- Schedule K-1 is where you’ll report your share of income, deductions, and credits from your ownership stake in the S corp.
- If you are an owner of an LLC that has elected to be taxed as an S corp, you’ll also file Schedule K-1.
- Since S corps are a pass-through entity, you won’t be able to complete your personal tax return until you’ve completed your part of the S corp’s business taxes (which includes your Schedule K-1 Form 1120S).
- Schedule K-1 is one part of the Form 1120S, which is the U.S. Income Tax Return for S Corporations.
What is Schedule K-1 Form 1120S?
1120S K-1, formally known as Schedule K-1 Form 1120S, is an IRS tax form used by owners and investors of S corporations. You can find a blank copy of the Schedule K-1 for Form 1120S on the IRS website.
Schedule K-1 records each owners’ share of the business’s income, deductions, credits, and other financial items. The corporation submits a copy of all K-1s to the IRS with the 1120S form. Each owner gets their own copy used to complete their personal tax returns.
The K-1 form consists of three sections:
- Part I - Information About the Corporation
- Part II - Information About the Shareholder
- Part III - Shareholder’s Share of Current Year Income, Deductions, Credits, and Other Items
S corporations are required by law to submit an annual tax return. As part of preparing Form 1120S for the return, your tax preparer should also create a unique Schedule K 1 for every shareholder.
Expert tip: S corporation distributions aren’t considered self-employment income and aren’t subject to self-employment tax. S corp owners will have to pay self-employment taxes on their wages, though. Learn more in our guide to S corporation tax filing.
How to complete Schedule K-1 (Form 1120S)
Completing Schedule K-1 is less complicated than many tax forms, although it’s still always advisable to consult a tax advisor.
Step 1: Gather the necessary information to fill out the form. You’ll need:
1. Corporate information:
- Name of the S corp
- Employer Identification Number (EIN)
- Address of the S corp
- Shareholder’s identifying information (name, address, and Social Security number)
2. Financial information:
- Your percentage of stock ownership for the year
- Financial statements, including an income statement and balance sheet
Step 2: Fill out Parts 1 and 2 with the identifying information for your S corp (Part 1) and for you as a shareholder (Part 2). You’ll need to know how many shares you had at the beginning and end of the tax year.
Step 3: Fill out Part 3, which is where you’ll report your share of that year’s income, deductions, credits, and losses. You’ll need to know:
- Ordinary income or loss
- Any income or loss from real estate rental property
- Interest income
- Dividend and qualified dividends
- Royalties you received
- Short- and long-term capital gains and/or losses
- Gains and losses from Collectibles and Unrecaptured section 1250 gains
- Net section 1231 gains or losses
- Section 179 deductions, which allow business owners to deduct the full cost of a depreciable asset immediately, rather than depreciating it
- Any credits, items affecting shareholder basis, or other items
Because some of these deductions and calculations are complicated and have highly specific rules, it’s a good idea to consult with your accountant or a tax advisor before filing your Schedule K-1. Incorrectly stating your deductions or credits could mean you end up with a hefty fine, or alternatively, pay more in tax than you are required to.
Step 4: Review and sign. Double check all your entries, and sign and date the form.
Step 5: File your Schedule K-1 with your S corp’s Form 1120S, U.S. Income Tax Return for an S Corporation. You’ll need to submit the form to your S corp’s other owners, as well.
What is a pass-through entity?
S corporations are a popular method to organize a business for numerous reasons, including tax and legal liability considerations. An S corporation is a type of pass-through entity, which means business income, losses, deductions, and credits “pass through” to the owner’s personal tax return. While the S corporation has to file a tax return, the owners pay the taxes with their personal tax returns.
If your business is eligible for a tax credit, for example, the credit would be included in the business tax return, along with any additional information required about the credit. Any business activity, including business expenses, should be considered when putting together your pass-through entity taxes. If you miss any allowable credits or deductions, you could wind up owing more in personal taxes.
An S corp isn’t the only type of pass-through entity. For example, some LLCs can opt for S corp taxation, which gives them essentially identical tax treatment to a standalone S corporation. It’s critical for businesses to know their tax requirements and submit the right forms by the due date, or they could wind up responsible for paying fines, interest, and penalties related to unpaid taxes.
Learn more: What Is an S Corporation and Should You Form One
Who needs to file Schedule K-1?
If you are an owner or investor in an S corp, you likely need to file the Schedule K-1 Form 1120S. You won’t have to submit the physical form to the IRS, as they already get a copy with the business tax return. That means, however, that the IRS will be on the lookout for the information on your K-1 to be included in your taxpayer return.
Even if your business wasn’t very busy, you still might have interest income, ordinary dividends, or other ordinary business income to report from the prior year. Even if your involvement is only through passive activity, you may still need to file a Schedule K-1. Your complete form may only have one or two boxes complete. If that’s the case, your personal taxpayer information should be easy to enter.
Individuals in the United States submit a version of Form 1040 every year for their personal taxes. The business version, when you own an S corp, is Form 1120S. Your K-1 bridges the gap between the business tax return and your personal income tax return.
How do shareholders use Schedule K-1?
Each box on the K-1 form corresponds to a box on the 1040 form or an added schedule. While there may be complex accounting records behind the scenes, the K-1 is a simple one-page form. This is where your share of income is listed. Even if you didn’t take any distributions, you likely have to include the information from a K-1 with your taxes if the business made or lost money.
Income and other potential tax liabilities are broken out using various boxes. Common information on a K-1 form includes interest, ordinary dividends, qualified dividends, royalties, net short-term capital gain (or loss), and net long-term capital gains.
If you’re working on your personal tax return and received a K-1 form, your accountant will enter this information as required, or you can follow instructions from your tax software. The numbers are ultimately included on the 1040 form used to calculate your total income, adjusted gross income, taxable income, and taxes owed.
Your business 1120S and personal K-1 will include the business Employer Identification Number (EIN). You’ll need that EIN and your Social Security number to complete your individual tax return.
Helpful resource: What is an EIN Number and How Do I Get One?
As with other tax forms, the IRS creates updated instructions for the Schedule K-1 annually. If you have any questions, that’s the first place to look. The shareholder’s instructions include details on where to find and enter information, as well as examples of necessary calculations.
Note: Your K-1 form may require you to pay the Alternative Minimum Tax (AMT). Check with your tax preparer or the IRS for more details.
When is Schedule K-1 Form 1120S due?
There are two main due dates to be aware of when it comes to the 1120S K-1. The first is the tax deadline for the S corporation, followed by the shareholder’s tax due date.
According to the IRS, Form 1120S for S corporations “is due on the 15th day of the 3rd month after the end of the corporation’s tax year.” For most businesses, that means March 15th.
Savvy business owners do their best to get this done early, as shareholders can’t do their personal taxes until 1120S is complete and they get their K-1 forms. If you think you’re going to be late, your business can file for an automatic six-month extension with Form 7004, but that will delay shareholder taxes as well.
Personal taxes are generally due one month later, on or around April 15th. This is where you include the information from your K-1. If your business is running late on getting you any necessary forms, you may have to file an extension and wait on submitting your taxes until everything is wrapped up for the business.
If you need more information on S corporation tax filing deadlines, check out our guide.
1120S K-1 is a simple but important part of business taxes
Depending on your business results, you may wind up with a K-1 form that has only one box completed. That simple number is the summation of your share of a year’s worth of work, so don’t take it lightly.
However you get your 1120S and K-1 forms, it’s important to take the time to ensure they’re done accurately. If you’re worried about getting your taxes done correctly and by the deadline, here’s a look at how Bench can help.
