A Schedule K-1 is a form used to report “pass-through” earnings to the IRS for tax purposes. The form details the earnings of individuals with interest or ownership in certain types of businesses and makes the individual, rather than the business entity, responsible for paying taxes due on earnings. The specific earnings amounts paid to each individual are detailed on the K-1 and other forms so that the IRS can apply appropriate taxes.
Who receives a Schedule K-1?
A separate Schedule K-1 is prepared and filed for each partner or other people who receive ownership income (i.e., not wages or bonuses) from a business. It is completed by an accountant and filed with Form 1120-S (for S Corporations) or Form 1065 (for Partnerships).
Partners and shareholders will use a Schedule K-1 to report important earnings information on their tax returns (Form 1040). These forms are used to calculate the taxes owed.
What is included in a Schedule K-1?
A Schedule K-1 details the income, losses, and dividends that are allocated to a business partner. This includes:
- Ordinary business, rental, and real estate income.
- Guaranteed payments and interest income.
- Dividends and dividend equivalents.
- Short- and long-term capital gains and losses.
- Other items including royalties, collectibles, self-employment earnings, other income, and deductions.
Partnership agreements and the Schedule K-1
Partnership agreements are used by certain types of businesses to state the ownership, interests, drawings, and other factors of how business owners will run the business and receive earnings. The amounts and information reported on Schedule K-1 will be influenced by the original partnership agreement and any subsequent changes. For example, if there are two partners with equal ownership and the business distributed $200,000 between them, each partner would detail the $100,000earned on Schedule K-1.
How different types of business entities file Schedule K-1
Sole-Proprietors do not file a Schedule K-1. Instead, they report business income on a Schedule C of a Form 1040.
Single-Member LLCs do not file a Schedule K-1. Instead, they report business income on a Schedule C of a Form 1040
Partners report business income on a Schedule K-1 as part of Form 1065 and include that when filing Form 1040.
LLC members report business income on a Schedule K-1 as part of Form 1065 and include that when filing Form 1040.
S corporation owners report business income on a Schedule K-1 as part of Form 1120-S and include that when filing Form 1040.
Trust and estate beneficiaries
If a trust or estate passes income to beneficiaries that have not been fully-taxed, the beneficiaries will report that income on a Schedule K-1 as part of Form 1041.
Note that the specific details captured and reported in a Schedule K-1 may vary, depending on the form it is filed with. All Schedule K-1s do capture detailed information about types of earnings, deductions, and losses for accurate reporting.
Filing Deadline for Form 1065
Form 1065 must be filed on or before the 15th day of the 3rd month after tax year-end. In some cases, a six-month extension can be provided.
Related Reading on Schedule K-1 from TaxSlayer Pro
- Form 1040 – Schedule K-1 (Form 1065) – Overview
- Form 1040 – Schedule K-1 (Form 1120S) – Overview
- Schedule K-1 (Form 1041) – Overview
- Form1040 – Schedule K-1 (Form 1065) – Self-Employment Earnings (Loss)
- Form 1040 – Schedule K-1 (Form 1065) – Income (Loss) Items
- Form 1040 – Schedule K-1 (Form 1065) – Deductions
This article was last edited on August 2, 2021.