Do I need to file an individual tax return if my sole income is a loss reported on a 1065 partnership?
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To determine whether you need to file an individual federal income tax return when your only income is a loss reported on a Schedule K-1 from a partnership (Form 1065), you must consider the filing requirements set by the Internal Revenue Code and IRS regulations.
1. General Filing Requirement
Under the Internal Revenue Code, every individual who has gross income for the taxable year that equals or exceeds the standard deduction applicable to their filing status is required to file a return, with certain exceptions and special rules for dependents and married individuals filing separately.
For tax years 2018 through 2025, the law provides that a return is not required if your gross income does not exceed your standard deduction.
2. What Is Gross Income?
Gross income means all income you receive in the form of money, goods, property, and services that are not exempt from tax, before any deductions or losses.
3. Partnership Losses and Gross Income
If your only income from the partnership is a loss (i.e., your Schedule K-1 (Form 1065) shows a negative number for your share of partnership income), you do not have gross income from the partnership. Losses are not included in gross income; they reduce your taxable income but do not count as income for filing threshold purposes.
4. Filing Thresholds for 2025
For 2025, the standard deduction amounts are:- Single: $15,750- Married Filing Jointly: $31,500- Head of Household: $23,625- Married Filing Separately: $15,750
If your gross income is less than the standard deduction for your filing status, you are generally not required to file a federal income tax return.
5. Special Situations
You must file a return even if your gross income is below the standard deduction if:- You have self-employment net earnings of $400 or more,- You owe special taxes (such as alternative minimum tax, additional tax on IRAs, etc.),- You received advance premium tax credits or other refundable credits,- You are required to file for other specific reasons (e.g., to report recapture of certain credits, or you received distributions from HSAs, Archer MSAs, or Medicare Advantage MSAs).
6. Partnership Losses and Self-Employment Tax
If you are a limited partner or your share of partnership income is a loss, you generally do not have self-employment income from the partnership. If you are a general partner and have a net loss, you also do not have self-employment income for that year.
7. Refunds and Credits
Even if you are not required to file, you may want to file a return if you are eligible for a refund of any federal income tax withheld or to claim refundable credits (such as the earned income credit, additional child tax credit, etc.).
Summary: If your only income is a loss from a partnership reported on a Schedule K-1 (Form 1065), and you have no other gross income, you are generally not required to file a federal individual income tax return, unless you have other circumstances (such as self-employment income, special taxes, or refundable credits) that require you to file.
If you have other sources of gross income, or if you are unsure whether you meet any of the special filing requirements, you should review the IRS Form 1040 instructions or consult a tax professional.
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