Each year, business owners must file business tax documents as required by the Internal Revenue Service (IRS). Which forms you file depend on the type of business you own. Companies with a partnership business structure have to file a Schedule K-1 on an annual basis. A K-1 form is a report to the IRS about a partner’s business dealings over the past year. Explore our guide below to learn everything you need to know about filing a Schedule K-1 document.
What Is a Schedule K-1 Form?
A partnership is a pass-through entity, which means the profits and losses of the business "pass through" to the owners. In this way, partnerships bypass corporate taxes. Each partner must report business profits or losses on an individual tax return known as Form 1040. You can fill out this form yourself or have a tax professional do it for you.
A Schedule K-1 form is a document that each member of a business partnership files to report their share of the business’s profits, losses, deductions, and credits to the IRS. It’s also known as Form 1065. It differs from other tax forms because no taxes are paid from this form. It’s only used to provide information.
A Schedule K-1 form shows the IRS how much of the partnership’s income or losses you should report on your individual tax return. It also helps you, as a partner, accurately determine how much income to report for the previous tax year on your personal tax form. Your share of the partnership ’s profits or losses must be reported on Schedule D of Form 1040.
Who Has to File a K-1?
Each member of a partnership has to file a K-1 with the IRS. The IRS defines partnerships as "the relationship between two or more people to do trade or business." Each member of the partnership "contributes money, property, labor or skill, and shares in the profits and losses of the business." If you’re a partner of one of the following small business structures, you must file a K-1:
- General partnership: This simplest business structure includes two or more people as partners, and personal liability is unlimited. These partners are considered self-employed, so they must pay self-employment taxes and personal taxes.
- Limited partnership (LP): An LP has one general partner with unlimited liability, while all other partners have limited liability. These partners pay personal taxes, except for the partner with unlimited liability. They must pay self-employment taxes, too.
- Limited liability partnership (LLP): An LLP is similar to an LP except that it gives limited liability to every partner. This protects everyone from debts against the partnership.
- Limited liability company (LLC): An LLC has one person or more and files a K-1 if it has chosen to be taxed as a partnership and not as a corporation. LLCs protect partners from personal liability, keeping personal assets separate from business assets. These partners pay self-employment taxes and personal taxes.
According to the K-1 form, partners required to file include:
- Domestic partners
- Foreign partners
- General partners
- LLC member-managers
- Limited partners or other LLC members
The IRS needs to know if the information provided on a business partner’s individual income tax return matches the partnership’s business records. It’s the main reason why a partner files a K-1. The information provided on this form offers protection against tax fraud, a deliberate attempt to evade paying taxes.
What’s Included on a K-1?
A K-1 form is divided into three parts. The top of the form must be dated for the calendar year or tax year. You would provide calendar year dates if your partnership weren’t in business for the entirety of the previous tax year you’re filing. Space is provided on the K-1 form to enter a beginning date and an ending date.
Below the date is Part I of the form. Here is where you’ll enter information about the partnership, including:
- The partnership’s employer identification number (EIN)
- The partnership’s name, address, city, state, and ZIP code
- The IRS Center where the partnership filed the return
- Whether the business is a publicly traded partnership
Part II of the form is where you’ll enter the following information about yourself as an individual partner:
- The partner’s Social Security number (SSN) or taxpayer identification number (TIN)
- The partner’s name, address, city, state, and ZIP code
- Whether the partner is a general partner or LLC member-manager, limited partner or other LLC member, domestic partner, or foreign partner
- Whether the partner is a disregarded entity (DE); if so, enter the partner’s name
- What type of entity the partner is
- Whether the partner is a retirement plan (IRA /SEP/Keogh/etc.)
- The partner’s share of profits, losses, and capital (compares beginning to ending date in percentages)
- Whether there was a decrease due to sale or exchange of partnership interest
- The partner’s share of nonrecourse, qualified nonrecourse financing, and recourse liabilities (compares beginning to end date in dollars)
- Whether liabilities include amounts from lower-tier partnerships
A partner’s capital account analysis is also part of Part II of the K-1 document. This portion lists, in dollars, a partner’s:
- Beginning capital account
- Capital contributed during the year
- Current year net income (loss)
- Other increase (decrease), must attach an explanation
- Withdrawals and distributions
- Ending capital account
Part III of the form includes information about a partner’s share of the current year’s income, deductions, credits, and other items. A partner must state the following:
- Ordinary business income (loss)
- Net rental real estate income (loss)
- Other net rental income (loss)
- Guaranteed payments for services
- Guaranteed payments for capital
- Total guaranteed payments
- Interest income
- Ordinary dividends
- Qualified dividends
- Dividend equivalents
- Net short-term capital gain (loss)
- Net long-term capital gain (loss)
- Collectibles gain (loss)
- Unrecaptured section 1250 gain
- Net section 1231 gain (loss)
- Other income (loss)
- Section 179 deduction
- Other deductions
- Self-employment earnings (loss)
- Foreign transactions
- Alternative minimum tax (AMT) items
- Tax-exempt income and nondeductible expenses
- Other information
- Whether more than one activity for at-risk purposes
- Whether more than one activity for passive activity purposes
An attached statement to the K-1 form provides further details about filling out the form, as does the Partner’s Instructions for Schedule K-1 (Form 1065) provided by the IRS. If you have further questions about filling out this form, consult with a tax professional. They are certified to help individuals and businesses with their tax preparation needs. Tax professionals help you file personal and business taxes, whether these taxes are for local, state, or federal governments.
When Should I File the Schedule K-1 Tax Form?
A K-1 must be filed with the IRS every year, according to federal tax code. For the previous tax year, you must file a K-1 by March 15 of the current year. If this deadline falls on the weekend or a legal holiday, the due date is the next business day. A previous tax year is considered Jan. 1 to Dec. 31 of the year before the current year.
It’s important to have the K-1 form completed before you file your individual income tax form. A K-1 provides accurate figures, some of which you’ll need to transfer to Form 1040. This form reports your previous year’s income. Your current year income will be reported on the form the following year. The deadline to file your personal tax return each year is April 15.
Sometimes, you may qualify for an extension to a filing deadline. Check with a tax professional or the IRS to understand your options.
Additional Schedule K-1 Documents
There are two additional IRS forms labeled as Schedule K-1 documents. These shouldn’t be confused with K-1 Form 1065. Schedule K-1 Form 1041 is filed by beneficiaries of trusts and estates. Schedule K-1 Form 1120S is filed by owners of S corporations. These forms may appear similar, but they aren’t interchangeable with Form 1065 for partnerships.
Get Help With Skynova Business Software Today
Schedule K-1 Form 1065 is an important document that you and your business partners must file with the IRS every year. In the United States, a certified public accountant can provide tax advice and help you understand everything about the business tax filing requirements. They can also prepare tax forms for you and your business.
Skynova’s business software products are also available to help you meet the needs of your small business. From purchase orders to receipts, our business templates are specifically designed to make your life easier. For example, Skynova’s free invoice template allows you to customize invoices for your clients. You can then print or email the invoices, which allows you to see when they’ve been opened and paid.
Skynova also offers all-in-one invoicing and accounting. Our services help you keep accurate records of your income, expenses, sales tax, and payments. This information comes in handy when it’s time to file your K-1 form and individual income tax form each year. Check out Skynova’s business products to help you expedite and organize your accounting processes and much more.