Form K-1 is a tax document that reports your share of income, losses, and credits from a partnership, S corporation, or similar business entity

If you own part of a business that is not structured as a regular C corporation, you will likely receive a Form K-1 (officially Schedule K-1 of Form 1065, 1120-S, or 1041). This form tells you how much of the business's profit or loss belongs to you personally, and it shows the types of income involved — ordinary business income, capital gains, rental income, or other categories. The business itself does not pay income tax; instead, the profit passes through to you, and you report your share on your individual tax return.

You receive a K-1 because the IRS requires pass-through entities to report each owner's portion of income separately. The business files its own return showing total income and deductions, but then divides the result among owners according to their ownership stake or the terms of their partnership agreement. Your K-1 is your copy of that division.

Key Takeaways

  • Form K-1 reports your personal share of business income, loss, and tax credits from a partnership, S corporation, or similar entity.
  • The business sends you a K-1 by March 15 (for most entities) so you can include the information on your individual tax return.
  • You report K-1 income on Schedule E or Schedule C of your Form 1040, depending on the type of entity and income.
  • K-1 income is subject to self-employment tax if you are an active partner, even though the business does not withhold taxes.
  • If you receive a K-1 with errors, contact the business to request a corrected form before you file your return.

Which Business Structures Use Form K-1

Not every business owner receives a K-1. A sole proprietor reports business income directly on Schedule C and does not receive a K-1. A regular C corporation pays corporate income tax and issues dividends to shareholders on Form 1099-DIV instead. But if you own a stake in any of these structures, you will receive a K-1:

  • Partnership — any business with two or more owners who have not chosen to be taxed as a corporation.
  • S corporation — a corporation that has made an election with the IRS to be taxed as a pass-through entity.
  • Limited liability company (LLC) — if the LLC has more than one owner and has not chosen to be taxed as a corporation, it is treated as a partnership for tax purposes.
  • Trust or estate — if you are a beneficiary of a trust or estate that has business income, you may receive a K-1 on Form 1041.

The entity type determines which form the business files and which version of K-1 you receive, but the purpose is the same: to show your share of the business's tax items.

What Information Appears on Your K-1

A K-1 is divided into boxes, each reporting a different type of income or deduction. Box 1 shows your share of ordinary business income or loss — the profit after the business deducts expenses. Other boxes report capital gains, rental income, interest, dividends, charitable contributions, and other items that have special tax treatment. Some boxes also show your share of deductions you can claim on your return, such as depreciation or business losses.

The form also identifies your ownership percentage and your role in the business — whether you are a general partner (actively involved) or a limited partner (passive investor). This distinction matters because general partners owe self-employment tax on their share of income, while limited partners do not. The K-1 will also show your basis in the business, which is the amount you have invested or the value of your ownership stake. Basis is important because it limits the losses you can claim in any given year.

At the top of the form, you will see the business's name, address, and tax identification number, along with the tax year the K-1 covers. Make sure the business name and number match your records — if they do not, contact the business to verify you are receiving the correct form.

When You Receive Your K-1 and What to Do With It

The business must send you a K-1 by March 15 of the year following the tax year it covers. For example, a K-1 for the 2023 tax year should arrive by March 15, 2024. If you do not receive it by mid-March, contact the business and ask for it. If the business cannot provide it, you may need to contact the IRS for help.

Once you have your K-1, you report the information on your individual Form 1040. Most K-1 income goes on Schedule E (supplemental income and loss), though some types of income may go on Schedule C or other schedules depending on the business structure and the type of income. The instructions to Form 1040 and Schedule E explain which box from your K-1 goes on which line of your return.

Keep your K-1 with your tax records for at least three years. The IRS can audit your return based on the K-1 information, and you will need the form to support the numbers you reported.

Self-Employment Tax and K-1 Income

If you are a general partner or an active owner in an S corporation, your share of business income is subject to self-employment tax (Social Security and Medicare tax). This is true even though the business does not withhold taxes from your K-1 income. You will owe self-employment tax on your net earnings from the business, calculated on Schedule SE.

Limited partners in a partnership do not owe self-employment tax on their share of ordinary business income, because they are not actively involved in running the business. However, they do owe tax on income from rental real estate or other passive sources shown on the K-1. S corporation shareholders do not owe self-employment tax on their K-1 income, but they must have received a reasonable salary as a W-2 employee if they worked in the business — the IRS watches for owners who try to avoid payroll tax by taking all income as K-1 distributions instead of wages.

Because K-1 income is not subject to withholding, you may owe estimated taxes during the year. If your K-1 income is large or unexpected, you may want to make quarterly estimated tax payments to avoid a penalty when you file.

Corrected K-1s and Amended Returns

If the business discovers an error on your K-1 after sending it, they will issue a corrected K-1, usually marked "CORRECTED" at the top. If you have not yet filed your return, use the corrected form. If you have already filed, you will need to file an amended return (Form 1040-X) to report the correct information.

Do not ignore a corrected K-1 that arrives after you have filed. The IRS receives a copy of every K-1 sent to you, and if the numbers on your return do not match the K-1 in the IRS's records, the agency will send you a notice. It is easier to file an amended return on your own schedule than to respond to an IRS inquiry later.

If you believe the K-1 contains an error but the business disagrees, ask the business in writing to explain the calculation. If you still disagree, you can report the correct amount on your return and attach a statement explaining the difference, but be prepared to support your position if the IRS asks.

K-1 Income and State Taxes

Most states that have an income tax also require you to report K-1 income on your state return. Some states follow federal rules closely, while others have different rules for pass-through entities. A few states do not tax K-1 income at all, or tax it differently depending on the business structure.

If you live in a different state than the business operates in, you may owe tax to both states. Some states offer credits for taxes paid to other states, but you will need to research your specific situation. The business may also be required to file a return or report in your state, even if you are the only owner there.

Frequently Asked Questions

Do I owe taxes on K-1 income even if I did not receive any cash from the business?

Yes. K-1 income is based on the business's profit, not on distributions (cash payments) to owners. If the business is profitable but reinvests the money rather than paying it out, you still owe income tax on your share of the profit. This is called "phantom income," and it can happen in growing businesses or when partners disagree about distributions.

What if my K-1 shows a loss instead of income?

You can use the loss to offset other income on your return, which may reduce your overall tax. However, there are limits. You cannot claim a loss larger than your basis in the business — the amount you have invested. If the loss exceeds your basis, you carry the excess forward to future years. Additionally, passive activity loss rules may limit the losses you can claim in a given year if you do not actively participate in the business.

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

You can request an extension (Form 4868) to give yourself more time to receive the K-1 and file your return. You cannot file your return with estimated K-1 numbers and update it later — you must report the actual amounts shown on the K-1 you received. If the K-1 is late, file for an extension rather than guessing.

What happens if the business does not send me a K-1?

Contact the business and request it. If the business cannot or will not provide it, contact the IRS at 800-829-1040 or file Form 8822-B to report a change of address if you think the K-1 was mailed to the wrong place. You can also ask the IRS for a transcript of the K-1 information they received from the business.

Is K-1 income subject to the net investment income tax?

It depends on the type of income and your involvement in the business. If you are a passive investor (limited partner or non-active S corporation shareholder), your K-1 income may be subject to the 3.8% net investment income tax if your modified adjusted gross income exceeds certain thresholds. If you actively participate in the business, the income is generally not subject to this tax. Consult a tax professional if your income is high enough to trigger this tax.