What is a Schedule K-1? This is a common question a business owner may ask their business attorney or tax attorney. The article below has been drafted by a tax attorney in Denver to help explain a Schedule K-1 and the importance of a K-1 as it relates to tax matters.
Schedule K-1 is an informational schedule that reports certain types of income to the Internal Revenue Service. For example, pass through entities such as a partnership (limited liability company) or S Corporation will file a Schedule K-1 for each partner or shareholder to report that individuals share of income, deductions and credits etc. from the pass through entity. Schedule K-1 for an S Corporation is actually titled Shareholder’s Share of Income, Deductions, Credits, etc. Schedule K-1 is filed with the Internal Revenue Service and a copy is provided to the necessary individual or business so the items can be reported correctly on other tax forms and schedules depending upon the situation.
The K-1 will state the information of the corporation, partnership etc. (the payor) including the Employer Identification Number, name & address and the IRS center where the return is filed. The Schedule will also state information about the shareholder or partner such as their taxpayer identification number, name & address and percentage of ownership in the entity.
The income, deductions, credits and other items reported on the K-1 include: ordinary business income or loss, net rental real estate income or loss, other net rental income or loss, interest income, ordinary dividends, qualified dividends, royalties, net short term capital gain or loss, net long term capital gain or loss, collectibles, recapture amounts (unrecaptured Section IRC 1250 gain), net Section 1231 gain or loss, other income or loss, section 179 deduction, other deduction, credits, foreign transactions, alternative minimum tax items, items affecting shareholder/partner basis and other information required to be reported.
These items as reported on the Schedule K-1 then pass through to the individual, and are generally reported on Schedule E and the taxpayer’s 1040 Individual Income Tax Return. The items may pass through to a business entity and the business will then report the items on the entity return. For example, an S Corporation may be the member of a limited liability company. Thus, the K-1 would be issued to the S Corporation who would then report the items on the corporation’s 1120S Corporate Income Tax Return.
Thus, if you are a member of a limited liability company, partner in a partnership, shareholder in an S Corporation, you should receive a Schedule K-1 and this information should be reported appropriately on your 1040 Individual Income Tax Return.
If you have questions regarding your individual income taxes or the taxation of your business entity contact The McGuire Law Firm to speak with a Denver tax attorney or business attorney. Our law firm has assisted many individuals and business owners with their tax issues, matters & questions.
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