Schedule K-1 is the form a pass-through entity issues to each owner reporting that owner's share of the entity's income, deductions, credits, and other tax items for the year. Partnerships issue K-1s from Form 1065, S corporations from Form 1120-S, and estates and trusts from Form 1041. The K-1 is not a bill and not cash: owners are taxed on their allocated share whether or not anything was distributed, which surprises many first-time investors in funds and syndications. Beyond the income lines, K-1s carry critical detail: QBI information, basis and capital account data, guaranteed payments, self-employment earnings for partners, and state-by-state sourcing. Because entity returns are due March 15 and are frequently extended to September 15, late K-1s are the most common reason individual returns go on extension.
Schedule K-1
Primary authority: IRC §§6031, 6037; Forms 1065 / 1120-S
The authority behind it
IRC §§6031, 6037; Forms 1065 / 1120-S
Every entry in this glossary cites the statute, regulation, or IRS guidance behind it.
Worked example
An investor owns 5% of a real estate partnership. Her K-1 shows a $12,000 rental loss and $0 of distributions; she reports the loss (subject to passive rules) even though no money moved, and files her 1040 on extension because the K-1 arrived in August.
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Related terms
Partnership
A partnership is a business with two or more owners that is taxed under Subchapter K of the Internal Revenue Code.
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S Corporation
An S corporation is a corporation or an LLC that elects corporate treatment that has filed a valid election under...
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Stock Basis (S Corporation)
Stock basis is a shareholder's running investment account in an S corporation, and it controls three things: how...
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Passive Activity Loss (PAL) Rules
The passive activity loss rules of Section 469 are the third and usually toughest gate for deducting business and...
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Filing Extension
A filing extension gives more time to file a tax return, not more time to pay.
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