If you receive income from a source that is not a regular paycheck, you’ll need to report this income to the IRS by using a Schedule K-1. This usually occurs if you are paying yourself out of a trust, S corporation, limited liability corporation and (LLC) or a partnership. A Schedule K- 1 allows you to list your share of income, deductions and credits. It passes the liability from an entity to you.
Schedule K-1 For A Business Partnership
If you are involved in a business that operates as a partnership, LLC or S corporation, it’s your responsibility to pay the taxes that are due from the business. Each partner will file their own personal tax return and report their specific share of credits, deductions, losses or income relating to the business. The total amount of business information is recorded on a 1065 tax form.
As an example, if you are involved in an LLC that has for other partners and the business generated a total amount of income equal to $125,000 in a single fiscal year, each partner would be liable for $25,000. You would put your name, address and Social Security number on a Schedule K-1 and include the $25,000 figure as well. This is then attached to Form 1065 and filed with your other personal tax forms.
Schedule K-1 For An S Corporation
when dealing with an S corporation, you’ll use a Form 1120S to list the information from your business. Like a business partnership, you will take the percentage of your share of credits, deductions, income and losses from the business and report that with your personal tax records by using a Schedule K-1.
Trust and Estate Beneficiaries
Form 1041 should be used when filing taxes when a trust is involved. However, a trust differs from a business partnership or S corporation as a trust has the ability to pass the tax liability onto you personally or pay the income tax on the total earnings listed on Form 1041. If the tax liability is not paid by the trust, your percentage of the liability will be listed on a Schedule K-1.
Attaching Your K-1 To Your Personal Tax Filing
Schedule K-1 Forms are different for partnerships, trusts or S corporations. However, the purpose of the Schedule K-1 is the same for each form — to inform the IRS of the profit or loss that you are declaring on your personal tax return.
Schedule K-1 Deadline
When a company pays wages to an individual, they are required to issue a W-2 by a certain deadline. This isn’t the case with a Schedule K-1. There is no specific deadline that needs to be met. This is important for you to know as you will need information from a trust, partnership or S Corporation that you are involved with before you can file your personal taxes. If you owe any taxes on gains from your LLC, they must be paid before April 15 of the following year. It’s your responsibility to obtain a Schedule K-1 in each specific case.
Schedule K-1 allows you to pass through financial information from an entity to your personal tax filing. Be sure to use this when you file your personal taxes if you have a tax liability related to a business or trust.
Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!