What is a Schedule K-1 form?

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Kayla Moses

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Schedule K-1 is an Internal Revenue Service (IRS) form outlining profits, losses, credits and deductions for a business partnership. Each year when they file their personal tax return, stakeholders turn in Schedule K-1 to report their share of the earnings and contributions.  

Understanding Schedule K-1 tax forms

Schedule K-1 forms apply to a variety of business types:
  • Partnerships
  • Limited Liability Companies (LLCs)
  • S Corporations
  • Trusts and estates
Most have pass-through taxation, meaning tax liability on earned income “passes” from the business to its investors. Schedule K-1 clarifies tax liability by outlining how much each investor owes. The form lists income, losses and dividends as they apply to each individual, and each person gets their own K-1 to include with their personal tax return. Multiple types of income can be listed on Schedule K-1. Example: Ann and Marie are business partners with a 60/40 ownership stake. Together, they decide to reinvest all their first-year profits. Because they didn’t take any income from their first-year earnings, they do not report any income on individual K-1s. The next year, Ann reinvests her earnings and Marie collects profits on hers. Marie pays self-employment tax on her income as specified on her individual K-1. 

Takeaways

  • Schedule K-1 is a form that applies to business partnerships.
  • K-1s matter because they specify each stakeholder’s personal tax liability.
  • Businesses issue K-1 to their investors and need to keep track of their individual stakes.

In more detail:

Who gets Schedule K-1 tax forms?Schedule K-1 is important for partnerships, LLCs, S Corps and trusts and estates. The form outlines individual earnings, losses and dividends. When would I receive a Schedule K-1 form, if I’m eligible?To give ample time to prepare personal tax returns, K-1s must be issued to partners by March 15 or the third month after the end of the entity's fiscal year. If you are owed a K-1, you’ll likely receive it after your other tax forms. 1099s and W-2 forms are due to employees much earlier (by Jan. 31).Where can I see Schedule K-1?To view a blank Schedule K-1, you can review an example on the IRS website.Is there more than one type of Schedule K-1 form?Yes, Schedule K-1 is actually a category of forms. You can find a Schedule K-1 on Form 1065 specifically for partnerships, on Form 1041 for beneficiaries of trusts or estates and on Form 1120S for S Corporations.Is income listed on Schedule K-1 earned income?Yes, in some cases, income listed on a K-1 is taxable earnings. It all depends on an individual’s relationship to the business; partners and active contributors are usually responsible for self-employment tax. There can also be multiple types of income listed on an individual Schedule K-1. For example, if a partnership manages multiple real estate properties, shareholders might see rental income listed on their K-1 alongside additional earnings. How is a Schedule K-1 different from a 1099?Although both federal forms relate to self-employment taxes and apply to personal tax returns, Schedule K-1s and 1099s do differ. Schedule K-1 specifies an individual’s earnings and contributions to a business. By contrast, businesses send out 1099s to individuals who performed services for them and received payment for those services.How does Schedule K-1 work for real estate co-ownership LLCs?When it comes to tax filing, the IRS treats an LLC with more than one owner as a general partnership. The LLC provides a Schedule K-1 to each co-owner, detailing expenses and income from the property. Remember, LLCs qualify for pass-through taxation. The LLC itself isn’t taxed — individual owners are taxed on the LLC’s income, credits and expenses. For real estate, this includes property taxes. Other taxes due are specific to an individual co-owner’s tax rates.Pacaso owners contribute to property taxes throughout the year via monthly operating expenses. Pacaso pays the home’s property taxes on behalf of all co-owners with funds in the LLC account.How do taxes work for Pacaso?Pacaso collects and pays property taxes on behalf of each home’s LLC. Each owner receives an annual Schedule K-1 form outlining what they’ve paid in operating expenses throughout the year, including property taxes. We encourage owners to consult their tax professional if they have specific questions. Do I get a Schedule K-1 as a Pacaso owner?Yes. Pacaso collects and pays the home’s property taxes on behalf of all owners, using funds paid into the LLC account. Each owner receives an individual Schedule K-1 form from Pacaso to include with their personal tax return.

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