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Schedule K-1 Tax Form: What Partnerships and S Corporations Need to Know

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There are two types of business taxpayers that need to complete the Schedule K-1 tax form: partnerships and S corporations, plus trusts or estates. The Schedule K-1 is then used by the owners to prepare their individual tax returns. Tax authorities will check to see that the numbers reported on the K-1 are reflected in the owners’ returns.

What is a Schedule K-1 tax form?

The IRS requires each partnership, S corporation and estate or trust to file a Schedule K-1 tax form annually. The profits, losses, deductions and credits on a given owner’s form are allocated based on their ownership stake in the business. This stake determines the owner’s “tax basis” in the business — that is, the amount that a partner has invested in it.

“Your K-1 helps you track basis, and it helps track differences in basis for federal and state tax purposes,” said financial planner Sean W. Mullaney. “States, for example, might have different depreciation rules than the IRS uses.”

Pass-through entities

There are multiple versions of the Schedule K-1 form, and each one applies to a particular kind of pass-through entity. Most small businesses are pass-through entities, meaning income passes or flows through the business to an owner’s individual tax return as it does for partnerships, S corporations, sole proprietors and limited liability company (LLC) owners. Sole proprietors and single-member LLCs do not need to file a Schedule K-1. But partnerships, S corps and trusts and estates do — their owners file them along with their personal tax returns. Each has its own form and set of instructions:

  • Form 1065 applies to partnerships
  • Form 1120-S is for S corporations
  • Form 1041 is used for trusts and estates.

Each of these has a corresponding K-1 form and instructions. We’ll explain all of the forms, in depth, below.

Follow the Schedule K-1 instructions if your business is a: 

Partnership

Partnerships include general or limited partnerships, limited liability partnerships (LLP) and limited liability companies (LLC) that have more than one owner. These companies should file their taxes using Form 1065, along with the corresponding Schedule K-1.

For example, imagine that LJM Consulting LLC is a consulting firm formed by Larry, Jim and Mike. LJM Consulting LLC uses Form 1065 to report its income, deductions and other items to the IRS every year. The business issues Larry, Jim and Mike each a Schedule K-1 (Form 1065) that they can use to identify their share of the LLC’s income and other items on their personal tax returns.

S corporation

S corporations pass corporate income onto their shareholders, and the shareholders report taxes on their personal income tax forms. These companies should file their taxes using Form 1120-S, along with the corresponding Schedule K-1.

For example, imagine that Curls & More Salon, owned by two business partners, is an S-corp that uses Form 1120-S to file its income taxes every year. The company issues each of its owners a Schedule K-1 (Form 1120-S) to identify how much of the income, liabilities, etc., each partner is responsible for. CEO Lisa and Chief Stylist Nicole each use the information from the K-1 to fill out their personal income tax returns.

See how to fill out partnership and S corporation forms, below.

Estate or trust

Estates and trusts hold the money left to inheritors by a deceased person. These entities pass income, deductions, gains or losses through to the beneficiaries. The estate or trust must file Form 1041 annually and issue the corresponding Schedule K-1 forms to all the beneficiaries or owners of the entity if it meets certain conditions. A trust has to file the form if it had a gross income of $600 or more during the tax year, the beneficiary is a nonresident alien or the trust has any taxable income. An estate has to file the form if it meets either of the first two of those conditions.

For example, imagine that when Jeremy and Jane’s grandmother died, she left them a trust fund worth $100,000, which was invested in a portfolio of stocks. Each year, Jeremy and Jane receive a Schedule K-1 (Form 1041) listing how much money the trust gained in income, along with its losses, liabilities and other items. The siblings use the numbers in the Schedule K-1 to fill out the appropriate lines in their individual income tax returns.

When are Schedule K-1s due?

Partnerships and S-corps must file tax returns to the IRS and Schedule K-1 forms to their owners by the 15th day of the third month after the end of the tax year. For companies on a calendar-year schedule, that means the filing deadline is March 15.

To request a six-month extension for filing the business’s tax return and Schedule K-1, file Form 7004, which can be done by mail or electronically. You will automatically be granted the six-month extension unless the IRS notifies you otherwise.

Entity type Tax forms  Filing deadline
Partnership Form 1065 (Instructions)
Form 1065 Schedule K-1 (Instructions)
The 15th day of the third month after the end of the tax year; March 15 for calendar-year filers
S corporation Form 1120-S (Instructions)
Form 1120-S Schedule K-1 (Instructions)
Trust or estate Form 1041 (Instructions)
Form 1041 Schedule K-1 (Instructions)
The 15th day of the fourth month after the end of the tax year; April 15 for calendar-year filers

 

If you are the recipient of a Schedule K-1 form, you do not need to send this form to the IRS with your tax return. You should give this form to your tax preparer to help them complete your individual tax return.

Schedule K-1 instructions for partnerships

Schedule K-1 (Form 1065) for partnerships is broken into three parts:

  • Part I: Information About the Partnership
  • Part II: Information About the Partner
  • Part III: Partner’s Share of Current Year Income, Deductions, Credits and Other Items

 

Part I of the form requires a small amount of basic information about the company: the partnership’s name, address and EIN, as well as the IRS center where the partnership filed its return.

Part II asks for information about the partner, including the partner’s share of profit, loss, capital and liabilities, as well as how each percentage has changed. There’s also a portion that accounts for changes in the partner’s capital account, which is an account that reflects a partner’s share of equity in the business.

In Part III, the form provides dedicated spaces for specific information such as business income, real estate income, interest income, dividends, royalties, capital gain, foreign transactions, credits and other items.

There are also boxes to identify other income, deductions and other items, and the form comes with a page of codes that must be applied to identify the categories in which these items fit. The company can put an asterisk after the code for any item for which it has attached additional information.

See the comprehensive instruction guide to filling out this form.

Schedule K-1 instructions for S corporations

Schedule K-1 (Form 1120-S) is broken into three parts for S corporations:

  • Part I: Information About the Corporation
  • Part II: Information About the Shareholder
  • Part III: Shareholder’s Share of Current Year Income, Deductions, Credits and Other Items

 

Part I asks for the corporation’s name, address and EIN, as well as the IRS center where the corporation filed its return.

Part II requires that you identify the shareholder’s name and identifying number, as well as the share of that shareholder’s stock ownership.

In Part III, the form provides dedicated spaces for specific information such as business income, real estate income, interest income, dividends, royalties, capital gain, foreign transactions, credits and other items.

There are also boxes to identify other income, deductions and other information, and the form comes with a page of codes that must be applied to identify the categories in which these items fit. The company can put an asterisk after the code for any item for which it has attached additional information.

See the comprehensive instruction guide to filling out this form.

 

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