What is a "K-1" form used for?

The K-1 form is specifically utilized to report income, deductions, and credits from partnerships and S corporations to their respective partners or shareholders. When a partnership or S corporation generates income, this income is not taxed at the business level; instead, it passes through to the individual partners or shareholders. The K-1 form provides each stakeholder with their share of the entity's financial results for the tax year, which they then report on their individual tax returns. This mechanism ensures that income is only taxed once at the individual level, adhering to the pass-through taxation principle associated with these structures.

While other forms serve different purposes in tax reporting, such as individual income tax returns or estate income reports, the K-1 is distinct in its role regarding the distribution of income from specific business entities not subject to corporate tax. It plays a crucial role in how the IRS tracks the income that is reported by partners and shareholders, thereby helping ensure accurate tax compliance.