This article will show you how and when to use the Schedule K-1 by Activity form in a 1065 return.
To create a Schedule K-1 by Activity form, you must first create the Schedule K by Activity Worksheets.
To create the Schedule K by Activity:
- Press the F6 key to bring up Open Forms.
- Type in "KA" and click OK.
- This will open a screen that will allow you to create the Schedule K by Activity worksheet.
- Complete this worksheet after you complete Form 1065 and all other related forms and schedules. The calculations in this worksheet depend on the information you have entered throughout the tax return.
- Only use this worksheet after you have substantially completed Form 1065 and related forms and schedules.
- If you make new entries or change entries on Schedule K after completing this worksheet, you should also review and adjust the worksheet. You may then use this worksheet to report tax information for each separate activity the partnership is engaged in.
How does this worksheet work?
This worksheet is similar to a traditional multiple column spreadsheet. It's used to spread Schedule K items among the various activities that the partnership conducts. However, instead of spreading out to the right indefinitely like a traditional spreadsheet, it's divided up into individual sheets of four columns each.
Whenever you need to add another column, create a new copy of the form. The program automatically displays items and amounts from Schedule K. Identify each activity by entering a description. In the corresponding activity column, answer questions a-d for each activity. Enter the amount of each Schedule K item attributable to each activity. The description will change from red to black when fully allocated to activities.
Refer to Tax Help for more information.
What is the purpose of this worksheet?
This worksheet is designed to help you separate the income, deductions, gains, losses, credits, and other items reported on Schedule K, for the partnership as a whole, into separate activities as required by the passive activity rules. The "by activity" information on this worksheet will then flow into a similar report for each partner to use when preparing his own tax return.
The passive loss rules imposed under IRC section 469 place limits on the deductibility and use of passive losses, deductions, and credits by partners of partnership. The passive loss rules generally state that losses from "passive activities" may not be deducted from other types of income such as wages and interest income, but only from passive income.
Because a partnership is a pass-through entity, it must provide the information necessary for its partners to correctly comply with the passive loss rules. Generally, this means that the partnership must separately report the items of income, deductions, and credits to each partner for each separate activity it conducts. Use the Schedule K By Activity Information Worksheet as a tool to correctly report pass-through items to partners on an activity-by-activity basis.