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

A Schedule K-1 is the federal tax form that reports your share of income, losses, deductions, and credits from a partnership, S corporation, estate, or trust. You receive one because those entities generally don’t pay federal income tax themselves; their financial results pass through to the owners or beneficiaries, and the K-1 is how the IRS tracks what belongs on your return. Every K-1 you get feeds into your Form 1040, and the numbers on it can shape your tax bracket, your eligibility for certain deductions, and whether you owe estimated taxes during the year.

Who Issues a K-1 and Which Version You Get

Three types 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 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 income or loss, 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). Each shareholder gets a K-1 reporting a pro rata share of corporate income, deductions, and credits. A critical detail: 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 the income distributed or required to be distributed. The amount a beneficiary must include in gross income is generally capped at the estate or trust’s distributable net income, which limits the entity’s deduction for distributions and keeps the same dollar from being taxed twice.⁴

Where LLCs Fit

LLCs don’t have their own K-1 form. A multi-member LLC defaults to partnership treatment, files Form 1065, and issues K-1s to its members. An LLC that elects S corporation status files Form 1120-S and issues that version. A single-member LLC is typically a disregarded entity: the owner reports business income directly on their personal return, with no K-1 involved at all.⁵

What the Form Reports

The K-1 breaks the entity’s financial results into categories that matter for your personal return. The headline line on partnership and S corporation K-1s is Box 1, “Ordinary Business Income (Loss).” That’s the net profit or loss from the company’s day-to-day operations after entity-level deductions.⁶

Not everything lands in Box 1. Certain items are broken out individually because their tax treatment depends on your personal situation, not the entity’s. These separately stated items keep their original character when they flow through. Long-term capital gains stay capital gains and qualify for the lower capital gains rates. Section 179 expense deductions are separated because the annual cap applies at both the entity level and your individual level. Charitable contributions, foreign taxes paid, and investment interest expense show up in their own boxes for the same reason.

How the Numbers Land on 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 flows into the income section of your Form 1040.⁷

Separately stated items go to whichever schedule matches their character. Capital gains and losses from a K-1 land on Schedule D, lines 5 and 12, combining with your personal investment gains and losses.⁸ Interest income from a K-1 goes on Schedule B if it exceeds $1,500 for the year. Royalty income goes on Schedule E, line 4, not Schedule B.⁷

Self-Employment Tax and NIIT

Whether K-1 income triggers self-employment tax depends on the type of 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 received for services, not on their share of business profits.⁹ 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).⁷

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 made permanent by the One Big Beautiful Bill Act signed in July 2025. Your K-1 provides the data you need to calculate it: on the partnership K-1, look for Box 20, Code Z (Section 199A information), which reports your share of qualified income along with details like W-2 wages paid and the cost basis of qualified property.⁷

The calculation is simplest for owners with moderate income. 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 without 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 additional limits tied to W-2 wages and property values apply to all business types. The phase-out ends at approximately $276,750 for most filers and $553,500 for joint filers. Above those ceilings, owners of specified service businesses lose the deduction entirely.

Losses on a K-1 Don’t Automatically Reduce Your Tax

Before you can deduct a loss reported on your K-1, it must survive three tests, applied in this order.¹⁰

Basis limitation. You can only deduct losses up to your adjusted tax basis in the entity. Basis is your investment: it starts with what you contributed, rises when you add money or the business earns income allocated to you, and falls with distributions and prior losses. Losses that exceed basis are suspended and carry forward to future years when you have enough basis to absorb them.

At-risk limitation. Even with sufficient basis, your deductible loss is capped at the amount you personally have at risk. That generally means cash you’ve invested and debt you’re personally liable for. Non-recourse debt with no personal exposure doesn’t count. You calculate this on Form 6198.¹⁰

Passive activity loss limitation. If you don’t materially participate in the business, any remaining loss is passive, and passive losses can only offset passive income. If you have none, the loss is suspended until you either generate passive income or sell 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. That allowance phases out as adjusted gross income rises above $100,000 and disappears completely at $150,000.¹¹

Tracking Your Basis Is on You

The IRS does not track your basis. Your K-1 reports the pieces you need, including contributions, distributions, and changes in your share of debt, but maintaining a running basis calculation is your responsibility.¹² An inflated basis means you’ll under-report gain when you eventually sell your interest. An understated basis means you’ll claim losses the IRS later disallows.

Partnership basis and S corporation basis differ in one important way. Partners include their share of the partnership’s liabilities in their basis, so a partnership that takes on debt effectively increases each partner’s ability to deduct losses. S corporation shareholders cannot include the company’s third-party debt. The only debt that adds to an S corporation shareholder’s basis is money they have personally loaned to the corporation, and even then, a loan guarantee is not enough.¹³

When Your K-1 Arrives

Calendar-year partnerships and S corporations must file their returns and deliver K-1s by March 15.² Estates and trusts follow a later deadline: April 15 for calendar-year filers, because Form 1041 is due on the 15th day of the fourth month after the tax year ends.¹⁴

Many entities take an automatic six-month extension, pushing the partnership and S corporation deadline to September 15. Your K-1 might not arrive until after April 15. If you’re still waiting, file Form 4868 to extend your own return to October 15. The extension gives you more time to file but not more time to pay. You still need to estimate what you owe and send payment by April 15, or you’ll face a failure-to-pay penalty.²

Because pass-through income has no tax withheld the way a paycheck does, you’re on the hook for quarterly estimated tax payments. You avoid the underpayment penalty 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 less.¹⁵ If your adjusted gross income exceeded $150,000 last year ($75,000 if married filing separately), the prior-year safe harbor jumps to 110%.

If Your K-1 Is Wrong or Missing

If you believe an item on your K-1 is incorrect, you have two choices: report it the way the entity reported it and hope the entity files a correction, 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 is safer. Without Form 8082, the IRS can immediately assess a deficiency to make your return match the entity’s, and you’ll also risk an accuracy-related penalty.¹⁶

If the entity never files a return and you never receive a K-1, you still must report your best estimate of your share of income. 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 works to bring the entity into compliance.¹² Either way, keep records of your attempts to obtain the K-1. Copies of written requests to the entity’s manager or tax preparer show the IRS you acted in 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
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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. 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. Entities 1
10
Internal Revenue Service. Publication 925 (2025), Passive Activity and At-Risk Rules
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Office of the Law Revision Counsel. 26 U.S. Code 469 – Passive Activity Losses and Credits Limited
12
Internal Revenue Service. 2025 Partner’s Instructions for Schedule K-1 (Form 1065) – Section: Basis Limitations
13
Internal Revenue Service. S Corporation Stock and Debt Basis
14
Internal Revenue Service. Forms 1041 and 1041-A: When to File
15
Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax
16
IRS. Instructions for Form 8082