Schedule K-1: What is it and Who Needs to Know?

Man receiving his Schedule K-1 form.

Many small businesses operate as a pass-through entity. With a pass-through entity, the partners or shareholders are responsible for paying the business tax, rather than the company being liable .

Their return will need to include information from the source document, Schedule K-1. You’ll enter this for them on Schedule E, Line 28.

What is a Schedule K-1?

To pay taxes, the business entity will need to file a Schedule K-1. This IRS form reports the total income of the business and the partners’ share of business profits, losses, deductions, and credits. There are two different versions:

  • Schedule K-1 (Form 1065)
  • Schedule K-1 (Form 1120S)

There is also a version for an estate or trust, referred to as Schedule K-1 (Form 1041).

Schedule K-1 (Form 1041)

This version of Schedule K-1 is prepared by the fiduciary to an estate or trust as part of Form 1041. If the estate hasDistributable Net Income, elects to distribute and distributes enough assets to the beneficiary, it may send a Schedule K-1 to the beneficiaries. It will reflect the individual beneficiary’s portion of income and other items for them to report on their own return. If there are mistakes or inconsistencies, the beneficiary can request an amended form from the fiduciary.

Schedule K-1 (Form 1065)

Schedule K-1 (Form1065) is a tax document that is always prepared by a partnership. After the partnership files Form 1065, each partner is provided with a Schedule K-1. The K-1 reflects a partner’s individual share of income, deductions, credits and other tax items. The partner will need to report these items on Form 1040.

Schedule K-1 (Form 1120S)

This version of Schedule K-1 is always prepared by an S corporation as part of their tax return. Then the corporation sends each shareholder this Schedule K-1. It reflects their share of income, deductions, credits and other items that the taxpayer will need to report on their Form 1040.

2018 Qualified Business Income Deduction

Make sure the taxpayer knows about the new deduction enacted by the Tax Cuts and Jobs Act. Pass-through entities can now deduct up to 20% of their qualified business income (QBI). Not all of your clients will qualify for the full 20%. This could move the taxpayer into a lower individual tax bracket, lowering their tax bill.

For a more in-depth look at the QBID, read also Information on the Qualified Business Income Deduction.

How TaxSlayer Pro can help with filing Schedule K-1

TaxSlayer Pro has unique menus to quickly and easily help you enter taxpayer data into all versions of the Schedule K-1. This data will be pulled into the appropriate place on the taxpayer’s return. See the TaxSlayer Pro knowledgebase for specific instructions and answers to common questions.

This article was last edited on March 6, 2019.

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