Learning How K-1's Worked Changed How I Invest (Schedule K-1 Explained)

Tax Form Schedule K-1 Explained Simply.
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Purpose of Schedule K-1
The partnership uses Schedule K-1 to report your share of the partnership's income, deductions, credits, etc. Keep it for your records. Do not file it with your tax return unless you are specifically required to do so. (See the instructions for Code O. Backup withholding, later.) The partnership files a copy of Schedule K-1 (Form 1065) with the IRS.
For your protection, Schedule K-1 may show only the last four digits of your identifying number (social security number (SSN), etc.). However, the partnership has reported your complete identifying number to the IRS.
Although the partnership generally isn't subject to income tax, you may be liable for tax on your share of the partnership income, whether or not distributed. Include your share on your tax return if a return is required. Use these instructions to help you report the items shown on Schedule K-1 on your tax return.
The amount of loss and deduction you may claim on your tax return may be less than the amount reported on Schedule K-1. It is the partner's responsibility to consider and apply any applicable limitations. See Limitations on Losses, Deductions, and Credits, later, for more information.
To find a blank K-1: www.irs.gov/pu...
Where can I find a sample K-1 tax form? You can download a sample copy of Schedule K-1 (Form 1065) from the IRS. But you'll probably receive a copy of Schedule K-1 around tax time from your accountant or whoever is responsible for filing your partnership's Form 1065.
www.irs.gov/in...
Schedule K-1 is an Internal Revenue Service (IRS) tax form issued annually for an investment in a partnership. The purpose of the Schedule K-1 is to report each partner's share of the partnership's earnings, losses, deductions, and credits. Schedule K-1 serves a similar purpose as Form 1099.
Does the IRS get a copy of K-1?
The partnership files a copy of Schedule K-1 (Form 1065) with the IRS to report your share of the partnership's income, deductions, credits, etc.
Who provides a k1 tax form?
K-1s are provided to the IRS with the partnership's tax return and also to each partner so that they can add the information to their own tax returns. For example, if a business earns $100,000 of taxable income and has four equal partners, each partner should receive a K-1 with $25,000 of income on it
March 15
Schedule K-1s are due to be prepared and sent out by March 15 of each year. Unfortunately, they have a reputation for being late. And with the tax-filing deadline just a month later, there's a real chance for headaches
Basis Limitations
Generally, you may not claim your share of a partnership loss (including a capital loss) to the extent that it is greater than the adjusted basis of your partnership interest at the end of the partnership's tax year. Any losses and deductions not allowed this year because of the basis limit can be carried forward indefinitely and deducted in a later year subject to the basis limit for that year.
The partnership isn't responsible for keeping the information needed to figure the basis of your partnership interest. Although the partnership does provide an analysis of the changes to your capital account in item L of Schedule K-1, that information is based on the partnership's books and records and cannot be used to figure your basis.
You can figure the adjusted basis of your partnership interest by adding items that increase your basis and then subtracting items that decrease your basis.
Use the Worksheet for Adjusting the Basis of a Partner’s Interest in the Partnership to figure the basis of your interest in the partnership.

[@jameshurliman8951]

Top button done, second button undone? You know this guy is a pro, his mind's on the taxes, not the drip

[@chantel2689]

This video helped me so much! I’m starting a new internship and was struggling with concepts. Thank youuuu!!!!

[@MoneyandLifeTV]

Thank for the topic request! I hope after watching this video you have a much broader understanding of how K-1s work.

[@phsx2890]

I have some passive rental loss. Some other losses and gains but overall loss for the year . Do I report anything

[@jono12341000]

I've had a k1 form recently for "Energy Transfer "but live in the UK. Not sure is need to fill something out or not as don't live in the US?

[@edwardellwanger2603]

same here! Ed. Don't buy Canada stocks in usa.

[@emikami1]

Many years ago, I ended up with a master limited partnership that was spun off from a normal company. It was a very small position. I think I was using TurboTax at that time and it put out something like 8 extra pages just for that one entity. It's a good thing we only sign a tax return to declare it is accurate to the best of your knowledge and that after so many years, it is deemed correct if IRS doesn't send you a notice before then. I've sold that position for obvious reason. Any theoretical tax advantage didn't seem worth the tax headache in my case at least.

[@MoneyandLifeTV]

The tax reporting head ache usually outweighs on the small tax advantage unless someone owns a significant stake in the company. I encourage people who want to own MLPs or PTP to own within a retirement account to avoid the need to report such activity.

[@emikami1]

​@@MoneyandLifeTV The bloody honest CPA's comment even as it conflicts with his own interest.

[@kekeshuoshuo]

@@MoneyandLifeTV Thank you so much for your honest opinion. If I choose to own some within a retirement account, will it cause a lot of headache when I decide to withdraw from the account? Thank you in advance.

[@deejayfloor]

My business made a profit and k1 was issued. Can I transfer profit amount in k1 to my personal checking ?

[@mikeandren4229]

Great video Mike, clears up a bunch on the "mystery" of the K1. I have a general question if you can answer. When investing in limited partnership (stock) from within an IRA, does the information on the K1 for that investment need to be reported on the tax return?

[@uberguy6508]

Hello. I received my Schedule K1 for teucrium wheat fund (WEAT). However, the fund sent me a letter saying that items of international tax relevance are reported on Schedule K-3. Unfortunately, the letter also stated that I won't receive the K-3 until the end of June 2023. The letter also states "K-3...this information may be necessary to complete your tax returns." I was also told that failure to report K-3 on my tax return can result in a $10,000 fine by the IRS. However, I don't want to wait until June to file my taxes as I need my refund check immediately and I want to file now with the Schedule K1. So my question is, can I file my taxes now in March of 2023 with the Schedule K1 form and then file an amendment return in June of 2023 once I receive the K-3 form from the Teucrium Wheat Fund? I also want to mention that on the K-1 form in Part 3 box 16 it says "Schedule K-3 is attached if checked" and the box is checked. Ok any help would be appreciated. Thanks

[@jennifermorrow9075]

hi,can you do a video on a K-1 estate?Thank you in advance

[@BobEstler]

I don't think he touched on this but one nice thing is that with a K1 the depreciation also goes to the owner. I u=used to own shares in a Master Limited Partnership (MLP, trades like a stock). You might get $1,000 dividend but the depreciation would come through and almost none of that would be subject to tax. It does affect things when you sell but you can build a nice income without using your tax basis. Real Estate does much the same thing if you own it outright.

[@MoneyandLifeTV]

Hey American Patriot, thanks for commenting. I appreciate you pointing this out as I did not touch on this particular aspect of the K-1. For Investors who can benefit from depreciation it certainly helps.

[@lpr1212]

I owned a company that issued a K-1. I hated dealing with on Turbo Tax. I sold it and the following year Turbo Tax generated all the forms from the previous year and it was difficult to remove it. I had to get help. I won’t ever own another one again unless it’s in a Roth. Lynn

[@MoneyandLifeTV]

Thanks for sharing your story Lynn, K-1 reporting can be a real pain. Even as a tax professional these are a pain. There are so many aspects to them that I have to watch out for. I sold my only investment that had a K-1 to simplify my taxes a few years ago. That is how much I dislike them.

[@vitawater4259]

K1s and Roths do not mix. That can create a scenario where your roth will pay taxes, big no no!

[@svenhuber6533]

I invested in LP's which need a K1 tax form, however I am a non us citizen living outside the US. With Interactive brokers I can invest in them, however I am not ask to use this form. In the tax treaty with the country I live in 10% withholding tax are agreed. so what do I have to do? I never got a tax form from interactive brokers.

[@JTZMPZ4]

I recently bought some shares in a Publicly Traded Partnership in my Roth IRA through a brokerage. The partnership sent me a K-1 along with a very detailed guide on what IRS forms and where to insert the various K-1 line items. If I inset that information on the appropriate forms and include them with my 2022 tax filing, have I met my partnership tax reporting obligation?

[@Lashazior]

That's exactly what you're doing to meet your obligations, so yes.

[@angelinak2843]

On my Schedule K-1 I have other income is box 11, part III due to a sale of a rental property. Where on the Form 1040 does this get reported? Form 4797? The purchase was $98K and sold for $148K do each partner record the same purchase and sales price

[@phsx2890]

How do I know if I am losing $ and is it normal to lose halfway through and gain at the end? Total value of assets is down and capital account is down

[@Jdeneik]

I’m assuming you only need to fill out a K1 if I show any income? I have a loss only. Thanks

[@Cashmoneez]

If it's a limited partnership would all income and losses be treated as passive income and losses?

[@MoneyandLifeTV]

Great question, it depends on each partner's level of involvement in the activity. Generally there are several passive partners with every limited involvement. There their losses could be viewed as passive due to their activity level within the entity. However, there is usually at least 1 member who is extremely active in managing the entity and spends several hundred hours per year running. In this instance their losses would not be considered passive. So as you can see it depends on the type of activity of the entity and the level of participation within the entity by each owner/member.

[@asphaltandtacos]

I am considering a MLP Closed End Fund tough I can't find information on the tax forms involved. As long as it is a 1099 I am cool with it.

[@MoneyandLifeTV]

Typically those will receive k-1s

[@SherrieJenkins-t9h]

you are great a explaining how this works thank you

[@Lnormile]

Video starts at 1:05

[@crosscreek1146]

Mike, I trade USO at fidelity, fidelity issue 1099, and USO issue K-1. Should I only use the number on K-1 for tax?

[@MoneyandLifeTV]

Hi, sorry unless I was preparing your taxes I would have no idea.

[@crosscreek1146]

@@MoneyandLifeTV let me ask in another way: I traded stock A in a brokerage firm, so the brokerage firm issued a 1099 at the year end. But because the stock A is a publicly traded partnership company, so the company also issued a k-1. For my tax return, should I report the stock A gain/loss using 1099, or K-1? Do you ever notice that it can be a loss by 1099, vs a gain by K-1?

[@Lashazior]

1099 from Fidelity should have a subset somewhere for "partnership distributions" showing what you would have gotten as dividends from USO if you held to the dividend date. Those shouldn't be reported on your cost basis for trading stocks when computing capital gains and will be on the K-1.

[@crosscreek1146]

@@Lashazior thanks for helping. But USO distribute no dividend at all

[@laynelowry]

I own a few businesses where K1 income passes through to me. For one of them I do owe money to another member where I bought their shares. Can I write off the money I’m paying him (not just the interest) on that K1 line item you showed?

[@rociocruz7183]

Dear: I am a member of an LLC and invest in an Investment Fund in Spain that buys assets. During the fiscal year 2022 there were only contributions, there are no dividends yet, maybe until 2024, am I obliged to report a K1 only for information purposes of the amounts of the contributions that have come out of the bank account of the LLC? Thank you very much for your comments.

[@MoneyandLifeTV]

Hi only if they actually issue you a k1. I would suspect they will at some point even if no Income to report the llc is still required to file a tax return each year regardless of income

[@susiekelly4322]

Thanks for the information!

[@MoneyandLifeTV]

Any time! Thanks Susie!

[@zach1069]

Mike...my father-in-law owns an insurance company and gave a small % of ownership to my 3 minor children as well as my wife. There had always been a dollar amount in the income box as well as a smaller figure in the distributions box. Do i have to report any of this? I have heard yes and no. I had reported in tbe past but not the last 2 or 3 years. My wife and kids have never received any income from him or the business other than birthday and Christmas checks. I suspect he is trying to write off these checks on his taxes. Any advice is appreciated...thanks!

[@MoneyandLifeTV]

Hi Zach, sorry but without actually preparing the taxes for the company I would not be able to offer any guidance. Whatever the k-1 shows is what gets reported to the irs

[@daveschmarder-1950]

Thanks Mike. Now I know why people say to try to avoid the K1. Looks like an IRS instrument of torture. :)

[@MoneyandLifeTV]

Instrument of texture is a good adjective. From a tax filing perspective it can really add to the cost of preparation. Especially publicly traded partnerships.

[@daveschmarder-1950]

@@MoneyandLifeTV A friend told me that his tax prep bill was expensive due to some natural gas thing on his property. The money he got from this was very low too. He must have been handed a K1 each year.

[@MoneyandLifeTV]

That sounds about right. Preparing a return with K-1s is a very time consuming process.

[@samgiordano9995]

If I invest in a real estate syndication as a limited partner through my LLC which is owned by our family living trust the my question relates to part 2 of the K1. H2 is checked as a disregarded entity, with EIN and name of LLC. My question is for box I1 should that say "Diregarded Entity" since I am investing through a LLC in the syndication as a limited partner, and that LLC is owned as my family living trust.

[@MoneyandLifeTV]

Sorry Sam that is very technical question that I would not be able without preparing your taxes.

[@alchemium]

Another great video Mike. Partnership I have invested in has been going down for several years. I was able to write off those losses without selling shares. I saved a whole lot on taxes.

[@MoneyandLifeTV]

Good stuff! Thanks for watching!

[@citizenoftheyearCC]

I own BlackRock stock but I don't believe this company requires a K1.

[@MoneyandLifeTV]

Nice! For some reason I thought they were a publicly traded partnership, but perhaps I'm wrong.

[@MoneyandLifeTV]

What questions do you have about K-1s or other business topics?

[@XxMuncherxX]

I'm a newer investor and I have a plan with a company called Crestwood equity. I am going to get my income from dividends and they provide a k1 form. I just need to know all there is in terms of taxes for dividends through a k1 form because I plan to put alot into it per year but not touch it until maybe around 7-10 years which the money I get into the brokerage account I will be reinvesting into the same company

[@SR-mf6bh]

@ Money and Life TV - should a passive investor report K1 to IRS ?

[@Rain-lb1ts]

I watched this while working out. I have issues…

[@MoneyandLifeTV]

Haha thanks Rain! I am honored. Hopefully these nerdy tax videos allow you to bench 200+ pounds ;)

[@edwardellwanger2603]

another trip in the side walk! stocks way to screw you. just a dividend?

[@oberweiss7190]

Yo Mike you never mention form K3 that is never available with the k1 making people amend filings