Understanding what type of schedule K-1 relates to a partnership

You need clarity when managing your business taxes, especially when you’re operating as a partnership.

Partnerships are “pass-through entities”, meaning the business itself doesn’t pay income tax. Instead, profits and losses “pass through” to each partner’s individual tax return.

This setup may sound simple, but it comes with a lot of responsibility. Every partner is potentially on the hook for the consequences of one partner’s mistake financially and legally.

If there’s an error in the return, you could get dragged into the mess even if you weren’t the one who made it.

In this blog, we’ll unpack why the correct use of the K-1 tax form (Form 1065) is essential for partnerships, how it works, and what can go wrong if you’re not paying attention

K-1 tax form partnership explained

What type of Schedule K-1 relates to a partnership? Only Schedule K-1 (Form 1065). It should not be confused with K-1s used by S corporations or trusts.

As mentioned earlier, the business itself does not pay income taxes. Instead, it passes through its financial activity to the individual partners, who report their share on their personal tax returns.

The Schedule K-1 is issued to each partner annually and provides the necessary details for them to complete their individual income tax filings.

The K-1 tax form includes information such as the partner’s share of the partnership’s profits or losses, capital gains, dividends, and any other relevant tax items.

The form must be prepared accurately and consistently with the partnership’s financial records and agreement.

Where can you find a sample K-1 tax form?

You can view a sample Schedule K-1 (Form 1065) directly on the IRS website. It’s the best way to understand what type of Schedule K-1 relates to a partnership without guessing.

Here’s what you’ll see on a typical form:

• Part I: Information about your partnership
• Part II: The partner’s details and ownership share
• Part III: The actual numbers of how much income or loss the partner needs to report

This form must be prepared and issued to every partner after your business files its main tax return, Form 1065.

Distinguishing partnership K-1 from other K-1 forms

All Schedule K-1 forms may look similar at first glance, but not all are used for partnerships. 

Knowing what type of Schedule K-1 relates to a partnership means avoiding mix-ups with other business structures.

Here are two types of K-1 forms that don’t apply to partnerships: 

Schedule K-1 for S Corporations (Form 1120-S)

When an S corporation files its taxes, it uses Form 1120-S to report each shareholder’s share of the corporation’s income, tax deductions, and credits.

If your business is a partnership, this version does not apply. Partners and shareholders are not the same under IRS rules. Using Schedule K-1 (Form 1120-S) in a partnership setting is incorrect and can trigger tax reporting issues for everyone involved. 

Schedule K-1 for Estates and Trusts (Form 1041)

Just like with the S corporation version, this K-1 form does not belong in a partnership context. 

Form 1041 – Estates and Trusts is a form that estates and trusts use to report any income they earn after someone passes away or when assets are being managed for beneficiaries.

How to read and utilize your partnership K-1 tax form

Once you understand what type of Schedule K-1 relates to a partnership, your next task is decoding it.

Each section provides essential financial data your partners will need to complete their own returns.

Part I: Information about the partnership

This part of the K-1 tax form provides basic identifying information about the partnership itself. It essentially tells the IRS and the partner which business entity the form is coming from.

• Item A. Partnership’s EIN – This is where your business’s Employer Identification Number (EIN) is entered. This is used by the IRS to identify your partnership.
• Item B. Business address and contact info – This is where you include your partnership’s official mailing address and other relevant contact information.
• Item C. IRS filing center – This section shows which IRS location your business filed Form 1065 with. This depends on your partnership’s main business address.
• Item D. Publicly traded partnership (PTP) – Check this box if your partnership is publicly traded, meaning its ownership interests are bought and sold on a public stock exchange. 

Part II. Information about the partner

The second part of the K-1 tax form focuses on the individual partner.

This section helps determine how much of the partnership’s income or loss should be allocated to this particular partner.

• Item E. Partner’s tax ID number – This is where each partner’s identification number goes. That might be a Social Security Number (SSN), an Individual Taxpayer Identification Number (ITIN), or another EIN for business entities.
• Items F to I. Partner’s details – Here you’ll find the partner’s name, address, and indicate whether they’re a general or limited partner, and whether they’re based in the U.S. or abroad.
• Item J.  Ownership share – This section shows each partner’s share of the partnership’s profits, losses, and capital. You’ll see percentages for the beginning and end of the tax year. 
• Item K. Share of partnership liabilities – This lists the debts each partner is responsible for. Liabilities are grouped into two categories (recourse debt and nonrecourse debt)
• Item L. Partner’s capital account – This section tracks how much capital (ownership value) a partner had at the start and end of the year. It also records contributions made, profits earned, losses, and any withdrawals or distributions taken.
• Item M. Property with built-in gain or loss – If a partner contributed property to the business during the year and that property had a different market value compared to its original cost (called a built-in gain or loss), this box is checked “yes”.

Part III. Partner’s share of current year income, deductions, credits, and other items

This is the most detailed section. It shows your partnership’s financial results and how they’re divided among partners.

• Box 1. Ordinary business income (Loss) – This box shows the partner’s share of business profit or loss from day-to-day operations.
• Box 2. Net rental real estate income (Loss) – If the partnership earns money from renting properties like office buildings or apartments, this is where that income is reported.
• Box 3. Other net rental income (Loss) – This includes rental income that doesn’t come from real estate. For example, renting out equipment or vehicles.
• Box 4. Guaranteed payments – Guaranteed payments are fixed payments made to partners for services or use of capital, regardless of the profit the business earns.
• Box 5. Interest income – This includes income from interest-bearing sources, like savings accounts, bonds, or loans issued by the business.
• Box 6. Dividends – Any dividends received by the partnership are reported here. These might come from stocks or mutual fund holdings.
• Box 7. Royalties – If the partnership earns money from intellectual property (like licensing content or products), that income shows up in this box.
• Box 8. Net short-term capital gain (Loss) – This shows profits or losses from selling assets the partnership held for one year or less.
• Box 9a–c. Other capital gains (Losses) – These boxes cover long-term gains and losses from assets held more than a year. 
• Box 10. Net section 1231 gain (Loss) – These gains or losses come from selling certain types of business property (like real estate or machinery).
• Box 11. Other income (Loss) – This is a catch-all box for income or losses that don’t fit into the categories above. A separate statement should explain what’s being reported here.
• Box 12. Section 179 deduction – This box reports your share of the Section 179 deduction — a tax break businesses use to deduct the cost of equipment or software in the year they buy it.
• Box 13. Other deductions – This includes deductions for things like retirement plans, charitable contributions, and employee benefits. Codes in the K-1 instructions help clarify what’s included.
• Box 14. Self-employment earnings (Loss) – Partners involved in day-to-day operations may need to report earnings here as self-employment income for Social Security and Medicare taxes.
• Box 15. Credits – This reports your share of tax credits the business can claim, such as energy credits, research credits, or employment-based credits.
• Box 16. Schedule K-3 – Check this box if international tax information needs to be attached using Schedule K-3. Not all partnerships will need this. This applies mainly to those with foreign transactions or partners.
• Box 17. AMT items (Alternative Minimum Tax) – If the partnership’s financial activity could impact the Alternative Minimum Tax, it’s reported here.
• Box 18. Tax-exempt income and nondeductible expenses – This box tracks income that’s not taxable, and expenses that can’t be deducted on tax returns.
• Box 19. Distributions – Here you’ll report any cash, property, or other distributions the partner received from the partnership during the year.
• Box 20. Other information – This is a miscellaneous section used to report any other relevant tax information not covered elsewhere. Instructions help decode what belongs here.
• Box 21. Foreign taxes paid or accrued – If your partnership paid foreign taxes on income earned outside the U.S., this box will show each partner’s share.

Who should file the schedule K-1 tax form?

If your business is a partnership, you must file Schedule K-1 (Form 1065) for every partner. This includes:

• Individuals
• Corporations
• Foreign entities
• LLCs taxed as partnerships
• Other partnerships

Every person or business with an ownership stake in your partnership must receive a K-1, no exceptions.

Why the K-1 tax form is important for pass-through entities

If you’re into a business partnership, filing a K-1 tax form is your responsibility. Partnerships are pass-through entities, this means the partnership prepares and issues the forms. Then, your partners use them to file their own taxes.

Here’s what it helps your business do:

Accurate income and loss allocation

Each partner’s share of the business’s profit or loss must be clearly reported. The K-1 tax form makes this clear. It shows each partner how much they earned (or lost) based on their ownership percentage or the partnership agreement.

Avoids double taxation

The K-1 ensures your business’s income is only taxed once by the partner. Without the correct form, the IRS might think the business and the partner both owe taxes.

Using the right Schedule K-1 (Form 1065) proves that your partnership income has been correctly passed through and reported.

Guides individual tax reporting

Each partner must include their share of the business’s activity on their tax return. Without the Schedule K-1 tax form, they wouldn’t have the right figures. The IRS relies on these numbers to confirm everyone is reporting correctly.

When is K1 filing due?

Your partner must file Schedule K-1 (Form 1065) attachments by March 15, unless your business operates on a different fiscal year.

If you need more time, you can request an extension using Form 7004. But that extension must be filed before the March 15 deadline.

When to seek professional help with your K-1 tax filing

Even though Schedule K-1 (Form 1065) isn’t overly complicated, mistakes can happen, especially if your business structure or financials are complex.

You should consider getting help from tax professionals when:

• You have multiple partners with different ownership percentages
• You have foreign partners
• You’re unsure how to report distributions or capital contributions
• You need help keeping track of partner capital accounts
• The partnership operates in multiple states

Use the right form and keep good records. And when in doubt, get professional help to stay compliant.