What is a Schedule K-1 Tax Form?
The Schedule K-1 is slightly different depending on whether it comes from a trust, partnership or S corporation. Find out how to use this tax form to accurately report your information on your tax return.
Key Takeaways
- The Schedule K-1 is the form that reports the amounts passed to each party with an interest in an entity, like a business partnership or an S corporation. The parties use the information on the K-1 to prepare their separate tax returns.
- Partnerships prepare a Schedule K-1 to report each partner’s share of the income and losses. It also reports their share of the tax deductions and tax credits from the 1065 tax form.
- S corporations provide a Schedule K-1. It reports each shareholder’s share of income, losses, deductions, and credits. The corporation reports these to the IRS on Form 1120S.
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Some trusts and estates pass income through to the beneficiaries. In these cases, the beneficiaries receive a K-1. It shows the income they must report on their tax returns.
What is a K-1 form?
The United States tax code allows some entities to use pass-through taxation. This effectively shifts the income tax from the earner to those who benefit. The Schedule K-1 is the form that reports the amounts that are passed through to each party that has an interest in the entity. These businesses are often referred to as pass-through entities.
Who needs to fill out a K-1?
Certain entities and partnerships file Schedule K-1 forms with the IRS and issue them forms to partners and shareholders. While individual taxpayers typically don’t file K-1 forms, you can use the information you receive from a K-1 on your personal income tax return.
There are four main types of entities that are required to file a K-1:
- business partnerships
- LLCs that have at least two partners or elect to be taxed as corporations
- S corporations
- trusts and estates
Each one of these entities completes a different type of K-1 form. These K-1 forms are similar in many ways. But, they vary slightly based on the filing entity.
There are multiple K-1 forms tailored to the entities above. Three main groups will typically receive a Schedule K-1.
- business owners, co-owners, and partners
- shareholders and investors
- those receiving income or assets from a trust or estate
What is a K-1 form for business partnerships?
In partnerships, the partners, not the business, pay taxes on its income. Each partner must file a tax return. It reports their share of the income, losses, tax deductions, and tax credits. The business reported them on the 1065 tax form. As a result, the partnership must prepare a Schedule K-1 to report each partner’s share of these tax items.
- The partnership provides K-1s to the IRS with its tax return. It also gives them to each partner. They use them to add the information to their tax returns.
- For example, if a business earns $100,000 of taxable income and has four equal partners, each partner should receive a K-1 with $25,000 of income on it.
What is a K-1 form for LLCs?
An LLC is a pass-through entity. So, partners and co-owners must report their share of income, losses, and tax deductions and credits. If you have an ownership stake in a limited liability company (LLC), then you may receive a Schedule K-1.
Not all LLCs will file K-1s. The IRS may treat an LLC as a partnership, a disregarded entity, or a corporation. This depends on the elections made by those within the LLC and the number of members.
If you've chosen to be treated as an S corp, you may get Schedule K-1 (Form 1120-S). It reports owners' share of income. If you’ve elected to be treated as a C corp, no K-1 will be filed because taxes are paid at a corporate level.
What is a Schedule K-1 for S corps?
Similar to a partnership, S corporations (or S corps) file an annual tax return using Form 1120S. The S corporation provides Schedule K-1s. They report each shareholder’s share of income, losses, deductions, and credits. The shareholders use the information on the K-1 to report the information on their separate tax returns.
TurboTax Tip:
In some cases, a trust will pay income tax on its earnings rather than passing it through to the beneficiaries. Some trusts and estates pay taxes on some income. They pass other income to the beneficiaries. This depends on the type of income and the trust or estate's governing documents.
What is a K-1 form for trust and estate beneficiaries?
Trusts and estates use Form 1041 to file their tax returns. In some cases, the trust pays the income tax on the earnings rather than passing it through to the beneficiaries. However, some trusts and estates pass income through to the beneficiaries. Some trusts and estates do both. This depends on the type of income and the governing documents of the trust or estate. For example, a trust might pass through dividends, interest, and other income to the beneficiaries but pay tax at the trust level on capital gains.
- In this case, the beneficiaries receive a K-1. It shows the income they need to report on their tax returns.
- When a beneficiary gets income, the trust or estate typically reports a matching deduction on its 1041.
- This keeps the trust or estate from being taxed on the same income. The income is being passed-through to a beneficiary, so it is only taxed once.
How to file a Schedule K-1
A Schedule K-1 is broken up into three parts:
- Part I is about the entity. It gives the entity's employer’s EIN and address. It also says the IRS location where the tax return was filed and if it’s a publicly traded partnership.
- Part II is about the partner/shareholder/beneficiary. It has more detailed information about the K-1 recipient. This information includes their SSN and address. It also has their role in the entity. It includes their profits, their losses, and the capital and assets they contribute to the partnership in the year.
- Part III covers the entity's share of this year's income, deductions, credits, and other items. It asks for details about the entity's income, as well as any tax deductions or credits.
Schedule K-1 reporting
The Schedule K-1 is slightly different depending on whether it comes from a trust, partnership, LLC or S corporation. However, all K-1s provide detailed information. They show the type of income, tax deduction, or loss. This lets you accurately report it on your tax return.
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