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Video instructions and help with filling out and completing What Is Form 1041 Schedule K 1

Instructions and Help about What Is Form 1041 Schedule K 1

Hi there, this is Aardvark Tax TV. I'm Sean Kenefick, an enrolled agent and customer service representative here at Aardvark Tax. Today, we're going to talk about flow-through entities and the Schedule K-1. This video is part of a complete continuing education course available at our website wwrff.etags.com. In most cases, when a single person or married couple owns a business, they use the Schedule C to report their income. But when a taxpayer partners with someone else, or requires liability protection, there's no longer an easy way to report the income that the new entity generates. To facilitate tax computation for these multi-taxpayer conglomerates, the IRS recognizes several different kinds of entities for tax purposes. These entities include partnerships, corporations, and trusts. A partnership is an arrangement where two or more taxpayers do business together and split the proceeds. Each person contributes money, property, labor, or skill and expects to share in the profits and losses of the business. Some states require entity registration for partnerships, which allows for limits of liability. However, the IRS does not require these kinds of things for partnerships. The IRS does require, however, that partnerships fill out a separate 1165 tax return in addition to the 1040 tax returns that the partners individually provide. Partners in a partnership are not employees and should not receive W-2s or be on payroll. Instead, all income that is generated to the partner through the partnership flows to the individual's tax return through a form called Schedule K-1. We'll talk more about K-1s in a moment. If you're a partner in a partnership, you're going to have to pay self-employment tax like you would with a Schedule C. A corporation, on the other hand, is a separate legal entity that has been incorporated at the state level through a registration...