Texas K-1 Reporting: A 2026 Guide for Partnerships and S Corps
Texas business owners structured as partnerships, S Corporations, or certain LLCs must prepare and distribute Schedule K-1 forms. This 2026 guide explains what you need to know to stay compliant for both federal and Texas tax purposes. If you are a partner, shareholder, or LLC member in Texas, understanding your K-1 is essential for accurate tax filing and maximizing your deductions.
What is a Schedule K-1?
A Schedule K-1 is a tax form used to report each partner’s or shareholder’s share of income, deductions, and credits from a partnership or S corporation. The IRS requires these forms to ensure all business income is appropriately reported on personal returns. Think of it as your individual slice of the business’s tax pie. The entity itself typically does not pay income tax. Instead, the income, losses, deductions, and credits pass through to you and are reported on your personal Form 1040.
Quick Answer: A Schedule K-1 reports your share of income, losses, deductions, and credits from a partnership or S corporation. Texas business owners must report K-1 income on their federal return. While Texas has no state income tax, K-1 information is still relevant for the Texas Franchise Tax.
Who Receives a K-1 in Texas?
The following Texas business owners and investors typically receive a Schedule K-1:
- Partners in partnerships or multi-member LLCs operating in Texas
- Shareholders in Texas S Corporations
- Investors in real estate syndications or joint ventures based in Texas
- Beneficiaries of estates and trusts (reported on K-1 from Form 1041)
- Members of Texas investment funds or oil and gas partnerships
Texas is one of the most popular states for business formation due to its favorable tax climate. With no state income tax, K-1 income is not taxed at the individual level by the state. However, the entity may still owe Texas Franchise Tax, and accurate K-1 preparation is essential for your federal return.
2026 Deadline for K-1 Filing in Texas
For tax year 2025 (filed in 2026), the due dates for issuing Schedule K-1 forms align with federal deadlines:
| Entity Type | K-1 Due Date | Extended Due Date |
|---|---|---|
| Partnerships & Multi-member LLCs | March 16, 2026 | September 15, 2026 |
| S Corporations | March 16, 2026 | September 15, 2026 |
| Trusts & Estates | April 15, 2026 | September 30, 2026 |
If you file an extension, the extended due date is September 15, 2026 for partnerships and S Corps. However, keep in mind that an extension to file the entity return also delays when partners and shareholders receive their K-1 forms, which can delay their personal filing.
Pro Tip: If your Texas partnership or S Corp files an extension, make sure all partners and shareholders are notified immediately. They will need to either file their own extensions or plan accordingly. Late K-1 distribution is one of the most common sources of tax filing stress.
How to Complete a Texas K-1: Step by Step
- Complete the entity’s tax return: IRS Form 1065 for partnerships or Form 1120S for S Corps.
- Prepare a Schedule K-1 for each partner or shareholder, allocating income, losses, deductions, and credits based on ownership percentages or the operating agreement.
- Distribute K-1 copies to each individual by the filing deadline.
- File the entity return with attached K-1 forms with the IRS.
- Ensure K-1 information is reflected in any Texas Franchise Tax reporting.
K-1 Form Reference Table
| Entity Type | Entity Form | K-1 Form | Recipient |
|---|---|---|---|
| Partnership | Form 1065 | K-1 (Form 1065) | Partners |
| S Corporation | Form 1120S | K-1 (Form 1120S) | Shareholders |
| Multi-member LLC | Form 1065 | K-1 (Form 1065) | Members |
| Trust / Estate | Form 1041 | K-1 (Form 1041) | Beneficiaries |
Common K-1 Reporting Mistakes in Texas
Texas business owners frequently make these K-1 errors that can trigger IRS notices or penalties:
- Not distributing K-1s on time: The IRS can impose penalties of $280 per K-1 (2024 rate) for late issuance, up to a maximum of $3,426,000 per year for large businesses.
- Incorrect allocation of profits and losses: Make sure allocations follow your operating agreement or partnership agreement. Special allocations must have substantial economic effect under IRC Section 704(b).
- Missing partner or shareholder details: Each K-1 must include the recipient’s name, address, and tax identification number.
- Confusing Texas state and federal requirements: While Texas has no state income tax, the Texas Franchise Tax applies to most entities. K-1 information is used to calculate the entity’s franchise tax liability.
- Failing to report K-1 income on personal returns: Just because you did not receive a cash distribution does not mean you do not owe tax. K-1 income is taxable whether or not it was distributed to you.
How Texas K-1s Interact with the Texas Franchise Tax
Texas does not have a state income tax, so K-1 income is not taxed at the state level for individuals. However, accurate K-1 reporting is essential for two reasons:
- Federal tax returns: All K-1 income must be reported on your federal Form 1040, regardless of where you live.
- Texas Franchise Tax: The entity itself may owe Texas Franchise Tax based on its total revenue. For 2026, the no-tax-due threshold is $2.47 million in annualized total revenue. Entities above this threshold pay a tax rate of 0.375% (retail/wholesale) or 0.75% (other entities) on their taxable margin.
For more information on Texas Franchise Tax, visit the Texas Comptroller’s Franchise Tax page.
Did You Know? Texas has no state income tax, but the Franchise Tax is sometimes called the “Texas business tax.” It applies to partnerships, LLCs, S Corps, and C Corps doing business in Texas. If your entity earns less than $2.47 million in total revenue, you still need to file a No Tax Due Report but will not owe any franchise tax.
K-1 Reporting for Texas S Corp Owners
If you own an S Corporation in Texas, your K-1 will report your share of the company’s ordinary business income, separately stated items (like capital gains, charitable contributions, and Section 179 deductions), and distributions. Here are key things Texas S Corp owners should know:
- Salary vs. distributions: As an S Corp owner, you must pay yourself a reasonable salary before taking distributions. The K-1 reports your distribution income, while your salary appears on a W-2. Getting this balance right is critical for minimizing self-employment tax.
- Basis tracking: You cannot deduct losses that exceed your basis in the S Corp. Your basis starts with your initial investment and is adjusted annually for income, losses, and distributions shown on the K-1.
- Qualified Business Income (QBI) deduction: K-1 Box 17, Code V reports your share of qualified business income. This may entitle you to a 20% deduction under Section 199A, subject to income limitations.
Quick K-1 Checklist for Texas Business Owners in 2026
| Step | Task | Deadline |
|---|---|---|
| 1 | Gather all financial records and reconcile books | January 2026 |
| 2 | Complete entity tax return (Form 1065 or 1120S) | February 2026 |
| 3 | Prepare K-1s for each partner/shareholder | March 1, 2026 |
| 4 | Distribute K-1s to all recipients | March 16, 2026 |
| 5 | Include K-1 figures in Texas Franchise Tax Report | May 15, 2026 |
| 6 | Report K-1 income on your personal Form 1040 | April 15, 2026 |
Additional Resources
- IRS Schedule K-1 (Form 1065) Overview
- Texas Franchise Tax Information
- IRS Partnership Resources
- IRS S Corporation Resources
- LLC Holding Company Tax Strategy
Need Help With Texas K-1 Reporting?
K-1 reporting can be complex, especially when you factor in Texas Franchise Tax requirements and federal filing obligations. If you have questions about your Texas K-1, need help preparing entity returns, or want to explore tax-saving strategies for your partnership or S Corp, contact Uncle Kam for a free consultation. We help Texas business owners file accurate returns and build smart tax strategies that save real money.
Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Consult with a qualified tax professional for guidance specific to your situation.
Last updated: February, 2026
Frequently Asked Questions
Does Texas require K-1 filing with the state?
No, Texas does not require a separate K-1 filing with the state. However, the entity must file a Texas Franchise Tax Report, and K-1 information is used to determine the entity’s taxable margin. Individual recipients report K-1 income on their federal return only.
What if I receive an incorrect K-1?
Contact the entity’s tax preparer immediately and request a corrected K-1. If you have already filed your personal return with the incorrect K-1, you will need to file an amended return (Form 1040-X) once you receive the corrected form. Do not ignore discrepancies, as the IRS cross-references K-1 data with your personal return.
What is the penalty for late K-1 distribution in 2026?
The IRS can impose penalties for late filing of partnership and S Corp returns, which includes late K-1 distribution. For partnerships, the penalty is $235 per partner per month (up to 12 months) for 2024 returns. These penalties can add up quickly for partnerships with many partners. Filing an extension avoids late-filing penalties but does not avoid late-payment penalties.
Do single-member LLCs in Texas need to file K-1s?
No. Single-member LLCs are disregarded entities for federal tax purposes. The owner reports business income directly on Schedule C of their personal return. However, the LLC may still need to file a Texas Franchise Tax Report if it meets the filing threshold.
What should I do if my K-1 lists income from out-of-state?
Report all K-1 income on your federal return regardless of its source. If the K-1 includes income from a state other than Texas, you may have a filing obligation in that state. Many states require non-resident returns for partnership or S Corp income earned within their borders. Check with your tax professional to determine your multi-state filing requirements.
How does the QBI deduction work with K-1 income in Texas?
The Qualified Business Income (QBI) deduction under Section 199A allows eligible taxpayers to deduct up to 20% of their qualified business income from pass-through entities. Your K-1 will report your QBI amount in Box 17 (Code V for partnerships) or Box 17 (Code V for S Corps). For Texas business owners with taxable income under $191,950 (single) or $383,900 (married filing jointly) in 2025, the deduction is generally straightforward. Above those thresholds, limitations based on W-2 wages and property basis may apply.
Can I deduct K-1 losses on my Texas return?
Since Texas has no state income tax, K-1 losses do not provide a state-level benefit. However, on your federal return, K-1 losses can offset other income subject to three limitations: basis limitations, at-risk limitations, and passive activity loss rules. Work with a qualified tax professional to determine how much of your K-1 loss you can deduct in the current year.
