Schedule K-1 is a federal tax document used to report the income, losses, and dividends for a business’ or financial entity’s partners or an S corporation’s shareholders. It is also used to report income distributions from trusts and estates to beneficiaries. A Schedule K-1 document is prepared for each relevant individual.
Tax Implications of Distributions
Although withdrawals and distributions are noted on the Schedule K-1, they generally aren’t considered to be taxable income. Partners are taxed on the net income a partnership earns regardless of whether or not the income is distributed. The distributions could have been cash or in other types of property.
Each shareholder or partner is required to file Schedule K-1 along with their personal tax return to report their shares of pass-through business’s deductions, credits, profits, and losses. Partnerships themselves do not pay income tax. Instead, they generate Schedule K-1 to report a partner’s share of the business’s financial activities.
Filing and Reporting on Schedule K-1
- Each shareholder’s distribution amount for the corporation’s fiscal year should be reported on Schedule K-1, Line 16, with a reference code of “D.”
- When the shareholder follows the IRS instructions for Schedule K-1, this amount will not flow through to his income tax return as ordinary taxable income.
The answer to the question, "Where do distributions go on a K1?" is that distributions are usually listed on Schedule K-1, Line 16. These distributions are not typically considered taxable income following IRS instructions.