Updated for Tax Year 2014
The Schedule K-1 is slightly different depending on whether it comes from a trust, partnership or S corporation. Find out how to use this tax form to accurately report your information on your tax return.
The United States tax code allows certain types of entities to utilize pass-through taxation. This effectively shifts the income tax liability from the entity earning the income to those who have a beneficial interest in it. The Schedule K-1 is the form that reports the amounts that are passed through to each party that has an interest in the entity.
K-1 Forms for business partnerships
For businesses that operate as partnerships, it’s the partners who are responsible for paying taxes on the business’ income, not the business. Each partner is responsible for filing an individual tax return reporting his share of income, losses, deductions and credits that the business reported on the informational 1065 tax form.
As a result, the partnership must prepare a Schedule K-1 to
report each partner’s share of these tax items. K-1s are provided to the IRS with the partnership’s tax return and also to each partner so that they can add the information to their own tax returns. For example, if a business earns $100,000 of taxable income and has four equal partners, each partner should receive a K-1 with $25,000 of income on it.
Schedule K-1 for S corporations
Similar to a partnership, S corporations must file an annual tax return on Form 1120S.The S corporation provides Schedule K-1s that reports each shareholder’s share of income, losses, deductions and credits. The shareholders use the information on the K-1 to report the same thing on their separate tax returns.
K-1 Forms for trust & estate beneficiaries
Schedule K-1 reporting
The Schedule K-1 is slightly different depending on whether it comes from a trust, partnership or S corporation. However, all K-1s provide detailed information about the type of income, deduction or loss so the recipient can accurately report the information on a tax return.