If you’re required to file a Schedule K-1 with the IRS, it’s important to understand what it is, when it’s due, how it works, and how to include it with your personal tax return.
What Is a Schedule K-1?
A Schedule K-1 form is used to report individual partner or shareholder share of income for a partnership or S corporation. S corporations, partnerships, and LLCs are considered pass-through business types because the business’s income passes through to the owners on their personal tax returns. In these businesses, income tax returns are prepared by the business, and then the profit or losses are distributed to the owners according to their share.
Who Uses a Schedule K-1?
A Schedule K-1 is required for partners in a general partnership, limited partnership, LLP, LLC members, and shareholders of S corporations. Single-owner LLC’s don’t use a Schedule K-1 to report the business income; they use a Schedule C-Profit or Loss from Business. Partners and shareholders of S corporations must file a Schedule K-1 to report income, losses, dividend receipts, and capital gains. The partnership Schedule K-1 is used to show income distribution to members in a multiple-member LLC, which is taxed as a partnership.
Types of Schedule K-1 Forms
The type of Schedule K-1 form you fill out depends on the business type. The business or estate files the appropriate form, and then the individual fills out the corresponding Schedule K-1.
Schedule K-1(Form 1120-S)
Form 1120-S is used by shareholders of an S corporation.
Schedule K-1 (Form 1041)
Form 1041 is used by people who are beneficiaries of an estate or trust.
Where to Get a Schedule K-1
All Schedule K-1 forms can be found on the IRS website, but you should receive a copy from the person responsible for filing your company’s Form 1065, 1120-S, or 1041.
1065 1120-S 1041
What to Do If You Don’t Receive a Schedule K-1
The Schedule K-1 is important for your personal tax return, so you must have it before filing. If you don’t receive it by March 15, reach out to your company’s accountant or person responsible for filing the business’s taxes.
How to Fill Out and Read a Schedule K-1
Outside of a business’s income or losses, a Schedule K-1 will include sections to record dividends, capital gains, rental real estate income, deductions, and credits, so have that information handy before beginning. If you’re involved in a partnership, you will need to include the employer identification number, what type of partner you are, your share of profit and losses at the beginning and end of the tax year, and your share of liabilities at the beginning and end of the tax year. If you have any deductions or credits, you will enter those into boxes 12, 13, and 15. The form also includes sections to record the following:
Foreign transactionsAlternative minimum tax itemsTax-exempt income and nondeductible expensesDistributions (money paid to partners or members during the year)
If you’re a shareholder of an S corporation, you won’t need to include information about your share of profit or losses; you will only need to note what percentage of stock you owned for the tax year. Do so in box F.
Can a Schedule K-1 be E-Filed?
A Schedule K-1 can be filed electronically with your personal tax return.
Where to Mail a Schedule K-1
Where you mail your Schedule K-1 depends on your state.
Criticism of Schedule K-1
Over time, Schedule K-1 forms have been revised to force partners to disclose more information about business activity and not just strictly financials. The new forms include checkboxes where you must indicate if the business was involved in more than one activity for at-risk or passive activity purposes. Ever-changing regulations mean the form is subject to frequent changes.
