Do I Have to File Form K-1 1065 on My Tax Return?

Tax season often brings a stack of unfamiliar forms, and one that can cause confusion is Schedule K-1 (Form 1065). This document reports income, deductions, and other tax items from partnerships to their individual partners. If you’ve received one, you may be wondering whether it needs to be included in your personal tax return.

Understanding how this form affects your taxes helps prevent errors and ensures you report all required information.

Who Receives This Form

Schedule K-1 (Form 1065) is issued to individuals or entities with an ownership interest in a partnership. This includes general partners who manage the business and limited partners who invest without participating in daily operations. Members of limited liability companies (LLCs) taxed as partnerships also receive K-1s, as these entities follow the same pass-through taxation rules.

A partner’s share of income, deductions, and credits is based on their ownership percentage. For example, a partner with a 30% stake reports 30% of the partnership’s taxable income on their personal return. Some partnerships use special allocations, meaning a partner’s share of income or deductions may not directly match their ownership percentage.

Trusts, estates, and certain corporations can also receive a K-1 if they are partners in a business structured as a partnership. These entities must report the information on their respective tax filings. An S corporation receiving a K-1 must pass the income through to its shareholders, who then report it on their personal returns.

When Partnerships Issue It

Partnerships must prepare and distribute Schedule K-1 (Form 1065) annually to report each partner’s share of income, deductions, and credits. The partnership tax return, Form 1065, is due March 15 for calendar-year filers. If the partnership requests a six-month extension, the deadline moves to September 15. Delays in issuing K-1s can complicate tax filing for partners.

The figures on a K-1 come from the partnership’s financial records, including revenue, expenses, and distributions. Accuracy is essential, as errors can lead to IRS scrutiny. Some transactions, such as capital contributions or withdrawals, may require additional documentation. Guaranteed payments—compensation separate from profit distributions—are also reported and taxed differently than standard income allocations.

Changes in tax law can affect how partnerships report income and deductions. For example, the Tax Cuts and Jobs Act (TCJA) altered the treatment of business meals and interest expense limitations, affecting what partnerships can deduct and how those deductions are allocated. Partnerships must stay updated on these rules to avoid reporting errors that could trigger audits or penalties.

Reporting Items on Your Personal Return

The information on a Schedule K-1 flows directly onto an individual’s tax return. Ordinary business income or loss, reported in Box 1, is typically entered on Schedule E (Supplemental Income and Loss). Unlike wages, this income is not subject to automatic withholding, so partners may need to make estimated tax payments to avoid penalties.

Certain types of income on the K-1 receive special tax treatment. Long-term capital gains (Box 9a) are taxed at lower rates—0%, 15%, or 20% in 2024, depending on total taxable income. Qualified dividends (Box 6a) also benefit from these lower rates instead of being taxed as ordinary income. Partners in businesses generating passive income, such as real estate ventures, may be subject to the 3.8% Net Investment Income Tax (NIIT) if their income exceeds certain thresholds ($200,000 for single filers, $250,000 for married couples filing jointly).

Deductions and credits reported on a K-1 can reduce a partner’s tax liability. Section 179 deductions (Box 12) allow immediate expensing of certain business assets instead of depreciating them over time, though they are subject to income limitations. Tax credits, such as the research credit (Box 15, Code L), directly reduce tax owed but often require additional forms to claim.

Consequences for Missing Information

Failing to report income or deductions from a Schedule K-1 can lead to tax miscalculations, processing delays, and potential IRS penalties. Since partnerships do not pay income tax at the entity level, the IRS expects individual partners to report their allocated share. If a K-1 is missing or incorrect, discrepancies between what the IRS expects and what is filed increase the likelihood of an audit.

Taxpayers who fail to report taxable income from a K-1 may face penalties for underreporting. If the omission exceeds 10% of the correct tax liability or $5,000 (whichever is greater), the IRS can impose a 20% accuracy-related penalty. If the IRS determines that income was intentionally not reported, penalties can rise to 75% of the unpaid tax, with potential fraud charges.

Adjusting or Correcting a K-1

Errors on a Schedule K-1 can create reporting issues for both the partnership and the recipient. If a partner notices incorrect income allocations, missing deductions, or misclassified gains, they should address the issue promptly to avoid filing an incorrect tax return. The IRS cross-references K-1 data with the partnership’s Form 1065, so discrepancies can trigger notices or audits.

Partnerships must issue an amended K-1 if they discover mistakes after the original form has been sent. This requires filing an amended Form 1065 and providing updated K-1s to affected partners. While the IRS does not set a specific deadline for issuing corrected K-1s, partners should receive them as soon as possible to ensure accurate reporting. If a taxpayer has already filed their return using incorrect K-1 data, they may need to submit Form 1040-X to amend their personal tax return. Any additional tax owed may accrue interest if not paid promptly.

In some cases, adjustments result from IRS audits of the partnership. Under the Bipartisan Budget Act (BBA) of 2015, partnerships subject to the centralized audit regime may have tax adjustments assessed at the entity level rather than passing them through to individual partners. If the partnership elects to push the adjustment to partners, affected individuals will receive a revised K-1 and must amend their returns accordingly. Reviewing K-1s carefully upon receipt and maintaining communication with the partnership’s tax preparer can help resolve discrepancies efficiently.