Is a K-1 Really the Same as a 1065? – Avoid This Mistake + FAQs

No, a K-1 is not the same as a 1065.

A Schedule K-1 reports an individual partner’s share of income, deductions, and credits, while Form 1065 is the partnership’s overall tax return submitted to the IRS.

Both are related to partnership taxes but serve different purposes in the tax filing process.

• 📄 The key differences between Schedule K-1 and Form 1065 and why they matter

• 🏢 How partnerships and LLCs use Form 1065 and K-1 for federal and state taxes

• ⚖️ Federal vs. state requirements for pass-through businesses (and state K-1 equivalents)

• 📊 Real-world examples of common filing scenarios for partnerships, S-corps, and single-member LLCs

• 🚫 Common mistakes to avoid and answers to critical FAQs about K-1s and Form 1065

Schedule K-1 and Form 1065: A Quick Overview

Schedule K-1 and Form 1065 are both used in partnership taxation, but they play very different roles. Form 1065 (officially the “U.S. Return of Partnership Income”) is the tax return a partnership or multi-member LLC files each year to report the business’s total income and deductions.

Schedule K-1 (Form 1065) is a supplemental schedule generated for each partner, breaking down that partner’s share of the partnership’s income, losses, credits, and other tax items. In simple terms, the partnership sends Form 1065 to the IRS, and it gives each partner a K-1 to include on their own tax return.

To clarify the distinction, here’s a side-by-side comparison of Form 1065 and Schedule K-1:

In essence, Form 1065 is the master tax form for a partnership, and Schedules K-1 are the detail breakdowns for each owner. The IRS requires both: the partnership uses Form 1065 to summarize everything, and each partner uses their K-1 to report their share on their own return. Next, we’ll dive deeper into what each of these forms entails and how they relate to different business entities.

What Is Form 1065 (Partnership Tax Return)?

Form 1065 is the federal tax form for partnerships. This includes general partnerships, limited partnerships, and multi-member LLCs (limited liability companies) taxed as partnerships.

The form is officially titled “U.S. Return of Partnership Income.” It’s an informational return, meaning the partnership itself generally doesn’t pay income tax with Form 1065. Instead, the form reports the partnership’s total income, deductions, credits, etc., for the year, which then get allocated out to the partners.

Every domestic partnership (and eligible LLC with more than one member) is required to file Form 1065 annually with the IRS. This is true even if the partnership had no taxable profit. (If a partnership had absolutely no income and no expenses for the year, the IRS may not require a 1065, but if there was any activity at all, it’s safest to file one.)

The responsibility for filing falls on the partnership’s representative (often a designated partner or an accountant). All partners’ names, addresses, and ownership percentages are listed on the return, and the partnership’s Employer Identification Number (EIN) is used as the tax ID.

Key elements reported on Form 1065 include: the partnership’s gross income (revenues), business expenses, cost of goods sold (if applicable), ordinary business income or loss, and any special items like capital gains, interest income, or charitable contributions. The form has multiple schedules within it – for example, Schedule K (which is part of Form 1065) summarizes the total of all partners’ shares of income and deductions. There are also balance sheet sections (Schedule L), reconciliation schedules (M-1, M-2), and others. Notably, Schedule K is not the same as Schedule K-1 – Schedule K is the collective summary on the 1065, whereas each Schedule K-1 is specific to an individual partner. 👍

Form 1065 must be filed by the 15th of March for partnerships on a calendar year (or two and a half months after the end of the fiscal year for non-calendar fiscal years). If needed, a partnership can request an extension (Form 7004) to push the deadline six months later (September 15 for calendar year).

Even if extended, the partnership should still distribute the Schedule K-1s to partners as soon as possible, since each partner needs their K-1 information to file their own taxes. Importantly, failing to file Form 1065 on time can lead to penalties – the IRS imposes a penalty (currently around $220 per month, per partner) for late filing of a partnership return, up to 12 months. So a partnership with 3 partners, 2 months late, could face about $1,320 in late fees. Ouch. 😖 (We’ll cover more on penalties and what to avoid later.)

Who Files Form 1065?

Any business entity classified as a partnership for tax purposes files Form 1065. Here are common cases:

• General Partnership: Two or more individuals (or entities) conducting business together without any other formal structure. They must file a 1065 to report the partnership’s income and provide K-1s to each partner.

• Multi-Member LLC: By default, if an LLC has more than one owner (member), the IRS treats it as a partnership for tax purposes (unless it elects S-corp or C-corp status). Thus, a multi-member LLC typically files Form 1065 each year. Each LLC member is considered a partner in the eyes of the IRS, receiving a Schedule K-1.

• Limited Partnership (LP) or LLP: These also file 1065. One partner may be a general partner managing the business, others might be limited partners. Regardless of the partnership type, the income flows through and is reported on 1065 and K-1s.

• Husband and Wife Business (in some cases): If spouses jointly own a business and haven’t elected to treat it as a single-member entity (some states allow a qualified joint venture), they might be considered a partnership for tax purposes and file 1065. (However, in community property states, a married couple can choose to treat a joint business as a disregarded entity – essentially a sole proprietorship – to simplify taxes. In that special case, they would not file 1065. Aside from that exception, most co-owned businesses need to file a partnership return.)

Note: S-corporations and certain trusts also issue K-1s, but they do not use Form 1065 (we’ll explain those cases separately). Also, a single-member LLC does NOT file Form 1065 – it’s treated as a disregarded entity (like a sole proprietorship) unless it elects corporate status. So, if you’re the only owner of your business, you generally skip Form 1065 and just report business income on your personal return (Schedule C, E, or F). Form 1065 is specifically for entities with multiple owners.

In summary, Form 1065 is the partnership’s tax return to the IRS. It’s how the partnership declares, “Here’s what our business made or lost this year, and here’s how it’s divided among our partners.” Now let’s look at the counterpart to this: the Schedule K-1 that each partner receives.

What Is Schedule K-1 (Partner’s Share of Income)?

Schedule K-1 is an IRS schedule used to report an individual owner’s share of income, deductions, credits, and other items from a pass-through entity. In the context of partnerships (including multi-member LLCs taxed as partnerships), the specific form is Schedule K-1 (Form 1065), titled “Partner’s Share of Income, Deductions, Credits, etc.” Each partner in a partnership receives their own K-1 each year. Think of the K-1 as a personalized report card of the partnership’s tax results for that partner.

Where Form 1065 aggregates everything for the whole partnership, a Schedule K-1 breaks those numbers down for one person. For example, if you and a friend are equal partners in a business and the partnership (Form 1065) reports $100,000 of taxable income, your K-1 might show $50,000 of income allocated to you (and your friend’s K-1 shows $50,000 for them). The K-1 tells you (and the IRS) exactly what your share of the partnership’s income or losses is, so you can report it on your personal tax return.

Some important facts about Schedule K-1 (Form 1065):

• It’s an Information Schedule: A K-1 is not a standalone tax return that you mail in by itself; it’s a supplemental form. The partnership prepares it and furnishes a copy to each partner (usually by the filing deadline). The partnership also submits all the K-1s to the IRS attached to Form 1065 (if filing by paper) or via electronic filing data. As a partner, you don’t file the K-1 separately; instead, you use the K-1’s data to complete your own Form 1040 (and any state return).

• One K-1 per Owner: If a partnership has 10 partners, it will issue 10 K-1 forms (one to each partner, with that partner’s specific allocations). Each K-1 is tailored to the recipient’s ownership percentage or special allocation as defined in the partnership agreement. The totals from all K-1s should tie out to the totals on the partnership’s Form 1065 Schedule K.

• Pass-Through of Various Items: Schedule K-1 isn’t just a single number for income. It has multiple parts and boxes. It will report ordinary business income (or loss), which is the main profit from operations. But it also reports other categories separately, such as interest income, dividends, capital gains, rental income, Section 1231 gains, etc., as well as deductions like charitable contributions or Section 179 expensing, and credits. This is because certain types of income or deductions might be treated differently on a partner’s personal return (for example, capital gains might be taxed at capital gain rates, charitable contributions might be subject to limits, etc.). The K-1 breaks these out so you know how to handle each item on your 1040.

• Additional Info: A K-1 will also contain each partner’s capital account analysis (showing the beginning and ending capital, contributions, distributions, and share of profit/loss for the year). It indicates the partner’s ownership percentage, whether they are a general or limited partner (or LLC managing member or not), and other info. For LLCs, there’s often a checkbox indicating if the partner is an active managing member or not, which can affect self-employment tax (active general partners’ shares of business income are usually subject to self-employment tax, whereas limited partners’ shares typically are not – more on that later).

• Multiple Uses of K-1: While our focus is on K-1s from partnerships (Form 1065 K-1s), keep in mind K-1s are also used by other pass-through entities:

  • S Corporations issue Schedule K-1 (Form 1120-S) to their shareholders each year.

  • Trusts and Estates issue Schedule K-1 (Form 1041) to beneficiaries, reporting trust/estate income distributed.

  • The concept is similar across these – K-1 is the mechanism to tell owners/beneficiaries their share of taxable items.

  • However, these K-1s are tied to different main returns (1120S for S corp, 1041 for trust/estate). They’re not to be confused with the partnership’s K-1, but the idea is analogous. In this article, unless specified, “Schedule K-1” refers to the partnership version (Form 1065 K-1) for simplicity.

In summary, Schedule K-1 is the form you get as a partner that shows your portion of the partnership results. If you receive a K-1, you must use it to report that income (or loss) on your own tax return, even if you didn’t actually receive cash distributions. 📑

For instance, if the partnership made money but left it in the business (did not distribute it to partners), you still get taxed on your share as shown on the K-1 (this is known as “pass-through” taxation – income is taxed to owners whether or not it’s distributed). Conversely, if the partnership lost money, your K-1 will show a loss which you might use to offset other income (subject to certain tax rules like basis and at-risk limitations).

Many new partners are surprised by K-1s because they’re not like a W-2 or 1099 that shows wages or simple interest. A K-1 can be more complex, often requiring you to input several different numbers into various parts of your tax return (or tax software). But essentially, it is like a 1099 for owners: it reports income from an entity where you have an ownership stake. Unlike a W-2 (for employees) or 1099 (for contractors/investors), a K-1 means you are an owner/partner, so the income is not taxed at the entity level – it “passes through” to you.

Example: How a K-1 Reflects Partnership Income

To illustrate how Form 1065 and Schedule K-1 relate, consider a simple example of a partnership:

ABC Partnership has two partners, Alice and Bob, who share profits 50/50. In 2024, the partnership’s books show $100,000 of income and $20,000 of business expenses. On Form 1065, ABC Partnership will report $100,000 in gross income, $20,000 in deductions, and $80,000 in net ordinary income.

Now, the partnership will prepare two Schedule K-1s – one for Alice and one for Bob:

• Alice’s K-1 will report $50,000 of ordinary business income (which is her 50% share of the $100,000 income minus 50% of the expenses).

• Bob’s K-1 will report $50,000 of ordinary business income as well.

Each K-1 might also list half of any other items if they existed (say, if there was $2,000 of interest income earned by the partnership, Alice’s K-1 would have $1,000 of interest, Bob’s $1,000, etc.).

Both K-1s together “add up” to the totals on Form 1065. Here’s a breakdown in table form:

Each partner will take the $40,000 net income from their K-1 and report it on their personal tax return (on Schedule E of Form 1040 for partnership income, for example). The IRS cross-references the partnership’s 1065 with the sum of all K-1s to make sure everything matches. In this example, the IRS expects to see $80,000 of total income reported by the partners combined, which matches the partnership’s filing.

This example highlights that Schedule K-1 is essentially the “key” that unlocks the partnership’s tax information for each partner. Without the K-1, a partner wouldn’t know the exact numbers to put on their own return. And without Form 1065, the IRS wouldn’t have the complete picture of the partnership’s activity. The two go hand-in-hand.

How Form 1065 and K-1 Work Together in Pass-Through Taxation

Form 1065 and Schedule K-1 are core components of what’s called pass-through taxation. A pass-through entity (like a partnership, LLC, or S-Corp) doesn’t pay income tax itself. Instead, the income “passes through” to the owners who then pay tax individually. Let’s break down the process step by step to see the relationship between Form 1065 and K-1:

1. Throughout the Year: The partnership operates its business and keeps track of income and expenses. Partners may receive distributions (cash withdrawals of profits) during the year, but those are not directly taxed; they’re just transfers of cash. Taxation is based on the profit/loss of the business, not on cash distributions.

2. After Year-End (Tax Time): The partnership gathers its financial records and prepares Form 1065. This includes calculating total income, deductions, and various tax items for the year. Essentially, the partnership determines its taxable income (or loss) for the year.

3. Allocate to Partners: Using the partnership agreement (or default rules if no special agreement), the partnership allocates each item of income, deduction, etc., to the partners. Often this is proportional to ownership percentage, but it could be different if the partnership agreement allows special allocations (within IRS limits).

4. Prepare Schedule K-1s: For each partner, the partnership prepares a Schedule K-1 that shows that partner’s allocated share of each type of income, deduction, and credit. For example, Partner X’s K-1 might show $X of ordinary income, $Y of interest income, $Z of Section 179 deduction, etc., depending on what the partnership had.

5. File and Furnish: The partnership files the Form 1065 with the IRS. Attached to it (or included in the e-file submission) are all the Schedule K-1 forms for the partners. The partnership also sends a copy of the relevant K-1 to each partner (usually by mail or electronically). This is typically due by March 15 (for calendar year partnerships) unless an extension is filed.

6. Partners’ Personal Returns: Each partner takes the Schedule K-1 they received and uses that information to file their own Form 1040 individual tax return (or their own business entity’s return if a partner is another entity). The various K-1 amounts go onto the partner’s return in the appropriate sections. For instance, ordinary business income from K-1 goes on Schedule E of the 1040, capital gains from K-1 go on Schedule D (or Form 8949), interest and dividends might go on Schedule B, etc. The K-1 comes with instructions to guide partners on where to report each item.

7. Tax Payment: The partners each pay any tax due on their share of the income through their personal returns. The partnership itself, in most cases, did not pay tax with Form 1065 – it only reported the info. (One exception: some partnerships might pay a small amount for certain credits or withholding on behalf of foreign partners, etc., but generally no income tax.)

8. Repeat Next Year: This process happens every year. Each year’s income is reported on a new Form 1065 and allocated via new K-1s.

It’s important to note that the IRS links the partnership return with the partners’ returns. The partnership’s EIN is referenced on each K-1, and the partner’s SSN or EIN is on it too.

The IRS expects the totals to match up. If a partner fails to report their K-1 income, the IRS can detect that by matching it against the partnership’s filings. Similarly, if the partnership’s allocated totals don’t equal its net income, that’s a red flag. This is why accuracy is crucial when preparing these forms.

Another aspect of this relationship is that each partner is taxed on the partnership’s income regardless of distributions. For example, a partnership might decide to retain profits in the business for expansion rather than distribute cash to partners. Even so, the partners will still get K-1s showing their share of the profit and will owe tax on it.

This sometimes catches partners off guard – you might owe tax on money you didn’t physically get. On the flip side, if a partnership distributes a bunch of cash to you, that distribution itself isn’t directly taxed (it’s not like a salary or dividend); it’s essentially considered a withdrawal of your already-taxed earnings or capital. The taxation was determined by the K-1 allocation of profits, not by the act of distribution.

Self-Employment Tax Considerations: For partnerships (including LLCs taxed as partnerships), the K-1 income for general partners or managing LLC members is usually subject to self-employment tax (SE tax) in addition to income tax. This is equivalent to the payroll taxes a self-employed person pays (covering Social Security and Medicare).

The K-1 will indicate if the partner is a general partner/active LLC member; that income (line 14 of K-1 usually shows self-employment earnings) needs SE tax calculation on the partner’s 1040 (Schedule SE). Limited partners (who don’t have active roles) typically do not pay SE tax on their share of partnership income (except perhaps on guaranteed payments).

This is a nuance where partnerships differ from S-corps (S-corp K-1 income is generally not subject to self-employment tax, since S-corp owners are supposed to pay themselves wages subject to payroll tax). We mention this to underscore that the type of entity (partnership vs S-corp) affects how K-1 income is treated beyond just income tax.

In summary, Form 1065 and Schedule K-1 work in tandem: one reports the whole pie, and the others divide the slices. 🍰 It’s a system designed to ensure that the IRS gets a complete picture of pass-through business activity and that each taxpayer pays tax on their appropriate share.

Federal vs. State Tax Reporting (K-1 and 1065 at the State Level)

We’ve been focusing on federal taxes, but U.S. states often have their own tax filing requirements for partnerships and their partners. It’s not just the IRS you have to consider; if your partnership operates in a state that imposes income tax, you likely have to report there too. Here’s how the federal vs. state aspect usually plays out:

Federal Level (IRS):

• Partnerships file Form 1065 with the IRS and issue federal Schedule K-1s to partners. This covers the federal income tax obligations. Partners report the K-1 info on their federal returns (1040, 1120S if partner is corp, etc.).

State Level:

• Most states that have a personal income tax also require partnerships (and LLCs taxed as partnerships) to file a state partnership return. Often, it’s similar in concept to the 1065. For example:

  • California: Partnerships file Form 565 (Partnership Return of Income) or LLCs file Form 568 (LLC Return of Income) for the state. These forms require partnerships to attach a Schedule K-1 (565 or 568) for each partner/member, which is the state’s equivalent of the federal K-1. The state K-1 will show the partner’s share of income, etc., allocated to that state.

  • New York: Partnerships doing business in NY file Form IT-204, and issue NY K-1 equivalents to partners for state tax.

  • New Jersey: Has a partnership return (NJ-1065) and corresponding NJ K-1.

  • Many other states follow suit – they often use the federal figures as a starting point but then make state-specific adjustments (for example, some income might be exempt at state level, or depreciation rules differ, etc.). The state K-1 will incorporate those differences.

• If a partnership operates in multiple states, it gets more complex. The partnership might have to file returns in each state where it has income or business nexus. It then must apportion or allocate income to each state and often produce state-specific K-1s for the partners. For example, say a partnership does business in both California and Nevada. California has income tax, Nevada does not. The partnership might file in CA for the portion of income attributable to CA. Each partner might get a California K-1 showing their share of CA-source income (which they’d need to report on a CA resident or nonresident return). For Nevada, no return is needed since no tax, but the federal K-1 would still show total income.

• Some states require withholding or composite tax payments for out-of-state partners. For instance, a partnership in State A with nonresident partners might have to remit a withholding tax on the nonresident’s behalf, unless that partner files their own state return. In such cases, the K-1 might show a state tax credit for taxes paid on the partner’s behalf.

• State Deadlines: Usually the state partnership return is due the same day as the federal (often March 15). Many states accept a federal extension as a state extension, but some require a separate extension form.

• Franchise or Entity-Level Taxes: A few states impose an entity-level tax or fee on partnerships/LLCs, separate from the income tax flow-through. For example, California charges an $800 annual LLC tax and possibly an LLC fee based on gross receipts (for LLCs, even though income flows through, this is a separate charge). Texas doesn’t have income tax but has a franchise tax (the margin tax) that LLCs and partnerships may have to file if revenue thresholds are met. These are not reported on a Schedule K-1, but they are part of state compliance. They don’t affect the partner’s personal taxes directly, but a partner should be aware the entity might owe these.

• Importantly, state K-1s often mirror the federal K-1 with some adjustments. States often update their K-1 forms whenever the IRS updates the federal K-1. For example, if the IRS adds a new question or box on the K-1, states like California will update their K-1 equivalents to match for state reporting purposes.

From a partner’s perspective, you need to use your federal K-1 for your federal return, and also use any state K-1 information to file your state returns. If you live in a different state than where the partnership operates, you might have to file a nonresident return in the partnership’s state using the K-1 info, and then possibly get a credit on your home state return for taxes paid elsewhere. 🗺️ It can get intricate, but the K-1 is central in tracking the necessary info.

Example (State context): Suppose you are a partner in a partnership that does business solely in Oregon, but you live in California. The partnership will file an Oregon partnership return and give you an Oregon Schedule K-1 showing (say) $50k of income. You’ll file an Oregon nonresident return reporting that $50k (and pay Oregon tax on it).

The partnership also filed a federal 1065 and gave you a federal K-1 with the same $50k (assuming all income is OR source). On your California resident return, you’ll report the $50k as part of your total income (because CA taxes residents on all income everywhere), but you’ll claim a credit for the taxes you paid to Oregon on that income (so you’re not double-taxed). While the specifics are beyond our scope, it shows how the K-1 information flows through multiple tax filings.

In short, don’t forget the state piece. 🌐 A K-1 often comes into play for state taxes just as much as federal. Check if your state requires a partnership return or any additional K-1 filings, and ensure you use that information when filing locally. Many a taxpayer has been unpleasantly surprised by a state tax notice because they ignored a K-1 for state filing. Avoid that by understanding your state’s rules.

Different Business Entities: Who Uses Form 1065 and K-1 (and Who Doesn’t)

To build a complete understanding, let’s distinguish how various business entities handle tax filings and whether Form 1065 and K-1 are involved:

Partnerships and Multi-Member LLCs (Pass-Through Entities)

Partnerships (General or Limited): These are classic pass-through entities. They file Form 1065 and issue Schedule K-1 to each partner annually. Partners report the K-1 info on their personal returns. Partnerships do not pay federal income tax at the entity level. (They may pay other kinds of taxes, like employment taxes for employees, or state fees as discussed, but not income tax on profits.)

Multi-Member LLCs: An LLC with two or more members, by default, is treated as a partnership for tax purposes (unless it elects to be taxed as a corporation). This means it follows the same routine: file Form 1065 and give K-1s to members.

The IRS essentially considers each LLC member a “partner” in a partnership. The same rules of pass-through apply. The term “member” (LLC) and “partner” (partnership) are analogous in this context. So if you and a friend set up an LLC for your business, and you didn’t choose S-Corp taxation, you’ll be filing a partnership return (1065) for that LLC and each of you gets a K-1.

One nuance: LLC vs Partnership for legal structure – an LLC is a legal entity, whereas a partnership might be a legal agreement without an LLC or corporation wrapper. For tax, both can be partnerships. The Form 1065 doesn’t really care if you’re an LLC or not; it only cares that you have multiple owners and are not taxed as a corporation.

S Corporations (Pass-Through, but Not a 1065 Filer)

S-Corporation: This is a corporation (or an LLC that has elected S-corp status) that passes its income through to shareholders, much like a partnership. However, S-corps do NOT use Form 1065. An S-corp files its own tax return, Form 1120S (U.S. Income Tax Return for an S Corporation). Along with Form 1120S, the S-corp issues Schedule K-1 (Form 1120S) to each shareholder. These K-1s serve the same basic purpose: report each owner’s share of income, deductions, etc.

So if you have an S-corporation (say you formed an LLC but then filed an election to be taxed as an S-corp), you won’t file a 1065; you’ll file a 1120S. But you will still produce K-1s for the owners.

The format of an S-corp K-1 is slightly different (since S-corps handle some things differently, like no self-employment income designation, and certain corporate-specific items), but to the recipient, it’s similar – use that info on your 1040.

Key differences: In an S-corp, owners often take a salary as employees, which is reported on a W-2 (unlike a partnership where partners generally do not take W-2 salaries). The remaining profit after salaries is what gets reported on the S-corp K-1s. S-corp K-1 income is not subject to self-employment tax, but S-corps are required to pay reasonable wages (so the IRS expects part of the profit to be taken as W-2 income subject to payroll tax).

This is a strategy some use to minimize overall SE taxes. Partnerships can’t do that trick – partners usually can’t be employees of their own partnership (aside from guaranteed payments, which are like a salary substitute reported on the K-1).

For the scope of our discussion: Is a K-1 the same as a 1065? – we see clearly that for partnerships, they go together but are different parts of the process. For S-corps, the K-1 exists but the form is 1120S, not 1065.

So, if someone asks: Do S-corp owners get a K-1? – Yes, they get an S-corp K-1 (Form 1120S K-1). Do S-corps file 1065? – No, they file 1120S, since 1065 is only for partnerships.

Single-Member LLCs and Sole Proprietorships (Not Partnerships)

Single-Member LLC: This is an LLC with only one owner. By default, the IRS disregards a single-member LLC as a separate entity for tax. That means all the LLC’s income and expenses are reported directly on the owner’s personal tax return (Schedule C if it’s an active business, Schedule E if it’s a rental property LLC, etc., or Schedule F for farming, etc.). There is no Form 1065 because there’s only one owner (no partnership exists). And since no partnership return, no K-1 is issued. The owner simply uses the LLC’s financials to fill out their own tax schedules.

For example, if you’re a freelance consultant and you set up an LLC just for liability protection but you’re the sole owner, you wouldn’t file a partnership return. You’d file your normal Schedule C (Profit or Loss from Business) with your 1040.

The IRS doesn’t get a separate form for the LLC’s income – it’s combined with your personal return. So, no K-1 for you, because K-1s are only for pass-through entities with multiple owners or trusts.

Exception: If a single-member LLC elects to be taxed as a corporation (and then possibly as an S-corp), then it would file corporate returns and possibly issue a K-1 if S-corp. But absent an election, single-member LLCs have no separate return. Similarly, a sole proprietorship (unincorporated business owned by one person) doesn’t file a 1065 or issue a K-1. All income is on the Schedule C of the owner.

C Corporations (Separate Taxpaying Entities, No K-1)

C Corporation: A regular corporation (or an LLC electing C-corp taxation) is not a pass-through. It files Form 1120 (Corporate Tax Return) and pays its own corporate income tax. Shareholders of a C-corp do not get K-1s because the profits are not passed through. If the corporation pays dividends to shareholders, those are reported on Form 1099-DIV, not a K-1. Essentially, if you are just a shareholder of a C-corp (like owning stock in Apple or even a small C-corp business), you don’t deal with K-1s; you pay tax only on dividends or capital gains if you sell stock. There’s a double taxation aspect: the corp pays tax on its profits, and then if it distributes dividends, shareholders pay tax on those dividends. This is why many small businesses avoid C-corp status unless necessary, instead choosing S-corp or partnership forms to get pass-through single taxation via K-1.

Summary of Who Uses What:

As you can see, Schedule K-1 is fundamentally tied to pass-through entities with multiple owners – primarily partnerships and S-corps (and trusts/estates for beneficiaries). If you’re dealing with a partnership or multi-member LLC, you’ll be dealing with Form 1065 and K-1s. If you’re a partner and you’re wondering “Do I have to file a K-1 or a 1065?” – the answer is that the entity files the 1065 and gives you the K-1. An individual doesn’t file a K-1 themselves; they receive it. That’s a common point of confusion. Let’s clarify that real quick:

• Partnership: files Form 1065 to IRS. Inside that filing, includes K-1s for each partner.

• Partner: receives a K-1 from the partnership. Uses it to file their personal taxes. The partner does not send the K-1 separately to the IRS (the partnership already did, essentially). If filing by paper, partners often attach a copy of the K-1 to their 1040 to substantiate the numbers; if e-filing, the K-1 info is transmitted electronically.

Next, we’ll look at the pros and cons of this pass-through system (and by extension, the use of K-1s) and then discuss common pitfalls to avoid.

Pros and Cons of Pass-Through Entities (Partnerships & K-1s)

Choosing a business structure that uses Form 1065 and K-1s (like a partnership or S-corp) has both advantages and disadvantages compared to a C-corporation or other setups. While our main focus is not business formation advice, understanding the pros and cons of pass-through taxation will give context to why K-1s exist and what implications they have for owners.

Here’s a summary of the pros and cons of pass-through entities (like partnerships/LLCs and S-corps) which inherently use K-1s:

In essence, the use of K-1s and 1065 aligns with the goal of avoiding double taxation and allowing flow-through of income and losses. This is generally beneficial for small and medium businesses and any venture where you want profits taxed once. However, the flip side includes more complicated filings and the requirement for each owner to shoulder the tax on business earnings personally.

For many, the benefits outweigh the drawbacks, especially since avoiding double taxation can save a lot of money and simplify getting money out of the business. But the drawbacks (like potentially higher self-employment taxes for partners and the headache of extra paperwork) are not trivial. That’s one reason some businesses choose the S-corp route – to try to get the best of both worlds (pass-through without SE tax on all income). Each situation is unique, and factors like expected profits, need to retain earnings, number of owners, etc., play into the decision.

The main takeaway related to our topic: If you opt for a pass-through entity, you’ll be dealing with Form 1065 and K-1s (or 1120S and K-1s) routinely. It’s part of the package. Next, let’s look at a few concrete scenarios to cement this understanding.

Real-World Filing Scenarios (with Examples)

Let’s walk through the three most common scenarios involving K-1s and partnership vs personal tax filings, to see how it all comes together:

Scenario 1: Two-Friend Startup (Multi-Member LLC Partnership)

Situation: Alice and Bob form “A&B Designs, LLC” in January. They are 50/50 owners (members) of the LLC. They do graphic design work. They didn’t elect to be taxed as a corporation, so by default their LLC is a partnership for tax purposes.

During the year: A&B Designs, LLC earns income and incurs expenses. They pay themselves draws (not salaries, just owner draws) periodically to take cash out for personal use.

Tax time: The LLC must file Form 1065 because it has two members. They hire a CPA who compiles their financials. Suppose their LLC had $150,000 of total income and $50,000 of expenses. The Form 1065 will report $100,000 in ordinary business profit.

K-1s: The CPA prepares two Schedule K-1s (Form 1065) – one for Alice, one for Bob. Each K-1 shows $50,000 of ordinary business income (50% of $100k). If there were any other items (say they had $200 of interest income from a bank account, each K-1 would show $100 interest, etc.).

Filing: The CPA files the Form 1065 with the IRS by March 15. Alice and Bob each get their K-1. They will each report the $50,000 K-1 income on their personal Form 1040 (Schedule E). They will also each need to calculate self-employment tax on that $50k via Schedule SE (since they’re actively running the business). They might take a Qualified Business Income deduction of 20% of that income if eligible, reducing taxable income. They also file state returns if applicable (let’s say they operate in one state that has income tax, they file a state partnership return and each partner gets a state K-1 of $50k, and they report that on their state returns).

Outcome: The partnership itself pays no income tax. Alice and Bob pay tax on $50k each at their individual tax rates, plus SE tax. They already took draws of cash during the year (say each took out $30k cash). Those draws are not taxed separately – they were just withdrawals of profit (and profit is taxed via K-1 regardless of draws).

Takeaway: The LLC operated seamlessly for them, and at tax time, Form 1065 + K-1s allocate everything neatly. If they had not formed an LLC and just operated as a general partnership, it would be the same tax result (1065 + K-1s). If one of them forgets to include their K-1 on their 1040, the IRS will likely send a notice because the IRS got the 1065 info showing they should have $50k income.

Scenario 2: S-Corp Business with Multiple Owners

Situation: Claire and Dan run a consulting business and chose S-Corp taxation for their company “C&D Consultants, Inc.” They each own 50% of the shares. They each work in the business.

During the year: C&D Consultants pays each owner a salary via payroll. For instance, it pays Claire $60,000 W-2 wages and Dan $60,000 W-2 wages. The business also netted an additional $80,000 of profit after paying those salaries (so total income was enough to pay salaries and have $80k left over).

Tax time: The S-corporation files Form 1120S (not 1065). It will show $80,000 of ordinary business income on the 1120S (the $60k + $60k wages were deducted as expenses, leaving $80k profit). The S-corp issues Schedule K-1 (Form 1120S) to Claire and Dan.

K-1s: Each K-1 from the S-corp shows $40,000 of pass-through income for the shareholder (50% of $80k profit). It may also show other items if applicable (for example, any dividend income the S-corp had, etc., but in this simple case just the $40k each of business income).

Filing: The S-corp files its 1120S by March 15 and provides the K-1s. Claire and Dan each use their K-1 to report $40,000 of S-corp pass-through income on their personal 1040 (Schedule E for S-corp income). They do not pay self-employment tax on that $40k because S-corp income is not subject to SE tax. However, remember they each got W-2s for $60k, on which payroll taxes were already paid during the year (withheld and matched by the company).

Taxes: The S-corp itself doesn’t pay income tax, just like a partnership. Claire and Dan pay income tax on the wages (which might have had withholding) and on the $40k K-1 income (which might not have had any withholding, so they may owe taxes or needed estimated payments). State-wise, if their state taxes S-corps similarly, they may have a state K-1 from a state S-corp return.

Outcome: Claire and Dan effectively split their business income into two components: salaries and distributions (K-1 income). The IRS got the 1120S and K-1s, so it knows how much they each should report. They avoided self-employment tax on $40k each by using the S-corp structure (but had to ensure their $60k salaries were “reasonable” for the work done to not draw IRS ire).

Takeaway: Even though an S-corp doesn’t use Form 1065, this scenario shows how K-1s are used similarly to convey income to owners. If someone only hears “K-1” they might not realize it could come from an S-corp or partnership depending on context. But in any case, a K-1 means pass-through income to report.

Scenario 3: Single Owner Business (No K-1 Required)

Situation: Emily is a freelance photographer operating as a sole proprietor. She’s the only owner of her business. She might have an LLC for her business name, but it’s just her alone.

During the year: Emily earns income from clients and pays business expenses. She takes home the rest as her personal income.

Tax time: Because Emily has no partners, she does not file Form 1065. If she has an LLC with no other members, it’s disregarded for tax – still no 1065. Instead, Emily will report her business income and expenses on Schedule C attached to her Form 1040 individual return. Suppose she made $70,000 after expenses.

K-1s: None. Emily does not receive a K-1 from her own business because there is no separate entity allocating income – it’s just her. All $70,000 of profit is already on her tax return via Schedule C.

Taxes: Emily will pay income tax on that $70k and self-employment tax on it (via Schedule SE) as she is self-employed. If she lives in a state with income tax, that $70k is included on her state return as part of her personal income.

Outcome: Emily’s situation is simpler at tax time (just one return, no separate partnership filing). However, she might end up paying more self-employment tax than if she had an S-corp (depending on situations), and she misses out on some benefits of having a separate entity (like easier separation of finances or the ability to bring in a partner easily).

Takeaway: If you’re alone in business, you won’t deal with K-1s at all unless you invest in someone else’s partnership or S-corp. K-1s come into play when there are multiple parties sharing income or when you’re a beneficiary of a trust/estate or a member of an S-corp.

These scenarios underline that K-1 vs 1065 isn’t an either/or choice for a business owner – they are complementary pieces of the puzzle when you have a partnership. In scenario 1, the 1065 is filed and K-1s flow out. In scenario 2 (S-corp), no 1065 but still K-1s (from 1120S). In scenario 3, no K-1 or 1065 at all because it’s not needed with one owner.

Now that we’ve covered all these details, let’s highlight some key terms and concepts to ensure everything is crystal clear.

Key Terms and Concepts

Understanding the terminology is half the battle when dealing with taxes. Here are some key terms related to Form 1065, Schedule K-1, and pass-through entities, explained in plain language:

• Pass-Through Entity: A business structure that does not pay income tax itself but instead passes its income (or losses) through to the owners’ personal tax returns. Examples: partnerships, S-corporations, and LLCs (by default or by election). Owners of pass-through entities report business income on their own tax forms, typically via a Schedule K-1 or directly (if single owner).

• Partnership: For tax purposes, this generally means any unincorporated business with multiple owners. It can be a formal partnership agreement or a multi-member LLC, LLP, LP, etc. A partnership is a pass-through – it files Form 1065 to inform the IRS of income and issues K-1s to owners to handle the actual taxation on their returns.

• LLC (Limited Liability Company): A flexible business entity that provides liability protection to owners (“members”). Tax-wise, an LLC can choose how to be classified: a single-member LLC is disregarded (taxed as sole prop), a multi-member LLC is by default a partnership (files 1065), or an LLC can elect to be taxed as an S-corp or C-corp. The LLC label itself is legal; the tax treatment depends on elections and number of members.

• Form 1065: The IRS tax form for a partnership’s annual return. Official name: U.S. Return of Partnership Income. It’s an informational return listing all the partnership’s income, deductions, etc., as well as information about the partners. It includes schedules like Schedule K (summary of allocations) and requires attaching Schedule K-1 for each partner. Due March 15 for calendar year partnerships.

• Schedule K-1 (Form 1065): The tax schedule given to each partner in a partnership, showing that partner’s share of the partnership’s taxable elements for the year. It’s like a report card of income, losses, credits, etc., allocated to you from the partnership. You use it to file your personal taxes. K-1s are also used in S-corps (Form 1120S K-1) and trusts (Form 1041 K-1), but generally when people say “K-1” they mean one of these schedules that report pass-through income to owners/beneficiaries.

• Partner (or Member): An owner of a partnership or LLC taxed as a partnership. Partners can be individuals or other entities. They each receive a K-1. Partners can be general (active) or limited (passive) in a partnership. LLCs use the term “member” but for tax, it’s the same concept as a partner.

• Tax Matters Partner / Partnership Representative: On Form 1065, partnerships designate a representative for tax purposes (this changed in recent years to the “Partnership Representative”). This person is the contact for the IRS and handles any audit matters on behalf of the partnership. Not directly about K-1 vs 1065, but good to know it’s a required designation on the 1065.

• Guaranteed Payments: A term you might see related to partnerships – these are payments to partners for services or use of capital that are made regardless of partnership profit (like a salary substitute). Guaranteed payments are deductible to the partnership and show up on the K-1 of the partner receiving them (usually as a separately stated item, and also included in their self-employment earnings). They are not exactly wages, but they ensure a partner is compensated even if there’s no profit. Mentioned here because if you see a line for it on K-1, you know what it is.

• Schedule K vs Schedule K-1: Schedule K (part of Form 1065) lists the total of each item of income, deduction, etc., for the entire partnership. Schedule K-1 is the breakdown for each partner. People sometimes confuse them. Think of Schedule K (with Form 1065) as the “summary” and K-1 as the “detail per owner.” If you’re a partner, you care about the K-1 you get; the IRS cares that the sum of all K-1s matches what’s on Schedule K of the 1065.

• Section 199A QBI: A provision (from the Tax Cuts and Jobs Act) that allows up to a 20% deduction on qualified business income for pass-through entities. If you have K-1 income from a partnership or S-corp, you likely can take this deduction if you qualify (subject to income limits and business type restrictions). K-1s now often include codes to tell you what portion of the income is qualified business income (QBI) and other info needed for that deduction. It’s a key tax benefit of pass-through income since 2018.

• Basis: In partnership context, “basis” means your investment stake for tax purposes. Each partner has a basis that starts with what they invested, and is adjusted each year by their share of income (increases basis) and distributions or losses (decreases basis). You can only deduct losses up to your basis. The Schedule K-1 shows beginning and ending capital, which is related but not identical to basis (capital is on a book or tax basis method, whereas tax basis includes liabilities share and other nuances). It’s a complex term but important: if you see on K-1 that you have a loss, you need enough basis to deduct it.

• At-Risk and Passive Rules: If you’re a passive investor (not actively involved) or you invested with borrowed money, there are additional limits on loss use. These are just mentioned as terms because K-1 losses might be limited by these rules on your 1040. Passive loss rules mean you can’t use a loss from a passive activity to offset active or other income (it carries forward usually). At-risk rules mean you can’t deduct more than you have at risk (usually your basis in the partnership excluding certain non-recourse debts). These concepts show why K-1s are not always straightforward – losses on a K-1 might not all be usable that year.

• IRS: The Internal Revenue Service, the federal agency that collects taxes and to whom Form 1065 is filed. The IRS sets rules for partnerships in the Internal Revenue Code (main partnership sections are Section 701 through Kits, and others dealing with distributions, etc.). The IRS can audit partnerships, and since 2018 there’s a centralized partnership audit regime (the Partnership Representative rules) which can even have the partnership pay tax on audit adjustments in some cases. But generally, the IRS expects the partners to pay the tax on income via their K-1 reporting.

• Penalties (Failure to File/Furnish): Key term: Section 6698 penalty – this is the penalty for failing to file a partnership return (Form 1065) on time or for filing it incomplete. As noted, it’s $220 per partner, per month late (for returns due in 2023, adjusted periodically for inflation). Another is Section 6722/6721 penalties for failing to furnish or file correct information returns (which would include failing to give K-1s to partners or sending wrong info). The penalty for failing to issue a Schedule K-1 to a partner (or filing it late/inaccurate with IRS) is around $290 per K-1. These can add up quickly if you ignore filing requirements.

• Tax Year: Partnerships can sometimes choose a fiscal year (some restrictions apply – often they must align to partners’ tax years unless there’s a valid business purpose or they make a special election). If a partnership has a fiscal year (say May 1 – April 30), the Form 1065 is due 3 months after April 30, and partners report the income in the year that includes the partnership’s year-end. For example, a partnership year ending April 30, 2025, that income goes on partners’ 2025 returns (since April 2025 falls in their 2025 tax year). This is just a note in case one wonders about timing – most small partnerships use calendar year though.

These terms and concepts provide a foundation. Essentially, if you understand that a partnership is a pass-through requiring Form 1065 and K-1s, and that a K-1 is simply the mechanism to get income to the owner’s tax return, you’ve got the main idea. The rest are specifics and variations that one learns over time or with professional advice.

Now, let’s discuss some common mistakes and pitfalls to avoid when dealing with K-1s and Form 1065, to ensure you stay out of trouble.

What to Avoid: Common Mistakes with K-1s and 1065s

The world of partnership taxation can be tricky for newcomers. Here are some key things to avoid and be careful about:

• ❌ Don’t confuse who files what: A frequent mistake is confusion over filing obligations. Remember, the partnership (or LLC) files Form 1065, not the individual partners. If you’re a partner, you generally do not file a K-1 form to the IRS yourself – the partnership does that. You use the K-1 for reporting. Some partners mistakenly think they must “submit” their K-1 separate from their 1040; that’s not the case. Just include the K-1 info on your 1040. If mailing a paper return, you can attach the K-1 copy to your 1040 as support. If e-filing, it’s transmitted as part of your return data.

• ❌ Not filing a partnership return at all: Sometimes people form an LLC with a friend and, not realizing the requirement, fail to file Form 1065. “We just split the income and each reported half on Schedule C” – that’s wrong. The IRS wants a partnership return if there are two or more owners (unless you meet a very narrow exception for no activity). Failing to file 1065 can result in those hefty penalties we discussed, even if all income was reported by partners. The IRS can and does assess penalties for late or unfiled partnership returns, and the “we paid the tax anyway” argument often doesn’t work (courts have upheld penalties even when no tax was due, simply because the info return wasn’t filed – the IRS sees compliance itself as important).

• ❌ Missing the deadline or extension: If you are involved in a partnership, mark your calendar for March 15 (for calendar year entities). Missing this deadline without an extension will rack up penalties. If you know you can’t file in time, file Form 7004 to extend the partnership return. But note: an extension for the partnership extends the time to file, not to furnish K-1s to partners. Technically, K-1s should also be furnished by the due date (including extension). Many partnerships on extension will give preliminary K-1 info or estimates to partners or advise them to extend their personal returns. Ideally, try to get K-1s out on time to avoid messing up partners’ filings.

• ❌ Errors on the K-1: Small businesses might attempt to fill out K-1s manually and make mistakes in allocations or classifications. If the numbers on the K-1 are wrong, it creates issues for the partner and mismatches with the 1065. Always double-check that the sum of all K-1s matches the Form 1065 Schedule K totals. Check that each type of income is in the correct box on the K-1. For example, rental income must be separately stated, interest income in its own box, etc. If you misclassify, it could cause the partner to mis-report (and possibly lose out on favorable tax treatment, or conversely underpay tax).

• ❌ Forgetting state returns: As noted, don’t overlook state requirements. Avoid the mistake of thinking a federal extension covers state – often you need to file a separate state extension or at least pay any state fees timely. If your partnership does business in multiple states, coordinate with a tax professional to ensure compliance everywhere. Each partner will thank you for not subjecting them to a surprise state tax notice. 🤝

• ❌ Treating a partner like an employee (for partnerships): A common misstep in partnerships/LLCs is trying to put a partner on payroll or issue them a W-2. Except in specific cases (like guaranteed payments or if an LLC elects S-corp), partners are not employees of their partnership for tax purposes. You should not issue a W-2 to someone who is a partner in the same partnership; their compensation should come through draws or guaranteed payments and ultimately be reflected on the K-1. Misclassification can cause tax headaches (and double reporting of income).

• ❌ Not providing K-1s to partners: Sometimes the partnership files Form 1065 with the IRS but forgets to send copies of K-1s to the partners. The partners are left in the dark about what to report. Always furnish the K-1s to the partners by the due date. If you’re a partner and haven’t received your K-1 by the expected time, actively reach out to the partnership. Don’t just assume you can ignore it. If the partnership filed one with IRS, you are on the hook to report it even if you didn’t see it. And if they never prepared one, they might not have filed the return – you want to get that sorted to avoid penalties for the partnership that could trickle down in some form.

• ❌ Using the wrong form or schedule: Ensure you’re using the correct K-1 form for the entity. For example, don’t give a partner a K-1 on the 1120S template if it’s a partnership (1065) and vice versa. Also, don’t try to report partnership income on a 1099 or something – K-1 is the proper channel. Sometimes new business owners are unsure how to report payments to partners and might mistakenly issue a 1099-MISC or 1099-NEC; that’s incorrect for partners (those forms are for non-owner contractors). Partners get a K-1, not a 1099, for their share of partnership profit.

• ❌ Overlooking basis limitations: If you’re a partner who receives a K-1 with a loss, don’t just assume you can deduct it fully. Avoid the mistake of ignoring your basis. Keep track of your partnership basis year to year. If you’re not sure, work with a tax advisor. The K-1 might have info (like your ending capital) but basis calculation can involve outside factors (like share of liabilities). Deducting losses beyond your basis can get disallowed by the IRS, causing need for amendments or audits. So be cautious and ensure you have sufficient basis and at-risk amount before taking a loss.

• ❌ Not reporting K-1 income because “I didn’t get the money”: We touched on this – sometimes partners think if they didn’t physically receive cash, they shouldn’t have to pay tax on it. Unfortunately, that’s not how it works with K-1 income. Don’t make the mistake of omitting K-1 income just because you left profits in the business or because the partnership hasn’t sent you a check. You are liable for tax on that allocated income regardless. If cash flow is an issue, you might need to plan with your partners to distribute enough cash to cover estimated taxes for each partner during the year.

• ❌ Filing the wrong type of return (entity mix-ups): If you have an LLC and you elect S-corp, make sure you file 1120S, not 1065. Conversely, if no election and multi-member, don’t file 1120S by accident. The IRS might reject it or process incorrectly. Changing classification also means changing how you handle things (e.g., start running payroll for S-corp). So avoid misfiling by knowing your entity’s tax status. Once you elect S-corp, you no longer file 1065 or issue partnership K-1s; you do 1120S and S-corp K-1s.

• ❌ Neglecting professional advice for complex allocations or transactions: Partnerships can do fancy things like special allocations, partner changes, contributions of property, etc. These have complex tax rules (like Section 704(c) for contributed property, or making sure allocations have substantial economic effect). If your partnership starts getting into anything beyond straight pro-rata sharing of profits, don’t wing it. Consult a tax professional. This will prevent mistakes on the 1065/K-1s that could lead to audits or partner disputes. For instance, allocating all the tax loss to one partner who didn’t bear the economic loss might be flagged. Or handling a partner buyout incorrectly on the forms can cause basis and capital account issues.

• ❌ Assuming “no tax due = no problem”: As mentioned, even if a partnership didn’t make money, you still usually have to file the return (1065) if there was any activity or if it existed. And penalties for not filing are based on per partner per month, not on tax owed, so they apply even if $0 income. Don’t ignore the filings just because you think it’s purely informational. The IRS cares about getting the info and will penalize for lateness or non-filing.

• 🚫 Avoid disorganized records: This is more general, but poor bookkeeping leads to late and error-prone tax filings. If the partnership’s records are messy, the Form 1065 might be wrong or delayed. Then K-1s are wrong or late, causing issues for partners. Staying organized (or hiring a bookkeeper) throughout the year avoids a cascade of problems at tax time.

By steering clear of these mistakes, you can manage your partnership filings smoothly. The key is knowing your responsibilities and deadlines, double-checking the work, and when in doubt, consulting a tax expert. Many partnership-related issues end up in U.S. Tax Court or result in penalties simply due to confusion or oversight – things that are preventable.

On that note, let’s briefly touch on a real-world example of how serious it can get if these rules aren’t followed: there have been court cases upholding penalties for late partnership filings, even with no tax due, and cases emphasizing that partners must report income even if they didn’t receive a K-1 on time. The tax law is pretty strict about these information reporting duties.

For example, in one case, a large partnership (investment fund) failed to file any 1065s or K-1s for years, arguing that since all income flowed to partners (who reported it) there was no harm. The court disagreed and upheld the penalties, pointing out that the IRS needs those forms to verify details and that the law imposes penalties for not filing regardless of tax liability. 🚨 The moral: always file required forms and issue K-1s, or face unavoidable penalties.

We’ve covered a lot of ground – definitions, differences, scenarios, pros/cons, and mistakes to avoid. To wrap up, let’s address some frequently asked questions to clear up any remaining confusion in quick Q&A form.

FAQs

Q: Is a Schedule K-1 the same as a Form 1065?
A: No. A Schedule K-1 is a supplemental form that reports an individual partner’s share of income, whereas Form 1065 is the partnership’s overall tax return filed with the IRS.

Q: Do I need to file a Form 1065 for a single-member LLC?
A: No. A single-member LLC is typically treated as a disregarded entity (like a sole proprietorship) and does not file Form 1065. You report the LLC’s income on your personal return (Schedule C, E, or F).

Q: Does every partner get a Schedule K-1 each year?
A: Yes. Every partner (or LLC member in a multi-member LLC) should receive a Schedule K-1 annually for the partnership’s tax year, showing their share of the income or loss to report on their taxes.

Q: Are K-1 forms filed with the IRS by the partner?
A: No. The partnership files the K-1s with the IRS along with Form 1065. As a partner, you don’t separately file the K-1; you use it to report the numbers on your own tax return.

Q: Do S-corporation owners get K-1s as well?
A: Yes. S-corporation shareholders receive a Schedule K-1 (Form 1120S) from the S-corp’s tax return. It serves a similar purpose of reporting each shareholder’s share of corporate income for their personal taxes.

Q: If my partnership had no income or expenses, must I file Form 1065?
A: Generally yes, if the partnership existed, you should file Form 1065 (even showing zero activity) to satisfy IRS requirements. If truly nothing happened (no income, no expenses), the IRS might not require it, but it’s safest to file a zero return to avoid any doubt.

Q: Do I attach the K-1 to my personal tax return?
A: Yes (if filing by mail). Attach the K-1 copy with your 1040 so the IRS can cross-reference. If you e-file, you will input the K-1 data into the software; you don’t physically attach anything, but the information is transmitted.

Q: Is K-1 income considered self-employment income?
A: It depends on the source. For a partnership, a general partner’s share of business income from a K-1 is usually self-employment income (subject to SE tax). For an S-corp K-1, the income is not self-employment income (shareholders take salaries separately). Investment income passed through (like interest or dividends on a K-1) is not self-employment income either.

Q: Can I file my personal tax return without waiting for a K-1?
A: Technically, you should wait for all K-1s because you need them to accurately report your income. If a K-1 is delayed, you might file an extension for your return. Filing without a K-1 and then amending later can be done, but it’s better to have all info upfront to avoid IRS notices.

Q: Are there penalties for filing Form 1065 late?
A: Yes. The IRS penalty for a late Form 1065 is about $220 per month per partner, up to 12 months. There’s also a penalty (around $290 each) for each late or incorrect K-1. These penalties can add up quickly, so timely filing is crucial.