Schedule K-1 (Form 1120-S) is issued by an S corporation to report each shareholder's share of the corporation's income, deductions, credits, and other tax items for the year.
S corporations are pass-through entities. In most cases, the corporation itself does not pay federal income tax. Instead, income, losses, deductions, and credits pass through to shareholders, who report their share on their individual or business tax returns.
What We Support
We support entering Schedule K-1 (Form 1120-S) information on a shareholder's tax return, including reporting K-1 amounts on:
- Form 1040
- Schedule E (Part II)
- Other required forms based on the K-1 boxes and codes, such as Schedule D, Form 4562, or Form 7203
What We Don't Support
We do not support:
- Preparing or filing Form 1120-S, U.S. Income Tax Return for an S Corporation
- Creating, issuing, correcting, or amending Schedule K-1 (Form 1120-S)
- Calculating shareholder stock basis or debt basis at the corporate level
- Advising on S corporation elections or shareholder allocations
Who Receives Schedule K-1 (Form 1120-S)?
Schedule K-1 (Form 1120-S) is issued to shareholders of an S corporation, including:
- Individuals
- Trusts
- Estates
- Other eligible shareholders
Each shareholder receives a K-1 that reports their share of the corporation's tax items based on their ownership interest and any applicable allocations.
What Information Is Reported on a K-1?
Schedule K-1 (Form 1120-S) may include a shareholder's share of:
- Ordinary business income or loss
- Rental income or loss
- Interest income, dividends, and capital gains
- Section 179 deductions
- Tax credits
- Foreign income and foreign taxes paid
- Distributions
- Items that affect shareholder stock or debt basis
Each item is reported in a specific box and may include codes that determine where and how the information is reported on the shareholder's tax return.
How to Report Schedule K-1 (Form 1120-S)
Most items from Schedule K-1 (Form 1120-S) are reported on Schedule E (Part II), which then flows to Form 1040.
The reporting requirements depend on the type of income, deduction, credit, or adjustment shown on the K-1.
Additional Forms That May Be Required
Depending on the boxes and codes reported on the K-1, additional forms may be needed, including:
- Schedule D for capital gains and losses
- Form 1116 for the Foreign Tax Credit
- Form 4562 for depreciation and Section 179 deductions
- Form 6251 for Alternative Minimum Tax (AMT) adjustments
- Form 7203 for shareholder stock and debt basis limitations
Always review the instructions provided with your Schedule K-1 to ensure each item is reported correctly.
Shareholder Basis Considerations
Unlike partnership K-1s, many S corporation shareholders may need to track stock basis and debt basis. Basis can affect:
- Whether losses are deductible
- The taxability of distributions
- Gain or loss calculations when stock is sold
If a shareholder claims losses, receives distributions, repays loans, or has other basis-related transactions, Form 7203 may be required to calculate and report basis limitations.
State Tax Considerations
S corporations often operate in multiple states, which can create state tax filing requirements for shareholders.
Common state reporting issues include:
- State-specific Schedule K-1 forms
- Income sourced to multiple states
- Nonresident state tax returns
- Composite returns filed on behalf of nonresident shareholders
- State income tax withholding
If state tax was withheld by the S corporation, that withholding is often reported on the K-1 and may be claimed as a credit on the shareholder's state tax return.
Because state rules vary, shareholders may need to file returns in states where they do not live but where the S corporation conducts business.
When You'll Receive Schedule K-1
S corporations generally issue Schedule K-1 after completing Form 1120-S. Because business returns often require additional calculations and reporting, K-1s may arrive later than Forms W-2 or 1099.
Before filing your return, make sure you've received all of your Schedule K-1 information. Filing before receiving a K-1 could result in missing income, deductions, or credits and may require you to amend your return later.