Why is the distribution on the last K1 in a 1065, 1120S, or 1041 return sometimes larger or smaller than it should be?
This is the result of a K-1 rounding issue. The last K-1 has been adjusted to bring the total distribution for all K-1s to 100% of the distributable amount. The entity whose K1 screen is the last entered is considered the rounding partner, shareholder or beneficiary, unless you make a different selection for that purpose.
Note: You can display the optional K1PLIST~, K1SLIST or K1FLIST~ in View/Print mode to see ownership or beneficiary percentages on all K-1s. From the Home window of the software, select Setup > Options and then select the Form & Schedule Options tab. Mark K-1 list (bus. returns only) if greater than and select 0 from the drop list. Click OK to exit and save your changes.
The rounding K-1 is adjusted when the distribution percentages for all partners, shareholders, or fiduciaries are more than or less than 100% because:
- The partner or shareholder ownership percentages or beneficiary percentages do not add up to 100%
- Special allocations are incorrect because they are either:
- Incorrect Total - in a distribution category, the total allocated does not equal 100% of the distributable amount. The total is either more or less than 100%, or
- Incomplete - in a distribution category, special allocations have been made to some, but not all owners or beneficiaries and the total allocated is not equal to 100% of the total distribution.
In these circumstances, the software applies the correct percent to all of the K-1s before the rounding K-1 and then adjusts that K-1 to bring the total to 100%.
Note: Through the linked SA windows (see Related Links below), the software handles an incomplete allocation by allocating any remaining distributable amount pro-rata to the remaining partners, instead of adjusting the rounding K-1.
In partnership returns
Rounding occurs when:
- The partners' ownership percentages (section J of screen K1) do not add up to 100%.
- A special allocation is totaled incorrectly or incomplete. The rounding K-1 can be affected:
- If an SA window allocation is totaled incorrectly, the rounding K-1 is adjusted to bring the total to 100%.
- If an SA window allocation is incomplete, any amount remaining is allocated to the remaining partners on a pro-rata calculation of partners' ownership percentages.
In S corporation returns
Rounding occurs when:
- Shareholder's % of stock ownership on K1 screens and shareholders' ownership percentages do not add up to 100%.
- Or special allocations on K1 screen overrides are incorrectly totaled or limited.
In fiduciary returns
Rounding occurs when:
- The federal beneficiary distribution percentages do not add up to 100% (the Fed % field on the K1 screens).
- Special allocations on K1 screen overrides are incorrectly totaled or limited.