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How to read K-1?

Schedule K-1 is a tax document used to report the income, deductions, and credits of a taxpayer who is a shareholder in an S Corporation, and is a part of your 1120S form.

For an S Corporation, each shareholder receives a Schedule K-1 that details your share of the corporation's income, losses, deductions, and credits.

You'll use this information to report your individual tax liability on your personal tax returns.

Here are the most important sections of the K-1 that you should be aware of:

1. Part I:

    1. Biographical Information about the partnership (Box A and B): This has the issuing companies information. The business name and address should be listed, as well as the correct EIN. Checking these are accurate is a good quality check.

Part II:

    1. Ownership Percentage (Box G): This shows percentage of ownership. If you are a sole owner, it should show 100%. If shared ownership, this should reflect the ownership amount of the person listed in boxes E and F.
    2. Biographical Information about the partner (Box E and F): This is owners biographical information and SSN (or potentially EIN). It is extremely important to have the correct identification number.

Part III:

  1. Ordinary business income (loss) (Box 1): This is the profit or loss as recorded by the business tax return! This amount directly relates to the amount reported on the personal tax return and directly impacts the tax due on the 1040 personal tax return. Most Formations customers only have income in this box.

b. Other Information (Box 17): There can be a few codes here and additional statements with the K-1. There are many, but the most common are about Health Insurance (Code AD) and ensuring proper recording for taking the self employed health insurance deduction and information for the Qualified Business Income Deduction (Section 199a, Code V).