J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

11.10 How Partners Report Partnership Profit and Loss

A partnership files Form 1065, which informs the IRS of partnership profit or loss and each partner’s share on Schedule K-1. The partnership pays no tax on partnership income; each partner reports his or her share of partnership net profit or loss and special deductions and credits, whether or not distributions are received from the partnership, as shown on Schedule K-1. Income that is not distributed or withdrawn increases the basis of a partner’s partnership interest.

Your share reported to you on Schedule K-1 (Form 1065) is generally based on your proportionate capital interest in the partnership, unless the partnership agreement provides for another allocation.

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Filing Instruction

Partnership Elections

The partnership, not the individual partners, makes elections affecting the computation of partnership income such as the election to defer involuntary conversion gains, to amortize organization and start-up costs, and to choose depreciation methods, including first-year expensing. An election to claim a foreign tax credit is made by the partners.

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Your partnership must give you a copy of Schedule K-1 (Form 1065), which lists your share of income, loss, deduction, and credit items, and where to report them on your return. For example, your share of income or loss from a business ...