Pass-through entities have to file a K1 for each partner or shareholder to figure how income, deductions and credit pass through to individual returns. Here’s how it works.
If your ag operation is a partnership or an S corporation, you need to submit a Schedule K-1 as part of your annual tax return for each partner or shareholder. One copy of the Schedule K-1 goes to the partner or shareholder and one copy goes to the IRS.
Failing to file Schedule K-1 in a timely manner comes with a penalty. If you forget to file multiple K-1s, those penalties add up. But even missing just one K-1 can throw off your accounting and taxes and lead to trouble with the IRS.
Here’s everything you need to know about Schedule K-1, including how K-1 affects your individual Form 1040 tax return.
What is a K-1 tax form?
As the recipient of a Schedule K-1, you use it to report income, deductions, and credits from a pass-through entity such as a partnership or S corporation.
As the individual filing taxes for a partnership or S corporation, K-1 is the form you use to report each partner or shareholder’s basis in the pass-through entity, and how income, deductions, and credit pass through to their individual returns.
Partnerships file Schedule K-1 of Form 1065, and S corps file Schedule K-1 of Form 1022-S.
Schedule K-1 vs. Form 1099
If you hire a contractor and, over the course of the year, pay them $2,000 or more, you must submit Form 1099-NEC. (For other types of payments, you file a different type of 1099.)
Form 1099-NEC is similar to Schedule K-1 in some regards. Namely, you submit one copy of it to the contractor and one copy to the IRS. Compare this to filing Schedule K-1, where you submit one copy to the shareholder or partner and another copy to the IRS.
That’s where their similarities end. Form 1099-NEC reports funds you paid to a business—either a sole proprietor or another business entity—in exchange for services. Schedule K-1 reports the income and deductions from a pass-through entity that pass through to a partner or shareholder.
This does not mean that partnerships or S corps never file Form 1099-NEC. If your pass-through entity hires a contractor and pays them $2,000 or more over the course of the year, it’s required to submit a Form 1099-NEC. But the partners and shareholders in your corporation do not receive Form 1099-NEC; they receive Schedule K-1.
One exception (really, it’s more of a half-exception): Members of a cooperative receive a Form 1099-PATR at the end of year reporting dividends paid to patrons. If you’ve ever belonged to a farmers’ co-op, then you’ve received one of these.
But a co-op is not a partnership or an S corporation—it’s a special kind of C corporation. And it doesn’t issue K-1s to its patrons.
Schedule K-1 vs. W2
Form W2 reports wages or salary paid to an employee over the course of the year. Like Schedule K-1, you file multiple copies:
Copy A goes to the IRS
Copy B goes to the employee
Copy C goes to state tax authorities
Copy D is kept by the employer for their records
But Form W2 and Schedule K-1 serve different functions. Form W2 reports wages or salary from which income tax, FICA, and other payments (if applicable) are withheld. Schedule K-1 reports income and deductions that pass through to the recipient.
Pass-through income and deductions are taxed differently from W2 income (for instance, they may be subject to self-employment tax). And an employer does not withhold income tax or other taxes from income and deductions reported on K-1.
It’s possible for a partner or a shareholder to receive both a Schedule K-1 and a Schedule W2 from the same business entity.
For instance, if your ranch has S corp status, and your ranch manager is both an employee and a shareholder, she would receive both a Form W2 and a Schedule K-1 from your ranch. In that case, Form W2 would report her wages and Schedule K-1 would report income and deductions from your ranch that pass through to her personal tax return.
Who is required to file Schedule K-1?
It’s the responsibility of a partnership or an S corporation to file Schedule K-1 with the IRS. Trusts are required to file a K-1 for each beneficiary as part of their tax return (Form 1041).
A partner or shareholder who receives a K-1 is not required to submit their own copy to the IRS. They use the information on the K-1 to complete their tax return.
A limited liability company (LLC) that is treated as a partnership for federal tax purposes, or that elects S corp status, is required to file Schedule K-1s.
How does a K-1 affect your taxes?
If you receive a Schedule K-1, it will either increase or decrease your taxable income.
Your income increases if the K-1 reports a profit
Your income decreases if the K-1 reports a loss
That’s the simple explanation. When it comes to actually filing, different information from your K-1 flows through to different parts of your tax return.
Here’s how that looks if you’re an individual tax filer submitting Form 1040 to the IRS:
Ordinary income and loss
Your ordinary income or loss is reported in box 1 of Schedule K-1.
You report the amount on Part II of Schedule E, Supplemental Income and Loss (Form 1040).
The total from Schedule E flows to Part I of Schedule 1, Additional Income and Adjustments to Income (Form 1040).
Then, you report it on line 8 of Form 1040 (Other Income).
Deductions
There are two types of Schedule K-1 deductions:
Deductions already netted against income and included in the net income or loss reported in box 1 or in boxes 2 and 3 (rental income or loss). These include operating expenses. They’re not separately reported on your individual tax return.
Separately stated deductions, each of which flows through to a different part of your tax return. These include charitable contributions and Section 179 deductions.
It’s important that you don’t deduct already-netted expenses (operating expenses, wages, supplies, etc.) from income reported on K-1. In that case, you’ll be deducting them twice and your tax return will be inaccurate.
Separately stated deductions flow through to these forms:
| Deduction | Where it appears on K-1 | Flows through to… |
|---|---|---|
| Section 179 | Box 12 | Form 4562, then Schedule 1 |
| Charitable contributions | Box 13 | Schedule A |
| Investment interest expense | Box 13 | Form 4952 |
| Cash contributions (with special limits) | Box 13 | Schedule A |
| Nonbusiness interest | Box 13 | Schedule A |
Section 1231 gains and other gains and losses
Section 1231 gains are reported in box 10 of Schedule K-1. You report them on Form 4797, and on either Schedule D or Form 1040 depending on their treatment.
Other gains and losses are reported in box 11 of Schedule K-1. How it flows through to your tax return depends on the precise type of income. This is covered in the instructions for its specific K-1 code.
Self-employment income
If you are a member of a partnership, your earnings are subject to self-employment (SE) tax. The total amount subject to SE tax is reported in Box 14 of Schedule K-1.
You report that amount on Schedule SE to calculate your total self-employment tax. The deductible portion of SE tax flows through to Part II of Schedule 1.
General business credits
General business credits are reported in box 15 of Schedule K-1. They flow through to Form 3800 and then to Schedule 3 of Form 1040.
What do you need to fill out a K-1?
In order to fill out a K-1 for your partnership or S corp, you’ll need to have the following information and documents on hand:
Information on a K-1
Business information
The legal name of your partnership or S corp
Your employer identification number (EIN)
Your business address
The tax year
The entity type
The principle business activity code (NAICS)
Recipient information
Full legal name
Address
Social Security Number (SSN) or EIN
Owner type (individual, corporation or partnership, or trust or estate)
Ownership and participation details for the recipient
Ownership percentage at the beginning of the year
Ownership percentage at the end of the year
Changes in basis over the course of the year
Profit, loss, and capital percentages
Material participation status (passive or non-passive)
At-risk status
Whether they are active in operations
Whether their income is subject to SE tax (partnerships)
The partner or shareholder type (general partner, limited partner, LLC member)
Capital account information (for partnerships only)
Beginning capital account balance
Ending capital account balance
Capital contributions during the year
Withdrawals or distributions
Capital account method (tax basis, GAAP, etc.)
Income items allocated to the recipient
Ordinary business income or loss
Rental real estate income or loss
Other rental income or loss
Interest income
Dividend income
Capital gains and losses
Section 1231 gains
Other income (with codes)
Separately stated deductions
Section 179
Charitable contributions
Interest expense
Conservation expenses
Other deductions (with codes)
Pass-through credits
General business credits
Energy or agricultural credits
Self-employment and special items (for partnerships only)
Net earnings from self-employment
Guaranteed payments for services or capital
Section 199 (Qualified Business Income) information
Excess business loss info
Alternative Minimum Tax (AMT) items
Basis-related items (may not affect tax but are required)
Nondeductible expenses
Tax-exempt income
Foreign transactions (if applicable)
State-specific allocation data
State and local information
State where income was earned
State income allocation percentages
State tax withheld on behalf of the recipient
Composite or pass-through entity tax payments
Supporting documents for a K-1
While filling out K-1s for your partnership, you should have these documents at hand:
A finalized Form 1065 or Form 1120-S
The partner or shareholder agreement or operating agreement
Capital contribution and distribution records
K-1s and basis schedules for prior years
Fixed asset and depreciation schedules
Credit and carryforward schedules
What happens if you don’t file a Schedule K-1?
The IRS penalizes you for each K-1 your partnership or S corp fails to file.
For each K-1, the penalty is $310 per month (indexed annually), to a maximum of 12 months. This applies separately to failing to file the K-1 with the IRS and failing to send a K-1 to its recipient.
The IRS may delay or reject the partnership or S corp’s return or flag it for an audit.
Many states also charge penalties for failure to file K-1s.
What to do if you fail to file a K-1
If you fail to file a K-1, the best solution is to either file your complete return or amend it immediately, and issue K-1s to recipients. You may be able to request penalty abatement (more on that below).
If you’re a partner or a shareholder and you’ve failed to receive a K-1, you are still expected to complete your tax return, including estimated K-1 profit or loss to the greatest accuracy possible. In that event, you may decide to file an individual tax extension and then file once you’ve received your K-1.
How to amend a return for missing K-1s
If you have failed to file a K-1, you can amend your return with Form 1065-X (partnerships) or an amended version of Schedule 1120-S (S corps).
If you’re an individual who filed Form 1040 but failed to account for K-1 income or loss, you can file Form 1040-X to amend the return.
You should also file amended tax returns according to the requirements of your state.
Penalty abatement for missing K-1
If you failed to file a K-1, you can request a penalty abatement if you have reasonable cause.
Reasonable cause includes:
Serious illness or death of the person responsible for filing
Natural disaster
Loss or destruction of records
Reliance on a tax professional who failed to file
Receiving information late from involved parties (eg. the recipient)
Your first year of operations (with documents to support confusion)
IRS system errors or delays.
Cash flow problems, forgetting to file, ignorance, and being too busy do not qualify as reasonable causes.
If you request abatement, you should draft a formal letter to the IRS. Be sure to include your business information, your reasonable cause, and any documents or records supporting your reasonable cause. You should also include steps you are taking to prevent the problem from happening again in the future.
Send your letter to the address included in the penalty notice from the IRS. You may want to hire an accountant to help you draft the letter or determine whether your reasonable cause qualifies.
How to file Schedule K-1
Schedule K-1 is filed with the IRS as part of your partnership or S corp’s tax return. It’s included with either Form 1065 or Form 1120-S. K-1s are included with your return when you use IRS e-file.
The deadline to file is March 15th (or the next business day if March 15th falls on a weekend or holiday). If you request an extension and qualify, the deadline is September 15th (or the next business day).
You must furnish copies of K-1s to recipients no later than the due date for your return. Copies may be delivered through secure online transfer (PDF via a portal or encrypted email), or in paper through the mail.
Individual states have their own requirements for filing deadlines, including separate state K-1 schedules.
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This resource is provided for general informational purposes only. It does not constitute professional tax, legal, or accounting advice. The information may not apply to your specific situation. Please consult with a qualified tax professional regarding your individual circumstances before making any tax-related decisions.
