S Corp K-1: Everything You Need to Know
An S corp K-1 is a document labeled Form 1120S by the IRS and is used to report individual partners and shareholders share of business income as part of filing their corporate tax return4 min read
What is a Schedule K-1?
An S corp K-1 is a document labeled Form 1120S by the IRS and is used to report individual partners and shareholders share of business income as part of filing their corporate tax return. Part of this form is then transferred to the shareholder or partners individual tax return. This schedule is used by partners and shareholders to report such items as income, losses, receipts of dividends, and their capital gains. This form can also include distribution of income in a multiple member LLC.
The items that will be included on a Schedule K-1 are specifically designed for the form and will be entered into the K-1 input menu in a tax program. Once entered the amounts will be pulled into the appropriate schedule or line of the taxpayer's 1040. You can find more information on how to enter information into you K-1 form by reviewing the Shareholder's Instructions for Schedule K-1.
How Does Schedule K-1 Work With a Business Tax Return?
It is important to remember that the way business is taxed is largely dependent on the business type. When a business is formed through a partnership, the partnership will not be taxed on the income, but the partners will pay their income related taxes on their personal tax return. A partnership must only file a Form 1065 which is an informational tax return while an S corporation will be required to pay tax income through their 1120C corporate return.
If you are a shareholder, you will pay tax on your income that is shown on the Schedule K-1. In a multi-member LLC, individual members will receive information from the Schedule K-1 to include on their returns. If the LLC is a single-member, it will be treated as a sole proprietorship under tax law, and the member will not receive a Schedule K-1
How Do Schedule K-1's Differ for Partners and S Corp Owners?
When filling out a Schedule K-1, there are two versions that you can choose from. The first version is for partners in partnerships and is Form 1065, K-1, and the second version is for shareholders and is referred to as Form 1120, K-1. The primary difference between the two versions is how the deductions, income, and losses are included.
Under the partner's Schedule K-1 the partner's share of the capital gains and losses, as well as the liabilities and partnership income or losses at the beginning and the end of the year, will need to be included. A shareholders K-1 will include their share of the income as well as the deductions that need to be itemized.
Both versions of the Schedule K-1 must include any self-employment income or losses from the filers share of the business to provide the calculation for self-employment tax that will populate on Schedule SE. While the Schedule K-1 forms report income, they are not filed with an individual's personal return but are instead sent along with the business tax forms either on a 1065 or 1120 for reporting purposes.
What's Included in a Schedule K-1 for a Partner?
The K-1 Schedule on Form 1065 for a partner's share will include various information regarding the partnership, income, losses, and deductions. Information that will need to be included in a partnership Schedule K-1 includes:
- Partnership information.
- Name, address and other details about the partner.
- What type of partnership it is, such as a general LLC, limited, etc.
- The partner's share of losses, profit, and capital at the beginning of the filing year.
- The capital account analysis of the partner including their beginning balance, any changes, and the end of the year balance.
- Income that is reported as the partner's share which will include ordinary income, rent, interest, royalties, capital gains, interest, additional income, self-employment income, self-employment loss, section 179 deductions, and any other listed deductions.
- Items that qualify under alternative minimum tax.
- Foreign transactions.
- Any nondeductible expenses and income that is tax-exempt.
- The partner's distribution.
When a business functions as a partnership, the individual partners will be responsible for their income portion earned in the business and are responsible for filing their share of income, losses, credits, and deductions that have been reported on Form 1065 for business taxes. A copy of the Schedule K-1 should be provided to partners for them to add the information to their personal tax returns.
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