A K-1 is an informational return, and a shareholder in an S Corporation would receive a K-1 stating that shareholder’s share of gain, loss, credits etc. from the S Corporation. Because an S corporation is a pass through entity, the S corporation does not pay income tax, but rather the shareholders claim the items on their tax returns. Typically, the shareholders of an S corporation are individuals and thus the items would be claimed on 1040 individual income tax returns.
The K-1 states the shareholders name, address and identification number, which is usually a social security number. Of course, the K-1 will also stated the information for the applicable S Corporation. Further, the shareholder’s percentage of ownership in the S corporation is stated. The K-1 is issued to the Internal Revenue Service and the shareholder. Thus, if the information stated by the shareholder does not match that received from the IRS, the shareholder may receive a notice from the IRS. Further, if the shareholder does not file a return, the IRS has the information from the K-1 which can be used to prepare tax return for the shareholder if not voluntarily prepared.
A tax attorney from The McGuire Law Firm has also prepared the video below for additional information regarding a K-1 from an S corporation. You can speak with a Denver tax attorney by contacting The McGuire Law Firm, and discuss your tax questions and matters.