Schedule K-1 Tax Form for Partnerships: What to Know to File

  • Accracy
  • 28th Nov, 2023

Schedule K-1 is an important part of the partnership tax return process. It helps you and the IRS figure how big your piece of the pie is in the partnership and determines each partner’s taxable income—and by extension, tax liability.

Schedule K-1 Tax Form for Partnerships: What to Know to File
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What is Schedule K-1?

Schedule K-1 is a schedule of IRS Form 1065, U.S. Return of Partnership Income. It’s provided to partners in a business partnership to report their share of a partnership’s profits, losses, deductions and credits to the IRS.

You fill out Schedule K-1 as part of your Partnership Tax Return, Form 1065, which reports your partnership’s total net income.

Partnerships are so-called “pass-through” entities. Pass-through entities are called that because they don’t actually pay taxes, rather all income or loss, tax deductions, and tax credits are distributed—or “passed-through”—to the partners to report on their income tax return.

Schedule K-1 is an important part of the partnership tax return process. It helps you and the IRS figure how big your piece of the pie is in the partnership and determines each partner’s taxable income—and by extension, tax liability.

Where can I find a sample K-1 tax form?

You can download a sample copy of Schedule K-1 (Form 1065) from the IRS.

But you’ll probably receive a copy of Schedule K-1 around tax time from your accountant or whoever is responsible for filing your partnership’s Form 1065.

Who has to file it?

If you’re a partner in a partnership that is required to file a tax return for the year, then you will receive a K-1 that lists your portion of the partnership reportable items.

You need to do at least two things during tax season:

  1. Make sure your partnership has filed a Partnership Tax Return, Tax Form 1065 and issued K-1s to all of the partners
  2. Report the items on your individual Schedule K-1 at the appropriate places on your tax return.

Not sure whether you’re in a partnership? Here are some telltale signs:

  • You co-own a business with one or more other person, but that business isn’t incorporated. (Remember: you don’t need to file any forms with your state to start a partnership. All you need is a verbal agreement.)
  • You’ve signed a partnership agreement and registered the partnership with the state.
  • Your company is an LLC with multiple owners and has not decided to be taxed as a C or S corporation. (That is, it hasn’t filed Form 8832 or Form 2553.)

There are actually two additional forms that the IRS calls ‘Schedule K-1’:

  1. Schedule K-1 of Form 1041, which must be filed by beneficiaries of trusts or estates
  2. Schedule K-1 of Form 1120S, which must be filed by the owners of S corporations

Although these forms are similar, in this guide we’ll focus exclusively on Schedule K-1 of Form 1065, to be filed by partnerships.

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Filing taxes may be the finish line, but bookkeeping is the marathon that gets you there. With Accracy, you have a team of experts running that distance for you.

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K-1 allocation

The allocation of profits in a partnership is done according to the partnership agreement created by each of the partners. In other words, each partnership decides for itself how it will allocate earnings and other items such as interest income and charitable contributions.

Even if a partnership has not distributed any cash to the partners, the partners will be allocated their share of income or loss. For example, if your allocation of the earnings is $75,000 but you only took $25,000 in draws throughout the year, you will still be taxed on the full $75,000.

K-1 vs 1099

Your partnership receives 1099 forms from your clients if they paid you more than $600 during the year. When you add up the total income from all the 1099s, you will get most (but not all) of the income earned by the partnership during the tax year. This information can be used to file your form 1065 on behalf of the partnership.

In other words, 1099 forms are relevant for reporting the income of the partnership as a whole. Schedule K-1 is relevant to the individuals of the partnership when reporting their share of the profit or loss on their income tax return. A partner will almost never receive a 1099 from the partnership that they own.

Self-employment tax K-1

Schedule K-1 will show you your self-employment earnings from the partnership or LLC you’re a member of. So you will need to pay self-employment tax on that amount.

But, like anything IRS-related, there are a few exceptions.

What does it look like?

The PDF for Schedule K-1 of Form 1065 provided by the IRS only includes the cover. The instructions, including a glossary of reporting codes you’ll use in Part III of the form (more on that below), are on a separate PDF.

The schedule looks like this:

2022 Schedule K-1

How to read a K-1, Form 1065

You can read the official IRS Partner’s Instructions for Schedule K-1, but we’ve simplified it to just the essential information for you.

All of the information needed to complete a Schedule K-1 will come from the Income and Expenses section of Form 1065.

Beyond ordinary business income (or losses), Schedule K-1 also captures things like real estate income, bond interest, royalties and dividends, capital gains, foreign transactions, and any other payments that you might have received as part of your involvement in the partnership. You’ll need that information on hand to fill out the form.

Part I. Information About the Partnership

2022 Schedule K-1 Part I

Item A

Enter your partnership’s Employer Identification Number (EIN) here.

Item B

Enter your partnership’s contact information here.

Item C

Identify which IRS filing center you’re sending Form 1065 to here. (If you’re not sure where you’re sending Form 1065 this year, consult this IRS chart.)

Item D

Check this box if your partnership is a publicly traded partnership (PTP), with shares that are bought and sold on an established securities market. (For more information about PTPs, see this guide from the IRS.)

Part II. Information About the Partner

2022 Schedule K-1 Part II

Item E

Enter Your Taxpayer Identification Number (TIN)—which can be either your social security number (SSN), individual taxpayer identification number (ITIN), or employer identification number (EIN)—here. Read more about TINs on the IRS’s website.

Items F-I

Enter your contact information, whether you’re a general partner or limited partner, and whether you’re a foreign or domestic partner here.

Item J

Here you’ll report your share of the partnership’s profits, loss, and capital. Generally speaking, these amounts are based on the business’ partnership agreement.

If you entered the partnership after the beginning of this year’s reporting period, you’ll enter the percentages that applied to you when you entered in the ‘Beginning’ column. If you left the partnership before the end of the reporting period, you’ll put the percentages that applied to you when you left in the ‘Ending’ column.

Item K

Here you’ll enter your share of the partnership’s liabilities (or debts), sorted by liability type: recourse, qualified nonrecourse, and recourse.

A recourse debt is a debt that holds the borrower personally liable (which means a lender can go after your property), while all other debt is considered nonrecourse. For more information about the difference, see the IRS’s guide to recourse debt and the instructions to Schedule K-1.

Item L

Here you’ll tell the IRS how much capital you had in the business at the beginning of the tax year, how much you put in during the year, whether your share of capital decreased or increased, any withdrawals or distributions you made, and how much capital you ended the year with.

Item M

Check “yes” here if you contributed property with a built-in gain or loss to the partnership this year. The IRS defines a built-in gain or loss as “the difference between the fair market value of the property and your adjusted basis in the property at the time it was contributed to the partnership.”

Part III. Partner’s Share of Current Year Income, Deductions, Credits, and Other Items

In this section you’ll report your share of the partnership’s income, loss, deductions, credits, and anything else needing to be allocated to you in connection with your stake in the partnership.

To fill out boxes 11 and boxes 13 through 20, you’ll need to use the codes located in the instructions of the Schedule K-1 form.

2022 Schedule K-1 Part III

Box 1. Ordinary Business Income (Loss)

Enter your share of the ordinary income (loss) from trade or business activities of the partnership this year here.

Box 2. Net Rental Real Estate Income (Loss)

Enter your share of net rental real estate income (from renting housing, office space, retail space, and any other kind of real estate) from the partnership here.

Box 3. Other Net Rental Income (Loss)

Here you’ll report your share of any other rental income you earned from the partnership.

Box 4. Guaranteed Payments

Here you’ll report any guaranteed payments you received from the partnership. These are payments that the partnership made to you without regard to the partnership’s income, usually in exchange for services or for the use of capital.

For more information about guaranteed payments and other kinds of payments partnerships make to their partners, see this guide from the IRS.

Box 5. Interest Income

Here you’ll report any interest income you earned during the year, from things like bonds, certificates of deposit, bank accounts, etc.

Box 6. Dividends

Here you’ll record any ordinary, qualified and dividend-equivalent payments you received from the partnership. (Dividends are payments that people get for holding shares in a company.)

Box 7. Royalties

Here you’ll report any royalties you received during your dealings with the partnership.

Box 8. Net Short-Term Capital Gain (Loss)

Report any short-term capital gains (or losses) you sustained during your dealings with the partnership here.

Box 9a-c. Other Capital Gains (Losses)

This section is all about long-term gains or losses you sustained this year. For a detailed breakdown of which gains qualify as short and long term, see this guide from the IRS.

Box 10. Net Section 1231 Gain (Loss)

Section 1231 transactions involve the sale or exchange of property, leaseholds, cattle and horses, timber, coal, or iron ore, and other property. For a detailed discussion of Section 1231 transactions, consult page nine of the Schedule K-1 guide from the IRS.

Box 11. Other Income (Loss)

If you have any other losses or income to report that doesn’t fall in the interest, ordinary dividends, royalties or capital gains category, report them here and attach a statement explaining what kind of income (or loss) you’re reporting. The instructions to Schedule K-1 offer a detailed breakdown of what you could report here.

Box 12. Section 179 Deduction

If you’re claiming the Section 179 deduction, report your share of that deduction here.

Box 13. Other Deductions

Here you’ll use the codes in the instructions to Schedule K-1 to report any other deductions you’re claiming, including cash contributions, noncash contributions, educational assistance benefits, pensions and IRAs, and any other deductions you want to report.

Box 14. Self-Employment Earnings (Loss)

Use this box to report any self-employment earnings (or losses).

Box 15. Credits

Here you’ll use the codes in the instructions to Schedule K-1 to report your share of any credits you’re claiming, including the low-income housing credit, the disabled access credit, the work opportunity credit, research activities credits, and any other credits.

Box 16. Schedule K-3

If you need to attach a Schedule K-3 to report international activity, check this box.

Box 17. Alternative Minimum Tax (AMT) Items

Enter any Alternative Minimum Tax (AMT) information that might be applicable to you here. (Read more about the AMT in the instructions to Form 1040.)

Box 18. Tax-Exempt Income and Nondeductible Expenses

If you made any tax-exempt income or made any nondeductible expenses, report them here.

Box 19. Distributions

Report any distributions you received in the form of cash, marketable securities, or property, or any distributions subject to section 737 here.

Box 20. Other Information

Report any other information here using the codes on page 2 of Schedule K-1 and the instructions to Schedule K-1.

Box 21. Foreign Taxes Paid or Accrued

Report any foreign taxes paid by partners over the reporting period.

When are K-1s due?

Businesses operating on the calendar year must file Form 1065 by March 15 (unless you file for a 6-month extension using Form 7004). March 15 is also the deadline for partnerships to issue individual Schedule K-1s to each partner, which will give individual partners a little under a month to file their personal federal income tax returns on April 15. These deadlines move to the next business day if they fall on a weekend or holiday.

Businesses using a fiscal year must file the tax return and provide Schedule K-1 forms to partners no later than the fifteenth day of the third month after the end of the fiscal year. When the partners file their individual tax returns, they must use the Schedule K-1 from that year.

For example, if the partnership’s fiscal year ends on April 30, 2022, Schedule K-1s must be provided by July 15, 2022. Each partner will then use the information on the Schedule K-1 on their 2022 tax return, which is filed in 2023.

Calculating each partner’s share of each Schedule K-1 item can be complex and time-consuming. We highly recommend that you hire an expert to help you file to make sure you get it in on time.

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