What is Schedule K-1 used for?

What is Schedule K-1?

Schedule K-1 (Form 1065) is a tax document used by partnerships to report each partner’s share of the business’s income, losses, deductions, and credits. While the partnership files Form 1065 as an informational return, Schedule K-1 is prepared for each individual partner.

What’s the purpose of Schedule K-1?

The purpose of Schedule K-1 is to pass through the partnership’s financial results to its owners. Partnerships do not pay income tax at the entity level. Instead, profits and losses are allocated to each partner based on their ownership percentage, and those amounts are reported on the partner’s personal tax return.

What’s reported on Schedule K-1?

Schedule K-1 reports each partner’s share of:

• Ordinary business income (or loss)
• Rental income
• Guaranteed payments
• Interest and dividends
• Capital gains
• Deductions and credits
• Self-employment earnings

Partners use the information from Schedule K-1 to complete their individual income tax return, typically Form 1040.