K-1 Pass-Through Tax Calculator
Estimate federal income tax on Schedule K-1 income received from a partnership, S-corporation, or LLC taxed as a partnership. Includes ordinary business income, the §199A QBI deduction, self-employment tax for partners, separately-stated capital gains, and net investment income tax for 2026.
What Is a Schedule K-1?
A Schedule K-1 is the IRS form used by partnerships (Form 1065), S-corporations (Form 1120-S), and certain trusts (Form 1041) to report each owner's share of pass-through income, deductions, and credits. Pass-through entities themselves do not pay federal income tax; instead, income flows to owners on their personal Form 1040. The K-1 reports up to 20+ separately-stated items including ordinary business income, guaranteed payments, dividends, interest, capital gains, §179 deductions, and §199A QBI information. Each item retains its character on the partner/shareholder return — capital gains stay capital gains, ordinary income stays ordinary, etc. (source: IRS Form 1065 K-1 instructions, Form 1120-S K-1 instructions).
Key Difference: Partnership vs S-Corp K-1
Partnership/LLC K-1: Ordinary business income (Box 1) is generally subject to self-employment tax for general partners and active LLC members — 15.3% on the first $176,100 (2026 SS wage base) and 2.9% above + 0.9% Medicare surtax above $200K single / $250K MFJ. Guaranteed payments (Box 4) are also fully SE-taxable. S-corp K-1: Distributive share (Box 1) is NOT subject to SE tax — only the owner's W-2 wages are. This is why the "S-corp salary trick" (paying yourself a reasonable salary, taking the rest as distribution) is a common tax-savings strategy. The IRS scrutinizes unreasonably-low S-corp salaries; pay at minimum what you would charge a third-party for the same role.
The §199A QBI Deduction (20% Pass-Through)
Pass-through owners can deduct up to 20% of qualified business income (QBI) under §199A. Below taxable income thresholds (~$200K single / $400K MFJ in 2026), full 20% deduction applies regardless of business type. Above thresholds: for non-SSTB businesses, the deduction is limited to the greater of (a) 50% of W-2 wages, or (b) 25% of W-2 wages + 2.5% of unadjusted basis of qualified property. SSTBs (Specified Service Trades or Businesses — legal, medical, consulting, financial services, performing arts) phase out completely above the upper threshold. The OBBB extended QBI through 2027; without further legislation, it sunsets after that.
State Pass-Through Entity Tax (PTET)
To work around the federal $10,000 SALT cap (extended through 2027 under OBBB), 36 states now offer an elective Pass-Through Entity Tax. The entity pays state tax at the entity level (deductible federally without SALT cap), and the owner receives a credit on their state return. Net effect: federal deduction restored. PTET elections are complex — wrong elections can cost more than they save in some states (CA, NY benefit; PA, IL favor in narrower cases). See our PTET calculator for state-by-state analysis.
Common K-1 Tax Mistakes
(1) Forgetting basis tracking: Partner outside basis and S-corp stock basis must be tracked annually — distributions exceeding basis are taxable. (2) Missing PTP rules: Publicly Traded Partnerships generate complex K-1 filings; non-passive losses are limited. (3) Mistaking distributions for income: Distributions are not taxable income; the K-1 ordinary income is what's taxed regardless of cash received. (4) Section 754 election: Inside basis step-up at death or transfer can reduce future K-1 ordinary income substantially. (5) Late K-1 receipt: Partnerships have until March 15 (or extended Sept 15) to issue K-1s — file an extension if K-1s are late.
K-1 Pass-Through Tax Calculator: S-Corp Salary Threshold Rule
The single biggest S-corp K-1 savings comes from the reasonable salary rule. Owners must pay themselves a W-2 salary that is "reasonable" for the work performed BEFORE taking any K-1 distributive share tax-free of SE tax. The IRS has repeatedly challenged owners who take $0 salary and 100% distribution — and won. Practical benchmark from IRS auditor training: your W-2 salary should be roughly 60% of total S-corp compensation for service-heavy businesses (consulting, legal, medical) and 30–40% for capital-heavy businesses (holding companies, rental property, e-commerce with inventory). Concrete example: net S-corp income $200,000. Reasonable salary $80,000 (40% for a consulting practice) + $120,000 distribution. FICA on $80K = ~$12,240 (employee + employer combined). Same $200K taken 100% as partnership guaranteed payment: 15.3% × $176,100 SS wage base + 2.9% × $23,900 above = ~$27,600 SE tax. S-corp saves ~$15,360/year. Per IRS S-Corp Reasonable Compensation guidance, undocumented low salaries risk salary-recharacterization audits with back FICA + penalties. Document salary basis (survey data, hours, role scope) before filing.
K-1 Pass-Through Tax Calculator: How PTET Elections Save 6-Figure Tax Bills
For high-income K-1 recipients in high-tax states, the Pass-Through Entity Tax (PTET) election is now the largest single tax-planning lever, restoring the SALT deduction lost to the $10,000 cap. Concrete math for a New York MFJ couple with $500,000 pass-through K-1 income at NY's ~10.9% top marginal state rate: state tax owed = ~$54,500. Without PTET, only $10,000 is federally deductible (SALT cap) — the other $44,500 is lost. With PTET: entity pays $54,500 to NY at the entity level → fully federally deductible → owner receives NY credit for the $54,500 → net effect at 37% federal bracket = $16,465 federal tax saved. Requires state-specific election and Form ownership. Per the NY State PTET page, 2026 elections were due by March 15 for calendar-year entities (elections don't affect 2025 returns). CA, NJ, MA, CT, MN, OK have similar programs. Run this K-1 pass-through tax calculator, then compare with our PTET calculator to size the specific savings. Updated 2026-07-02.
Estimates only — K-1s are complex; consult a CPA. Sources: IRS Form 1065, IRS Form 1120-S, IRC §199A, OBBB (P.L. 119-21).