What Is K-1 Box 17 Code AC and How Do You Use It?
Your K-1's Box 17 Code AC reports gross receipts data used to determine if you qualify for a small business exemption to a business deduction limit.
Receiving a Schedule K-1 means you are a partner in a partnership or a shareholder in an S corporation, and this form reports your specific share of the entity’s financial activities for the year. The form uses various boxes and codes to detail different types of income, deductions, and credits. This article explains the information in Box 17 with Code AC and the actions you may need to take.
Defining K-1 Box 17 Code AC
The number reported in Box 17 with Code AC on your Schedule K-1 represents your proportional share of the business’s “gross receipts for section 448(c) purposes.” This figure is not the total gross receipts for the entire company; rather, it is the portion allocated to you based on your ownership percentage. Gross receipts include the company’s total sales, amounts received for services, and certain types of investment income.
This calculation is performed for Internal Revenue Code Section 448, a tax rule used to determine if a business qualifies as a “small business taxpayer.” The amount itself is informational, meaning it does not go on a specific line of your Form 1040 but is necessary for other calculations.
The Purpose of Code AC Information
The information associated with Code AC is linked to the business interest expense limitation under Internal Revenue Code Section 163. This federal tax rule limits the amount of business interest expense that businesses can deduct in a single tax year. The limitation is calculated as 30% of the business’s adjusted taxable income, plus its business interest income.
An exemption to this limitation exists for taxpayers who qualify as a small business. To determine if you are eligible, you must pass a “gross receipts test,” and the Code AC figure is the information from the K-1 entity used for this test.
How to Use Code AC on Your Tax Return
You must first aggregate the figure from Box 17, Code AC, with the gross receipts from all other business activities you are involved in. This includes gross receipts from any sole proprietorships, other partnerships or S corporations, and any other business ventures. This aggregation provides your total gross receipts from all sources.
Next, you compare your total gross receipts to the annual threshold set by the IRS. This threshold is based on the average annual gross receipts for the three preceding tax years. The inflation-adjusted amount changes annually; for the 2025 tax year, the threshold is $31 million.
If your average annual gross receipts are below the IRS threshold, you qualify for the small business exemption. This means you are not subject to the business interest expense limitation and are not required to file Form 8990, Limitation on Business Interest Expense.
If your aggregated gross receipts exceed the annual threshold, you do not qualify for the small business exemption. You must file Form 8990 to determine how much of your business interest expense is deductible. Any interest expense that is disallowed can be carried forward to be deducted in future tax years.