Form K-1, Partner's Share of Income, Deductions, Credits, etc. is a tax form issued by a partnership to its partners. An S corporation can also issue Schedule K-1s to its shareholders, a limited liability company (LLCs) to its members, or an estate or trust to its beneficiaries.
Pass-through Entities and Schedule K1s
Multiple types of pass-through entities can generate a Schedule K-1. A pass-through entity does not pay income taxes directly to the Internal Revenue Service (IRS) when it files its tax return. Instead, the income or loss passes through to the partners, members, shareholders, or beneficiaries. The individuals then record their share of the income or loss on their Form 1040, U.S. Individual Income Tax Return. The exact title of your Schedule K-1 may vary based on the type of entity that issued the form to you.
A partnership files an informational tax return, a Form 1065, U.S. Return of Partnership Income, which generates the Schedule K-1 for its partners. A Schedule K-1 issued by a partnership is titled Partner's Share of Income, Deductions, Credits. Etc. The partners must use the information provided on Schedule K-1 to pay income taxes on their share of the income when they file their personal income tax returns.
If the partnership incurs a loss, the loss is similarly passed through to its partners. However, there are limitations on the amount of losses that partners can deduct on their returns.
An S corporation files Form 1120-S, U.S. Income Tax Return for an S Corporation, which generates the Schedule K-1 for its shareholders. A Schedule K-1 issued by an S corporation is titled Shareholder's Share of Income, Deductions, Credits, etc.
Limited Liability Companies
An LLC has the luxury of choosing its own tax classification. A single-member LLC is taxed as a sole proprietorship unless it has elected to be taxed as a corporation. A multiple-member LLC is taxed as a partnership, S corporation, or C corporation. If your LLC is taxed as a partnership or S corporation, you will receive a Schedule K-1. The Schedule K-1's title will depend on the tax classification.
Estates and Trusts
An estate or trust is typically required to file Form 1041, U.S. Income Tax Return for Estates and Trusts if it has gross income of more than $600 in a tax year. The Form 1041 will generate a K-1 for its beneficiaries. A Schedule K-1 issued by an estate or trust is titled Beneficiary's Share of Income, Deductions, Credits, Etc.
Why Did I Receive a Schedule K1 and What Do I Need to Do With It?
If you are a part owner in a pass-through entity, you will receive a Schedule K-1 for your share of the business's income, deductions, and credits. You will need to include the information provided to you on your own tax return.
You must report the information exactly as it is given to you because it was also sent directly to the IRS when the form was generated by the pass-through. The IRS will expect this information to match their records. If you believe your share of the entity's income or loss is calculated incorrectly, you should contact the pass-through entity directly to request a corrected K-1.
When Should I Receive My Schedule K-1?
Schedule K-1s are due to the partners or shareholders by March 15th. The deadline allows the partners, shareholders, members, or beneficiaries to have one month to file their Form 1040.