What is a Schedule K-1 Form?

Taxes 101

If you are an owner of a partnership, LLC, S-corp, or other entity that passes through taxes to its owners, in most cases you will receive a K-1 form each year. The K-1 is prepared by the entity to distribute to owners/shareholders to outline their portion of the income, loss, and deductions. Similar to a 1099 form received that highlights contractor income, you do not have to file the K-1 with your personal income tax return. Instead, you use the data on the form to fill out portions of your personal tax return.

Preparing a K-1 For Shareholders

While a K-1 form is easy if you’re just the recipient needing to record income or losses, the process is a bit more detailed for owners of an S-corp, LLC, or partnership who are responsible for distributing the K-1 forms to members. Not only do you need to report net profit or loss, but some financial data must be tracked individually.

The S-corp or partnership must report certain income and expenses separately from the net profit or loss amount. These income and expense items retain their tax characteristics when passed-through to the shareholder, and are subject to the limits and tax rates on each shareholder’s personal Form 1040. Separately stated items are the following:

  • Section 1231 gains and losses,
  • Net short-term capital gains and losses,
  • Net long-term capital gains and losses,
  • Dividends eligible for the dividends received deduction (if a shareholder is a C-Corporation),
  • Charitable contributions,
  • Taxes paid to a foreign country,
  • Tax-exempt interest and related expenses,
  • Investment income and expenses,
  • Amounts previously deducted, such as bad debts,
  • Real estate income and expenses,
  • Section 179 deductions,
  • Tax credits, and
  • Non-deductible expenses, such as 50% of meals and entertainment expenses.

In addition, you must send out your K-1 forms to shareholders by March 15th.

The Unexpected K-1

Obviously, if you’re an active member in a partnership or other business that regularly issues K-1s it will come as no surprise when you receive one each year. But there are situations where you may appear to get a K-1 out of the blue, and this can throw you for a loop.

When this happens it’s almost always due to an investment in an ETF or fund that’s operating as a limited partnership. This isn’t always obvious to a regular investor, but buying shares of a commodity fund may in fact make you a part owner of a partnership. That means at the end of the year you’ll receive a K-1 outlining your share of the partnership’s profit or loss. This can come as quite a surprise for a new investor.

One way to tackle this issue is to hold your ETFs or other investments that are limited partnerships inside an IRA. You’ll still get a K-1 at the end of the year, but the taxes are still deferred and it won’t require any additional tax calculations on your end. If you’re holding these in a taxable account, though, it’s a good idea to use good tax preparation software that will guide you through the process. Here’s what Forbes has to say about how TurboTax handles K-1 forms.

Comments (168) Leave your comment

  1. tax prep software tells me to fill in one box for oil related, and another for non-oil related… how do I know which to put a value in

  2. I received a K-1 for investments in a partnership. The Partner is Edward Jones to which I invest with them for my IRA’s. The Partner’s name is
    Edward D Jones Co Custodian
    FBO XXXXX IRA
    Is this just informational since my SS# is nowhere on the form or do I need to file something in my tax return.

  3. How long do you have to continue filing a K1 when you have sold your holding in the S Corp? I keep getting a K1 from 2 different companies for which I used to own stock but sold the stock several years ago. There are amounts on the K1’s but entering them on my tax return has no effect on refund/tax due amounts. Can I just stop filing the K1? Why am I still getting it at all?

  4. Are K-1’s Required? Re k-1 statements, if you are a start up that formed in July 2014 and had no recognizable income in 2014, only start up expenses, and there’s no income (or losses) to report because IRS says you must defer that until year 2 if you haven’t had any income in year 1, are k-1’s required?

  5. Hi TurboTaxLisa,

    Can you guide me on how to enter 1099-misc in turbotax home & business?

    I have a LLC and a rental home under this LLC. Now i have a 1099-misc with the receipt’s name of this LLC. The 2nd tab of turbotax asks me to report business income and expenses. it asks me if i have 1099-misc, i said yes. next page asked me:

    “This 1099-MISC is for: myself or my wife” there is no way to select this form is for my LLC.

    Can you help?

    thanks, -dale

  6. Hi I had a couple of stocks and I am now receiving schedule k-1 documents in the mail. When I took my money out of the stock market entirely, I broke even. I have no gains or losses. All of the forms are showing -0- in the gain/loss classifications. Do I still have to fill out tax info for these transactions?

  7. If I use the Premier edition of Turbo tax for reporting Schedule K-1 income, will Turbo tax then advise me on how much taxes to withhold on next years distributions that will be reported on next years’ K-1?

  8. Does Turbo tax ever monitor this blog, because no one seems to be getting any answers here.

    My question, that others have already posted YEARS ago, is – How do I delete the schedule K that TUrbo tax thinks I need to file, but I don’t need to file it so it won’t actually let me efile my taxes.

    Anyone?

  9. I understand that Turbotax Deluxe 2014 no longer supports Schedules D, C and E. Does it support, and e-file, schedule E for filing K-1 forms for limited partnerships?

  10. I owned BOIL a Proshares Ultra DJ-UBS Natural Gas for one month at the end of 2013 and did not sell until 2014. I received a K-1 which reported Item 11 Other Income (loss) in the amount of $32,000. This must be income for the entire year! What should be reported on the 2013 return?? Since I only owned BOIL for one month would I just report the pro rata share of Item 11 or $32,000/12 = $2667? Thanks

  11. If a single member LLC issues a k-1 to the single member as guaranteed payments and this is the only income for the business, does the LLC still need to file a 1065 return?

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