What is a K-1 form from the IRS?
A K-1 is used by a Partnership or S-Corporation to report a
partner/shareholder's distributed share of income. Partnerships and
S-Corporations do not pay income tax. Instead, they file their
corporate / partnership tax return as an informational return only.
This return will distribute the net profit to the shareholders or
partners based upon their percentage of stock or how the
partnership agreement reads. For example, if you own 50% of ABC
Corporation, an S-Corporation, and ABC Corporation shows a $100,000
profit in 2007, you will receive a K-1 for 50% of the net profit,
so $50,000. You would have to claim this $50,000 of income on your
personal tax return. Because the company does not pay income tax,
the net profit is passed through to the owners who pay the income
tax on their personal tax returns.
A K-1 form is a form that is issued to partners, shareholders, and
such showing their share of a business income that must be reported
on their personal tax returns.