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What I Need to Attach to Schedule k-1

Published on: 22:11PM Aug 15, 2018

  • Many of our farm entities have fiscal year-ends that will end before December 31, 2018.  Most of them will be September 30, 2018 or later, however, there are many fiscal year pass-through entities with a year-end before then.  These tax returns will be using the old 2017 Schedule k-1's to report information to their owners and they have not been updated for the new Section 199A deduction.  There will be a lot more information that needs to be provided on this Schedule and there will not be an appropriate box to place information in like the old Section 199 deduction.  Therefore, you will need to manually input this information and provide it to the owners.  At a minimum, the following is required (a separate reporting for each trade of business if more than one):

  • Each owner's allocable share of Qualified Business Income (QBI), W-2 wages and Unadjusted Basis Investment Amount (UBIA) of qualified property,
    • On the W2 wages, this will be the share of W2 wages for all of calendar 2017 reported on a timely file W3 with the Social Security Administration.  If the W3/2 was not timely filed, then W2 wages will be assumed to be zero.  You will use either Method 1, 2, or 3 from Notice 2018-64.
    • You will need to review your depreciation schedules to determine the UBIA for the fiscal year.  Remember, it is any asset owned at year-end; that has been held less than 11 years; or is still being depreciated.
  • Whether any of the trades or businesses listed are a Specified Service Trade or Business (SSTB),
  • For each Relevant Passthrough Entity (RPE) either directly or indirectly owned, each of the items listed above,
  • Each owner's allocable share of Real Estate Investment Trust (REIT) income and/or Publicly Traded Partnership (PTP) income or loss (including through another RPE).
  • There may end up being additional information required to be listed related to ownership to allow owners to make an aggregation election.  The aggregation election is made by the individual owner, but I can see some type of requirement to list on the Schedule k1 those entities under common ownership.  That requirement is not currently listed in the proposed regulations, but I can see it becoming a requirement.

    As you can see, preparing RPE returns will become much more complicated and returns being filed now need to know what information is required (even if the form is not ready).