Schedule K-1 (Form 1065 and 1120-S): Your Share of Business Income

Schedule K-1 is the statement a pass-through entity gives each owner. A partnership gives Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. An S corporation gives Schedule K-1 (Form 1120-S), Shareholder's Share of Income, Deductions, Credits, etc. Each reports the owner's share of the entity's income, deductions, credits and other items for its tax year. The entity files a copy with the IRS and gives you yours.

The idea that matters most is in both sets of instructions: you may owe tax on your share whether or not the entity paid you anything. A K-1 is therefore not an invoice, a payment record or a 1099. It is a set of numbers to carry onto your own return.

Both sets of instructions say to keep the K-1 for your records and not to file it with your return, with narrow exceptions such as backup withholding. The K-1 may show only the last four digits of your identifying number, although the entity has reported the full number to the IRS. It comes out of the entity's return, explained on the Form 1065 page and the Form 1120-S page.

The two schedules look alike, with numbered boxes for each type of income, but the rules behind them differ, and the difference decides what you report and what you can deduct.

For a partner, whether self-employment tax applies also depends on whether the partner is a limited partner under section 1402(a)(13), which the instructions flag. If you aren't sure which entity type you own, the K-1's header names the form it came from.

The entity has to give you your K-1 by the date its return is due. IRS Publication 509 lists that date for both partnerships and S corporations as the 15th day of the 3rd month after the end of the tax year. For a calendar-year entity that is March 15, which for the 2026 year is Monday, March 15, 2027.

Extensions change the picture. The partnership regulation, 26 CFR 1.6031(b)-1T(b), says the statement is due on the day the partnership return is required to be filed, determined with regard to extensions. The S corporation instructions word it as on or before the day Form 1120-S is required to be filed.

Read down the table. An entity that extended can legally deliver your K-1 after your own April 15 due date, which is the main reason owners end up chasing one. The date is the entity's obligation, and the penalty for missing it lands on the entity, not on you.

One common cause is that the entity extended its own return, so its return and your K-1 can lawfully come later. Other causes include books that haven't closed, a K-1 the entity is waiting on from another entity it owns, and an ownership change that forces a split of the year's income. Whatever the cause, your own tax bill doesn't wait.

What to do while you wait.

• Ask the entity in writing when you'll get it, and keep the reply.
• Estimate your share and pay by your own due date. The IRS says an extension is only for filing, so tax owed is still due by the April date.
• Request an extension if you won't have it in time. For an individual, Form 4868 gives until October 15 to file, and you estimate the tax you owe on the form. You can also pay online and check the box that the payment is for an extension.
• File when the K-1 arrives. If the final numbers differ from your estimate and you already filed, you may need to amend, which your preparer can tell you.

The entity's side is separate. An entity that doesn't furnish a K-1 when due, or furnishes a wrong one, can be assessed $340 for each K-1, and the IRS can waive it for reasonable cause. That penalty is the entity's. If the entity was required to file a return and hasn't, the instructions have you attach Form 8082 to say so.

You report the numbers on your own return, and you keep the K-1 itself. The K-1 instructions say where each box goes. These are the common ones for an individual filing a 2025 Form 1040; the 2026 form may move line numbers, so check the instructions for the year you file.

• Box 1, ordinary business income (loss). If you materially participated in the business, it goes in column (i) or (k) of Schedule E (Form 1040), line 28. If you didn't, income goes in column (h) and a loss goes through Form 8582 to column (g), after the basis and at-risk limits are applied.
• Partnership box 4, payments set without regard to partnership income. Generally not passive; payments for services go in column (k) of Schedule E, line 28.
• Partnership box 14, self-employment earnings. Carried to Schedule SE (Form 1040), after the adjustments the instructions list for general partners.
• Distributions. They reduce your basis rather than being income on their own. A partner who received property distributions files a separate Form 7217 for each date.

Interest, dividends, capital gains and credits have their own boxes, and the K-1 instructions explain which form picks them up. A corporation, trust or other owner follows its own return's instructions.

Basis is your tax investment in the entity, and it caps the losses you can deduct. The instructions put the limits in an order: basis first, then at-risk rules, then passive activity rules, then the excess business loss limit. A loss the K-1 reports can be larger than the loss you are allowed to claim, and the disallowed amount carries forward.

Partners. A partner can claim a share of a loss only up to the adjusted basis in the partnership at year end, and has to track that figure, which the regulations call outside basis. The capital account in item L of the K-1 is based on the partnership's books and can't be used to figure basis. The partner instructions include a worksheet, and a partner's share of liabilities from item K flows into it.

S corporation shareholders. Stock basis goes up with all income, including tax-exempt income, and down with distributions, nondeductible expenses and losses. Loans you made to the corporation have their own basis. A loan you only co-sign or back for the corporation gives you none until you make a payment on it.

The example assumes no loan basis. If the next year's K-1 shows a $40,000 loss, the shareholder can deduct up to $31,000 against stock basis and carries $9,000 forward, before any at-risk or passive test applies.

No. Each form answers a different question, and mixing them up causes double counting.

• K-1: your share of the entity's profit. It is taxed to you whether or not the entity paid it out.
• Form 1099-NEC or 1099-MISC: a payment you received. The IRS instructions say these rules don't apply to profits a partnership distributes to its partners that are reportable on Schedule K-1 (Form 1065). For payments made in 2026 the reporting threshold is $2,000, up from $600.
• Form 1099-DIV: dividends. The S corporation K-1 doesn't show actual dividend distributions. If the corporation paid dividends of $10 or more in the year, it reports them on Form 1099-DIV, and box 16 code D covers distributions not reported there.
• Form W-2: wages. An S corporation must treat payments to an officer as wages to the extent they are reasonable compensation for services. An owner who works in the business can get both a W-2 and a K-1, and the K-1 income is separate from the wages. A partner's pay for services arrives in box 4, not on a W-2.

So a K-1 doesn't tell you how much cash you got, and a 1099 or W-2 doesn't tell you your share of profit. Check the K-1's box numbers against the entity's records and your bank statements.

Start by asking the entity for a corrected K-1. Don't change the numbers on your own copy, and make sure the entity sends a copy of the corrected K-1 to the IRS. For an S corporation, if you and the corporation can't agree, file Form 8082.

Consistency. An owner generally has to report K-1 items the way the entity treated them on its return. If your treatment is inconsistent, or the entity was required to file a return and hasn't, you file Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request, with your return to explain. For a partnership that hasn't elected out of the centralized audit regime, this is a requirement. If you should have filed Form 8082 and didn't, you may face the accuracy-related penalty on top of the tax, and the IRS may assess the resulting deficiency immediately.

Other events that change a K-1.

• A decedent's K-1. The executor tells the entity the estate's name and taxpayer number.
• A sale of a partnership interest. In certain exchanges, the partner gives the partnership written notice within 30 days.

The entity's penalty for a wrong K-1 is $340 each, rising to $680 or 10% of the items for statements due in 2026 if the requirement is intentionally disregarded, and to the greater of $690 or 10% for statements due in 2027.

Finbryn's role is preparation support on both sides of a K-1.

For the entity, we prepare the workpapers behind the K-1s: the allocation schedule that follows the partnership agreement or the share count, the capital account or shareholder basis and distribution schedules, and a check that the owners' shares add to Schedule K. They go with the return workpapers to a credentialed preparer, who reviews them, signs as the paid preparer and files the entity return after an authorized partner, member or officer signs. Finbryn does not sign or file the return.

For an owner who holds a K-1, we build the Schedule E and Schedule SE workpapers from your books and the K-1 so they tie line for line, and a credentialed preparer reviews, signs and files your personal return. We don't decide for the entity how to allocate income, and a question that needs representation before the IRS goes to an Enrolled Agent or CPA you authorize.

The service pages cover the work: partnership tax preparation, S corporation tax preparation and individual tax preparation support. The guide to LLC vs S corporation taxes explains how the choice of entity changes what the K-1 shows.

These mistakes come up on K-1s again and again.

• Treating the K-1 as cash received. It shows your share of income, taxed whether or not you were paid. Distributions are a separate box.
• Filing the K-1 with your return. The instructions say to keep it unless a specific box tells you otherwise.
• Deducting a loss without checking basis. The K-1 reports the entity's loss, not your allowed loss.
• Mistaking the capital account for basis. Item L on a partnership K-1 is the partnership's book view.
• Reading box 1 and ignoring the rest. Rental income, box 4 payments, credits and other items each have their own boxes and codes.
• Waiting for a late K-1 with no estimate or extension. Tax is due on your own date even if the K-1 is not.
• Editing your copy. If a number looks wrong, the entity corrects it and sends the corrected K-1 to the IRS.

The Partner's and Shareholder's Instructions for Schedule K-1 on IRS.gov are for tax year 2025. A 2026 K-1 is furnished in 2027 on the 2026 form, so read the instructions for the year of your K-1 before you rely on a box number here. Changes the 2025 Form 1065 and K-1 instructions flag:

• Partnership box 19, distributions, has additional codes that separate the categories of distribution, and box 20 has a new code for reimbursement of preformation expenditures.
• S corporation box 17 has a new code BA for domestic research or experimental expenditures, which matters when a shareholder makes a section 59(e) election.
• Form 7217. A partner who received property distributions files a separate Form 7217 for each date of receipt, using information from box 19, code C.
• Penalty amounts. The $340 per-K-1 figure applies to statements due in 2026 and 2027, and the intentional disregard figure for 2027 comes from Revenue Procedure 2025-32.