Schedule K-1 Tax Form: What Partnerships and S Corporations Need to Know
If you have an ownership interest in a partnership, limited liability company (LLC), S corporation or even a trust, chances are you’ve heard of the Schedule K-1 tax form. But perhaps you don’t understand what it is or what to do with it.
While a K-1 might come with your business tax filings, it’s actually used to prepare your individual federal income tax return. To help you gain confidence in filing your taxes, let’s break down Schedule K-1, where it comes from and how to use it.
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What is a K-1 tax form?
Pass-through entities, including partnerships, LLCs and S corporations don’t pay federal taxes at the entity level like traditional corporations. Instead, they pass their profits and losses to their owners or shareholders, who report them on their individual tax returns.
This is where K-1 forms come in. A Schedule K-1 provides the necessary information for pass-through entity owners and shareholders to accurately report their share of the company’s income or loss on their tax returns.
K-1 forms are primarily used for tax reporting purposes, but they also help keep owners and shareholders informed about their investment in the pass-through entity by providing details on any changes in ownership.
Who files a K-1 tax form?
Schedule K-1 is a tax form required to be filed with the tax returns of several different types of business entities.
A partnership is a business structure in which two or more people share ownership of a business. Partnerships use Form 1065 to report their income, deductions, gains and losses to the IRS. Schedule K-1 (Form 1065) is one of the forms generated when preparing a partnership return. The form details each partner’s share of the business’s income, deductions, credits and other items.
LLCs with more than one member
An LLC is a more formal business structure than a sole proprietorship or partnership. It allows for pass-through taxation while providing limited liability protection for its members.
LLCs with more than one member also use Form 1065 to report their tax information to the IRS, and each partner receives a K-1 with their share of the LLC’s income or losses, deductions and credits.
THING TO KNOW
LLCs with only one member don’t file Form 1065 or issue a K-1 to their owners. Instead, they file Schedule C with their individual tax returns, just like sole proprietors. LLCs can also elect to be taxed like S-corps or C-corps, in which case they’ll file the tax forms used by those entities.
S Corporations combine pass-through tax benefits with the liability protection of a corporation.
When it comes to tax returns, S-corps use Form 1120-S to report the company’s income, deductions and credits. Like partnerships and LLCs with more than one member, S-corps provide their shareholders with a Schedule K-1 detailing each shareholder’s portion of the company’s income, deductions and credits.
Trusts or estates
Although they aren’t business entities, trusts and estates also issue Schedule K-1s. A trust is a legal arrangement in which a trustee holds and manages assets to benefit beneficiaries. On the other hand, an estate refers to the assets and liabilities left behind after an individual’s death.
Trusts and estates file Form 1041, which reports their income, deductions, gains and losses to the IRS. Just like with other pass-through entities, trusts and estates provide their beneficiaries with a Schedule K-1 detailing their share of the entity’s income, deductions and credits.
K-1 tax form deadlines
Knowing the deadlines for filing K-1 tax forms is essential to comply with IRS rules. To help you stay on top of your filing requirements, here is a table that outlines the deadlines for different types of entities when it comes to filing K-1s.
|Entity||Tax form||Filing deadline|
|Partnerships||Form 1065||March 15|
|LLCs with more than one member||Form 1065||March 15|
|S-corp||Form 1120-S||March 15|
|Trust or estate||Form 1041||April 15|
These deadlines assume the business has a calendar year end. The deadline will be different if your company operates on a fiscal year.
Filing for an extension
In some cases, you might need more time to file your tax returns. Fortunately, you can request an automatic six-month extension from the IRS. The form businesses use to request an extension is Form 7004. You can fill out this form and file it via your tax professional, tax software or via mail at the address found in the Instructions for Form 7004.
It is important to note that while Form 7004 extends the deadline for filing a return, it doesn’t extend the deadline to pay any tax due. For that reason, it’s essential to notify other owners and shareholders that you’ve requested an extension, as this may impact the individual filing deadlines for their personal tax returns. They may need to extend their personal returns and estimate and pay the amount due by their own tax deadline to avoid any penalties or interest charges.
Instructions for schedule K-1
The process of filling out a K-1 form is very similar, no matter the entity type, although each entity type uses its own version. Here’s an overview of what’s included:
- Part I. Part I is simply information about the entity issuing the form, including its employer identification number (EIN), name and address.
- Part II. Part II provides information about the partner, member, shareholder or beneficiary receiving the K-1. You must provide their social security or tax identification numbers, names and addresses. If the K-1 comes from a partnership, LLC or S-corp, you’ll also need to provide information about the partner’s percentage of ownership and share of debts.
- Part III. Part III is the meat and potatoes of Schedule K-1. This is where you provide information that will flow through to the shareholder’s individual return, including income, dividends, capital gains and more. If you need more room to report any necessary information, you can attach additional schedules to the K-1.
Frequently asked questions
Failing to file a K-1 comes with several consequences. First, the IRS may impose penalties for each Schedule K-1 that isn’t filed on time. These penalties can quickly add up — especially if you have multiple partners or shareholders.
Not filing a K-1 can also harm your relationship with your partners or shareholders because they need it to file a complete and accurate personal tax return.
If you need to file a Schedule K-1 as part of your taxes, you’ll be happy to know that obtaining the necessary tax forms isn’t difficult. Usually, the person who prepares your business tax return will automatically provide you with the form.
If you prepare your return with the help of DIY tax software, the software will generate K-1s for all partners and shareholders along with the business return.
For partnerships, LLCs and S-corps, the deadline to file Schedule K-1 forms is the same as the deadline for the business’s tax return — typically March 15. For trusts and estates, the K-1 form is due on the same day as the trust’s tax return — usually April 15th. If the normal deadline falls on a weekend or holiday, the due date shifts to the next business day.
Getting the tax returns filed well before these deadlines gives partners, shareholders and beneficiaries plenty of time to file their own tax returns.