Schedule K-1

Definition

A Schedule K-1 is a tax form used in the United States to report the income, deductions, and credits allocated to partners, shareholders, and others such as partnerships, limited liability companies (LLCs), and trusts. 

What is a Schedule K-1?

The purpose of the Schedule K-1 is to inform shareholders of their share of the organization’s taxable income, as well as any tax-related items that they need to report on their individual tax returns.

In addition to income, the Schedule K-1 may also report deductions, credits, and other tax-related items allocated to the shareholder. These may include business expenses, depreciation, tax credits, and other items that affect the shareholder’s taxable income.

The Schedule K-1 separates taxable and nontaxable income items. Taxable income items are subject to income tax at the shareholder’s individual tax rate, while nontaxable income items may be excluded from taxable income or taxed at special rates.

The Schedule K-1 provides information about the shareholder’s ownership or interest in the organization, including their percentage of ownership, capital contributions, and distributions received during the tax year.

Example of a Schedule K-1

XYZ Partnership

For the tax year ended December 31, 2023

Name: John Smith

SSN: 123-45-6789

Share of income, deductions, credits, etc.:

• Ordinary business income: $10,000
• Interest income: $500
• Dividend income: $300
• Rental real estate income: $1,200
• Capital gains: $800
• Other deductions: ($200)
• Foreign tax paid: $100

This Schedule K-1 shows the allocation of income, deductions, and other tax items from XYZ Partnership to John Smith, who is a partner in the partnership.