What Is a Schedule K-1 Tax Form? Easy Filing Tips for Small Businesses.

Schedule K-1 tax form is used as an appendix to several types of business tax returns to report the balanced share of profits or losses of a corporation, partnership (domestic or foreign), or limited liability for shareholders.  The company is responsible for submitting this form to the Internal Revenue Service (IRS) and distributing it to shareholders, partners, or members to file their income tax returns.

This article covers:

What is Schedule K-1 Form Used for?

The Schedule K-1 form is issued every year for an investment in partnership interests. Schedule K-1 form aims to report to each partner’s share of profit, losses, deductions, credits, etc. It serves the same purpose for tax reporting as one of the various 1099 forms, reporting dividends or interest on securities or income from a securities’ sale.

The shareholders of S companies also use the board K-1; companies of under 100 shareholders are taxed as partnerships. Trusts and estates that distribute income to recipients also have to Schedule K-1s files.

While a partnership itself is usually not subject to income tax, individual partners are subject to be taxed on the share of their partnership income, whether it is distributed.

Who Must File Schedule K-1?

S corporations, partnerships, and Limited Liability Companies (LLC) are transfer entities because business income is transferred directly to their partners or shareholders’ tax returns, who must present them together with Schedule K-1.

Each of these transfer entities, depending on their type, uses a different form to declare their taxes. And thanks to the IRS, every kind of business must file a different Schedule K-1. 

How does Schedule K-1 Form work?

The United States tax law allows for a kind of pass-through taxation that transfers tax liabilities from a legal entity (such as a partnership) to individuals with a stake in it.

Therefore, having a Schedule K-1 form requires the partnership to keep track of the basis (i.e., the amount of financial participation) of each participant in the company.

The partnership prepares K-1 to get an idea of ​​each partner’s share of the total profit.

This share is calculated on the amount of capital that the shareholder has in this partnership.

The basic part of the participant’s contribution is increased due to capital contributions and income shares but decreases in losses and withdrawals.

The financial information entered in table K-1 of each partner is sent to the tax office along with Form 1065. S-corporations also submit K-1 with Form 1120.

Schedule K-1 for partners vs. S Corporation owner

There are two types of Schedule K-1: One type is for the partners in partnerships (Form 1065, K-1), and the second is for the shareholders in an S corporation (Form 1120s-K-1).

The main differences between the two Forms K-1 are how income/loss and certain types of deductions are included.

  • In the list K-1 of a partner, the participant’s share in the partnership income/losses and liabilities at the starting and the end of the year and the partner’s share in capital gains or losses are required.
  • In a shareholder’s form K-1, it is necessary to itemize the shareholder’s share of income of various types and certain types of deductions.
  • With both types of Forms K-1, all self-employed income or losses from business shares must be recorded to calculate self-employed taxation in Schedule SE.

The Schedule K-1 itself is not submitted with the personal return but is sent to the IRS and the appropriate corporate tax form (Form 1065 for a partnership; Form 1120-S for a company).

How is income reported on Schedule K-1?

The two types of Schedule K-1 are almost similar, and they both consist of three parts:

  • Part I. Company’s Details.
  • Part II. It contains information about the partner or shareholder of the business. 
  • Part III. Information on the partner’s or shareholder’s participation in income, losses, tax deductions, and credits.

Now look at some elements that each schedule includes, depending on the form:

What does Schedule K-1 for Partnerships (Form 1065) show?

  • Information about the partnership
  • Information about the partner, including name and address
  • Type of partner.
  • Partner’s share of profits, losses, capital, and liabilities at the beginning and end of the fiscal year.
  • Analysis of the partner’s account (how the balance evolves and changes in the period)
  • Partner’s share of income.
  • Loans
  • International transactions.
  • Tax-exempt income and non-deductible expenses

What does Schedule K-1 for S corporations (Form 1120S) show?

  • Information about the corporation.
  • Name, address, and other information about the shareholder.
  • Percentage of shareholder ownership for the fiscal year.
  • Shareholder participation in income.
  • Loans
  • International transactions.
  • Tax-free income and non-deductible expenses.

Information required for the forms in Schedule K-1

Schedule K-1 provides details on the partnership and partners, including the partners’ taxable income from passive and other activities, qualified dividends, net capital gains, and income from other activities.

Before preparing this form, your tax preparer needs a copy of your general partnership agreement to provide information on distributions of shares or money to partners and the allocation of income/loss to partners.

You also need a list of partners and their type of partnership (general or limited).

The most important information you need is the information on distributions and partner contributions for the tax year, in addition to the total amount of all partner capital accounts at the start and end of the year.

How to file a Schedule K-1 tax form?

Transfer entities such as partnerships, Limited Liability Companies, and S corporations must submit this form together with their partners or shareholders’ personal tax returns.

Several types of Schedule K-1 correspond to the forms that each company must file when filing taxes.

All the forms are divided into three parts, and all the information you need to complete them is in the business tax return and its financial statements. On March 15, you should have the form in your hands, which will help you prepare your report.

Finally, check which annex you must submit according to your company’s type, do not forget to attach it to your statement, and request the help of an expert when you need it. 

What Is the K-1 Tax Form Deadline?

Although the US Internal Revenue Service stipulates that the deadline for partnerships to provide their partners with K-1 forms is March 15, partnerships can apply to extend the time to September 15. Many new immigrants often submit personal income tax returns before April 15th. However, if the K-1 form is not obtained before the tax return on April 15, the income that appears in the immigration investment project company will not be able to be reported to a personal income tax according to the requirements of the IRS.

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