What is Schedule K-1?

Partnerships and S corporations file information returns and issue a Schedule K-1 to each partner or shareholder. The K-1 tells the owner what to report on their own return. There are versions for partnerships (Form 1065), S corporations (Form 1120-S) and estates and trusts (Form 1041).

What a K-1 shows

• Ordinary business income or loss
• Rental income, interest, dividends and capital gains
• Guaranteed payments, for partners
• Section 179 deductions and other separately stated items
• Credits
• Information for the qualified business income deduction
• Distributions, and for partnerships, the partner's capital account

Timing

K-1s are due when the entity's return is due: generally March 15 for calendar-year partnerships and S corporations, or the extended due date. Late K-1s delay owners' personal returns; see Form 7004.

Reporting it

Owners report K-1 items on the corresponding lines of their return, often on Schedule E for business income. The IRS expects the amounts to match what the entity reported, so errors should be corrected by the entity with an amended K-1.

Basis and limits

A K-1 loss is deductible only if the owner has enough tax basis and meets at-risk and passive activity rules, which the IRS explains in Publication 925.

Income vs cash

K-1 income is taxable even if no cash was distributed. Distributions shown on the K-1 are not themselves income, unless they exceed basis.

See Form 1065, Form 1120-S and pass-through entity.

Related terms

• Debits and Credits: Debits and credits are the two sides of every bookkeeping entry; each account type increases on one side and decreases on the other.
• Tax Basis: Tax basis is the amount the tax law treats as your investment in property, used to figure depreciation and gain or loss.
• Pass-Through Entity: A pass-through entity is a business whose income is generally taxed to its owners rather than to the business itself.
• Guaranteed Payments: Guaranteed payments are payments a partnership makes to a partner for services or use of capital, regardless of profit.

Browse more definitions in the small business glossary.