Schedule K-1 S corp is used by S corporations to report their income for tax purposes. 

What Is Schedule K-1?

A Schedule K-1 form provides the total amounts that are distributed to all of the individuals who have a share in a business. Individual partners and shareholders use a Schedule K-1 to determine their income from the applicable partnership, LLC, or S corporation and to report their taxable income. Partners or shareholders then transfer Information from the Schedule K-1 to their individual tax returns.

A Schedule K-1 reports the following:

  • Income
  • Losses
  • Dividend receipts
  • Partners', shareholders', or trusts' capital gains

Partnerships also use a Schedule K-1 to report the disbursement of income to representatives of an LLC.

How Is a Schedule K-1 Related to Filing Taxes?

It is important to recall that the process of taxing a business varies with the different types of businesses

In a partnership, the partners only pay tax on the income allocated to them based on their percentage of ownership in the business, which is provided in the Schedule K-1. The business itself is only required to file Form 1065. 

S corporations must file a 1120S corporate return in addition to paying tax on their income.

Owners pay tax on shareholder income which is listed in their Schedule K-1. 

What Is the Difference Between Schedule K-1s for S Corporation Shareholders and Partners?

There are two types of Schedule K-1:

The two Schedule K-1s report income or losses and some deductions differently:

  • Partners report their share of annual beginning and ending earnings, losses, liabilities, and any increases or decreases in capital assets. 
  • Shareholders must itemize their reported shares of business income and deductions.

In order to calculate tax for Schedule SE, Self-Employment Tax, both versions of the Schedule K-1 documents must also include self-employment earnings or losses. This tax is used for Social Security purposes.

Rather than being filed as a personal return, the Schedule K-1 should be sent to the IRS with either Form 1065 or Form 1120S; the proper form depends on whether the business is a partnership or an S corporation. 

How Is a Schedule K-1 Used to Complete Individual Tax Returns?

A partner or shareholder inputs the information from the Schedule K-1 into Schedule E, which provides information concerning supplemental earnings and losses. 

What Information Is Provided in a Schedule K-1?

For a partner, the Schedule K-1 includes information from the partnership tax return, Form 1065, that is relevant to the partner:

  • Partnership information
  • Partner details, such as name and location
  • Type of partner
  • Beginning and end of the year portion of earnings, losses, or capital
  • Beginning and end of year apportionment of liabilities
  • Beginning and ending amounts as well as any changes made to the capital account
  • Shares of partners' various types of income and losses 
  • Credits
  • Foreign transactions
  • Additional tax owed under the alternative minimum tax system 
  • Earnings that are exempt from taxes
  • Expenses that are not deductible 
  • Distributions
  • Other information

For a shareholder of an S corporation, the Schedule K-1 includes information from the business's tax return, Form 1120S, that is relevant to the shareholder:

  • Corporation information
  • Shareholder details, such as name and location
  • A portion of stock and ownership belonging to the shareholder
  • Credits
  • Apportionment of shareholders' various types of income and losses 
  • Foreign transactions
  • Additional tax owed under the alternative minimum tax system 
  • Earnings that are exempt from taxes
  • Expenses that are not deductible 
  • Information that has an effect on a shareholder basis
  • Other information

How Is Schedule K-1 Used for Partnerships?

Partners are required to pay taxes on the business income of a partnership. The partners must report on their individual returns their shares of business income, losses, credits, and deductions that were reported on the partnership's Form 1065. After completion, the Schedule K-1 is sent to the IRS along with the partnership's tax return as well as distributed to every partner for use in completing their personal returns. 

To demonstrate, assume a partnership earns $150,000 of taxable income distributed among three equal partners. A Schedule K-1 should be provided to each partner reporting $50,000 of income.

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