Schedule K-1 Explained: Partnerships and S Corps

A Schedule K-1 is the form a partnership, S corporation, trust or estate gives each owner or beneficiary to report their share of the entity's income, deductions and credits. The business itself generally pays no federal income tax; you report the numbers from your K-1 on your own Form 1040, whether or not you received any cash. This guide explains the K-1 form for partnerships and S corps, the boxes that matter most, deadlines, basis rules and a worked example.

This is general information, not tax advice; pass-through taxation has many special rules, so check your situation with a tax professional.

What is a K-1 form?

There are three main versions of Schedule K-1, each attached to a different entity return:

K-1 version	Issued by	Entity return	Calendar-year due date (2026 returns)
Schedule K-1 (Form 1065)	Partnerships and multi-member LLCs	Form 1065	March 15, 2027
Schedule K-1 (Form 1120-S)	S corporations	Form 1120-S	March 15, 2027
Schedule K-1 (Form 1041)	Trusts and estates	Form 1041	April 15, 2027

All three follow the same idea: the entity calculates its income, splits it among owners according to ownership or the partnership agreement, and reports each person's share. A Form 7004 extension pushes partnership and S corporation deadlines to September 15.

If you are still choosing a structure, our comparisons of partnership vs LLC and S corp vs LLC explain when you end up receiving a K-1.

Key boxes on a partnership K-1 (Form 1065)

Part I identifies the partnership, Part II identifies you and shows your ownership percentage and capital account, and Part III contains the numbers you report.

Box	What it shows	Where it usually goes
1	Ordinary business income (loss)	Schedule E, Part II
2	Net rental real estate income (loss)	Schedule E, subject to passive rules
4	Guaranteed payments (for services or capital)	Schedule E; also self-employment income if for services
5, 6	Interest and dividends	Schedule B / Form 1040
8, 9	Capital gains	Schedule D
12, 13	Section 179 and other deductions	Various, by code
14	Self-employment earnings	Schedule SE
19	Distributions	Not taxable unless above basis
20	Other information, including QBI data	Form 8995 or 8995-A

Key boxes on an S corp K-1 (Form 1120-S)

The S corporation K-1 looks similar but has a few important differences:

• Box 1 reports ordinary business income, which goes on Schedule E.
• There is no self-employment box. S corp profit is not subject to self-employment tax; your salary from the S corp is reported on a W-2 instead.
• Box 16 covers items affecting your stock basis, with code D showing distributions.
• Box 17 includes QBI information used for the qualified business income deduction.

Because S corp owners can split income between salary and distributions, the salary has to be reasonable for the work done. Our new guide to S corp reasonable salary covers how to set it.

How K-1 income is taxed

You are taxed on your share, not on cash received

If a partnership earns $100,000 and you own 50%, your K-1 shows $50,000 of income even if the partnership kept all of it in the bank. This is the most common surprise for new partners. Many partnership agreements require tax distributions for this reason.

Basis limits losses and tax-free distributions

Your basis starts with what you invested and rises with your share of income; it falls with distributions and losses. You can deduct losses only up to your basis (and then at-risk and passive activity rules apply), and distributions above basis are taxed as capital gain. S corporation shareholders who claim losses, receive distributions or sell stock generally must attach Form 7203 to show their basis calculation.

Self-employment tax

Partners usually pay 15.3% self-employment tax on box 14 earnings. S corp shareholders pay payroll taxes only on wages. This difference is the main reason profitable LLCs consider an S corp election; see Form 2553 and the S corp election.

Worked example: two partners in a design studio

Ana and Ben own a design LLC taxed as a partnership, 50/50. Ana receives guaranteed payments of $40,000 for managing the studio. Figures are illustrative.

Item	Partnership total	Ana's K-1	Ben's K-1
Revenue from client invoices	$310,000
Expenses (rent, software, contractors)	$150,000
Guaranteed payment to Ana (deducted)	$40,000	Box 4: $40,000
Ordinary business income	$120,000	Box 1: $60,000	Box 1: $60,000
Self-employment earnings		Box 14: $100,000	Box 14: $60,000
Cash distributions	$80,000	Box 19: $40,000	Box 19: $40,000

Ana reports $100,000 of income ($60,000 plus the $40,000 guaranteed payment) and pays self-employment tax on it, although she received only $80,000 in cash ($40,000 guaranteed payment plus $40,000 distribution). Ben reports $60,000 although he received $40,000. The $40,000 the partnership retained still increases both partners' basis, so it can later be distributed tax-free.

Step by step: using your K-1 on your return

1. Check the details. Confirm your name, taxpayer ID, ownership percentage and whether the K-1 is marked final or amended.
2. Read the codes. Many boxes use letter codes; the partner or shareholder instructions explain each one.
3. Enter income on Schedule E and other amounts on the forms the instructions specify.
4. Calculate self-employment tax on partnership box 14 amounts using Schedule SE.
5. Track basis each year, especially if you receive distributions or losses.
6. Check state K-1s. You may need to file in states where the business operates, and some entities pay a pass-through entity tax on your behalf.
7. Adjust estimated taxes. K-1 income has no withholding; see our guide to quarterly estimated taxes.

What to do if your K-1 is late

Late K-1s are routine, especially from investment partnerships and businesses that extend their own returns to September 15. If April is approaching and you do not have yours:

1. Ask the business for an estimate. Most managing partners or S corp bookkeepers can give a rough figure for your share of income well before the final K-1 is ready.
2. File Form 4868 by April 15 to extend your personal return to October 15.
3. Pay an estimate of the tax on your expected K-1 income with the extension, because the extension does not delay payment.
4. Review the final K-1 when it arrives and compare it with the estimate before filing.

If the K-1 changes after you file, for example because the partnership amends its return, you may receive a corrected K-1 marked as amended. Larger partnerships under the centralized audit regime may instead push adjustments to partners in a later year using a statement, so read any letter that comes with a corrected form carefully before amending.

K-1s from trusts, estates and investments

If you inherit from an estate or are the beneficiary of a trust, you may receive a Schedule K-1 (Form 1041). It reports your share of the trust or estate's distributable income, such as interest, dividends, capital gains in some cases and rental income. The trust or estate deducts what it distributes, and you pay the tax instead. These K-1s rarely involve self-employment tax.

Investors in publicly traded partnerships, such as many energy and commodity funds, also receive partnership K-1s. These can be long, often arrive late and may require state filings in states where the partnership operates. If you hold such investments in a regular brokerage account, budget for extra preparation time. Holding them in an IRA avoids most K-1 complexity, although unrelated business taxable income rules can still apply.

Penalties for late or missing K-1s

For 2025 returns, the IRS penalty for a late partnership or S corporation return is $255 per partner or shareholder for each month or part of a month it is late, up to 12 months, according to the Form 1120-S instructions. A separate penalty, $340 per K-1 for 2025, can apply when K-1s are not furnished on time or are incorrect. These amounts are inflation-adjusted each year. A three-partner LLC filing two months late could face $1,530 in penalties before any K-1 penalties.

Common K-1 mistakes

• Filing before the K-1 arrives. Use an extension instead; see our guide to Form 4868.
• Treating distributions as income. Distributions are reported separately and are usually not taxable.
• Forgetting self-employment tax on partnership income.
• Not tracking basis, which can lead to disallowed losses or unexpected gains years later.
• Mixing business and personal invoicing. If you invoice clients personally for work that belongs to the partnership, your K-1 income and Schedule C income will overlap. Invoice in the business's name, as explained in our guide to invoicing as an LLC.

Where invoices fit in

The income on every K-1 starts with the business's revenue, and for service partnerships that is the sum of the invoices paid during the year (or issued, for accrual-basis firms). Clean, numbered invoices make the entity's books, the K-1s and any later IRS questions much easier. Our guide to how to file taxes as an LLC shows how the pieces fit together for each entity type.

Whatever your structure, accurate K-1s start with accurate invoices. Bill clients in your business's name with our free invoice generator: no sign-up, and every invoice downloads as a professional PDF.