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Must go faster! So many K-1 numbers, so little time…

Craig’s question:

Can you provide detailed information to explain every box on the k-1?

Linda says:

Yes, but you actually do not need to know about every box. Much of what is on either the 1120S K-1 or the 1065 K-1 is just not relevant to lenders. These items are needed by the tax preparer for calculations. Here is the short list for lenders.

1065 K-1

Part II:

Box F: Owner Name

Box G: General or Limited Partner (Member-manager or Member of LLC)

Box J:

  • Percentage Profit/Loss to calculate their share of cash-flow
  • Percentage Capital to decide if the K-1 is sufficient or if you need the full return and to decide if this is an owner you need as a guarantor

Box L: Capital contributed, withdrawals/distributions

Part III

Above the column: Final K-1 (If checked they have sold out of this interest)

Line 1 Ordinary business income (Only used if you are going to get the full return and add back share of depreciation, etc)

Line 4 Guaranteed Payments (similar to wages to a corporate shareholder/owner)

Line 5 Interest Income (Only used to verify that the interest on their personal 1040 Schedule B is pass-thru and not related to actual cash payments)

Line 19 (Code A) Distributions (often same as Schedule L withdrawals/distributions but Code of ‘A’ means cash distributions, not property)

1065 K-1 Resource

Need the full cheat sheet? Need to understand 1065s and pass-thru entities better? If you have my manuals, look it up on page 3-22 through 3-24 of the manual: Beyond the 1040: Corporation, Partnership & LLC. If you don’t have it yet, click here to buy it.

1120S K-1

Part II

Box E: Owner name

Box F: % ownership

Part III

Above the column: Final K-1 (If checked they have sold out of this interest)

Line 1 Ordinary business income (Only used if you are going to get the full return and add back share of depreciation, etc)

Line 4 Interest Income (Only used to verify that the interest on their personal 1040 Schedule B is pass-thru and not related to actual cash payments)

Line 16 (Code D) Distributions. The 1120S K-1 does not distinguish between cash distributions and property distributions.

Line 16 (Code E) Repayments of Loans from Shareholders. This is cash to the shareholder. Consider if when they get the loan paid back they might continue that same level of payments as distributions.

The 1120S K-1 also does not provide information on capital contributed to the entity from this owner.

1120S K-1 Resource

Need the full cheat sheet? Need to understand 1120S returns and pass-thru entities better? If you have my manuals, look it up on page 4-20 through 4-22 of the manual: Beyond the 1040: Corporation, Partnership & LLC. If you don’t have it yet, click here to buy it.

What else do you use?

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.