S Corp K-1: Everything You Need to Know
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.4 min read
2. Schedule K-1: Partner vs. S Corp
4. S Corp Shareholder
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.
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
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