K-1s Explained for Montana Business Owners
If you own part of an S-corp, partnership, or LLC taxed as a partnership, you get a Schedule K-1 every year. Most business owners never read it carefully. Here's what actually matters.
What a K-1 is
A K-1 reports your share of the business's income, deductions, credits, and other items for the year.
It's how pass-through taxation works — the business doesn't pay tax; the owners do, based on their K-1s.
There's a federal K-1 and (in Montana) a state K-1 (or equivalent PTE reporting).
The key K-1 boxes for a business owner
Box 1 (Ordinary business income): the main line — flows to Schedule E.
Box 2 (Net rental real estate income): if the business owns real estate.
Box 4a (Guaranteed payments — partnerships only): payments to a partner for services or capital.
Box 12/13 (Section 179 and other deductions).
Box 14 (Self-employment earnings — partnerships only): drives your SE tax.
Box 16 (Foreign transactions), Box 17 (AMT items), Box 20 (Section 199A QBI info).
S-corp K-1 vs partnership K-1
S-corp K-1 income is generally NOT subject to self-employment tax — that's the point of the entity.
Partnership K-1 income for a general partner IS subject to SE tax (reported in Box 14).
Limited partners and most LLC members treated as passive typically don't pay SE tax on their share — but this is a hot area of IRS scrutiny.
Section 199A QBI deduction
K-1s report your share of qualified business income, W-2 wages, and unadjusted basis of assets — you need all three for the 20% QBI deduction calculation.
Missing or wrong Section 199A info on a K-1 is one of the most common preparer errors.
Timing
Business returns are due March 15 for calendar-year entities. K-1s should be in your hands by then.
If your K-1 is late, your personal return is late too. Consider extending your personal return until you have it.
A quick disclaimer
This article is general information for Montana small business owners, not tax, legal, or accounting advice for your specific situation. Rules change, and how they apply depends on facts we don't know about you. Before acting on anything you read here, talk to a qualified professional. If you're a Montana business owner and want a real conversation about your books, payroll, or tax, that's what Marlow Accounting is here for — call 406-290-1214 or schedule a discovery call.