How to Fill Out a K-1 for a Limited Partnership

Schedule K-1 should be distributed to partners well before April 15.

Schedule K-1 is a supplement to Form 1065, the IRS informational tax return for partnerships. Partnerships do not pay federal income tax. Instead, all income is allocated to partners in proportion to their respective interests in the partnership. Schedule K-1 is used to report each partner's allocation of partnership income, so that partners can calculate their federal income tax burden. The managing partner, who must be a general partner, must prepare one copy of Schedule K-1 for each partner so that they can attach it to their individual income tax returns.

Things You'll Need

• Schedule K-1
• Form 1065
• Partnership financial records

Instructions

1. List the partnership's Employer Identification Number (EIN) and the partnership's name and address, along with the IRS Service Center where the partnership filed or will file Form 1065.

2. Insert the partner's name, address, identification number, partnership status (general or limited partner, for example), and type of entity (individual or corporation, for example). Include the partner's share of profits, losses, capital and liabilities according to state law or the partnership agreement. Include details about the partner's capital account such as the amount of contributions during the tax year.

3. Indicate whether the partner contributed any property with a built-in gain or loss (the difference between fair market value and adjusted basis at the time of the contribution). If so, the partner must add a statement providing details.

4. Provide a breakdown of partnership income, losses and deductions that are allocated to the partner based on his stake in the partnership, such as interest income, dividends, capital gains and deductions.

5. Prepare additional Schedule K-1 forms for each partner, including yourself, and distribute the appropriate form to each partner. Make sure that the sum of the partners' shares totals 100 percent and that all cumulative totals are consistent with Form 1065.

Tips & Warnings

• The IRS publishes two versions of Schedule K-1 -- one for Form 1065 (partnerships) and one for Form 1041 (trusts). Make sure you use the right form.

• Limited partners may only deduct partnership losses against their passive income, while general partners may deduct losses against their total income.

References

• IRS: IRS Offers Tips for Accurate Schedule K-1 Filing; March 2005
• IRS: Partner's Instructions for FIlling Out Schedule K-1 (1065); 2010

Resources

• IRS: Schedule K-1 (1065)