Schedule K-1 is used to distribute the net profit/loss to the shareholders of an S corporation or to the partners in a partnership. It's also used to pass through earnings in an estate or trust if the entity didn't pay the taxes on behalf of the beneficiary(ies).
When entering a Schedule K-1 in the tax return, you may be asked if certain income is passive or nonpassive. Be sure to correctly characterize the income as passive or nonpassive as this affects how the income is treated in the return, especially with respect to passive and nonpassive losses.
- Passive Income is income from business activities in which the taxpayer does not materially participate, as well as all rental activities except those of a qualified real estate professional.
- Nonpassive Income is active income, such as wages, tips, and profits from your business that you materially participate in.
To enter a Schedule K-1 into an individual tax return, from the Main Menu of the tax return (Form 1040) select:
- Rents, Royalties, Entities (Sch E, K-1, 4835, 8582)
- K-1 Input - Select either New or Pull.
- Pull - You can pull either pull the K-1 from the business program if you also prepared the business return, or you can pull last year's heading information forward if the K-1 was included in last year's individual tax return.
- New - Select New to create the Schedule K-1 entry from scratch if you have a paper form in hand. You'll then be asked to select the kind of entity it relates to, whether a partnership, S corp, or estate/trust, so that the K-1 entry window you are shown will correspond to the entity that issued it.
Fill in the company information and answer the questions on the screen as needed.
Enter the information from the Schedule K-1. The line numbers on the Schedule K-1 entry screen correspond to the box numbers on the printed Schedule K-1.
For some of the amounts in Schedule K-1 you will be told on-screen that the amount will not flow to any form or schedule in the return. This is because the amount could potentially go to more than one form or schedule, or possibly nowhere. If you're told this for a particular box and amount, you will need to use the IRS Schedule K-1 instructions for the entity to determine if and where the amount needs to go in the return and manually enter it there.
Note: This is a brief guide on entering a Schedule K-1 into the TaxSlayer Pro program. This is not intended as tax advice.
Schedule K-1 (Form 1065) Overview - For information and links on entering specific items on the Schedule K-1 (Form 1065) into Form 1040 in TaxSlayer Pro.
Schedule K-1 (Form 1120S) Overview - For information and links on entering specific items on the Schedule K-1 (Form 1120S) into Form 1040 in TaxSlayer Pro.
Schedule K-1 (Form 1041) Overview - For information and links on entering specific items on the Schedule K-1 (Form 1041) into Form 1040 in TaxSlayer Pro.