K-1 income shifts tax liability from the business to the individuals who benefit from the income, according to TurboTax. It is income reported on Schedule K-1 and differs slightly depending on the type of business allowing the income to pass through to the party. The business is responsible for completing the schedule to report the income.Continue Reading
In business partnerships, the business files Form 1065 with the Internal Revenue Service for informational purposes, advises TurboTax. The Schedule K-1 for each partner reports his portion of the profits, losses, credits and deductions. With an equal partnership, the Schedule K-1 reports the same information for each partner. Each partner is then responsible for filing his individual tax return to report the income.
S corporations have shareholders and file annual tax returns using Form 1120S, reports TurboTax. With these corporations, each shareholder receives a Schedule K-1 reporting his share of the income. The shareholder reports this information on his individual tax return.
Beneficiaries of trusts and estates may also receive K-1 income, explains TurboTax. While some trusts or estates choose to pay taxes on any income when they file Form 1041, others pass this income to the beneficiaries. When trusts pass K-1 income, they report it as a deduction; however, the beneficiaries receive a Schedule K-1 and are responsible for the taxes on the income.Learn more about Income Tax