Financial Glossary
Schedule K-1 (S Corporation)
A Schedule K-1 for an S corporation is the form an S corp issues to each shareholder to report their proportional share of the company's income, losses, deductions, and credits for the tax year. The S corporation itself generally pays no entity-level federal income tax; instead, these items pass through to shareholders, who report them on their individual returns. Each shareholder's K-1 reflects their ownership percentage and is generated alongside the corporation's Form 1120-S.
Problem & Application
Owner-operators who elect S-corp status, including many STR and hospitality businesses, receive a K-1 that drives a large part of their personal tax bill. Because the income is taxed whether or not it is distributed, shareholders need to plan for tax on amounts they may not have taken in cash. The K-1 also interacts with shareholder basis, which limits how much of any reported loss can actually be deducted.
In Short
The S-corp Schedule K-1 passes the business's tax items through to each owner's personal return based on ownership share. Reading it alongside your basis is essential to filing correctly and avoiding surprises.