K-1 Boxes 1 and 2

[Mike6174]

I have received a 2021 K-1 with values in both Boxes 1 and 2 (value in box 1 is approx. $10,000 and value in box 2 is -$75). 

It seems ridiculous that TT wants me to enter as two forms. From reading related posts, it seems like in the second for Box 2 you do not duplicate any values.  So why not handle as one?

The reason they give is so that they can track values for you (which they could do with one form). The question is: if you don't care about TT tracking values for you, is it okay to just enter the form once?

[AliciaP1]

No, you need to enter the K-1 boxes as reported.  Boxes 1, 2, and 3 report different kinds of income that are subject to different loss limitations and carryforward rules.  TurboTax requires a separate K-1 be entered for each type of income to track those amounts in the event there are ever any loss effects.

You should enter 1 K-1 form with all the boxes reported except box 2.  Then enter a separate K-1 into TurboTax with only box 2 populated.

If you need guidance on how to enter your K-1 into TurboTax please see Where do I enter a K-1 that I received?

[nexchap]

Even though the partnership is allowed to report both boxes on the same piece of paper, the issue is that any income or expenses from box 1 activity can't be used to offset any income or expenses from box 2 activity (and vice versa).  So if they're entered on the same form, there's no way for TT to know how to split all the other entries on the K-1.

Even though some K-1s are very simple (put all the entries on the box 1 form, and none on the box 2 form), that's not always the case and the program has to be set up to handle the more complicated K-1s.

[Mike6174]

Thanks for the two quick responses, but this is really absurd. The first form has all the boxes filled in except Box 2, and the second has only Box 2 populated and all others blank.  So just do calculations with the value in Box 1 and then do calculations with the value in Box 2. If the other boxes require a break down depending on if it Box 1 or Box 2, then none of that information is available. Either this is poor programming or the IRS needs to require three different K-1 forms. Anything to make it more complicated!

[GregHun]

Alicia, thank you for this information as this is very common when receiving K-1s.

My question is whether the reverse can be done per your suggestion.

For example, I usually enter 1 K-1 form with all the reported except box 1. Then I enter a separate K-1 with only box 1 populated. 

It just seems like all the other boxes are related more to box 2, then box 1. 

And it seems like Box 1 is related to Box 14 but I still just enter Box 1 by itself.

Thank you, Greg

[AliciaP1]

Yes, you can enter the form this way also.  The important point is that you do not double enter any of the boxes from the K-1.

@GregHun

[AmeliesUncle]

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@Mike6174 wrote:

The first form has all the boxes filled in except Box 2, and the second has only Box 2 populated and all others blank.

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It is those "other" boxes that is why TurboTax has it set up that way.  You need to enter those "other" boxes accordingly to if they apply to the business activity in Box 1, or if they apply to the rental activity in Box 2.  You can't just enter them all on the first one without know what they were for.

[johnf2]

May I weigh in for clarity?  Yes, I fully agree with you.  I was a sold commissionable product through a LLC (K1, Box 1 for Ordinary business income (e.g. self-employed)) and I own investment real estate via the same LLC (K1, Box 2 for Net rental real estate income (loss)).

Yes, TT and all other software companies, require the separation of Box 1 and Box 2 on separate K1s so the Taxpayer may correctly report all self-employed income (with associated deductions) on a first K1 and then split out all associated expenses for their rental real estate on a second K2.

The splitting out allows the Taxpayer to file a proper tax return with the associated deductions from the remaining K1’s boxes to be coded against self-employed earned income vs. passive rental real estate income.

[johnf2]

As far as the IRS requiring three different K-1 forms as a viewpoint: No, this would be equally “absurd” (to borrow from your own wording). 

Consider the outrageous waste of paper:  Why use three or four times as many K1 sheets when you can combine all that information into one page?

Here is the gist of the matter:  K1s go to informed people, such as partners, who ought to know what is going on in their businesses (thus the ability to split or break out expenses between earned income (Box 1, self-employed) vs passive income (Box 2, net rental real estate).  These partners are alert enough to know how to separate earned income vs passive.  The combining of these expense for reporting purposes saves paper.  The separation of entry here at Intuit allows the taxpayer to properly associate expenses against both earned income vs passive income.

[johnstonjk123]

When you enter the second K-1, how does turbo tax know how to tie the K-1's back together?  Do you enter the LLC ID number also?   Do you need to enter any other K-1 info...i.e. Name, address, etc? 

Thanks

[nexchap]

@johnstonjk123 TT doesn't need to tie them back together.  When you file, you're not submitting the K-1s (they've already gone to the IRS separately).  So all TT needs is the breakout so that it can avoid mixing losses from one activity with income from a different one.