1. Form 1040 - Schedule K-1 (Form 1120S)
2. When Will You Need a Schedule K-1?
3. How Do You Use a Schedule K-1 on Your Business Tax Return?
4. What is the Difference Between a Schedule K-1 for Partners and for S Corp Owners?

Form 1040 - Schedule K-1 (Form 1120S)

A Schedule K-1 (Form 1120S) is a document prepared for a corporate tax return filing which will help each shareholder of the company prepare his or her personal taxes. The K-1 will notify the shareholder of all the deductions, credits, and income that he will be required to include on his 1040 personal tax return. To input this information on the corporate return, you will specifically follow the K-1 input menu that is available on the tax program.

All amounts will be entered separately where they will then pull into the appropriate section of the filer's 1040 form. There are some entries that will have to be entered in other sections depending on how the filer is treating the deductions, income, or credits items.

The Schedule K-1 consists of three primary parts including:

  • Part I - Corporation information - In this section the basic information concerning the corporation such as name, address, and tax ID number will be entered.
  • Part II - Shareholder - This section will have the basic information about the shareholder as well as the nature of her investment in the company and the percent of stock she had during the tax year.
  • Part III - Shareholders share - This section will break down the shareholder's specific deductions, credits, income, and other items.

If you have any questions or need assistance for filling out the K-1, the S corp K-1 instructions can provide step-by-step guidance. If using the TaxSlayer Pro software to enter your K-1 information, you can follow certain steps to make your filing easier.

  1. From the Main Menu of the 1040 tax return form select Income menu, then rents, royalties, and entities, then select K-1 input.
  2. Select pull and double click on business package.
  3. The program will import the information from the K-1. 
  4. Review and edit the screen if necessary.

When Will You Need a Schedule K-1?

The Schedule K-1 is needed when you need to report the individual partner's share of income on an S corporation so that it can be transferred to his personal tax return. A Schedule K-1 will be used to report a variety of factors that are important to the individual's earning in the company such as:

  • Income
  • Losses
  • Dividend receipts
  • Capital gains
  • Distribution of income among members

How Do You Use a Schedule K-1 on Your Business Tax Return?

The way a business is taxed is primarily dependent on the type of business it is. For example, a partnership will not be taxed on its income, but instead, partners will pay taxes on the income they earned that is reported through their Schedule K-1 on their personal 1040 tax return. For informational purposes, the partnership will need to file a Form 1065.

If the business is filed as an S corporation, they will file and pay their income taxes through a corporate return on Form 1120S. The shareholders of the corporation will pay taxes on the income they earned through distribution that was reported on the Schedule K-1 and is reported on their personal 1040 tax return.

A business entity that is an LLC will receive partnership information on their income earned on a Schedule K-1 when the company is made up of the multiple members. If the LLC has a single membership, the IRS will treat him as a sole proprietorship and filing out a K-1 will not be necessary as he will simply file through his personal tax return.

What is the Difference Between a Schedule K-1 for Partners and for S Corp Owners?

The Schedule K-1 has two forms depending on whether the company is registered as a partnership of an S corporation. Partners will need to fill out a Form 1065 K-1 and shareholders will need a 1220S K-1. The primary difference between the two forms will be how the income and losses, as well as the deductions, are included.

A partner schedule K-1 will have to have the share of the partner's income/losses and liabilities that were reported at the beginning of the tax year as well as the end. You will also need to list the partner's portion of capital gains and losses.

In a shareholder's version, there will be deductions to itemize, and they have different types of reported income depending on how they make money from the company.

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