Schedule K-1: Pass-Through Tax Form Explained

What Is a Schedule K-1?

A Schedule K-1 reports a recipient's share of income, deductions, credits, and other tax items from a pass-through entity or fiduciary. The recipient uses the form and its statements to prepare a personal, business, estate, or trust return.

There is no single universal K-1. A partnership issues Schedule K-1 (Form 1065), an S corporation issues Schedule K-1 (Form 1120-S), and an estate or trust issues Schedule K-1 (Form 1041). The form number matters because ownership, basis, self-employment, distribution, and reporting rules differ.

The three common federal K-1s

The entity or fiduciary prepares the underlying return and provides a K-1 to each recipient. The recipient generally keeps the K-1 with tax records rather than attaching a paper copy to the individual return, unless instructions require otherwise.

What does a K-1 report?

A K-1 separates items because different tax rules apply. Depending on the form, it may report:

• Ordinary business income or loss.
• Rental real-estate income or loss.
• Interest and dividends.
• Short-term and long-term capital gains.
• Section 1231 gain or loss.
• Charitable contributions.
• Tax credits.
• Foreign-tax information.
• Distributions.
• Nondeductible expenses.
• Alternative-minimum-tax items.
• Qualified business income information.

Do not enter the K-1 as one net number. Each item and code must reach the correct return, schedule, limitation worksheet, or disclosure.

K-1 income versus cash distributions

Pass-through taxation often assigns taxable income without requiring an equal cash distribution. Elena owns 20% of a partnership. The partnership allocates $30,000 of ordinary income to her but distributes only $12,000 in cash.

Subject to the applicable rules, Elena may need to report the $30,000 allocation even though she received only $12,000. The distribution is separately analyzed for basis and gain. It is not automatically another $12,000 of taxable income.

The reverse can also occur: a distribution may not be immediately taxable when sufficient basis exists, even though it still affects basis. Estate and trust distributions follow different fiduciary rules, so this simplified partnership example should not be transferred to every K-1.

Recipient-level limitations

An entity's reported loss is not necessarily the recipient's currently deductible loss. Depending on the K-1 and activity, the recipient may need to apply:

1. Tax basis limitations.
2. At-risk limitations.
3. Passive-activity-loss limitations.
4. Excess-business-loss rules.
5. Other activity-specific restrictions.

These limitations may create different carryforwards. The K-1 issuer does not always maintain the recipient's outside partnership basis or S-corporation stock and debt basis. Owners should keep annual basis schedules, contribution and distribution records, purchase documents, and prior limitation worksheets.

Where K-1 items appear

K-1 items can flow to Schedule E, Schedule D, Schedule A, Form 4797, Form 8995 or 8995-A, foreign-tax forms, credit forms, and other locations. Ordinary partnership or S-corporation income commonly appears through Schedule E, but that does not mean every K-1 box belongs there.

Self-employment treatment also differs. A partner may have self-employment items depending on partner status and the underlying activity. An S-corporation shareholder's pass-through share is generally not self-employment income, although reasonable-compensation payroll rules remain separate.

Timing, extensions, and corrected K-1s

K-1s can arrive later than wage and interest statements because the entity must first close its books and prepare its return. An entity extension can delay the final K-1. A recipient who files before receiving a required K-1 may need to amend the return.

If the issuer discovers an error, it may provide an amended K-1. Compare the corrected form and every statement with the original; do not simply add both forms together. Contact the issuer when the recipient name, taxpayer identification information, ownership, state data, or substantive item appears wrong.

California Schedule K-1

California pass-through entities and fiduciaries may issue separate state schedules, including Schedule K-1 (565) for partnerships, Schedule K-1 (568) for LLCs taxed as partnerships, Schedule K-1 (100S) for S corporations, and Schedule K-1 (541) for estates and trusts.

California amounts may differ from federal amounts because of state conformity, sourcing, apportionment, and basis rules. A nonresident can have California-source K-1 income even when living elsewhere. California pass-through entity elective-tax credits may also appear in supporting information. Use the state K-1 and statements rather than assuming the federal form supplies every California number.

Documents to gather

• Every page and statement attached to the federal K-1.
• California and other state K-1s.
• Prior-year K-1s and returns.
• Basis and suspended-loss schedules.
• Ownership-purchase documents.
• Capital-contribution and distribution records.
• Loan documents.
• Entity agreements and sale documents.
• Notices of amended or final K-1s.

Common K-1 mistakes

• Entering the K-1 as one number.
• Reporting distributions as though they always equal taxable income.
• Deducting a loss without basis, at-risk, and passive-loss analysis.
• Ignoring supplemental statements and codes.
• Treating partnership and S-corporation self-employment rules as identical.
• Filing before receiving an expected K-1.
• Omitting a California or other state K-1.
• Failing to maintain an owner-level basis schedule.

Frequently asked questions

Related terms

• Pass-Through Entity
• Tax Basis
• Passive Activity Loss
• Schedule E
• Form 1041
• California Pass-Through Entity Elective Tax

Official sources

• IRS — 2025 Partner's Instructions for Schedule K-1 (Form 1065)
• IRS — 2025 Shareholder's Instructions for Schedule K-1 (Form 1120-S)
• IRS — 2025 Beneficiary's Instructions for Schedule K-1 (Form 1041)
• California FTB — 2025 Schedule K-1 (565) instructions
• California FTB — 2025 Schedule K-1 (100S) instructions

The definitions and examples on this page are for informational purposes only and do not constitute tax advice. Tax laws change frequently and individual circumstances vary. Consult a qualified tax professional before making decisions based on this content.