Using the Schedule K-1 by activities form in a ProSeries partnership return

For more Schedule K-1 resources, check out our Tax topics page for Schedule K-1 where you'll find answers to the most commonly asked questions.

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:

1. Press the F6 key to bring up Open Forms.
2. Enter "KA" and select OK.
   • This will open a screen that will allow you to create the Schedule K by Activity worksheet.

Information

• 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 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 used to spread Schedule K items among the various activities that the partnership conducts. Instead of spreading out to the right indefinitely like a traditional spreadsheet however, 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 through 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.

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 their 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.

What is a Reconciliation sheet?

Reconciliation sheets are tools used to compare and ensure consistency between different sets of financial records. They help identify and explain any discrepancies between, for example, a business's internal accounting records and the tax forms it files.

You can create separate reconciliation sheets for various aspects of your tax return, such as reconciling income, expenses, or specific accounts. By incorporating reconciliation sheets into your tax preparation workflow, you can improve accuracy, reduce errors, and gain a clearer understanding of your financial data.

Reconciliation sheets often involve simple calculations to ensure consistency between different financial records. You may need to adjust certain amounts to account for differences in how items are treated for tax purposes versus your internal accounting methods. By performing these calculations, you can identify and explain any discrepancies, ensuring that your tax return accurately reflects your financial situation.