A K-1 is a tax document that reports your share of income, deductions, and credits from a partnership, S corporation, or trust

The K-1 form (officially Schedule K-1) is sent to you by a business or trust you have a stake in. It tells you and the IRS what portion of that entity's profits or losses belongs to you for the tax year. Unlike a W-2, which reports wages from an employer, a K-1 reports your slice of business income whether or not you took money out. You use the K-1 to fill out your personal tax return, and you must report those numbers even if you did not receive a check.

The form comes from three main sources: a partnership (including limited partnerships and LLCs taxed as partnerships), an S corporation, or a trust or estate. Each one sends you a K-1 by March 15 (for partnerships and S corps) or by the time they file their own return (for trusts). If you own part of more than one of these entities, you will receive multiple K-1s.

Key Takeaways

  • A K-1 reports your share of business income, losses, deductions, and tax credits from a partnership, S corporation, or trust, and you must report these amounts on your personal return.
  • The entity files its own return (Form 1065, 1120-S, or 1041) showing total income, and sends you a K-1 showing only your portion.
  • You report K-1 income on Schedule E or Schedule C of your Form 1040, depending on the type of entity and your role in it.
  • Mismatches between your K-1 and your return, or between the K-1 the entity filed and the one sent to you, trigger IRS notices and can delay your refund.
  • If you receive a corrected K-1 (marked as amended), you must file an amended return to match the new numbers.

How a K-1 differs from a W-2 or 1099

A W-2 is issued by an employer and reports wages you earned as an employee. A 1099 (usually a 1099-NEC or 1099-MISC) reports income paid to you as an independent contractor or for other reasons. Both are payments you actually received. A K-1 is different: it reports income that belongs to you whether you received it or not. If a partnership earned $100,000 and you own 25 percent, your K-1 shows $25,000 even if the partnership kept the money in the business account.

Another key difference: a K-1 can show losses. If the business lost money, your K-1 will show a negative number. You can use that loss to offset other income on your return, subject to limits. A W-2 or 1099 cannot be negative.

The entity itself files a return showing all income and expenses. The partnership files Form 1065, an S corporation files Form 1120-S, and a trust files Form 1041. These returns are not taxed at the entity level (with rare exceptions). Instead, the income flows through to you and the other owners, and you each pay tax on your share on your personal return. This is called pass-through taxation.

Where to report K-1 income on your return

The location depends on the type of entity and your role. If you are a passive investor in a partnership or S corporation (meaning you do not actively run the business), you report the K-1 on Schedule E (Supplemental Income and Loss) of your Form 1040. If you are an active participant in a partnership or sole proprietor of an S corporation, you may report it on Schedule C (Profit or Loss from Business) instead, though the rules vary.

K-1 income from a trust or estate goes on Schedule E as well. The K-1 itself breaks down the income into categories—ordinary business income, capital gains, dividends, charitable contributions, and other items—and you report each category in the right place on your return. For example, if the K-1 shows $5,000 in long-term capital gains, that amount goes on the capital gains section of your return, not the ordinary income section.

This is where errors often happen. If you report the K-1 amount in the wrong place or forget to report it at all, the IRS will notice when it receives the entity's return and compares it to yours. The mismatch can trigger a notice, and your refund may be delayed.

Reconciling your K-1 with the entity's return

The entity files its return with the IRS and sends you a copy of your K-1 at the same time. The IRS also receives a copy. If the numbers on your K-1 do not match the numbers on the entity's return, or if your return does not match your K-1, the IRS will send you a notice. This is common and does not mean you did anything wrong—it often means the entity made an error or filed late.

Before you file your return, check that the K-1 you received matches the entity's filed return. You can ask the entity for a copy of the return, or in some cases you can look it up on the IRS website if the return has been processed. If there is a discrepancy, contact the entity and ask for a corrected K-1 (marked as "amended").

If you already filed your return and later receive a corrected K-1, you must file an amended return (Form 1040-X) to match the new numbers. Do not ignore the corrected K-1 and hope the IRS does not notice. The IRS will compare the corrected K-1 to your original return and send you a notice if they do not match.

K-1 income and self-employment tax

K-1 income from a partnership is generally subject to self-employment tax (Social Security and Medicare tax), but K-1 income from an S corporation is not. This is one of the main reasons some business owners choose an S corporation structure: it can lower their self-employment tax bill.

The K-1 from a partnership will show a line for "net earnings from self-employment," which is the amount you owe self-employment tax on. You report this on Schedule SE (Self-Employment Tax) and add it to your income tax. The K-1 from an S corporation does not have this line, because S corporation owners pay themselves a reasonable salary (which is subject to payroll tax) and take the rest as a distribution (which is not).

If you are unsure whether your K-1 income is subject to self-employment tax, check the instructions that come with the K-1 or ask the entity's tax preparer. Getting this wrong can cost you money or trigger an audit.

Passive activity loss limits and K-1 income

If you are a passive investor in a partnership or S corporation—meaning you do not materially participate in running the business—your losses may be limited. The IRS has rules called passive activity loss limits that prevent you from using losses from a passive business to offset wages or other active income. Instead, you can only use passive losses to offset passive income, and you can carry unused losses forward to future years.

This rule does not explore if you are an active participant. The definition of "material participation" is complex and depends on how much time you spend in the business and what decisions you make. If you own a small stake and do not work in the business, you are almost certainly passive. If you work full-time in the business, you are almost certainly active. The gray area in between requires careful analysis.

If your K-1 shows a loss and you are passive, do not assume you can deduct it all. Read the K-1 instructions or consult a tax professional to determine whether the passive activity loss limits explore to you.

When you receive a K-1 late or not at all

Partnerships and S corporations must send K-1s by March 15. Trusts must send them by the time they file their return. If you do not receive your K-1 by mid-April, contact the entity and ask for it. If the entity cannot provide it, you have a few options: you can file your return without the K-1 and amend it later when you receive it, you can request an extension of time to file, or you can estimate the amount based on prior years and adjust it later.

Do not ignore a missing K-1. If you do not report the income and the IRS receives the K-1 from the entity, you will receive a notice. It is better to file an amended return on your own terms than to wait for the IRS to contact you.

If the entity goes out of business or dissolves without sending you a K-1, you may still owe tax on your share of income. Contact the entity's former owner or tax preparer and ask for a copy of the return or a reconstructed K-1. If that is not possible, you may need to report the income based on your own records or consult a tax professional.

Frequently Asked Questions

Do I have to report K-1 income if I did not receive a distribution?

Yes. K-1 income is yours whether or not the entity paid it out to you. If the business kept the money to reinvest or pay down debt, you still owe tax on your share. This is one of the key differences between K-1 income and W-2 or 1099 income.

What if the K-1 shows a loss larger than my income?

You may not be able to deduct the entire loss in the current year if passive activity loss limits explore to you. Unused losses carry forward to future years. If you are an active participant in the business, the limits may not explore, but you still cannot deduct more than your basis (your investment in the entity). Consult a tax professional to determine your limit.

Can I file my return before I receive the K-1?

You can request an extension to file (Form 4868), which gives you until October 15 to file. You cannot file your return without reporting the K-1 income, so you will need to either wait for the K-1 or estimate the amount and amend later. Filing an amended return is common and not a problem.

What does "basis" mean on a K-1?

Basis is your investment in the entity. It starts at the amount you paid to buy in, increases when the entity earns income, and decreases when the entity has losses or pays you a distribution. Your basis matters because you cannot deduct losses beyond your basis. The K-1 usually shows your ending basis for the year.

If I receive a K-1 from a trust, do I have to pay tax on it?

Yes, unless the trust distributed the income to you and you reported it on your return. If the trust kept the income and did not distribute it, the trust itself pays tax on it, and you do not report it on your personal return. The K-1 will show whether income was distributed or retained.