Generating the Schedules K-2 and K-3 in ProSeries and entering it in the 1040 return
by Intuit•3• Updated 3 months ago
This article will help you:
- Understand when Schedules K-2 and K-3 are required
- Complete the required schedules in the business return
- Enter the K-3 in the Individual 1040 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.
Who must file Schedules K-2 and K-3?
Generally, any partnership or S corporation must file if they:
- Have international income, assets, credits, or activity;
- Have an international owner (partner or shareholder); or
- Have owners who claim a credit for foreign taxes paid on their return (Form 1116 or 1118).
Domestic filing exception
New for tax year 2022, certain domestic partnerships and S corporations don't need to file Schedules K-2 and K-3 if they meet all of these criteria:
- No or limited foreign activity;
- All direct partners are U.S. Citizens or resident aliens;
- Notify all partners or shareholders that they won't receive a K-3 from this business no later than when the K-1 is furnished;
- No partner or shareholder requests a K-3 within by the "1-month date", meaning one month before the date the partnership or S corporation files their tax return.
For more information about this exception and examples, review the Schedule K-2 and K-3 instructions.
Common questions about generating the K-2 and K-3 in the business return:
- How do I generate the K2 / K3 in ProSeries 2022 and newer?
- Open the Schedule K-2 Page 1.
- Complete Questions A, B and C.
- Complete Parts I through XI as needed.
- For Partnerships: You can exclude partners on the Schedule K-1 Worksheet by checking the Check box to exclude Schedule K-3 for this partner.
- For S-Corporations: You can exclude shareholders on the Schedule K-1 Worksheet by checking the Check box to exclude Schedule K-3 for this shareholder.
- How do I generate the K2 / K3 in ProSeries 2021?
- Open the Schedule K-2 Page 1.
- Complete Questions A, B and C.
- Complete Parts I through XI as needed.
- For Partnerships: On the Schedule K-1 Worksheet check the boxes for each partner under Information for Schedule K-2/K-3 Reporting.
- For S-Corporations: On the Schedule K-1 Worksheet check the box for each shareholder under Information for Sch K-2.
- How are amounts entered on Schedule K-2 allocated to partners or shareholders on the K-3? Amounts entered in the K-2 will be allocated based on the partner or shareholder standard percentages.
- Can I specially allocate amounts to the K-3? There isn't a way to do special allocations to the K-3, however on the K-3 there's a checkbox Check box to remove all program computed items for Schedule K-3, page 2-4. By checking this box you can manually complete the Schedule K-3 with the desired amounts for each partner/shareholder.
- Are the K-2/K-3's e-filed with the return? Starting in tax year 2022, Schedule K-2 and K-3 are e-filed with the return. For prior years, the Schedule K-2 and Schedule K-3 need to be sent as PDF attachments. See here for more details.
- How do I generate the statement for a Domestic Filing Exemption?
- Open the Information Worksheet.
- Scroll down to Part IV K-1 Information.
- Check Yes on the Print domestic filing exception notification re: Schedule K-3 on Schedule K-1?
Entering a K-3 in the individual return:
If the taxpayer or spouse received a K-3 from the business return, that will need to be entered into the individual return along with their K-1 information. To enter the K-3:
- Open the Schedule K-1 Worksheet.
- Scroll down to the Foreign Transactions line:
- For partners, this is line 16.
- For shareholders, this is line 14.
- Check the Schedule K-3 is attached if checked box.
- Enter the Name of Country or U.S. Possession.
- Complete lines B through AI based on the K-3 received.
Line A: Name of country or U.S. possession | Enter from Schedule K-3, Part 2, Section 1, Line 24, description columns (a,b,c) |
Line B: Gross Income from all sources | Enter from Schedule K-3, Part 2, Section 1, Line 24, Column G |
Line C: Gross Income sourced at individual level | Enter from Schedule K-3, Part 2, Section 1, line 24, Column F |
Line E: Foreign gross income - Foreign branch category | Enter from Schedule K-3, Part 2, Section 1, Line 24, Column B |
Line F: Foreign gross income - Passive category | Enter from Schedule K-3, Part 2, Section 1, Line 24, Column C |
Line G: Foreign gross income - General category | Enter from Schedule K-3, Part 2, Section 1, Line 24, Column D |
Line H: Foreign gross income - other | Enter from Schedule K-3, Part 2, Section 1, Line 24, Column E |
Line I: Deductions allocated at individual level | Interest expense - Enter from Schedule K-3, Part 2, Section 1, sum of Lines 39-43, Column F |
Line J: Deductions allocated at individual level | Other - Enter from Schedule K-3, Part 2, Section 1, sum of Lines 39-43, Column F |
Line L: Deductions allocated - foreign branch category | Enter from Schedule K-3, Part 2, Section 1, Line 54, Column B |
Line M: Deductions allocated -Passive category | Enter from Schedule K-3, Part 2, Section 1, Line 54, Column C |
Line N: Deductions allocated - General category | Enter from Schedule K-3, Part 2, Section 1, Line 54, Column D |
Line O: Deductions allocated - Other | Enter from Schedule K-3, Part 2, Section 1, Line 54, Column E |
Line P: Total foreign taxes paid | Enter from Schedule K-3, Part 3, Section 4, Line 1, on Page 8 or 9 depending on income category, if "Paid" is checked. |
Line Q: Total foreign taxes accrued | Enter from Schedule K-3, Part 3, Section 4, Line 1, on Page 8 or 9 depending on income category, if "Accrued" is checked. |
Line R: Reduction in taxes available for credit | Enter from Schedule K-3, Part 3, Section 4, Line 1, on Page 8 or 9 depending on income category, if "Accrued" is checked. |
The program will display the code meaning in the description column. If the description is followed by ** (two asterisks), use the QuickZoom button immediately below to go to the additional information worksheet to enter the additional information required for the item. For descriptions followed by * (one asterisk), you must enter the item on the form or schedule as indicated by the information supplied with the K-1.
- At the bottom of the table, select the QuickZoom to enter additional foreign tax information.
- The most common entries needed here will be the entries for Foreign taxes paid, and Foreign taxes accrued.
- To generate the credit on Form 1116:
- On line 2 check box a.
- On line 3 double-click in the box and select the copy of the 1116 for these foreign taxes.
- Select the country column for Form 1116.
- Review the 1116.
- To claim a deduction for the foreign taxes:
- On line 2 check box b.
- On line 4 check box a or box b depending on if there is foreign earned income from this activity reported on Form 2555.
- To generate the credit on Form 1116:
Sign in now for personalized help
Ask questions, get answers, and join our large community of Intuit Accountants users.
More like this
- Entering the Partners Schedule K-1 in the individual return in ProSeriesby Intuit•69• Updated September 13, 2024
- Entering the Shareholders Schedule K-1 in the individual return in ProSeriesby Intuit•92• Updated September 13, 2024
- How to generate the K-2 and K-3 in Lacerteby Intuit•504• Updated over 1 year ago
- How to generate the K-2 and K-3 in ProConnect Taxby Intuit•22• Updated almost 2 years ago