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Schedule K-1 Tax Form: Complete Guide For Partnerships

Certain types of entities are permitted to take advantage of the pass-through taxation system under United States tax law. Thus, in effect, income tax obligations are shifted from the entity earning the income to the individual(s) who are beneficially own the entity. Schedule K 1 tax form shows the amounts of income that are passed on to each party with a stake in the entity.

What Is A Schedule K-1 Tax Form?

The IRS Form 1065, US Return of Partnership Income, contains Schedule K-1 for partnerships. Partners in a business partnership are generally required to fill out this form in order to report to the IRS their share of income profits, losses, deductions and credits derived from the partnership.

It is a Schedule K-1 that you complete as part of your Partnership Tax Return, Form 1065, which reports the net income of your partnership. 

A partnership is a type of entity that operates through what is called a "pass-through". These types of entities are known as pass-through entities, because they do not pay taxes directly, rather all income and losses, tax deductions, and tax credits that are distributed are distributed to the partners and reported on their personal income tax returns (Form 1040).

It is crucial for partnership tax returns to have a Schedule K-1. In addition to helping you and the IRS figure out your piece of the pie in a partnership, this report is important for determining each partner's taxable income—and, therefore, their tax responsibilities.

You'll find your self-employment earnings on Schedule K-1 by joining a partnership or LLC. You will therefore owe self-employment taxes on that earnings.

Who Needs To File

You need to do two things during tax season if you belong to a general partnership, limited partnership, or limited liability company that elects to be taxed as a partnership:

  1. Please ensure that your partnership has filed the Partnership Tax Return, Tax k1 Form 1065, with the IRS
  2. File the Schedule K-1 on your own

Looking for signs that you're in a partnership? Here are a few you should look out for:

  • You are co-owners of a business with someone or more people, but your business is not incorporated. A verbal agreement will suffice to establish a partnership. No forms are required.
  • There is an agreement between you and your partner, and the partnership has been registered with the state.
  • Since your business is an LLC, it has not filed Form 8832, indicating it will not be taxed as a corporation this year.

The IRS does actually provide two more forms referred to as 'Schedule K-1':

  1. A beneficiary of a trust or estate is required to file Schedule K-1 of Form 1041
  2. Owners of S corporations must file Schedule K-1 of Form 1120S

It is important to note that even though all of these forms are similar, this guide will concentrate exclusively on Schedule K-1 of Form 1065, which will have to be completed by partnerships.

How To Read A Tax Form 1065 Schedule K 1

The PDF file made available by the IRS for Schedule K-1 of Form 1065 is one page long. In the Income and Expenses section of Form 1065, you can find most of the data you need to file Schedule K-1. 

Schedule K-1 includes income (or losses) you might have earned outside of your business operations, such as rental income, bond interest, dividends and royalties, capital gains, foreign transactions, and any other compensation you might have derived from the partnership. To complete the form, you will need that information.

Form 1065 is divided into three parts:

  • Part I: This section asks for partnership information such as partnership employer identification number, Partnership’s name, address, city, state, ZIP code, etc.
  • Part II: This section asks for information about the partner such as partner’s name, address, SSN and other personal details. This section also asks for partner's share of profits, losses, capital, liabilities and other partnership details.
  • Part III: This section asks for information about the partner s share of current year income, deductions, credits, and other items. This includes business income or losses generated by the partnership along with royalties, different dividends, other capital gains/losses, and income deductions or credits or exemptions.

schedule k-1

Filing Deadline

If your business operates based on a calendar year, you must file Form 1065 by March 15 (unless you request an extension of 6 months using Form 7004). On March 15, partnerships are also required to issue individual Schedule K-1s to partners, which will give individuals just under a month to prepare their personal income tax returns for April 15. In the event that a deadline falls on a weekend or holiday, it is moved forward.

When using another fiscal year, businesses need to provide partners with Schedule K 1 tax forms no later than three months after the end of the fiscal year. The schedule K-1s from the previous year must be used by the partners when they prepare their individual tax returns.

A Schedule K-1 must be provided to the partnership prior to September 2022, if its fiscal year ends in June 2022. A Schedule K-1 must be attached to each partner's 2022 tax return, which is due in 2023.

Trying to determine the share of each Schedule K-1 item for each partner can be time-consuming and complex. In order to ensure your tax return is filed on time, we recommend that you hire an experienced professional.

Hire Professional Accountant

So, how to file the schedule k 1 tax form? The easiest way to do this is to hire professional tax accountants such as TFX, who will help your partnership with tax filing.

Ines Zemelman, EA
Founder of TFX