What is a Schedule K1?
If you receive a Schedule K1, it means you are a shareholder in a Partnership, S Corporation, Estate or Trust. If you are a beneficiary of a trust or estate, you will receive a K1 for your portion of any interest, dividends or other income generated by the trust. You will report this income on page 2 of Schedule E. The total income from your Schedule E will be reflected on page 1 of your 1040. All K1’s whether Estate, Trust, Partnership or S Corporation all are reported on page 2 of Schedule E.
If you are a shareholder in a partnership or S corporation, you will receive a K1 for your proportionate share of the income, deductions and other credits. Since you income is through the K1, you will not have to pay self-employment tax as you would if you were a sole prop and filed a Schedule C. You should however make estimated tax payments if you are not having extra withheld from your pay check. If you neglect to make estimated tax payments, you may incur penalties for underpaying your taxes.
For additional information, use the links above which take you to information pages on the IRS website. Another option is to contact an Enrolled Agent or other tax professional.