Multiple partner etsy tax filing.

[candicealyse]

So this year I started an etsy shop with two other friends, and with taxes coming up I'm looking to find out the best way to get ready. We all three split the profits we make, and are trying to avoid one person having to file them all at the end of the year.

[rjs]

You and your friends have a partnership, even if you didn't write up a formal partnership agreement. The partnership has to file it's own partnership tax return, Form 1065, separate from your personal Form 1040 tax returns. The partnership return will include a Schedule K-1 for each partner. Each partner has to enter the information from her Schedule K-1 in her personal Form 1040 tax return. That way, each partner pays tax on her individual share of the income.

You should go to a lawyer who specializes in small businesses to have a partnership agreement drawn up. You should also consult an accountant or tax professional who deals with small businesses for advice on record keeping and how to handle the taxes. If you've never filed a partnership tax return before, it would be a good idea to have the tax professional do your Form 1065 partnership return, at least for the first year.

[candicealyse]

Thank you so much, that clears up a lot of confusion! Since the shop is technically in my name, should I take the 1065 to get filed when I go do my individual taxes in 2023, along with the Schedule-K? Or is the 1065 something that needs to be filed prior to individual?

[rjs]

You will have to get an EIN (Employer Identification Number) for the partnership. A partnership has to have an EIN, even if it doesn't have any employees. The EIN is the tax ID number for the partnership. You can get an EIN online on the IRS web site, but you should consult a tax professional first to make sure that you give the correct information when you apply for the EIN.

You should have Etsy change the shop to be in the name of the partnership. Give Etsy the EIN of the partnership as the tax ID for the shop.

The Form 1065 partnership tax return has to be filed after the end of the year, but before you and your partners file your personal Form 1040 tax returns. The Schedule K-1 comes from the 1065 return, and you need the K-1 in order to do your personal tax return. The filing deadline for Form 1065 is March 15, not April 15, and the penalty for late filing is high. If you go to a tax professional, you can bring all the information for the 1065 and your personal 1040, and the tax pro can do them both. But go early enough to meet the March 15 deadline for the 1065.

The form that you get for partnership income is a Schedule K-1, not Schedule K. There is a Schedule K (actually several of them), but Schedule K is for other things. Don't cause confusion by talking about the wrong schedule.

[Opus 17]

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@candicealyse wrote:

Thank you so much, that clears up a lot of confusion! Since the shop is technically in my name, should I take the 1065 to get filed when I go do my individual taxes in 2023, along with the Schedule-K? Or is the 1065 something that needs to be filed prior to individual?

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The partnership needs an EIN (employer identification number).  The person who applies will have to provide their own name, address, and SSN to link to the EIN, but the EIN belongs to the partnership, not the person who applied.  Try to think of the partnership as a separate entity, different and separate from each partner.  The Etsy shop should be renamed to the partnership and all your payment partners should be updated to the new EIN.

The partnership tax return form 1065 is due each year on March 15, not April 15, and if you are late and don't get an extension, the late fee is about $200 per month per partner.  When you prepare the 1065, you will also create K-1 statements for each partner showing their share of income and expenses, and each partner will include the K-1 on their personal tax return.