S Corporation K1: Everything You Need to Know
The S corporation K-1 form, also known as a Schedule K-1, is used to report the amount of profit passed through to each party in business entities such as LLCs and S corporations. 3 min read
2. How to Fill Out a Schedule K-1 For a Partnership
3. How to Fill Out a Schedule K-1 for an S Corporation
4. What if You Don't Issue a Schedule K-1?
The S corporation K-1 form, also known as a Schedule K-1, is used to report the amount of profit passed through to each party in business entities such as LLCs and S corporations. It shows income, dividend receipts, and losses. These items transfer to each partner, owner, or shareholder's personal tax return.
How Is the K-1 Used?
The form varies depending on which entity it comes from:
- A partnership is not taxed on its own profits. The individual partners report their income share on their personal tax returns, based on the information in the Schedule K-1.
- An S corporation reports each shareholder's portion of income, losses, credits, and deductions. Shareholders use the Schedule K-1 to put these amounts on their personal tax returns.
- Multiple-member LLCs use the K-1 form to report information about owners' income.
- Single-member LLCs are taxed the same way as sole proprietorships; therefore, they do not need to use a Schedule K-1.
Schedule K-1 has two versions:
- One for partnerships
- One for shareholders in an S corporation
The main differences between them are the way deductions, income, and losses are figured.
Partnerships use Form 1065 K-1, which shows the partner's portion of income, losses, and liabilities at the beginning of the tax year, as well as at the end. It also shows their share of capital gains or losses.
Shareholders get a Form 1120-S K-1, which itemizes the shareholder's types of income and deductions.
Both versions of Schedule K-1 require inputting all income and loss from self-employment and from ownership shares in the business. This is used on Schedule SE to calculate tax on self-employment. You don't file a Schedule K-1 with your personal tax return. You must send it to the IRS with the proper business tax form. This is Form 1120-S for an S corporation and Form 1065 for a partnership.
How to Fill Out a Schedule K-1 For a Partnership
The information in a K-1 for a partnership is based on that in the informational tax return each partnership must file. This includes:
- The partnership's information, such as Employer Identification Numbers (EIN), the business address, and its filing location.
- The partners' information, such as their names, addresses, and tax ID numbers.
- Whether a co-owner is an LLC member or a limited partner
- The partner's share of profit, capital, and loss at the beginning of the tax year, as well as their share at the end of the year.
- The partner's share of business-related profit and loss. This also includes capital gains, dividends, and interest.
- The partner's losses.
- An analysis of the partner's capital account, showing beginning amounts, any changes, and an ending amount.
- The partner's normal income, income from real estate or rentals, dividends, interest, long- and short-term capital gains, deductions, self-employment earnings and losses, and any other income or loss.
- Any credits or foreign transactions that might have taken place.
- Items covering alternative minimum tax.
- Income that is tax-exempt and expenses that are not deductible
- Any distributions, or money that was paid to the member or partner during the tax year.
Even if your business has a loss and you aren't reporting owners' or shareholders' taxable income, the partnership still needs to issue K-1 forms.
How to Fill Out a Schedule K-1 for an S Corporation
The Schedule K-1 for S corporations is similar to that of a partnership; however, key differences include:
- The corporation's information, such as EIN, business address, and filing location.
- The shareholder's name and address.
- The shareholder's stock ownership percentage during the tax year.
- Shareholder's income, including normal income, real estate or rental income, dividends, interest, deductions, earnings and losses from self-employment, alternative minimum taxes, and any other losses or income.
- Income that is tax-exempt and expenses that are not deductible.
- Any items that affect the shareholder basis.
What if You Don't Issue a Schedule K-1?
The IRS is strict about issuing this form. Companies that do not issue Schedule K-1 forms face stiff penalties:
- They receive large fines for every month each partner or shareholder is late.
- Pass-through incomes incur a heavy fine for each K-1 that is not issued on time.
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