A Schedule K-1 serves the same function as a W-2 for people who are receiving income in a way other than through a regular paycheck. For example, a partner in a partnership, limited liability corporation (LLC) or S-corporation might receive a Schedule K-1 to report his gain or loss experienced throughout the year. A Schedule K-1 might also report income from a trust.
Incur Profit or Loss
Provide Necessary Information
The person filling out the Schedule K-1 will need your name, address and identifying number (typically your Social Security Number). For partnerships and corporations, the person filling out the Schedule K-1 will also need to know what percentage of the gain or loss to assign to you. The amounts reported on the Schedule K-1 and attached to another tax form (such as the Form 1065) should add up to the total amount declared on the main tax form.
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Attach to Another Tax Form
The Schedule K-1 reports the profits or loss that an individual should declare on his or her personal income tax return. For example, an LLC is required to file a Form 1065 that reports the net gain or loss of the LLC. The amount reported on the 1065 is divided among the partners and reported on a Schedule K-1 for each partner. Schedule K-1's are attached to the Form 1065 and copies are distributed to each partner.
Ensure Receipt Before Filing Personal Taxes
Unlike W-2s, the entity issuing the Schedule K-1 does not have to meet a deadline to mail out the Schedule K-1. For this reason, it is very important for someone who anticipates receiving a Schedule K-1 to make sure that he receives the document before he files his personal taxes. He is liable for any tax amount due on gains reported on the Schedule K-1, even if he filed his personal income tax form before receiving the Schedule K-1.
Include in Personal Income Taxes
The person who receives a Schedule K-1, such as a partner in an LLC, is required to report the amount shown on the Schedule K-1 on his personal tax form. He will then either pay taxes on the gain or reduce his declared earnings by the loss, depending upon which applies for the tax year.