Partnership Tax Return: What Solopreneurs Need to Kno

A partnership tax return (Form 1065) sounds complicated, but most solopreneurs don't actually need to file one. Single-member LLCs report income directly on personal tax returns, keeping things simple. For those earning $80,000 or more, the smarter strategy is combining an LLC with S Corp status to reduce self-employment taxes and keep more of what you earn.

You've heard about partnership tax returns, but do they actually apply to you? But here's the reality: if you're running a one-person business or single-member LLC, Form 1065 isn't your path. The IRS classifies single-member LLCs as part of your personal taxes, meaning you report income on your personal return via Schedule C.

Here's the smarter path: the LLC + S Corp strategy. Instead of filing a partnership return, consider electing S Corp status to split your income between salary and distributions. This reduces self-employment taxes and means filing Form 1120-S instead.

Lettuce helps determine whether an S Corp election makes sense and files Form 1120-S correctly, so income is optimized without triggering IRS issues.

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What Is a Partnership Tax Return (Form 1065) and How Does It Work?

Here's what a partnership tax return is in plain English: it's probably not something you need to file as a solopreneur. But understanding Form 1065 helps you see why your single-member LLC or sole proprietorship works differently, and why that's actually simpler for most freelancers and consultants.

Form 1065 is the tax return that partnerships and multi-member LLCs use to report business income, deductions, and expenses to the IRS. Here's the key part: the business itself doesn't pay taxes on profits. Instead, partnerships pass income through to each owner, who then pays taxes on their share.

Every partner receives a Schedule K-1 showing exactly what they owe taxes on: their portion of profits, losses, deductions, and credits. You use these K-1 numbers to complete your personal tax return, but you don't actually file the K-1 document itself. The partnership sends copies to the IRS to prove how everything was divided up among the owners.

Partnerships must file Form 1065 and get K-1s to all partners by March 15 (for calendar-year businesses). This tight deadline exists because partners need their K-1s to complete their personal tax returns by April 15.

The process involves compiling financial records, preparing the partnership return, and distributing those individual K-1 statements, which is why many partnerships file for extensions.

Who Files a Partnership Return (Form 1065) and Who Doesn't

Good news for solopreneurs: Form 1065 probably doesn't apply to you. If you're flying solo, your single-member LLC is what the IRS calls a disregarded entity, and that's actually great news.

Your business income flows straight to Schedule C on your Form 1040. No separate business return needed. No K-1 complications. Just straightforward reporting on your personal tax return.

The only time this changes is if you add a second owner or make a special election to be taxed as a partnership—which most solopreneurs never need to consider.

Partnership vs. S Corp vs. Single-Member LLC: Filing Differences That Change Your Taxes

The difference between a partnership tax return and an S Corp tax return goes way beyond paperwork; it's about how much you keep in your pocket. Each entity type follows different tax rules that directly impact your payroll tax burden and filing requirements.

• Partnerships generally pass 100% of the income through as self-employment income if the partner actively participates in the business, meaning you pay the full 15.3% Social Security and Medicare taxes on all profits, no salary/distribution split allowed.

• S Corps unlock the game-changing salary/distribution strategy: pay yourself a reasonable W-2 salary (subject to payroll taxes) and take remaining profits as distributions that avoid self-employment tax.

• Single-member LLCs default to Schedule C filing with full self-employment tax exposure, but you can elect S Corp status via Form 2553 once profits reach $80,000 to access the tax-saving split.

• S Corp savings add up fast: earning $100,000 as a sole proprietor means $15,300 in self-employment tax, while S Corp owners might pay $60,000 salary ($9,180 payroll taxes) plus $40,000 distributions, saving over $6,000 annually.

• Both partnerships and S Corps issue Schedule K-1 to owners, but the IRS treats the income differently: partnership K-1 income faces self-employment tax (with the exception of limited partners), while S Corp distributions on your K-1 don't.

The filing complexity increases as you move from Schedule C (simplest) to Form 1065 (partnership) to Form 1120-S (S Corp), but the reasonable salary requirements and potential tax savings often justify the extra paperwork for profitable solopreneurs.

The Smart Stack: LLC + S Corp For Solopreneurs Earning $80,000+

Stop asking "LLC or S Corp?" Once you're earning $80,000 or more, the smart move is both. Your LLC provides liability protection and business credibility, while an S Corp election delivers meaningful tax savings by splitting your income into salary and distributions.

An S Corp is simply a tax status you layer onto your LLC by filing Form 2553 with the IRS. This combination maximizes LLC and S Corp election tax savings through reduced self-employment taxes while maintaining legal protection.

The beauty lies in automation. Lettuce handles your entire LLC formation, EIN acquisition, and Form 2553 filing seamlessly. Once your S Corp election takes effect, the platform runs your payroll automatically, calculates your reasonable salary, processes distributions, and prepares your Form 1120-S and Schedule K-1.

Partnership Tax Return: Frequently Asked Questions (FAQs)

You're not alone if partnership tax returns feel confusing. Most solopreneurs don't actually need them, but the rules around when they apply can be tricky to navigate.

Do I need to file a partnership tax return as a single-member LLC?

No, you don't. Single-member LLCs are "disregarded entities" by default, meaning you report business income on Schedule C of your personal Form 1040. You only file Form 1065 if you add a second owner or elect partnership taxation.

What is the difference between a partnership tax return and an S Corp tax return?

Partnerships file Form 1065 and pass all income through as self-employment income. S Corps file Form 1120-S and split income between W-2 salary and distributions. The S Corp structure can reduce self-employment taxes on the distribution portion.

When should a solopreneur switch from sole proprietor to LLC with S Corp status?

Make the switch when your net profits consistently hit $80,000 annually. At this level, the tax savings from splitting salary and distributions typically outweigh the added compliance costs like payroll processing and additional tax filings. You can elect S Corp status mid-year if needed.

What happens if I add a partner to my single-member LLC?

Your LLC automatically becomes a partnership for tax purposes and must file Form 1065. You'll need to issue Schedule K-1s to each partner showing their share of income and losses. This means you'll follow partnership tax rules and additional compliance requirements that platforms like Lettuce can automate.

When are partnership tax returns due?

Partnership returns (Form 1065) are due March 15 for calendar-year partnerships. Partners must receive their Schedule K-1s by this date to file their personal returns by April 15. Extensions are available until September 15 and you will also need to extend your personal return.

Make the Right Filing Move and Keep More of What You Earn

Partnership tax returns don't apply to most solopreneurs: you're running a one-person show, so Form 1065 partnership returns don't apply to you. Here's where the S Corp strategy changes everything for solopreneurs earning $80,000 or more. Instead of paying self-employment tax on every dollar, you can split income between salary and distributions.

The setup feels overwhelming, but it doesn't have to be. Lettuce handles LLC formation, S Corp election, payroll automation, and Form 1120-S preparation, completing setup in about 10 minutes of work on your side. You gain greater confidence with automated quarterly taxes and a clear view of the financial picture year-round. Start with Lettuce today.