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Schedule K-1 is a tax form required by the Internal Revenue Service (IRS), a tax agency of the United States, to be filed by S corporations, certain types of trusts, and all partnerships. The form is used to report income, and it must be filed once a year along with any tax payments owed. It also records any tax refunds owed to the taxpayer, which will be paid by the IRS. The schedule K-1 form accompanies other tax returns, such as Form 1040, and the IRS compares them to ensure that the income reported is consistent and accurate. There are three schedule K-1 forms: 1041, 1120S, and 1065.
Form 1041 is the U.S. Income Tax Return for Estates and Trusts, and it’s the form that a fiduciary of a trust or estate will use to report income, losses, deductions, and tax liabilities. The rules for individual tax returns often apply to how a trust or estate determines deductions and losses. The income includes what is distributed in addition to income that is held by the trust or estate for future distribution. It’s also often used to report the salaries of employees and the taxes paid to them.
Form 1065 is the Partner’s Share of Income, Deductions, Credits, etc., and it’s the responsibility of the partnership to file this schedule K-1 form. Individual partners use the form to help determine their share of income, which is to be reported on their individual tax returns. They keep form 1065 for their records and are not required to file it as individuals. The partnership’s form 1065 and the individual’s form 1065 must match. If not, the individual partners are required to request a change on the schedule K-1 filed. A partnership that fails to complete or improperly completes a schedule K-1 may be audited by the IRS.
Form 1120S is the Shareholder’s Share of Income, Deductions, Credits, etc., and is filed by the corporation. The form is used to report income to shareholders, and the shareholders must report that income on their individual tax returns. It’s not used to report the dividends paid to shareholders, because that’s reported on Form 1099-DIV. The corporation often has to calculate the basis of the stock in order to determine any losses, and it’s often calculated at the close of the tax year. The instructions for Form 1120S include a detailed worksheet to help the shareholder and the corporation determine the basis of the stock.