What Is a Schedule K-1? Definition, How It Works and Examples

A K-1 is a statement of your share and carries no tax calculation of its own. Some businesses and trusts do not pay income tax themselves. They pass their income, losses and credits through to the people who own them or benefit from them. These are called pass-through entities. The K-1 is how a pass-through entity tells each owner what to report. The IRS says you keep it for your records and generally do not file it with your return.

What is a K-1 for taxes in practice? It turns the entity’s year into numbers for your Form 1040. A box for interest tells you what to report as interest. A box for long-term capital gain tells you what to report as long-term gain. Your tax software or preparer copies each figure to the line where it belongs.

The key point for new investors is that the tax follows the income and not the cash. The IRS says you may owe tax on your share of the entity’s income even if the entity did not distribute it to you. An entity can hold its cash for a later deal and still pass a large gain through to you.

A K1 partnership is any business that has two or more owners and files Form 1065, the partnership return. Every domestic partnership files it unless it has no income or deductions. A domestic LLC with at least two members is a partnership for federal tax unless it elected to be taxed as a corporation. The Form 1065 instructions give both rules.

The partnership files Schedule K-1 (Form 1065) for each partner. Part III holds the numbers. The boxes you will see most often are listed in the table. Each box is a tax category, so a K-1 may show several at once.

Your basis in the partnership, meaning what you have invested in it for tax purposes, starts with your contribution. It goes up with your share of income and down with distributions and losses, and it cannot fall below zero. The IRS says you track this yourself. The capital account on the K-1 does not replace it. See cost basis for the wider rules.

Two other families use the same name. An estate or trust files Form 1041 and sends a K-1 to each beneficiary, the person who receives income from it. That K-1 has boxes 1 through 14 and shows your share of items such as interest, dividends and capital gains. The IRS instructions say to keep it for your records. You attach it to your return only when box 13 reports backup withholding with code B.

An S corporation, a corporation that elects to pass its income through to its shareholders, files Form 1120-S and sends each shareholder a K-1. As with a partnership, the IRS says you may owe tax on your share whether or not it was paid out.

A company that pays its own corporate income tax does not send K-1s. If you own shares in such a company and it pays you a dividend, it reports that on Form 1099-DIV. The 1099-DIV instructions set that rule for payments of $10 or more.

Each K-1 item is taxed under the rules for its type. Interest and ordinary income are taxed as ordinary income. A long-term capital gain keeps its long-term treatment. Losses face limits, applied in this order: basis, at-risk rules, passive activity rules and the excess business loss limit. Individuals use Form 8582 to apply the passive activity rules.

Timing matters for private investments. A partnership files by the 15th day of the third month after its year ends, which was March 16 for 2025. Under Section 6031(b), it must give each partner the K-1 on or before the day the return is required to be filed. The partnership can ask for an automatic extension, generally six months, on Form 7004. A K-1 can therefore arrive after your own April deadline.

Report each item the way the entity reported it. If you report differently, the IRS says you may need to file Form 8082 to explain. In an Axevil SPV, reporting in the app includes a K-1 or the local equivalent. See what an SPV is and how SPV investing works.

An investor puts $50,000 into an SPV taxed as a partnership. In year one, the SPV sells part of its shares at a gain and keeps the cash for a later deal. In year two, it pays out $60,000.

In year one, the investor reports $20,000 of long-term gain although no cash arrived. In year two, the $60,000 distribution is not new income, and it lowers basis to $10,000. A low basis matters later. If the investor exits the SPV, the remaining basis is the starting point for the final gain or loss.

• Treating distributions as incomeBox 19 shows cash paid out. The income that is taxed sits in the other boxes.
• Filing before the K-1 arrivesA late K-1 is common for private investments. Many investors extend their own return and wait for the real numbers.
• Using the K-1 capital account as your basisThe IRS says it cannot serve as your outside basis. Keep your own running record.
• Editing a K-1 you think is wrongAsk the entity for a corrected K-1. Do not change your copy.
• Overlooking loss limitsA loss on a K-1 faces limits applied in order: basis, at-risk rules, passive activity rules and the excess business loss limit.

Schedule K-1

A form that reports your share of a pass-through entity’s income, losses and credits for the year.

Pass-through entity

A partnership, S corporation, estate or trust whose income is taxed to its owners or beneficiaries.

Form 1065

The yearly US return a partnership files, with a K-1 for each partner.

S corporation

A corporation that passes its income through to shareholders and files Form 1120-S.

Basis

What you have invested in an interest for tax purposes. It rises with income and falls with distributions and losses.

Distribution

Cash or property the entity pays to an owner. It is shown in box 19 and lowers basis.

SPV

A vehicle that pools investors’ money for one deal and is often taxed as a partnership.

Figures were last checked on October 13, 2026. Rules are US federal and apply to the 2025 tax year, which covers returns due in 2026. The worked example is illustrative arithmetic. State taxes are not covered.