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Schedule K 1 Tax Form: Complete Guide

A Schedule K 1 is a tax form that allows businesses to report income, losses, and other information. But there are actually different types of this form, depending on your type of business.

While tax regulations make the process of filing taxes somewhat tortuous, it is possible to meet your tax obligations and not die trying.

In this article, you will discover what a Schedule K-1 is, who should present it and why, and how to complete it correctly.

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What Is An IRS Schedule K 1?

Schedule K 1 is a pass-through tax document used to report profits, losses, dividends, rental income, deductions, and credits to the Internal Revenue Service during the fiscal year.

It helps determine taxable income and tax liabilities.

With this tax form, you can also track the participation of each partner in the business’ performance, depending on the capital invested.

What Are Pass-through entities?

Pass-through taxation means that the entity (the business) does not pay taxes per se; instead, they are “passing it through” to the shareholders, partners, members, or beneficiaries.

The tax code of the United States allows some businesses to transfer their tax liability (that is, the taxes they have to pay on their income) to individuals investing in these companies, such as their partners or shareholders.

In other words, the business itself does not pay any taxes. But it transfers its obligations, profits, and losses to its shareholders and owners.

These types of businesses are pass-through entities.

Who has to file a Schedule K 1?

You must present an IRS Schedule K 1 if you belong to a pass-through entity. The different types of entities that need to present it are:

  • S corporations
  • partnerships
  • LLCs
  • Trusts and estates

There are different Schedule K 1 forms for each type of business. Let’s see the particulars of each one.

IRS Schedule K-1 (Form 1065) for Partnerships

Partnerships must file their return using Form 1065, “U.S. Return of Partnership Income,” as well as the corresponding Schedule K-1.

This reports to the IRS the partner’s share in the income, profits, losses, deductions, credits, and liabilities.

What does a K-1 tax form (Form 1065 K-1) look like?

A K-1 form for partnerships looks like this:

schedule K 1 Form 1065

What information does it require?

This form requires:

  • Company information.
  • Information about the partners, including their names, addresses, and taxpayer identification number.
  • Type of partners.
  • The partner’s share in the gains, losses, capital, and liabilities at the beginning and end of the tax year.
  • Analysis of the member’s account (how the balance evolves and changes during the period).
  • Participation of the member in the income.
  • Tax-exempt income and non-deductible expenses.

Schedule K-1 for S Corporations (Form 1120S)

An S Corporation declares its taxes using Form 1120S, “U.S. Income Tax Return for an S Corporation.”

They also must present the corresponding Schedule K-1, where you need to report the percentage of income, profits, losses, deductions, and credits of each shareholder.

What does a K-1 tax form (Form 1120S) look like?

The S Corporation K-1 form looks like this

schedule K 1 Form 1120s

What information does it require?

This form requires:

  • Information about the corporation.
  • Shareholder’s name, address, and other information.
  • Percentage of the shareholder’s ownership for the fiscal year.
  • The shareholder’s participation in income.
  • Tax-exempt income and non-deductible expenses.

The information you need to fill out the form is in the business tax return and the financial statements.

How to file taxes as a corporation

Schedule K-1 for LLCs

These companies are somewhat different in fiscal terms: they can file their taxes as partnerships or sole proprietorships.

If your LLC files taxes as a partnership, you must file a Schedule K 1 (Form 1065).

#DidYouKnow
One-member LLCs must report as if they were a sole proprietorship, using Schedule C. In this case, they do not have to present Schedule K 1.

The tax form reports the partnership income, which is the participation of each member in the business income, deductions, and tax credit items.

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Schedule K-1 for Trusts And Estates (Form 1041)

Trusts and estates can decide to pass income to their beneficiaries or not. If they do, the estate needs to file their Schedule K-1 alongside Form 1041, “U.S. Income Tax Return for Estates and Trusts.”

The K-1 1041 is “to report a beneficiary’s share of the estate’s or trust’s income, credits, deductions, etc.”

What does a K-1 tax form (Form 1041) look like?

A K-1 form for estates and trusts looks like this:

schedule K 1 Form 1041, page 1

Schedule K 1 codes

This form has a second page with the pertinent schedule K 1 codes you need to complete it.

schedule K 1 Form 1041, page 2

What information does it require?

This form requires:

  • Information about the Estate or Trust
  • Information about the beneficiary
  • Beneficiary’s Share of current tax year income, deductions, credits, and other items.

To learn how to do it step by step, this is the 2020 instructions for a beneficiary filing form 1040 or 1040-SR.

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Schedule K q instructions: How to complete it

Now we will cover how to fill the IRS Schedule K 1 (no matter which form).

All K-1s have three parts:

Part I

Here you must add information about the company/partnership/estate. The information includes

  • EIN
  • name (for estates)
  • full address
  • number of shares (for corporations)

Part II

Here you must add information about the business partner/shareholder/beneficiary. The information includes:

  • ID number
  • name
  • full address
  • number of shares and loans (for corporations)
  • type of parter, losses, and shares (for partnerships)

Part III

Here you must specify the participation of the partner/shareholder/beneficiary in the finances of the business or trust.

The information includes:

  • income
  • dividends
  • credits
  • gains
  • deductions
  • tax adjustments

What is Corp to Corp? 

How to file a Schedule K 1

Partners and shareholders must attach this information to their personal income tax return (i.e., 1065 or 1120S).

#DidYouKnow
The easiest way to submit forms is by using the IRS’ electronic platform or a tax preparing software. Alternatively, if you feel a bit nostalgic, you can walk to the post office and mail them.

When to file your Schedule K 1

Businesses have to send the K-1 form until March 15 to all partners or shareholders. So it’s proper that the company calculate the distribution of income and losses before this date for each owner.

You have to submit it, alongside your personal tax return, by mid-April.

5 tips for filing Schedule K 1

So that you can complete the K1 correctly, here are some extra recommendations to file your K-1:

Ask for help if you need it

Yes, even though we have explained how to complete the tax form on your own, some steps are complex. Hire a tax professional or an experienced accountant to ensure the forms contain accurate information in your tax filing process.

Don’t forget to include the form

You will need to attach your Schedule K 1 to your personal tax return. Otherwise, the IRS will not accept it. Do not let your bad memory make you pay fines for filing late.

Use the correct tax form

There are different versions of the tax form, one for companies, which must refer to Form 1065, and another for S corporations, which must reference Form 1120S. Don’t mix them up!

You will always receive a K-1

As long as you are a partner or shareholder of a business that operates as a pass-through entity, you will receive a Schedule K 1, even if the company has had losses during the tax year.

And fret not, even negative numbers can be good news, as they reduce the taxes you must pay.

Do not worry about blank spaces

You may not have to fill out the entire tax form, as the form covers a wide variety of situations that do not necessarily apply to all businesses.

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It’s time to present your K-1

Now you know what K-1 you need and how to present it alongside your personal tax returns if you’re part of a transfer entity.

And even though there are different K-1 forms, all the information you need to complete them is in your business tax return and your financial statements.

Finally, don’t forget to attach your tax form to your individual statement and look for tax advice from an expert.

But, do you know when your taxes are due?

Don’t worry! We’ve got you covered.

Keep reading:

When to File Your Small Business Taxes: 2022 Deadlines

 

FAQs

Are K-1 distributions taxable?

Distributions aren’t usually considered taxable income.

Who gets an IRS Schedule K-1?

Partnerships, S companies, LLCs (that file taxes like partnerships), and Estates and trusts.

Is the IRS Schedule K-1 Income considered earned income?

Depends on your participation and status.

When should I receive my IRS Schedule K-1?

You should receive it by March 15.

Do you have to file an IRS Schedule K-1?

If you’re part of a pass-through entity (like a partnership or an s corp), yes, you should.

Do I need to file a K-1 if I have no income?

If the Schedule K-1 form shows no income (it has zeros in all boxes), you won’t need to report it to the IRS.

How do I report K-1 income?

You need to add, into your individual tax return, the income amounts that appear on your Schedule K-1.

What should I do if I did not receive a Schedule K-1?

You need to file a tax extension so you don’t have any problems with the IRS. Also, contact the business or trust and ask them to send it to you.

 

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