To file California Form 565, the Partnership Return of Income, compile your partnership’s financial records and partner information, start from the federal Form 1065 figures and adjust them for California differences, apportion income if you do business in more than one state, issue a Schedule K-1 (565) to every partner, and e-file the return with any annual tax or fee due. For 2025 calendar-year returns, the filing deadline is March 16, 2026, with an automatic seven-month extension to October 15.
Confirm Form 565 Is Your Return
Form 565 is filed by general partnerships, limited partnerships (LPs), and limited liability partnerships (LLPs) that conduct business in California or earn income from California sources.1Franchise Tax Board. Partnerships It is required even if the partnership is based outside the state, and it is required whenever the partnership has a California-resident partner, because that partner owes California tax on their full share of worldwide partnership income.
LPs and LLPs registered with the California Secretary of State must file and pay the annual tax even if they have no California-source income and are not doing business here. If both conditions apply, the entity may qualify for a reduced filing by writing “SB 1106 Filing” at the top of the return.2Franchise Tax Board. 2025 Instructions for Form 565 Partnership Return of Income
One boundary that catches people: an LLC taxed as a partnership generally files Form 568, not Form 565. The narrow exception is a nonregistered foreign LLC (not organized in California, not registered with the Secretary of State) that is not doing business here but has California-source income. That entity files Form 565.2Franchise Tax Board. 2025 Instructions for Form 565 Partnership Return of Income
Gather Financials and Partner Information
Before opening the form, pull together the partnership’s profit and loss statement and year-end balance sheet for the tax year. The P&L feeds total income, deductions, and ordinary business income. The balance sheet feeds Schedule L and the capital account reconciliations.
Reconcile each partner’s capital account for the year: contributions in, distributions out, and share of income or loss. Track guaranteed payments separately, since they are deductible by the partnership and taxable to the partner receiving them. Flag any expenses the partnership treats differently under California law than under the Internal Revenue Code, because those drive the state adjustments.
For each partner, you need a full legal name, current mailing address, taxpayer identification number (SSN or EIN), and residency status. Classify every partner as a California resident, nonresident, or part-year resident. That classification determines how the income is taxed and whether the partnership must withhold. The partnership agreement should spell out profit-sharing, loss-sharing, and capital percentages, and those percentages drive what lands on each K-1.
Start From Federal Income and Adjust for California
Form 565 begins with the partnership’s federal ordinary business income from Form 1065 and adjusts it for California-specific differences. California generally conforms to the Internal Revenue Code as of January 1, 2025, but several areas diverge, and the adjustments are made within Form 565 and its supporting schedules rather than on a separate form.3Franchise Tax Board. 2025 Instructions for Schedule CA 540 – California Adjustments Residents
The differences that catch the most partnerships involve depreciation, depletion, and interest income. California does not allow the federal deduction for intangible drilling and development costs for oil and gas wells, and it has repealed percentage depletion for certain natural resources.4Franchise Tax Board. 2024 Instructions for Form 565 Partnership Return of Income Interest on U.S. government obligations is taxable federally but generally exempt from California tax, so it is subtracted. State and local income taxes deducted on the federal return are not deductible for California and must be added back.
Depreciation limits diverge too. For 2026, the federal Section 179 expense deduction cap is $2,560,000, phasing out when qualifying property placed in service exceeds $4,090,000.5Internal Revenue Service. Publication 946 2025 How To Depreciate Property California does not fully conform to federal bonus depreciation or all Section 179 provisions, so any partnership claiming large equipment deductions will almost always have a state adjustment.
Apportion Income if You Operate Outside California
If the partnership does business both inside and outside California, you must determine what portion of business income belongs to the state. Most businesses use the single-sales factor formula, which bases apportionment entirely on the percentage of sales sourced to California.6Franchise Tax Board. Apportionment and Allocation Partnerships earning more than 50% of gross receipts from qualified business activities such as agriculture, extractive industries, or banking may use a different formula.
Non-business income follows different rules. Rent from real property or royalties from intellectual property is generally allocated entirely to the state where the underlying asset is located rather than apportioned by formula. Apportioned business income plus allocated non-business income produces the partnership’s total California-source income, which then flows to each partner’s K-1 based on ownership percentages and the partnership agreement.
Prepare Schedule K-1 (565) for Each Partner
The partnership prepares a separate Schedule K-1 (565) for every partner who held an interest during the tax year. It reports each partner’s share of California-source ordinary income, net rental income, guaranteed payments, interest, capital gains or losses, and charitable contributions.7Franchise Tax Board. 2025 Partners Instructions for Schedule K-1 565 Partners use these figures on their personal California return (Form 540 for residents, Form 540NR for nonresidents and part-year residents). Partners keep the K-1 for their records but do not attach it to their personal return, because the partnership has already filed a copy with the FTB.
The K-1 also reports each partner’s share of any California credits the partnership generated, including any PTE credit if the partnership makes the elective tax election described below.
Withhold on Nonresident Partners
When the partnership distributes California-source income to a nonresident partner, it generally must withhold 7% of the gross payment or distribution amount exceeding $1,500 in a calendar year.8Franchise Tax Board. Pass-Through Entity Withholding Withholding is remitted quarterly on Form 592-Q:
- January through March: due April 15
- April through May: due June 15
- June through August: due September 15
- September through December: due January 15 of the following year
At year-end, the partnership files Form 592-PTE reporting total withholding allocated to each nonresident partner.9Franchise Tax Board. 2024 Instructions for Form 592-PTE Failing to withhold produces penalties assessed against the partnership itself.
Pay the Annual Tax and Any LLC Fee
General partnerships owe no annual minimum tax to California.1Franchise Tax Board. Partnerships LPs, LLPs, and LLCs classified as partnerships must pay an annual tax. For the 2025 tax year (returns filed in 2026), that amount is $800, due by the original filing deadline whether the entity earned income, lost money, or did nothing at all.
SB 347 reduces the annual tax for LPs, LLPs, and LLCs to $600 for tax years beginning on or after January 1, 2026, and before January 1, 2031.10California Legislative Information. SB-347 Annual Tax Partnerships and LLCs 2025-2026 Partnerships filing their 2026 tax year return will use the $600 figure.
LLCs classified as partnerships owe an additional annual fee based on total California income, on top of the annual tax:11Franchise Tax Board. Limited Liability Company
- $250,000 to $499,999: $900
- $500,000 to $999,999: $2,500
- $1,000,000 to $4,999,999: $6,000
- $5,000,000 or more: $11,790
Consider the Pass-Through Entity Elective Tax
California allows qualifying partnerships to elect to pay an entity-level tax of 9.3% on the sum of each qualified taxpayer’s share of income and guaranteed payments.12Franchise Tax Board. Pass-Through Entity Elective Tax The election works around the federal $10,000 cap on state and local tax deductions. The partnership deducts the PTE tax payment on its federal return, and each qualifying partner claims a credit on their California personal return to offset the tax paid at the entity level.
Not every partner qualifies. A qualified taxpayer must be an individual, fiduciary, estate, or trust subject to California personal income tax. Corporate partners and partners that are themselves partnerships do not qualify. Every qualifying partner must consent to include their entire share of income in the electing entity’s qualified net income.
For the 2026 tax year, the election is made on a timely filed original or superseding return by attaching a completed FTB 3804, and the partnership must make a required initial payment by June 15 of the election year.12Franchise Tax Board. Pass-Through Entity Elective Tax Missing the June 15 payment can void the election entirely.
File and Pay by the Deadline
For calendar-year partnerships, Form 565 is due on the 15th day of the third month after the close of the tax year. For 2025 returns, the deadline is March 16, 2026, because March 15 falls on a Sunday.13Taxes. Important Dates for Income Tax Any tax or fee owed must be paid by this original deadline to avoid penalties and interest, even if you file later.
California grants an automatic seven-month extension to file, pushing the extended deadline to October 15 for calendar-year filers.14Franchise Tax Board. 2024 Instructions for Form 565 Partnership Return of Income No written request is required. The extension covers time to file, not time to pay; interest runs on any unpaid balance from the original due date.
California law requires any business entity that prepares its return using tax preparation software to e-file.15Franchise Tax Board. e-file for Business If your return is software-prepared, it must be e-filed. Partnerships that qualify for paper filing mail the signed original Form 565 with all schedules to the FTB address in the form instructions.
For e-filed returns, LPs and LLPs use payment voucher Form 3587 to submit any tax due, or pay electronically through the FTB’s Web Pay system. Partnerships whose estimated tax or extension payments exceed $20,000, or whose total tax liability exceeds $80,000, must use electronic funds transfer.
Late Filing Penalties
California assesses a late filing penalty of $18 per partner per month the return is overdue, for up to 12 months.16Franchise Tax Board. Common Penalties and Fees A 10-partner entity that files six months late accrues $1,080 in penalties before interest. Interest runs on any unpaid tax or fee from the original due date until it is paid. Filing on time with estimated figures and amending later is almost always cheaper than filing late.
Amending a Return
If you discover an error after filing, submit an amended Form 565 by checking the “Amended return” box on Side 1, Item H(3).4Franchise Tax Board. 2024 Instructions for Form 565 Partnership Return of Income Prepare corrected Schedule K-1 (565) forms labeled “Amended” for each affected partner, and attach a statement identifying the line number of each changed item, the corrected amount, and the reason for the change.
If the IRS adjusts your federal return, you must file an amended California return within six months of the final federal adjustment.4Franchise Tax Board. 2024 Instructions for Form 565 Partnership Return of Income Attach a copy of the federal Revenue Agent’s Report or adjustment notice to the amended Form 565, and notify your partners so they can amend their own personal returns if needed.