 share would flow to their own Schedule E, and from there into their total income for the year, alongside whatever else they had going on — a W-2 job, investment income or another business. If you're an active member of the LLC, you'd also typically account for self-employment tax on that share separately, since Box 1 income and self-employment tax exposure are tracked through different parts of your return.

Filing deadlines you need to plan around

Timing matters here because partners can't finish their own returns until they have their K-1s in hand, so the partnership's deadline effectively sets a pace for everyone involved, since the partnership must furnish a copy of each partner's K-1 to that partner. A calendar-year partnership must generally file Form 1065 by the 15th day of the third month after its tax year ends, which works out to March 15 for most partnerships. For the 2025 partnership tax year specifically, March 15, 2026 falls on a Sunday, so calendar-year partnerships can timely file by the next business day, March 16, 2026, under the normal weekend-and-holiday extension rule. The partnership attaches a copy of each partner's K-1 to the Form 1065 it files with the IRS, keeps a copy with its own records, and furnishes a copy to each partner, so that document trail is what ultimately puts your share of the numbers in your hands.

Anatomy of the Form 1065 filing package

• Form 1065 — the partnership's main return, where an LLC classified as a partnership reports its income, credits and deductions and gives each member a Schedule K-1 showing that member's pro-rata share
• Schedule K-1 (one per partner) — shows that specific partner's separate share of income, deductions and credits, attached to the Form 1065 filed with the IRS and also sent to the partner
• Partnership agreement or LLC operating agreement — the document that actually determines each partner's distributive share under the tax code's default rule
• Schedule E (Form 1040) — where an individual partner reports their Box 1 ordinary business income or loss from the K-1 on their personal return, in a column that depends on material participation

Key parts of the Form 1065 package and what each one is for.

1. Confirm your LLC's tax classification and whether it's required to file Form 1065 as a partnership with the IRS
2. Check your operating agreement for the exact profit-and-loss split the partners agreed to, since that generally controls each partner's distributive share, except as otherwise provided under the tax code, such as when an allocation lacks substantial economic effect
3. Make sure the partnership files Form 1065 by the deadline — March 15 for calendar-year partnerships generally, or March 16, 2026 specifically for the 2025 tax year because March 15 falls on a Sunday
4. Collect your Schedule K-1 once the partnership issues it, since it shows your individual share of the partnership's income, deductions and credits
5. Transfer your Box 1 ordinary business income or loss to Schedule E of your own Form 1040, using the column that matches whether you materially participated in the business

Key takeaways

• Form 1065 reports the partnership's total income, and an LLC classified as a partnership must give each member a Schedule K-1 showing that member's pro-rata share of income, credits and deductions, with members generally paying self-employment tax on their share of the earnings
• Schedule K-1 is the document that tells each partner their individual share, and copies go to the IRS, the partnership's own records, and each partner
• The split between partners generally comes from the terms of the partnership agreement itself, under the general default rule of the tax code, except when the agreement is silent or an allocation lacks substantial economic effect, in which case the tax code's own rules override the agreement
• In a $120,000 example split 50/50, each partner's K-1 would show a $60,000 distributive share flowing to their own Form 1040
• Calendar-year partnerships generally file Form 1065 by March 15, or March 16, 2026 for the 2025 tax year because of the weekend rule

Frequently asked questions

What if the two partners don't split profits 50/50?

Then the split follows whatever the partnership or operating agreement says, since a partner's distributive share of income, gain, loss, deduction or credit is generally determined by the partnership agreement itself rather than an even default, except that this default rule can be overridden if the agreement is silent or if an uneven allocation lacks 'substantial economic effect' under the tax code; the 50/50 assumption in the worked example was a simplifying choice for illustration, not a universal rule.

Who sends me my Schedule K-1, and when?

The partnership prepares and sends you your Schedule K-1, which shows your separate share of the partnership's income, deductions and credits, and it also attaches a copy to the Form 1065 it files with the IRS and keeps a copy in its own records; because the partnership can't finalize K-1s until its own return is ready, the timing is tied to the partnership's filing deadline, which is generally March 15 for calendar-year partnerships.

Do I owe self-employment tax on my share of LLC income?

Generally, members of LLCs that file as partnerships pay self-employment tax on their share of the partnership's earnings, in addition to regular income tax on that same share, though this generally applies to earnings from the LLC's trade or business and is subject to exceptions, such as for limited-partner-type income.

Where exactly does my K-1 income show up on my 1040?

Your Box 1 ordinary business income or loss from the K-1 generally gets reported on Schedule E of Form 1040, line 28, and the exact column depends on whether you materially participated in the partnership's trade or business and on whether the amount is income or a loss, while publicly traded partnership interests follow separate rules.

What's the actual filing deadline for the 2025 partnership tax year?

For calendar-year partnerships, the normal deadline is the 15th day of the third month after the tax year ends, which is March 15; because March 15, 2026 falls on a Sunday, calendar-year partnerships can timely file their 2025 Form 1065 by March 16, 2026 instead.

Sources

• www.law.cornell.edu
• www.irs.gov
• www.irs.gov
• www.irs.gov