What Is a Schedule K-1 and What Does It Report?

A Schedule K-1 is a tax form that reports your share of income, losses, deductions, and credits from a partnership, S corporation, estate, or trust you have an interest in. You receive one because those entities generally don’t pay federal income tax themselves; their financial results pass through to the people behind them, and the K-1 is how the IRS tracks what landed on your return. Each K-1 you get feeds directly into your personal Form 1040, and the numbers on it can shift your bracket, trigger self-employment tax, unlock a deduction, or create a loss you can’t actually use yet.

Who Issues a K-1

Three kinds of entities issue K-1s, and each uses its own version of the form.

Partners in a partnership receive Schedule K-1 (Form 1065). The partnership files Form 1065 with the IRS and generates a K-1 for every person who was a partner at any point during the year. Your K-1 shows your distributive share of the partnership’s income or loss, meaning the slice allocated to you under the partnership agreement.¹ The partnership itself pays no federal income tax.²

Shareholders in an S corporation receive Schedule K-1 (Form 1120-S). The S corporation files Form 1120-S, and each shareholder gets a K-1 reporting their pro rata share of corporate income, deductions, and credits. One detail catches people off guard: you owe tax on your share of S corporation income whether or not the company actually distributes cash to you during the year.³

Beneficiaries of estates and trusts receive Schedule K-1 (Form 1041). The fiduciary files Form 1041 and issues a K-1 to each beneficiary showing income distributed or required to be distributed. The amount you must include is generally capped at the entity’s distributable net income, which prevents the same dollar from being taxed twice.⁴

Where LLCs Fit In

Limited liability companies don’t have their own K-1 form. A multi-member LLC defaults to partnership treatment and issues Form 1065 K-1s. An LLC that elects S corporation status issues Form 1120-S K-1s. A single-member LLC is typically treated as a disregarded entity, meaning the owner reports the business income directly on their personal return with no K-1 involved.⁵

What the Form Reports

The K-1 breaks the entity’s results into categories that each matter differently on your return. The headline number is Box 1, labeled Ordinary Business Income (Loss), which appears on both the partnership and S corporation versions. This is the net profit or loss from the entity’s day-to-day operations after entity-level deductions.⁶

Separately Stated Items

Not everything goes into Box 1. Some items are broken out on their own lines because their tax treatment depends on your situation, not the entity’s. These separately stated items keep their original character when they flow through. Long-term capital gains stay long-term capital gains and qualify for the lower rates. Section 179 expense deductions appear on their own line because the annual cap applies at both the entity level and your level. Charitable contributions, foreign taxes paid, and investment interest expense each get their own box for the same reason.

Self-Employment Tax

Whether your K-1 income owes self-employment tax depends on the entity and your role. General partners owe self-employment tax on their distributive share of ordinary business income. Limited partners generally owe self-employment tax only on guaranteed payments they receive for services, not on their share of business profits.⁷ S corporation income is not subject to self-employment tax at all, which is one reason business owners sometimes elect S corporation status.³ Certain passive investors in partnerships and S corporations may owe the 3.8% Net Investment Income Tax on K-1 income if their modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).⁸

The Qualified Business Income Deduction

If you receive a K-1 from a partnership or S corporation, you may qualify for the Section 199A deduction, which lets eligible owners deduct up to 20% of their qualified business income. The deduction was originally set to expire after 2025 and was made permanent by the One Big Beautiful Bill Act signed in July 2025. Your K-1 provides the data you need: on the partnership version, look for Box 20, Code Z (Section 199A information), which reports your share of qualified income along with W-2 wages paid and the cost basis of qualified property.⁸

For 2026, if your total taxable income stays below roughly $201,750 (or $403,500 if married filing jointly), you take the full 20% deduction with no further limits. Above those thresholds, the deduction begins to phase out for owners of specified service businesses like law firms, medical practices, and consulting firms, and W-2 wage and property limits kick in for all business types. The phase-out ends near $276,750 for most filers and $553,500 for joint filers. Owners of specified service businesses above the ceiling lose the deduction entirely.

How the Numbers Move to Your 1040

Ordinary business income or loss from Box 1 of a partnership or S corporation K-1 goes to Part II of Schedule E (Supplemental Income and Loss), which collects income from partnerships, S corporations, estates, trusts, and rental real estate. The total from Schedule E then feeds into the income section of Form 1040.⁸

Separately stated items go to whichever schedule matches their character. Capital gains and losses from K-1s land on Schedule D, lines 5 and 12, and combine with your personal investment gains and losses.⁹ Interest income from a K-1 goes on Schedule B if your total interest exceeds $1,500 for the year. Royalty income, despite often being grouped with interest conceptually, actually goes on Schedule E, line 4.⁸

Estimated Taxes Are on You

Pass-through income has no withholding, so quarterly estimated tax payments are your responsibility. Underpay and the IRS charges a penalty. You can avoid it if you owe less than $1,000 after subtracting withholding and credits, or if your payments during the year equal at least 90% of your current-year tax or 100% of last year’s tax, whichever is smaller.¹⁰ If your adjusted gross income exceeded $150,000 last year ($75,000 if married filing separately), the prior-year safe harbor jumps to 110%. Many K-1 recipients trip up here in a first year with significant pass-through income they didn’t anticipate.

Why a Loss on Your K-1 Might Not Reduce Your Tax

Losses on a K-1 don’t automatically flow through. They must survive three tests, applied in this order.¹¹

The basis limitation comes first. You can only deduct losses up to your adjusted tax basis in the entity. Basis starts with what you contributed, rises when you add money or income is allocated to you, and falls with distributions and prior losses. Anything over your basis is suspended and carries forward until you have enough basis to absorb it.

The at-risk limitation comes next. Even with enough basis, your deductible loss is further capped at the amount you personally have at risk, meaning cash you’ve invested and debt you’re personally liable for. Non-recourse debt where you have no personal exposure doesn’t count. You calculate this on Form 6198.¹¹

The passive activity limitation comes last. If you don’t materially participate in the business, any remaining loss is passive, and passive losses can only offset passive income. With no passive income, the loss is suspended until you generate some or dispose of your entire interest. One exception: if you actively participate in a rental real estate activity, you can deduct up to $25,000 in passive rental losses against non-passive income, though this allowance phases out as AGI rises above $100,000 and disappears at $150,000.¹²

Tracking Your Basis

The IRS doesn’t track your basis for you. The K-1 reports the pieces you need (contributions, distributions, changes in your share of debt), but keeping a running basis figure is your job.¹³ Getting it wrong has real consequences. An inflated basis means under-reporting gain when you sell your interest. An understated basis means claiming losses the IRS later disallows.

Partnership and S corporation basis work differently in one important way. Partners include their share of the partnership’s liabilities in basis, so a partnership taking on debt effectively increases each partner’s ability to deduct losses. S corporation shareholders can’t include the company’s third-party debt. The only debt that adds to an S corporation shareholder’s basis is money they’ve personally loaned to the corporation, and a loan guarantee alone is not enough.¹⁴

When Your K-1 Arrives

The entity’s deadline controls yours. Calendar-year partnerships and S corporations must file and deliver K-1s by March 15.² Estates and trusts follow April 15 for calendar-year filers, because Form 1041 is due on the 15th day of the fourth month after year-end.¹⁵

In practice, many entities file for an automatic six-month extension, pushing partnership and S corporation delivery to September 15. Your K-1 may not arrive until well after April 15. If you’re still waiting, file Form 4868 to extend your own return to October 15. The extension buys time to file, not time to pay. Estimate what you owe and send payment by April 15, or a separate failure-to-pay penalty applies.²

If Your K-1 Is Wrong or Never Arrives

If you think an item on your K-1 is incorrect, you have two choices: report it as the entity did and hope for a corrected K-1, or report it the way you think is right and notify the IRS of the inconsistency by attaching Form 8082 to your return. The second option is the safer one. Without Form 8082, the IRS can immediately assess a deficiency to make your return match the entity’s, and you’ll risk an accuracy-related penalty on top.¹⁶

If the entity never files a return and no K-1 arrives, you still have to report your best estimate of your share. File Form 8082 with your return to explain that no partnership or S corporation return was filed. That protects you from automatic penalties while the IRS pursues the entity.¹³

Keep records of your attempts to get the K-1 either way. Copies of written requests to the entity’s manager or tax preparer show good faith if questions come up later.

1
Internal Revenue Service. Tax Information for Partnerships
2
Internal Revenue Service. 2025 Instructions for Form 1065 – U.S. Return of Partnership Income
3
Internal Revenue Service. Instructions for Form 1120-S (2025)
4
Internal Revenue Service. Instructions for Form 1041 and Schedules A, B, G, J, and K-1
5
Internal Revenue Service. LLC Filing as a Corporation or Partnership
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IRS. Schedule K-1 (Form 1065) 2025
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Internal Revenue Service. Entities 1
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Internal Revenue Service. Partner’s Instructions for Schedule K-1 (Form 1065) (2025)
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Internal Revenue Service. Schedule D (Form 1040) 2025
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Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax
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Internal Revenue Service. Publication 925 (2025), Passive Activity and At-Risk Rules
12
Office of the Law Revision Counsel. 26 U.S. Code 469 – Passive Activity Losses and Credits Limited
13
Internal Revenue Service. 2025 Partner’s Instructions for Schedule K-1 (Form 1065) – Section: Basis Limitations
14
Internal Revenue Service. S Corporation Stock and Debt Basis
15
Internal Revenue Service. Forms 1041 and 1041-A: When to File
16
IRS. Instructions for Form 8082