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 that are passed through to each party that has an interest in an entity, such as 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, losses, tax deductions, and tax credits that the business reported on the 1065 tax form.
• S corporations provide a Schedule K-1 that reports each shareholder’s share of income, losses, deductions, and credits that are reported to the IRS on Form 1120S.
• Some trusts and estates pass income through to the beneficiaries. In these cases, the beneficiaries receive a K-1 that shows the income that they need to report on their own tax returns.
What is a K-1 form?
The United States tax code allows certain types of entities to utilize pass-through taxation. This effectively shifts the income tax liability from the entity earning the income to those who have a beneficial interest in it. 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 specialized K-1 forms are similar in many ways, but vary in slight ways depending on the entity that’s filing.
Given that there are multiple K-1 forms tailored to the entities above, there are three general groups that 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?
For businesses that operate as partnerships, it’s the partners who are typically responsible for paying taxes on the business’ income, not the business. Each partner is responsible for filing a tax return reporting their share of income, losses, tax deductions and tax credits that the business reported on the informational 1065 tax form. As a result, the partnership must prepare a Schedule K-1 to report each partner’s share of these tax items.
- K-1s are provided to the IRS with the partnership’s tax return and also to each partner so that they can add the information to their own 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 will be responsible for reporting their individual 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, depending on the elections made by those within the LLC and the number of members.
If you’ve elected to be treated as an S corp, you may receive Schedule K-1 (Form 1120-S) to report owners’ pro-rata 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 that reports 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 and pass other income through to the beneficiaries, depending on the type of income and governing documents of the trust or estate.
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 a mixture of both depending on the type of income and 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 that shows the income that they need to report on their own tax returns.
- Whenever a beneficiary receives a distribution of income, the trust or estate typically reports a deduction for the same amount on its 1041.
- This keeps the trust or estate from being taxed on the same income that is being passed-through to a beneficiary so that the income is only taxed once.
How to file a Schedule K-1
A Schedule K-1 is broken up into three parts:
- Part I Information about the entity: This section provides the entity's employer’s EIN, address, the IRS location where the tax return was filed, and whether it’s a publicly traded partnership.
- Part II Information about the partner/shareholder/beneficiary: This section provides for more specific information about the recipient of the K-1, such as their SSN, address, their role in the entity, their profits and losses, and the capital and assets they contribute to the partnership over the course of the year.
- Part III Share of current year income, deductions, credits, and other items: This section asks for details regarding income as it relates to the entity, as well as any tax deductions or credits claimed.
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 about the type of income, tax deduction or loss so you can accurately report the information on your tax return.
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