Schedule K-1: Understanding Your Partner's Share

Schedule K-1 (Form 1065) is the document that tells each partner exactly what to report on their personal tax return. If you're a partner in a US partnership or multi-member LLC, you'll receive one of these each year.

What is Schedule K-1?

Think of it as a partnership's version of a W-2. Instead of reporting wages, it reports your share of the partnership's income, deductions, credits, and other items.

Part I — Information about the partnership

Basic details: partnership name, EIN, and address. This should match what's on Form 1065.

Part II — Information about the partner

Your name, address, tax ID, and partnership details:

• •Partner type: General, limited, or LLC member-manager
• •Domestic or foreign partner: Important for withholding purposes
• •Profit/loss/capital sharing percentages: These determine your share of each item

Part III — Partner's share of current year items

This is the meat of the K-1. Key boxes include:

Box 1 — Ordinary business income (loss). Your share of the partnership's ordinary business profit or loss.

Box 2 — Net rental real estate income (loss). If the partnership has rental properties.

Box 4 — Guaranteed payments. Any guaranteed payments you received (these are taxable to you regardless of the partnership's profitability).

Box 5 — Interest income. Your share of interest earned by the partnership.

Box 6 — Dividends. Your share of dividend income.

Box 8-9 — Capital gains and losses. Short-term and long-term capital gains or losses from partnership transactions.

Box 14 — Self-employment earnings. Important for calculating self-employment tax.

For foreign partners

If you're a foreign partner, special rules apply:

• •The partnership may need to withhold tax on your share of effectively connected income
• •You may need to file Form 1040-NR
• •Tax treaty benefits may apply

Common confusion

"I received a K-1 showing income, but I didn't receive any cash." This is normal. Partnerships pass through income whether or not it's distributed. You may owe tax on income the partnership retained.

"My K-1 shows a loss. Can I deduct it?" Maybe. Losses are limited by your basis in the partnership, at-risk rules, and passive activity loss rules.