What is a Schedule K-1 Form? (What You Should Know)

Jon Morgan
Published by Jon Morgan | Co-Founder & Chief Editor
Last updated: June 20, 2024
FACT CHECKED by Lou Viveros, Growth & Transition Advisor
Methodology
We meticulously research and verify the information presented in our articles. By consulting reliable sources and ensuring factual accuracy, we are committed to providing readers with well-informed, trustworthy content.

A Schedule K-1 form is a tax document that reports income, losses, and dividends from a partnership or S corporation.

This document is essential because it helps the Internal Revenue Service (IRS) understand how the entity is doing financially.

With over a decade of experience in business formation and tax consultation, I spent several hours researching what Schedule K-1 is. I also consulted professional accountants and tax experts to give you a deeper understanding of this form.

This blog post will explain everything you must do to comply with the law.

Quick Summary

  • To comply with tax laws, partnerships, and S corporations must use the Schedule K-1 form to report income, losses, and dividends to the IRS.
  • The deadline for filing Schedule K-1 forms is March 15th for entities operating on a calendar year schedule, ensuring timely tax documentation and regulatory compliance.
  • The IRS issues over 40 million Schedule K-1 (Form 1065) statements annually, highlighting the form's critical role in financial transparency and tax compliance for partnerships and S corporations.
  • In my opinion, understanding the Schedule K-1 form is essential for anyone involved in a partnership or S corporation.


What is Schedule K-1 Form?

A woman explaining about schedule K1 Form

Schedule K-1 is a tax form that reports a partnership or S corporation's income, losses, and dividends.

The IRS annually issues over 40 million Schedule K-1 (Form 1065) statements to U.S. taxpayers, which outline financial and income details from entities like partnerships and S corporations [1].

This large distribution emphasizes the necessity of grasping the responsibilities of LLC 1065 filers in the context of tax documentation and regulatory compliance.

The members of an LLC must complete a Schedule K-1 form if they desire to be taxed as a partnership.

Schedule K-1 is crucial because it confirms to the IRS information about how the entity is doing financially.

Pass-Through Entities

For federal tax purposes, a pass-through entity is one that "passes through" its revenue, losses, and credits to its owners and members.

Pass-through taxation means that the entity owners are taxed on their share of the partnership income rather than the entity itself being taxed.

The three most common pass-through entities are partnerships, S corporations, and limited liability companies (LLCs):

  • The partners of a partnership pay taxes on their portion of the partnership's earnings.
  • In an S corporation, the shareholders are taxed on their share of the corporation's income.
  •  In an LLC, the members are taxed on their share of the LLC's income.

Who Needs to File a Schedule K-1 Form?

Two people looking at a form

According to the U.S. tax law, you need to file a Schedule K-1 form if you're an individual who is part of a partnership, S corporation, or certain trusts and estates.

"Similar to Form 1099, Schedule K-1 details dividends, interest, and other annual investment returns. The type of investment determines whether an individual receives a K-1 or a Form 1099."

-Jon Morgan, Co-Founder & Chief Editor of Venture Smarter

A Schedule K-1 is similar to a W2 or 1099 form in that it lists taxable income but only applies to certain types of companies. The tax form breaks down the income you've earned from your firm into several sections.

The data published in the Lextree indicates that S corporations have consistently shown steady growth over more than 30 years [2]. They outnumber other entities, except for sole proprietorships, by a ratio of nearly 2:1, underscoring their popularity and widespread use in the business community.

This demonstrates the significant role that S corporations play, particularly in the context of tax reporting and compliance.

Two types of taxpayers must submit a Schedule K-1 with their tax returns:

1. Business owners who have a pass-through entity

2. Trust or estate beneficiaries

The content on the form and the filing rules differ depending on what sort of taxpayer you are.

Owners, partners, or members use the information on the K-1 form to declare earnings, losses, tax deductions, or tax credits on their personal income tax returns.

If an estate or trust has a gross income of more than $600 in a tax year, it is usually required to file Form 1041, U.S. Income Tax Return for Estates and Trusts.

How to Fill in the K-1 Form?

A person filling out a form

To fill out the Schedule K-1 form, follow the steps below:

  1. Identify the Entity Type: Determine whether the K-1 is for a partnership (Form 1065), S corporation (Form 1120S), or trust/estate (Form 1041).
  2. Gather Information: Collect financial details, including income, deductions, credits, and distributions pertaining to the entity.
  3. Complete Entity Information: Fill in the entity's name, EIN, and address.
  4. Enter Partner's or Shareholder's Information: Provide the name, address, and tax identification number of the partner or shareholder.
  5. Report Financial Activity: Enter the partner's or shareholder's share of income, deductions, credits, foreign transactions, and other relevant tax items in the respective boxes as the form instructs.
  6. Review for Accuracy: Double-check all entries for correctness.
  7. Distribute K-1 Forms: Provide each partner or shareholder a copy of their tax filings.
  8. File With Tax Return: The entity includes the K-1 forms with its tax return submission to the IRS.

There are three Schedule K-1 forms you can fill out:

Depending on your business, you'll want to select the proper form. Members of an LLC should choose the tax form corresponding to their tax status.

Although each Schedule K-1 has slightly different information, the following are the common elements:

  • The company, trust, or estate information (Part I)
  • Information on the owner or beneficiary of the business (Part II)
  • Information about the partner's or beneficiary's share of the business income, losses, deductions, and credits for the current year (Part III)

Schedule K-1 Deadline

By the 15th of the third month after the end of the tax year, partnerships and S-corporations must file tax returns with the IRS and distribute Schedule K-1 forms to their owners.

The filing date for corporations operating on a calendar-year Schedule is March 15.

After receiving the Schedule K-1 forms from the partnership and corporation, the owners, as individuals, have a month to file their taxes with the IRS.

Remember to include your Form 1040 (annual income tax return) in your Schedule K-1.

FAQs

Where Can I Find a Sample K-1 Tax Form?

The IRS provides a sample copy of Schedule K-1 (Form 1065) for download. However, your accountant or whoever is in charge of submitting your partnership's Form 1065 will probably send you a copy of Schedule K-1 around tax season. Remember that if you don't include a Schedule K-1 with your personal income tax return (Form 1040), the IRS will reject it.

Should I Wait to File My Taxes Until I Receive My Schedule K-1?

Each year, by March 15, Schedule K-1s must be completed. Filing your personal tax return can be tempting before receiving your K-1. However, doing so will have you alter your tax return, requiring you to pay more tax preparation fees. It's better to postpone filing your tax return until you've gotten all of the Schedule K-1s you're awaiting.

Are There Any Penalties for Incorrect or Late Filing of a Schedule K-1 Form?

Yes, there can be penalties for incorrect or late filing of a Schedule K-1 form. Failure to file or provide incorrect information may result in penalties, including additional taxes, interest, and potential adjustments to income tax liability.

References: 

  1. https://tax.thomsonreuters.com/blog/ai-schedule-k-1-form-1065/
  2. https://www.berkmansolutions.com/articles/entities/30-years-of-new-business-entities

About The Author

Co-Founder & Chief Editor
Jon Morgan, MBA, LLM, has over ten years of experience growing startups and currently serves as CEO and Editor-in-Chief of Venture Smarter. Educated at UC Davis and Harvard, he offers deeply informed guidance. Beyond work, he enjoys spending time with family, his poodle Sophie, and learning Spanish.
Learn more about our editorial policy
Growth & Transition Advisor
LJ Viveros has 40 years of experience in founding and scaling businesses, including a significant sale to Logitech. He has led Market Solutions LLC since 1999, focusing on strategic transitions for global brands. A graduate of Saint Mary’s College in Communications, LJ is also a distinguished Matsushita Executive alumnus.
Learn more about our editorial policy

You May Also Like

Leave a Reply

Your email address will not be published. Required fields are marked *