S Corp K-1 is an income tax document that must be filled out by those operating a partnership, members in an LLC, and S Corporation owners. It is used to report all individual income that is earned by the above-mentioned owners, which includes income, losses, dividends, capital gains, and passive income (i.e. rent).

Schedule K-1 also identifies the distribution of income for those members operating a multi-member LLC, particularly if it is taxed as a partnership. The information identified on this document is then included in the person’s personal tax return on Schedule E, which is the supplemental income/loss sheet.

How Does Schedule K-1 Work?

Before you can determine if a K-1 is required, especially for S Corps, it is important to remember how a business is taxed, especially for an LLC electing to be taxed as a partnership, C Corp, or S Corp.

A partnership isn’t taxed at the corporate level; rather, the partners pay taxes on their share of the income, which is filled out in Schedule K-1. While partnerships don’t file a corporate tax return, they do need to file an information-only tax return (Form 1065).

An S Corporation pays tax on income by filing a 1120S corporate return. The shareholders of the S Corp will then pay tax on the income distributed to them in the form of shares, which will be identified on Schedule K-1.

LLCs operating as a multi-member LLC will include all income received on Schedule K-1. However, a single-member LLC is taxed as a sole proprietorship, and therefore, the owner doesn’t file Schedule K-1.

A C Corp pays corporate income tax by filling out Form 1120. The shareholders of the C Corp are then taxed again at the personal rate using Form 1099-DIV as opposed to Schedule K-1.

Schedule K-1: Partner vs. S Corp

There are two types of Schedule K-1 forms. The first version is used for partnerships (Form 1065 K-1) and the other version is used for shareholders in an S Corp (Form 1120s-K-1). The only difference between these two types of K-1 forms is how the income and losses are included on the form itself.

In a partner’s Schedule K-1 form, the partner’s share of income, loss, and liabilities are included – both what the amount is at the beginning and end of the year. Also included in this form is the partner’s capital gains/losses. However, in a shareholder’s K-1 form, the income and some deductions must be itemized.

Both versions of the K-1 must report self-employment income and losses, which will then be calculated on Schedule SE. Schedule K-1 is not filed with the personal tax return but is instead sent to the Internal Revenue Service (IRS) with the applicable tax form, i.e. Form 1065 or Form 1120-s.

Partnership

A partner must include a variety of information on his or her K-1 Form. For example, let’s assume you are a partner in a 2-partner entity. Therefore, if your partnership earned $200,000 in taxable income, and both you and the other partner are equal partners, then you will both be required to report $100,000 on your Schedule K-1.

Included on the partnership K-1 form is the following:

  • General partnership information
  • Name/address of the partner(s)
  • Type of partner, i.e. general, limited
  • Share of profit/loss/capital/liability at beginning and end of year
  • Capital account analysis, including balance at the beginning and end of year, along with changes throughout the year
  • Share of income, including ordinary income, passive income, interest, dividends, royalties, tax-exempt income, etc.
  • Deductions and non-deductible expenses, i.e. a partner might be able to deduct a loss from the partnership so long as the loss is not affected by the basis or at-risk limitation.
  • Credits and foreign transactions should also be included
  • Distributions paid to the partner throughout the taxable year

S Corp Shareholder

The shareholder K-1 form includes the following information:

  • General information about the S Corporation
  • Name/address of each shareholder
  • The shareholder’s percentage of stock ownership during the taxable year
  • Shareholder’s income, including ordinary income, passive income, interest, dividends, and royalties
  • Short and long-term capital gains, including un-recaptured section 1250 gains and section 1231 gains/losses netted
  • Applicable Section 179 deductions, along with nondeductible expenses
  • Tax-exempt income, credits, foreign transactions, and other items that affect the shareholder basis.
  • Self-employment income and losses

If you need help drafting an S Corp K-1 form, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.