To enter a K-1 (Form 1120S) in TaxSlayer Pro from the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Rents, Royalties, Entities (Sch E, K-1, 4835, 8582)
- K-1 Input - Select 'New' and double-click on Form 1120S K-1 (S Corporation) which will take you to the K-1 Heading Information Entry menu. All information in this menu must be entered to continue.
The last menu item, whether any Gain/Loss from the disposition of the corporation, can be toggled to be carried to Form 4797 or Schedule D of the 1040, See Line K below.
After entering all required information, select ‘OK’. The K-1 1120S Edit Screen has two distinct sections entitled ‘Heading Information’ and ‘Income, Deductions, Credits, and Other Items.’ (See: KB Articles on 1120S Income, 1120S Deductions, 1120S Credits, and 1120S Other Items).
See below basic information on each line of the Heading Information section of the Schedule K-1 1120S Edit Menu. For additional information regarding the requirements for Schedule K-1 (Form 1120S) see: Shareholder's Instructions for Schedule K-1 (Form 1120S).
Lines A-D – Contain the basic information about the taxpayer and the corporation that was entered in the Heading Information Menu. These entries will appear on the taxpayer’s 1040 on Schedule E, Line 28 and the Corporation's name will appear on supplemental schedules and worksheets that are generated as a result of the entries made on this Schedule K-1 1120S Edit Menu. The owner of the K-1 can be toggled between Taxpayer, Spouse and Joint.
Line E –Is All Investment at Risk? - This is a YES or NO response based on whether the investment that the shareholder has in the corporation is at-risk. This is a determination that must be made by the preparer and the taxpayer based on whether the investment that the taxpayer has made in the underlying entity is at risk.
Generally the ability to deduct a loss that is generated by a business activity is limited to the investment that the taxpayer has in the corporation. This limitation is what the shareholder has ‘at-risk’ in the corporation. This at-risk investment consists of the funds and/or the adjusted basis of any property that was contributed to the corporation, as well as any amounts that were borrowed for use in the corporation (if the taxpayer is personally liable for repayment). See: Pub 925 - Passive Activities and At-Risk Rules.
A ‘NO’ response to this question will be reported on the taxpayer’s 1040 on Schedule E, Line 27, and on Schedule E, Line 28(e). It will also generate a Form 6198 entry menu upon exiting the K-1 Edit Menu if an activity loss is reported on the K-1. Complete Form 6198 to determine the amount of the loss that can be deducted. See: Instructions for 6198 At-Risk Limitations.
Line F –Has Entire Interest in Investment Been Disposed Of? - This is a YES or NO response based on whether the taxpayer has sold or otherwise disposed of the investment. If the taxpayer has prior year passive losses which were unallowed, disposing of the investment may permit the taxpayer to reclassify the prior year passive losses to an allowed loss. However, answering YES to this question will automatically transfer certain losses to the Form 8582.
Line G –Actively Managed Passive Loss Carryover – It is in this field that any actively managed passive carryover loss is reported. The amount entered in this field should correspond to what the taxpayer reported on last year’s 1040 on Form 8582, Worksheet 5 as an unallowed loss for this K-1 entity. Any amount entered in this field will then carry to the 1040, Form 8582, Worksheet 1 where it will be subject to the passive activity loss limitations.
Line H –Other Passive Loss Carryover? – It is in this field that a passive loss carryover for an activity that is not actively managed is reported. The amount entered in this field should correspond to what the taxpayer reported on last year’s 1040 on Form 8582, Worksheet 5 as unallowed loss for this K-1 entity. Any amount entered in this field will then carry to the 1040, Form 8582, Worksheet 1 where it will be subjected to the passive activity loss limitations.
Line I –Disposition Gain/Loss - In the event that the interest in the corporation has been disposed of (sold) by the taxpayer and Line F has been answered YES, there may be a gain or loss from the sale of their interest in the corporation. This gain or loss is entered in this field and it will automatically carry as gross proceeds (for a Gain) or cost basis (for a Loss) to Schedule D of the Form 1040.
Line J –Where Do You want to Carry Gain/Loss? – Select to carry the gain or loss from the disposition of the corporation to Form 4797 or Schedule D. If you select Schedule D, any gain that is entered on Line J will automatically carry to Form 8949, Line 1(d) which will then carry to Schedule D (Form 1040) as a long term transaction. Any loss that is entered on Line J will automatically carry as the cost basis to Form 8949, Line 1(e) which will then carry to Schedule D (Form 1040) as a long term transaction. To edit and complete this transaction, go to Schedule D.
Line K –Basis Computation is Required? - This is a YES or NO response based on whether the corporation reported a loss, received a distribution, disposition of stock, or received a loan repayment from an S corporation. If the answer is YES, the user is provided an opportunity to enter this information. This question was added to the entry menu in the tax program in 2018.
Line L –Is Section 199A Income from a Specified Service Business? - This is a YES or NO response based on whether the income received from this corporation is considered to be income from a specified service business. If the answer is YES, the items entered from this K-1 that are reported in Box 17, Code V through Code Z will be treated as coming from a specified service business when calculating the Qualified Business Income Deduction. This question was added to the entry menu in the tax program in 2018.
The program defaults to Form 4797, Sale of Business Property. However, the sale of an interest in a corporation is normally reported on Schedule D - Capital Gains and Losses. See: Instructions for Schedule D - Capital Gains and Losses.
NOTE: This is a guide on entering Schedule K-1 (Form 1120-S) into the tax program. This is not intended as tax advice.