Partnerships & Limited Liability Companies

If your business is a general partnership, limited partnership, limited liability company, limited liability partnership, limited liability limited partnership or a limited partnership association, you must file state and federal partnership income tax returns. The partnership business is not required to pay income tax. The state and federal partnership income tax returns are used to report your business’ income and expenses, changes in your balance sheet and how the partners share profits and losses.

First, complete your federal return of income, Form 1065, “U.S. Return of Partnership Income” or Form 1120S, “U.S. Income Tax Return for an S Corporation.” You will need this information to complete your Colorado return, Form 106. Each partner in the partnership is then responsible for his/her own income and self-employment taxes as an individual. If you expect to owe the IRS more than $1,000 in individual federal taxes, you must make federal estimated tax payments using Form 1040-ES (Estimated Taxes for Individuals). If you expect to owe Colorado more than $1,000 in individual state taxes, you must pay state estimated tax payments. Estimated payments are made using the Colorado Form 104-EP.

If you and your spouse run your business together and share in the profits, your business may be considered a partnership. You should record your respective shares of partnership income or loss separately for self-employment taxes. Doing this will usually not increase your total tax, but will give each spouse credit for social security earnings on which retirement benefits are based. IRS Publication #541, “Partnerships,” is a useful guide regarding partnership filing requirements and the allocation of income to the partners.