What is a K-1? It's the form a partnership uses to tell you — and the IRS — your share of the business's income, deductions, and credits for the year. The partnership itself generally pays no federal income tax; the tax lands on the partners, and the K-1 is the piece of paper that says how much of it lands on you. That's true whether or not any cash actually reached your bank account, which is the part that surprises almost everyone holding their first one.

Below: why K-1 income is taxable even when you never saw the money, when the form should arrive, what to do with it, what to do if it showed up after you filed, and why the loss on your K-1 isn't automatically your deduction. If you're on the other side of this form — the one who has to produce it — start with how to file taxes for an LLC partnership instead. This post is part of our small business tax planning guide.

What is a Schedule K-1 and why did I get one?

A Schedule K-1 is the per-owner breakdown of a pass-through entity's tax year. You got one because you own a piece of something: a partnership or multi-member LLC (K-1 from Form 1065), an S corporation (K-1 from Form 1120-S), or an estate or trust (K-1 from Form 1041). This post covers the partnership K-1, the one most new business partners are holding — if your LLC just added a second member, our overview of multi-member LLC taxes explains how you ended up in partnership territory, and LLC vs. S-Corp covers the election that produces the 1120-S version.

The K-1 isn't a bill and it isn't a paycheck stub. It's an information return: the partnership files Form 1065, attaches a K-1 for every partner, gives you your copy, and reports the same numbers to the IRS. Your job is to carry your share onto your own return — for most partners, the ordinary business income lands on Schedule E of your Form 1040.

Do I pay tax on K-1 income I never received?

Yes. Your share of the partnership's income is taxable to you whether the partnership paid it out or kept it in the business account. The IRS's own Form 1065 instructions say it plainly: "Although the partnership isn't subject to income tax, the partners are liable for tax on their shares of the partnership income, whether or not distributed, and must include their shares on their tax returns."

Read that twice, because it's the single most important fact about this form — and it has survived a trip to the Supreme Court. In the early 1970s, a group of physicians in a medical partnership called Permanente supplied services to Kaiser, and part of Kaiser's payment went straight into a retirement trust the doctors couldn't touch: nothing vested before retirement, and Kaiser could never take the money back. None of them reported those payments as income — how could they, the money was locked in a trust — and the IRS assessed each partner for his share anyway. Two lower courts sided with the doctors. The Supreme Court didn't. In United States v. Basye (1973), the Court called it "axiomatic that each partner must pay taxes on his distributive share of the partnership's income without regard to whether that amount is actually distributed to him," adding that "few principles of partnership taxation are more firmly established."

If money doctors literally could not reach was taxable to them, the $60,000 your partnership earned and reinvested in inventory certainly is. The money can be sitting in the company checking account; the tax bill is yours personally. Partners who know this plan for it — they take a distribution sized to cover the tax, or they set the cash aside during the year. Partners who don't know it meet their K-1 in March the way you'd meet a bill for a dinner someone else ate.

When should my K-1 arrive?

For a calendar-year partnership, the 2026 Form 1065 — with every K-1 attached — is due March 15, 2027, a month before your personal deadline. Your copy typically shows up between late February and that date. Partnerships take the deadline seriously because the penalties are theirs: failing to furnish a K-1 on time runs $340 per K-1 under Rev. Proc. 2025-32 for forms due in 2027, on top of the late-filing meter on the return itself.

But a late K-1 isn't automatically a delinquent one. A partnership can file Form 7004 by the regular due date for an automatic six-month extension — which moves a calendar-year 2026 partnership to September 15, 2027. If the partnership extended, your K-1 can legitimately arrive in late summer, long after you wanted to file your own return. That mismatch is the single most common K-1 problem, and it has a right answer and a wrong answer — covered two sections down.

What do I do with my K-1 on my tax return?

Carry the numbers onto your personal return, box by box, into whatever software or preparer handles your 1040. The ordinary business income or loss flows to Schedule E; other lines — capital gains, interest, credits — each go where their own rules send them, which is exactly why the K-1 breaks them out separately instead of handing you one number.

Two mechanics matter more than the rest. First, use the K-1 for the year it covers: a K-1 labeled 2026 belongs on your 2026 return, period. Second, don't round, net, or "fix" anything on your copy — if a number looks wrong, the correction happens at the partnership, not on your keyboard (more on that below).

What if I already filed my return and then got a K-1?

This is the March classic. An investor or new partner files their 1040 early, feels responsible, and then an envelope with a K-1 arrives. One poster on the TurboTax community boards laid out the exact question in March 2022:

"Can I include the 2021 K-1 income on 2022 taxes next year instead of amending my 2021 returns?"

No — and it's worth being clear about why, because the workaround feels so reasonable. I amend a handful of returns every spring for exactly this, so nothing here is exotic. The partners "must include their shares on their tax returns" for the year the partnership earned the income; that's the same Form 1065 instructions sentence quoted above. A 2021 K-1 reports 2021 income, and 2021 income goes on the 2021 return. The IRS has its own copy of that K-1 tied to your Social Security number and to that year, so a return that leaves it off doesn't match what the IRS is holding. The fix is Form 1040-X: amend the year the K-1 covers, include your share, and pay any difference.

The forward-looking move is simpler. Once you own a partnership interest, early filing stops being a virtue: wait for the K-1, or file an extension for your own return and let the partnership's paperwork catch up. An extension costs nothing and beats amending every time.

Why can't I deduct the loss shown on my K-1?

Because the K-1 reports the loss; it doesn't grant it. The partner's instructions for Schedule K-1 say it in two sentences that surprise a lot of first-year partners: "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's the partner's responsibility to consider and apply any applicable limitations."

The first thing I check when a K-1 loss lands on a return is basis, under IRC § 704(d) — before the software gets a vote. Your basis is, roughly, what you've put into the partnership plus the income you've already been taxed on, minus what you've taken out and the losses you've already used. You can only deduct losses up to that number. A K-1 showing a $20,000 loss does you no good this year if your basis is $5,000 — you deduct $5,000, and the rest waits until you restore basis by contributing more or being allocated income. If a loss you counted on "got denied," this is usually where it went. The partnership doesn't run that math for you, and neither does the K-1. And basis isn't the only gate: the same instructions carry at-risk rules under IRC § 465 and passive activity rules under § 469, which can hold a loss back even when your basis covers it.

What if my K-1 is wrong?

Take it back to the source. The partner's instructions are specific: "If you believe the partnership has made an error on your Schedule K-1, notify the partnership and ask for a corrected Schedule K-1. Don't change any items on your copy of Schedule K-1." Editing your copy just creates a mismatch between your return and what the partnership reported to the IRS under your Social Security number — the exact situation you want to avoid.

One newer wrinkle while you have the instructions out: starting with tax year 2024, a partner who received a property distribution from the partnership (property, not cash) files a separate Form 7217 with their return. If your K-1 year included one, ask your preparer about it — it's new enough that self-prepared returns miss it.

What else do partners ask about the K-1?

What should you do when a K-1 shows up?

Match it to the year it covers, get it onto the right return — Schedule E for the ordinary business income — and check the loss against your basis before you count on the deduction. If you already filed that year, amend with Form 1040-X rather than hoping the IRS's copy and your return never get compared. And if the numbers look wrong, ask the partnership for a corrected K-1 instead of editing your own copy.

Holding a K-1 you're not sure what to do with? N&T Tax & Advisory Group prepares partner returns, amends the ones that filed before the K-1 arrived, and runs the basis math your K-1 doesn't — by phone or video, wherever the partnership is. Book a meeting with our team here.