Tax

K-1 Income: What It Is and How to File It

If you're a partner, S-corp shareholder, or LLC member, you'll get a K-1. Here's how to read it and where each number lands on your 1040.

By Aparna Devalla, CPA3 min · 5 slidesUpdated May 3, 2026

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A Schedule K-1 reports your share of income, deductions, credits, and other items from a passthrough entity.
Three flavors: 1065 K-1 (partnerships and multi-member LLCs), 1120-S K-1 (S-corps), 1041 K-1 (estates and trusts).
Passthrough means: the entity doesn't pay federal income tax — it allocates the income to you, and you report it on your personal return.
You owe tax on the K-1 income whether or not the entity actually distributed cash to you. This is the #1 surprise for new partners.

Box 1: Ordinary business income/loss → Schedule E, Part II (subject to self-employment tax for general partners).
Box 2: Net rental real estate income → also Schedule E (passive unless you materially participate).
Boxes 5–7: Interest, dividends, royalties → Schedule B / Schedule E.
Boxes 8–11: Capital gains and other portfolio income → Schedule D.
Box 13: Section 179, charitable contributions, and various deductions → Schedule A or as an adjustment.
Box 14: Self-employment earnings → Schedule SE for SE tax (15.3% on first ~$168,600 in 2026).
Box 20: Other information including QBI deduction (Code Z) and foreign tax credits.

S-corp K-1 income in Box 1 is NOT subject to self-employment tax — that's the entire point of the S-corp election.
But — your salary as an S-corp owner-employee IS on a W-2 (with payroll tax) and is separate from K-1 income.
Box 16 codes report distributions, which generally don't trigger additional tax if you have basis (but exceeding basis = capital gain).
Track your basis carefully — distributions in excess of basis are taxable; losses you can deduct are limited to basis.

You can owe tax on $200K of allocated K-1 income while the entity distributed only $50K to you. This is 'phantom income.'
Mitigation: ensure the partnership/operating agreement requires tax distributions sufficient to cover the highest-bracket partner's tax on allocated income.
If the entity makes guaranteed payments to you, those are reported on Box 4 — taxable AND deductible to the entity.
Always set aside cash for the K-1 tax liability before spending the distributions.

K-1s often arrive AFTER the April deadline. Most partnerships file Form 7004 for an automatic 6-month extension. Plan to extend your personal return.
Multi-state K-1s require nonresident state returns in every state where the entity does business — a Bay Area LLC operating in 5 states means 5 state returns.
Don't ignore the K-1 footnotes — they often contain the QBI calculation, foreign source income, and other audit-flagging items.
Need help? Rubric Financial handles K-1-heavy personal returns including multi-state and basis tracking.