Part 4/7:
The Role of Schedule K-1
For each shareholder, the IRS issues a Schedule K-1. This form details the individual’s share of the corporation's income, deductions, and credits, which must be included in their personal tax return, typically Form 1040.
Example:
Suppose an S corporation generates $90,000 in income and incurs $60,000 in deductions during the year. Each shareholder will receive a K-1 indicating their respective share of the remaining profit or loss—say, $30,000 in taxable income after deductions. The shareholder must then report this amount on their personal tax return and pay taxes accordingly.