• Note:  Some brokers now issue a Schedule K-1 for IRAs (Form 1065 Box 12 is checked).  Such IRA K-1 forms can be ignored like any IRA statement (and thus any unusual items don’t make the return out-of-scope).  You should see that the Partnership’s TIN in Box E is not the taxpayer’s SSN, but the partnership’s EIN, and the Box F name usually includes “IRA” or “CUSTODIAN”.
  • If a Schedule K-1 includes anything other than interest, dividends, royalties, capital gains/losses (incl. Section 1250 gains), estate tax deduction, taxes paid, and associated foreign tax credits, then the return may be out-of-scope.  However, a few other items may be disregarded.
        • Note: See Pub 4012 pages D-60 to 62 online for specifics contrary to the IRS print version.
    • Pre-paid funeral/burial plans that report using a Schedule K-1 are in-scope, because of their limited income and expense categories.
    • If box 14 has code “E”, the amount is for information purposes only:  ignore it. (If it were relevant, the return would already be out-of-scope because the taxpayer’s income was too high.)
    • Box 19, Distributions, is information-only:  ignore it. 
    • More mutual funds are being reported on a Schedule K-1 instead of a 1099-B.  Many of these have business income/loss or other out-of-scope items.  Advise the taxpayer that we can’t file their return in any year that they hold such funds in a taxable account.  Many taxpayers are unaware they own mutual funds that are reported on a K-1, and unaware that they could sell that fund to invest in a different, similar fund that isn’t reported on a K-1.  They should consult their broker.
  • Income reported on a Schedule K-1 is done on three different pages, all accessed from the Schedule K-1 page [Income > Other Income > K-1 Earnings]. The three pages (in order) are:
  • Partnerships (Form 1065) (by far the most common form)
      • Note: If the end-of-year capital account on the form is negative, then the return is out-of-scope
  • S-corporations (Form 1120S) 
  • Trusts and estates (Form 1041) (only some parts are out-of-scope)
  • CA Process Note:  If there’s a CA K-1 (541, 565, or 100S) attached to the federal K-1, any adjustments in column (c) must be made manually on the state return.  These numbers may be positive (Additions to Income) or negative (Subtractions from Income):  see instructions in the section Manually Entering Income Differences on CA Schedule CA, page 107.
      • Note:  Don’t enter adjustments box 14 of a 541, as they don’t affect tax calculations.
  • For partnerships and S-corporations, when completing Part 1 – Information in TaxSlayer, check the “All Investment is At-Risk” box.
  • The fiscal year of a partnership or S-corporation stated on a K-1 may not be the calendar year. For example, a partnership's tax year might end on February 28, 2024. In that example, report all K-1 amounts on the 2024 tax return, even though most of the tax year was in calendar year 2023.
  • If the K-1 lists royalties, then after completing the TaxSlayer page for entering K-1 income, TaxSlayer asks which Schedule E to associate with the royalty income.
      • If no Schedule E is created before starting the E-file section, TaxSlayer shows an error that a Schedule E is missing.
  • If the K-1 lists foreign tax paid, enter that amount on the Form 1116 - Foreign Tax Credit page [Deductions > Credits Menu > Foreign Tax Credit].
    • If there is more than one K-1 showing foreign tax paid, enter only the total amount.
  • An amount entered on the Form 1116 - Foreign Tax Credit page goes to Schedule 3 Line 1, Foreign Tax Credit, on Form 1040, as discussed on page 89. If the total of all forms seems likely to exceed $300 ($600 if MFJ), please see that discussion.
      • If foreign tax was included on one or more Form 1099-INTs or 1099-DIVs and entered in TaxSlayer along with other information on those forms, do not enter the same amounts again on Form 1116 – TaxSlayer automatically adds those amounts to come up with the full total for Schedule 3 Line 1.
    • Note: Form 1116 is one of ten for which a PDF can be created from a menu page within the return.

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