A Schedule K-1 tax form reports your personal share of the income, losses, deductions, and credits from a business, estate, or trust that doesn’t pay income tax itself. The entity passes those numbers through to you, and you carry them onto your Form 1040. You owe tax on your share whether or not the entity actually sent you any cash.
Which K-1 You Received
Three versions exist, and the one you got tells you what kind of entity you’re dealing with:
- Schedule K-1 (Form 1065) comes from a partnership, including general partnerships, limited partnerships, and LLCs taxed as partnerships. This is the most common version.1Internal Revenue Service. Schedule K-1 (Form 1065) – Partner’s Share of Income, Deductions, Credits, etc.
- Schedule K-1 (Form 1120-S) comes from an S corporation and reports each shareholder’s share of the company’s results.2Internal Revenue Service. Schedule K-1 (Form 1120-S) – Shareholder’s Share of Income, Deductions, Credits, etc.
- Schedule K-1 (Form 1041) comes from an estate or trust and reports income distributed, or required to be distributed, to a beneficiary.3Internal Revenue Service. Schedule K-1 (Form 1041) – Beneficiary’s Share of Income, Deductions, Credits, etc.
All three work the same way at a high level: the entity itself doesn’t pay income tax on the reported amounts, so you do on your individual return.4Internal Revenue Service. S Corporations
What the Form Shows
Each type of income, loss, deduction, or credit gets its own box on the K-1 because each flows to a different place on your personal return. The items you’re most likely to see:
- Ordinary business income or loss — your share of the entity’s core operating result.
- Rental real estate income or loss from property the entity owns.
- Interest and dividends allocated to you from the entity’s investments.
- Capital gains and losses from the entity’s sale of assets.
- Section 179 deductions, where the entity elected to immediately deduct qualifying business equipment rather than depreciate it.1Internal Revenue Service. Schedule K-1 (Form 1065) – Partner’s Share of Income, Deductions, Credits, etc.
- Guaranteed payments, which apply only to partnerships. These are amounts a partner receives for services or capital contributed, paid regardless of whether the partnership turned a profit.5Internal Revenue Service. Publication 541 – Partnerships
The form also identifies you as the recipient, gives the entity’s tax ID number, and states your ownership percentage and your share of the entity’s liabilities. Those numbers matter when calculating whether losses are actually deductible.
Where Each Item Goes on Your 1040
Filing a K-1 is really a routing exercise: you copy each figure onto the matching schedule. The instructions attached to each version of the K-1 give a line-by-line map, but the common destinations are:
- Ordinary business income or loss from a partnership or S corporation lands on Schedule E.6Internal Revenue Service. Instructions for Schedule K-1 (Form 1065) – 2025
- Capital gains and losses go to Schedule D.
- Interest and dividend income goes to Schedule B.
- Amounts from a Form 1041 K-1 for an estate or trust beneficiary flow to your Form 1040 or 1040-SR as directed in the K-1 instructions.7Internal Revenue Service. Instructions for Schedule K-1 (Form 1041) for a Beneficiary
Tax software routes these automatically once you enter the K-1. If you’re filing on paper, work through the instructions that came with your K-1 box by box.
Self-Employment Tax on Partnership Income
Partnership K-1 income can trigger self-employment tax on top of income tax, and the answer turns on what kind of partner you are. The self-employment tax rate is 15.3%, made up of Social Security at 12.4% and Medicare at 2.9%.8Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
General partners owe self-employment tax on their entire distributive share of partnership operating income, plus any guaranteed payments. Limited partners owe self-employment tax only on guaranteed payments they received for services actually performed. A limited partner’s ordinary share of partnership profit is not subject to self-employment tax.9Internal Revenue Service. Instructions for Form 1065 (2025)
S corporation shareholders don’t pay self-employment tax on K-1 income at all. Shareholders who work in the business are supposed to receive a W-2 salary, and payroll taxes apply to that salary rather than to the K-1 amounts.
When You Can Actually Deduct a K-1 Loss
A loss on your K-1 doesn’t automatically reduce your taxable income. It has to clear three separate filters, in order, before any of it gets deducted. This is where K-1 reporting gets complicated.
Basis Limitation
Your deductible partnership loss is capped at your adjusted basis in the partnership interest at year-end. Basis generally starts with what you contributed, rises with additional contributions and your share of income, and drops with distributions and your share of losses. A loss larger than your basis carries forward until you have enough basis to absorb it.10Office of the Law Revision Counsel. 26 USC 704 – Partner’s Distributive Share
S corporation shareholders face a parallel rule. Their deductible losses are limited to stock basis plus any amounts the corporation owes them directly through loans they personally made to the company.
At-Risk Limitation
Losses that survive the basis test then have to pass the at-risk rules. You’re at risk for money and property you contributed and for borrowed amounts you’re personally liable to repay. Nonrecourse debt, where the lender can only pursue specific collateral rather than you personally, generally doesn’t count as at-risk, and losses tied to it are disallowed. Certain nonrecourse financing secured by real property is treated as an exception.11Office of the Law Revision Counsel. 26 USC 465 – Deductions Limited to Amount at Risk
Losses blocked at this step carry forward until you have enough at-risk amount to absorb them.
Passive Activity Limitation
The last filter: losses from a passive activity can only offset passive income. A passive activity is generally one in which you don’t materially participate. If you’re a limited partner or a silent investor, your losses are almost certainly passive.12Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited
Rental real estate gets a specific carve-out. If you actively participated in managing a rental (decisions on tenants, repairs, and lease terms), you can deduct up to $25,000 of rental losses against non-passive income. That $25,000 allowance phases out once adjusted gross income exceeds $100,000, shrinking by $1 for every $2 of AGI above the threshold and disappearing at $150,000.12Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited
Passive losses you can’t use in the current year carry forward indefinitely and become fully deductible when you completely dispose of your interest in the activity.
Phantom Income and Quarterly Payments
Pass-through entities often report taxable income on your K-1 without actually distributing cash to match it. You still owe tax on your share of the profits. Partnerships are especially prone to this, since they often reinvest earnings rather than pay them out.6Internal Revenue Service. Instructions for Schedule K-1 (Form 1065) – 2025
K-1 income isn’t withheld like a paycheck, so you’re generally responsible for quarterly estimated payments. The IRS charges an underpayment penalty if you owe more than $1,000 at filing and haven’t paid at least 90% of the current year’s tax or 100% of last year’s (110% if your AGI exceeded $150,000).13Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
Estimated payments are due April 15, June 15, September 15, and January 15 of the following year. Use Form 1040-ES to calculate and submit them. First-year K-1 recipients often miss this cadence.
Late, Missing, or Incorrect K-1s
K-1s from partnerships and S corporations are due by March 15 for calendar-year entities, the same date as the entity’s own return.14Internal Revenue Service. Publication 509 (2026), Tax Calendars Estate and trust K-1s follow a later schedule, due April 15 for calendar-year filers.15Internal Revenue Service. Instructions for Form 1041 and Schedules A, B, G, J, and K-1 (2025)
Late K-1s are common. If the entity files a six-month extension on its own return, your K-1 may not arrive until September, well past April 15. In that case, file your own extension on Form 4868. An extension pushes the filing deadline but not the payment deadline, so estimate what you’ll owe and pay it by April 15 to avoid interest and penalties.
If a K-1 contains errors, ask the entity for a corrected form. The entity is responsible for issuing corrections.
If you want to report a K-1 item differently than the entity did, file Form 8082 with your return to flag the inconsistency. The same form is required if you never received a K-1 by your filing deadline (including extensions), or if the entity was required to give you a Schedule K-3 for international items and didn’t.16Internal Revenue Service. Instructions for Form 8082 Filing Form 8082 doesn’t settle the disagreement in your favor, but without it the IRS will typically adjust your return to match the entity’s numbers and bill you.
Publicly Traded Partnerships and MLPs
Units in a master limited partnership or another publicly traded partnership generate a K-1 rather than the 1099 a typical brokerage investment would send. A few rules work differently here.
Losses from a publicly traded partnership can only offset income from that same partnership. You can’t use them against other passive activities or against other publicly traded partnerships. Suspended losses stay parked until the same partnership generates income or you sell your entire interest.12Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited
Publicly traded partnerships with operations in multiple states can create state filing obligations for you in states you don’t live in. Some states set minimum thresholds or run composite return programs that handle it, but not all do.
Holding MLP units in an IRA doesn’t dodge the complications. MLPs can generate unrelated business taxable income, and if gross UBTI in the IRA exceeds $1,000 in a year, the IRA itself must file Form 990-T and pay tax on the excess. The first $1,000 is exempt.