Turbotax and Form 1065

[Tom77]

My wife and I have used Turbotax Home & Business for years, because I operate(d) a sole proprietorship and file(d) Schedule C.  In 2021, my wife and I have continued to operate the business, but as a partnership (agreement, not LLC or PA). So we now have a federal TIN. 

When we received the TIN, the notice said we would have to file a Form 1065 by March 15, 2022. However, this form appears to be available only with the higher-priced Turbotax Business edition. Also, we file a 1040 return filing jointly as husband and wife. And Turbotax Business cannot be used to file an individual 1040. As far as I can determine in the code, Form 1065 is the only "business return" that a partnership like ours must file. I don't want to pay $150+ to produce one form (1065), and then have to pay another $100 to complete the joint 1040 with a Schedule C and K1 forms. 

My first thought is simply to download Form 1065 and instructions from the IRS and complete the form by hand, including the K1 forms that we must file with our 1040. Is this a bad plan? Or perhaps Turbotax just isn't our best option for our 2021 taxes? 

Do you have any thoughts?

Tom

[Anonymous_]

If you are operating your business with your wife as a partnership (and not as members of an LLC), then you should be able to elect to be treated as a qualified joint venture, which obviates the need to file a partnership return (Form 1065).

See https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorpo...

A qualified joint venture is a joint venture that conducts a trade or business where (1) the only members of the joint venture are a married couple who file a joint return, (2) both spouses materially participate in the trade or business, and (3) both spouses elect not to be treated as a partnership.

[OpeA1]

The fact that the IRS sent you a TIN, means that they are looking at the business as a separate entity. This means they will require you file the 1065 for this partnership. 

Yes, we have different products to suit different entities and tax situations. Unfortunately, a business return is different from the individual return. Turbo Tax is the best software in the tax world! Please consider using it (with the added cost.) If your 1065, is not complicated, you can do it yourself using the IRS forms, as suggested.

Turbo Tax will always be the best option for 2021 taxes!

[Anonymous_]

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@OpeA1 wrote:

This means they will require you file the 1065 for this partnership. 

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The IRS may be looking for a 1065 but the form will not be required if the QJV election is made. 

[Tom77]

Thank you for referencing the IRS article on Qualified Joint Ventures. I'm not sure we want to go that route, for a few  reasons:  

(1) The partnership has an EIN. This is required in North Carolina in order to maintain business checking and savings accounts at a local bank or credit union.

(2) The article points out that the IRS will be wondering, after March 15, why they have not received a Form 1065 for the partnership, and this will necessitate an exchange of letters.

(3) The partnership agreement (required in North Carolina) outlines what happens to the partnership in case something should happen to one of the partners. 

[Anonymous_]

I can fully understand if you would rather not make the election.

However, the reasons you stated in numbers (1) and (3) are largely irrelevant for the purposes of the election (i.e., the IRS does not care about either).

Regarding the reason stated in (2), one letter (or even a phone call) stating you had elected QJV status is sufficient.

[Tom77]

Tagteam, I appreciate and understand your answer, and have upvoted it. However, while I agree that the IRS may not concern itself with (1) and (3) during a tax year where both partners survived, it's possible that the bank, a probate court, or even the NC Department of Revenue may care about all three.

I am inclined to fill out our own Form 1065, then use Turbotax Home & Business to submit the Forms K1. Am I correct in assuming that a Schedule C will not be required with our 1040 since the Forms K1 available in Home & Business should account for all profit or loss? In fact, are there other versions used to submit a 1040 that also include Form K1?

[Anonymous_]

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@Tom77 wrote:

.....it's possible that the bank, a probate court, or even the NC Department of Revenue may care about all three.

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@Tom77 

They almost certainly will not as it is strictly an election for federal income tax purposes and nothing more; nothing else is affected.

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@Tom77 wrote:

Am I correct in assuming that a Schedule C will not be required with our 1040 since the Forms K1 available in Home & Business should account for all profit or loss? In fact, are there other versions used to submit a 1040 that also include Form K1?

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You are correct in assuming that a Schedule C will not be required if you file Form 1065 and associated K-1s for the business (partnership); the profit or loss will be reflected on your K-1s. 

If you do not need to file a Schedule C, then you can use TurboTax Premier which supports the entry of K-1s. In fact, all desktop versions will support K-1 entry since those versions contain all of the forms.

[Anonymous_]

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@Tom77 wrote:

I am inclined to fill out our own Form 1065, then use Turbotax Home & Business to submit the Forms K1.

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I would be willing to bet you will need to use tax software for this purpose; preparing a 1065 and associated K-1s manually can be daunting, even if the return is relatively straightforward.

You should also be aware that you will have to begin keeping track of your basis (and your wife's basis) in the partnership for the purposes of loss limitations and other factors.

See https://www.irs.gov/instructions/i1065sk1#idm140228279135040

Unfortunately, many believe (for some reason) that partnerships are somewhat of a simple concept with little complexity when, in fact, partnership tax law is one of the most complicated areas of the tax code (it is actually the most complicated, right behind mergers and acquisitions).