What Is a Schedule K-1 Tax Form?

Follow along to learn more about what this form is, who receives one, and why it's a crucial element when filing your taxes.

What is a K-1?

A K-1 is a federal tax form used to report one's share of income, losses, deductions, and dividends from a pass-through entity to the Internal Revenue Service (IRS). Similar to a W2 or 1099 Form, a Schedule K-1 form helps to calculate your taxable income.

Multiple types of pass-through entities, such as partnerships, S corporations, or limited liability companies, can generate a Schedule K-1. A pass-through entity does not pay income taxes directly to the IRS when it files its tax return. Instead, the income or loss passes through to the partners, members, shareholders, or beneficiaries. In other words, the tax liability shifts to the individual, not the entity, so the business doesn't face double taxation.

Once they receive their K-1 forms, individuals record their share of the income or loss on their Form 1040, U.S. Individual Income Tax Return, when they prepare their own tax returns.

Pass-through entities and Schedule K-1s

The exact title of the Schedule K-1 may vary based on the type of entity that issued the form to you. These K-1 tax forms may also differ slightly, but they all serve the same purpose.

If you're invested in or involved with any of the following entities, you will likely receive one of the following forms during tax season.

Partnerships

A business 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 partnership income when they file their personal income tax returns. In other words, the Schedule K-1 information is included in the partnership's tax return, which the individual partners then use to file their own taxes.

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.

It's also important to note that general partners are required to pay self-employment tax on their partnership income, but limited partners are not. Instead, limited partners only pay self-employment tax on guaranteed payments.

S corporations

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.

In terms of self-employment taxes, S corporation distributions are not classified as self-employment income, so you won’t pay self-employment taxes on them. Instead, you are required to pay self-employment taxes on your wages earned through the S corporation, meaning the corporation’s income is taxed at your individual tax rate. 

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 title of the Schedule K-1 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 a gross income of more than $600 in a tax year. The Form 1041 will generate a K-1 for its trust and estate beneficiaries. A Schedule K-1 issued by an estate or trust is titled Beneficiary's Share of Income, Deductions, Credits, etc.

What information is in a Schedule K-1 form?

The following are some common tax items reported on the Schedule K-1 tax document:

• Ordinary business income or loss
• Rental income
• Interest and dividends
• Short-term capital gains and losses
• Long-term capital gains and losses
• Royalties
• Guaranteed payments
• Deductions like charitable contributions
• Credits, such as foreign tax credits

Your Schedule K-1 form will provide you with the information you need to file your annual 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 pass-through generated the form. The IRS will expect this information to match their records.

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 may also receive a Schedule K-1 form if you are a beneficiary of a trust or estate.

Once you receive the form, ensure that the information listed is correct. 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.

If everything is accurate, you must include the K-1 information on your personal tax return.

FAQs

When should I receive my Schedule K-1?

Schedule K-1s are due to the partners or shareholders by March 15. The deadline allows the partners, shareholders, members, or beneficiaries one month to file their Form 1040 during tax season.

Who receives a Schedule K-1?

Partners, shareholders, members, and beneficiaries receive Schedule K-1 forms. This means individuals involved in business partnerships, LLCs, or S corporations receive them, along with those who receive assets from trusts or estates.

How is K-1 income taxed?

The U.S. tax code allows some entities to enjoy pass-through taxation, meaning K-1 income is taxed at the individual tax rate rather than the corporate tax rate.

What happens if I don’t receive my K-1 on time?

If you don't receive your Schedule K-1 form on time, contact the entity responsible for distributing it to you. You may also want to contact the IRS for additional guidance to avoid late tax filing fees.

How does a Schedule K-1 form impact my taxes?

Receiving a Schedule K-1 could affect what you owe to the IRS. If the K-1 form reflects income, it could increase your tax liability, but if it reflects losses, it could lower your tax liability for the year.

Alicia Tuovila contributed to this article.