A K-1 form, officially called Schedule K-1 (Form 1065), is used in the United States to report income, deductions, and credits from partnerships, S corporations, estates, or trusts. A U.S. expat might receive a K-1 for several reasons, depending on their investments or business involvement. Here's an explanation:
1. Investment in a Partnership
- If the expat has invested in a U.S.-based partnership, such as a publicly traded partnership (PTP) like MPLX, they are considered a partner in that entity. Partnerships do not pay corporate income taxes; instead, they pass income, deductions, credits, and other financial details to the partners, who report these on their personal tax returns.
- The K-1 form is issued to provide the partner with this detailed breakdown.
2. Ownership in an S Corporation
- If the expat is a shareholder in a U.S. S corporation (a type of pass-through entity), the corporation’s income, deductions, and credits are passed to the shareholders. The shareholder receives a K-1 form to report their share of the income or loss.
3. Beneficiary of a Trust or Estate
- If the expat is a beneficiary of a U.S.-based trust or estate, they may receive a K-1 form to report their share of distributed income, capital gains, or other items from the trust or estate.
4. Compliance with U.S. Tax Reporting Requirements
- As a U.S. citizen or tax resident, expats must report their worldwide income on their U.S. tax return, regardless of where they live. If they receive income from partnerships, S corporations, or trusts in the U.S., they need the K-1 to accurately complete their IRS Form 1040.
