What is Schedule K-1?

Pass-through statement of your share of income, deductions, credits, and distributions from an S-corp, partnership, or LLC. You report K-1 amounts on your personal return; the entity generally does not pay tax itself.

Are K-1 distributions taxable?

Generally return of basis to extent of basis, not separate income — the income was already taxed via K-1. Excess over basis is gain. Track basis annually.

Why does K-1 differ from cash received?

Tax income vs cash timing: receivables, depreciation, 174, and debt effects. Reconcile K-1 to distributions and basis worksheet.

How do you fix K-1 errors?

Request corrected K-1 promptly; amend personal return if filed. Document state copies — many states require separate filing.

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Schedule K-1 in 2026: S-Corp and Partnership K-1 Line-by-Line and Basis Guide

BATO Editorial Team September 20, 2026 2 min read

S-Corp K-1 (1120-S) Essentials

Ordinary income, QBI items, interest, credits.
Salary on W-2, not K-1 — see S-Corp and Payroll.
Basis: stock + loan basis tracked; losses limited to basis + at-risk.

Partnership K-1 (1065) Essentials

Self-employment, 199A, capital account (tax vs book), liabilities share.
Guaranteed payments vs distributions distinguished.

Pair with Year-End Tax Planning, Year-End Close, Estimated Taxes, and Filing Deadlines.

Basis Worksheet (Keep Annually)

Beginning basis + income − losses − distributions + contributions = ending basis. Attach debt basis logs for S-corp loans.

Tie to Financial Statement Analysis and QSBS holding where relevant.

State Copies

Apportion by state K-1 schedules; file nonresident returns where sourced — see Multi-State and SALT.

Retain K-1 packet per Record Retention and Audit Procedures.

Worked Example: Reading Your First K-1

S-corp owner, 40% shareholder. K-1 shows: ordinary income $120,000, distributions $90,000, beginning stock basis $50,000.

Step	Math	Result
Beginning basis		$50,000
Add: share of income	+$120,000	$170,000
Less: distributions (return of basis)	−$90,000	$80,000 ending basis
Tax due on	$120,000 (not $90,000 cash)	Owed regardless of distribution

The $30,000 gap (income > cash) is the classic K-1 surprise — phantom income from receivables growth or non-cash adjustments. This is why tax distributions exist in operating agreements (see Operating Agreement): without a clause forcing distributions to cover K-1 tax, owners fund the IRS from personal savings. True-up Estimated Taxes on the K-1 run-rate each quarter, not on cash received.

Loss Limits: Basis, At-Risk, Passive (In That Order)

A $100,000 K-1 loss is deductible only if it survives three gates: (1) stock/debt basis — losses capped at basis, excess suspended and carried forward; S-corp owners get debt basis only from direct shareholder loans (bank debt guaranteed by the owner does not count); (2) at-risk rules — nonrecourse financing excluded; (3) passive activity rules — non-material participants suspend losses against passive income only. Track all three on the annual basis worksheet — most K-1 software prints basis but not at-risk/passive carryforwards, so maintain them manually and reconcile before filing the personal return.

Guaranteed Payments vs Distributions (Partnerships)

Guaranteed payments (fixed amounts for services/capital, paid regardless of profit) are ordinary income to the partner and deductible to the partnership — the partnership equivalent of salary. Distributions are basis returns. Confusing them misstates both self-employment tax and QBI: guaranteed payments generally don’t qualify for the 199A deduction the way profit shares might. New partners should confirm in the partnership agreement which payments are which before the first K-1 arrives, and reconcile to Payroll where partners also take W-2 wages from related entities.