Form 1065 vs. Form 1120-S: Which One Applies to Your Business?

When structuring your business, choosing the right tax form is important to ensure compliance with IRS regulations and optimize your tax benefits. Two commonly used tax forms are Form 1065 filing and Form 1120 filing. Both forms serve different types of business entities and come with their own set of filing requirements, deadlines, and tax implications. In this guide Form 1065 vs. Form 1120-S, we’ll break down the differences between these forms, helping you determine which one applies to your business.

What is Form 1065?

Form 1065, officially known as the U.S. Return of Partnership Income, is used by partnerships and multi-member LLCs to report income, deductions, gains, and losses. It is an informational return, meaning that the business itself does not pay taxes. Instead, profits and losses pass through to the partners, who report them on their individual tax returns.

Who Needs to File Form 1065?

According to the IRS Form 1065 instructions, any partnership that carries on a trade or business or has gross income must file Form 1065. This includes general partnerships, limited partnerships, and LLCs with two or more members.

Form 1065 Filing Requirements

The key requirements for filing Form 1065 include:

• Reporting total income, deductions, and credits.
• Distributing income/losses to partners through Schedule K1.
• Reporting each partner’s share of income or losses on their personal tax return.

Schedule K 1 and Instructions

Each partner receives Schedule K1 (Form 1065), which details their portion of the partnership’s income, deductions, and credits. Partners must include this on their individual tax returns. Reviewing the Schedule K1 instructions ensures accurate reporting and compliance with IRS requirements.

Form 1065 Filing Deadline

The deadline for Form 1065 filing is March 15 for calendar-year partnerships. Since this year the deadline falls on weekend, the due date becomes the next working day i.e 17th March 2025. If an extension is needed, businesses can file Form 7004, which grants an extension for six months.

What is Form 1120S?

Form 1120S, the U.S. Income Tax Return for an S Corporation, is used by S corporations to report income, deductions, and credits. Like partnerships, S corporations do not pay corporate tax; instead, income passes through to shareholders, who report it on their personal tax returns.

Who Can File Form 1120S?

Only businesses that meet the following criteria can elect to file Form 1120S:

• Must be a domestic corporation.
• Must have no more than 100 shareholders.
• Shareholders must be U.S. citizens or resident individuals (certain trusts and estates also qualify).
• Must have only one class of stock.
• Must file Form 2553 to elect S corporation status.

Form 1120S Instructions and Filing Requirements

The Form 1120S instructions outline that S corporations must:

•  Report total business income, deductions, and credits.
•  Issue Schedule K1 (Form 1120S) to shareholders.
• Ensure each shareholder reports their portion of business income on their individual tax return.

Form 1120 Filing Deadline

The Form 1120 filing deadline is March 15 for calendar year S corporations.  Similar to Form 1065, the deadline falls on the weekend, so the due date becomes the next working day i.e. 17th March 2025. Like partnerships, S corporations can file Form 7004 to extend their deadline to September 15.

Form 1065 vs. Form 1120-S : Key Differences 

Feature	Form 1065 Filing (Partnerships)	Form 1120 Filing (S Corporations)
Entity Type	Partnerships, Multi-member LLCs	S Corporations
Taxation	Pass-through to partners	Pass-through to shareholders
Filing Deadline	March 15 (17th March this year)	March 15 (17th March this year)
Tax Form	Form 1065	Form 1120-S
Ownership Restrictions	No restrictions	Max 100 shareholders, only one stock class
Self-Employment Tax	Partners pay self-employment tax	Shareholders may avoid some self-employment tax

Advantages and Disadvantages of Each Form

Pros and Cons of Filing Form 1065

Pros:

• Flexibility in profit and loss allocation among partners.
• No corporate tax, reducing potential double taxation.
• Simple structure with fewer restrictions than S corporations.

Cons:

• Partners must pay self-employment tax on their earnings.
• Requires detailed reporting for each partner through Schedule K1.
• Limited ability to reinvest profits into the business without immediate tax implications.

Pros and Cons of Filing Form 1120S

Pros:

• Allows shareholders to receive dividends, which are not subject to self-employment tax.
• Business owners can receive salaries, which are deducted from the company’s taxable income.
• Potentially lower tax burden compared to partnerships due to tax-efficient distributions.

Cons:

• Strict ownership restrictions limit the number and type of shareholders.
• More rigid structure, requiring adherence to corporate formalities.
• Must file Form 2553 for electing S corporation status.

Which One Should You Choose?

The decision between Form 1065 filing and Form 1120 filing depends on your business structure and tax goals:

• Choose Form 1065 if you have a partnership or multi-member LLC and want flexibility in profit-sharing.
• Choose Form 1120S if you have an S corporation and want to potentially lower self-employment taxes by paying yourself a reasonable salary and taking dividends.

Common Mistakes to Avoid When Filing

• Failing to file on time: Ensure you meet the Form 1065 filing deadline or Form 1120 filing deadline to avoid penalties.
• Incorrectly completing Schedule K1: Follow the Schedule K-1 instructions carefully.
• Choosing the wrong entity type: Understand whether a partnership or S corporation best suits your business needs.
• Neglecting required elections: If filing Form 1120S, don’t forget to submit Form 2553.

Final Thoughts

The differences between Form 1065 and Form 1120S are crucial for selecting the right tax structure for your business. While both forms allow for pass-through taxation, they have different requirements and implications for business owners. You can refer to a detailed roadmap to file Forms 1065  and 1120S. You can even consider consulting tax professionals who can help in meeting all IRS regulations and maximize your tax benefits.

By carefully considering Form 1065 filing and Form 1120 filing, you can make an informed decision that best aligns with your business structure and financial goals.