Schedule K-1 (1065): Partner's Share of Income, Deductions, Credits
Reports each partner's share of partnership income, deductions, and credits.
Overview
Schedule K-1 (Form 1065) is issued to each partner in a partnership to report their share of the partnership's income, deductions, credits, and other items. Partnerships themselves do not pay federal income tax — instead, the income and expenses "pass through" to the individual partners, who report them on their personal tax returns.
Each partner receives a Schedule K-1 showing their distributive share of partnership items, which may include ordinary business income or loss, rental income, interest, dividends, capital gains, guaranteed payments, and various credits. The partnership agreement typically determines how these items are allocated among partners.
Schedule K-1 from a partnership can be complex because different types of income retain their character when passed through. For example, long-term capital gains from the partnership are reported as long-term capital gains on your individual return, and tax-exempt income remains tax-exempt.
Who Files This Form?
The partnership files Form 1065 and issues Schedule K-1 to each partner. Partners include individuals, corporations, trusts, estates, and other partnerships that hold an ownership interest. Every partner must receive a K-1, regardless of the size of their ownership share.
As a partner, you do not file the K-1 itself — you use the information to complete your personal tax return. The amounts on your K-1 are reported on various schedules depending on the type of income: Schedule E for ordinary income, Schedule D for capital gains, Schedule A for charitable contributions, and so on.
Key Fields
Box 1: Ordinary business income (loss)
Your share of the partnership's net ordinary income or loss from business operations. Reported on Schedule E, Part II.
Box 2: Net rental real estate income (loss)
Your share of rental real estate income or loss. Subject to passive activity rules.
Box 4a: Guaranteed payments for services
Fixed payments to you as a partner for services rendered, regardless of partnership income. Subject to self-employment tax.
Box 5: Interest income
Your share of interest income earned by the partnership. Reported on Schedule B.
Box 8: Net short-term capital gain (loss)
Your share of short-term capital gains or losses. Reported on Schedule D.
Box 9a: Net long-term capital gain (loss)
Your share of long-term capital gains or losses. Reported on Schedule D.
Box 14, Code A: Net earnings from self-employment
The amount subject to self-employment tax. General partners typically owe SE tax on their distributive share of income.
Box 20, Code Z: Section 199A information
Information needed to calculate the qualified business income (QBI) deduction, which may allow a 20% deduction on qualified business income.
Filing Deadlines
March 15
September 15
Penalty of $220 per partner per month (up to 12 months) for late filing.
Step-by-Step Instructions
- 1
Receive Schedule K-1 from the partnership (often arrives in March, as partnerships have a March 15 filing deadline).
- 2
Review Part III (Partner's Share of Current Year Income) and identify each type of income, deduction, and credit.
- 3
Report ordinary business income (Box 1) on Schedule E, Part II, Line 32.
- 4
Report interest and dividends (Boxes 5-7) on Schedule B.
- 5
Report capital gains and losses (Boxes 8-11) on Schedule D and Form 8949.
- 6
Apply passive activity rules if you are a limited partner or do not materially participate. Use Form 8582 if losses are limited.
- 7
Calculate self-employment tax on guaranteed payments and your share of ordinary income (if you are a general partner) using Schedule SE.
- 8
Use Box 20, Code Z information to calculate your qualified business income deduction on Form 8995 or 8995-A.
Common Mistakes to Avoid
Not understanding passive activity rules
Limited partners and partners who do not materially participate are subject to passive activity loss limitations. Passive losses can only offset passive income. Use Form 8582 to calculate allowable losses.
Missing the self-employment tax on guaranteed payments
Guaranteed payments (Box 4a) are always subject to self-employment tax. General partners may also owe SE tax on their distributive share of ordinary income.
Not tracking your basis in the partnership
You can only deduct losses up to your basis in the partnership. Track your basis each year by adding income and contributions and subtracting distributions and losses.
Ignoring the qualified business income deduction
Box 20, Code Z provides information for the Section 199A QBI deduction. This can reduce your income tax by up to 20% of qualified business income.
Frequently Asked Questions
Partnerships must file Form 1065 by March 15 (or September 15 with extension). You should receive your K-1 around that time. Many taxpayers file personal extensions because K-1s arrive late.
Related Forms
TaxScout.ai extracts Schedule K-1 (1065) automatically
AI-powered extraction with 5-layer validation. No manual data entry.