Form 720s - Schedule K-1 Shareholder'S Share Of Income, Credits, Deductions, Etc. (Page 3 of 3) in pdf

Commonwealth of Kentucky

Page 3

SHAREHOLDER’S INSTRUCTIONS FOR SCHEDULE K-1 (FORM 720S)

DEPARTMENT OF REVENUE

PURPOSE—Schedule K-1 (Form 41A720S (K-1)) is used to

adjustment worksheet (Form 8582-K, page 2) to determine additions

report to each shareholder, the shareholder’s pro rata share

to or subtractions from federal adjusted gross income. See Form

of income, credits, deductions, etc. A shareholder is liable for

740 instructions for Schedule M, Line 6 and/or Line 17.

Kentucky individual income tax as provided by KRS 141.020 on the

If amounts on Lines 4(d) and 4(e) are subject to the capital loss

shareholder’s pro rata share of the S corporation’s income, whether

limitations, do not include on Lines 52 and 53. Complete federal

distributed or undistributed.

Schedule D using Kentucky amounts to determine additions to or

GENERAL INSTRUCTIONS—Schedule K-1 (Form 720S) will help

subtractions from federal adjusted gross income.

when preparing your Kentucky income tax return. Where “(attach

Line 54—Enter difference of Lines 52 and 53. If Line 52 is greater

schedule)” appears next to a line on Schedule K-1, it means the

than Line 53, enter the difference as an addition to federal adjusted

S corporation will have attached a statement to Schedule K-1 to

gross income on Schedule M, Line 3. If Line 53 is greater than Line

show information for the line item, if applicable. If you believe

52, enter the difference as a subtraction on Schedule M, Line 14.

the S corporation has made an error on your Schedule K-1 (Form

Caution: If the amount on Line 52 is a (loss) and Line 53 is a

720S), notify the S corporation and ask for a corrected schedule.

(loss), the smaller dollar amount of (loss) is the greater amount,

Do not change any item on your copy.

and to determine the difference subtract the smaller dollar amount

Schedule K-1 (Form 720S) does not show the amount of

from the larger dollar amount. If the amount on Line 52 is a (loss)

actual dividend distributions the S corporation paid to you. The S

and Line 53 is an income amount, or the amount on Line 52 is

corporation must report such amounts to you on Form 1099-DIV. You

an income amount and Line 53 is a (loss), the income amount is

report actual dividend distributions on federal Schedule B (Form

the greater amount, and add the two amounts to determine the

1040). Refer to the shareholder instructions you received for federal

difference.

Schedule K-1 (Form 1120S) for information concerning your basis

Nonresident Shareholders (Form 740-NP Filers)—The nonresident

in corporate stock, elections to be made by you separately on your

individual may need to file Form 740-NP to take advantage of capital

income tax return and not by the S corporation, etc.

loss and net operating loss carryforwards.

Every individual, including estates and trusts, who is a resident

If the percentage shown in Item B(2) is “100%, ” you must enter

of Kentucky and is a shareholder in an S corporation is required

on the appropriate lines of Form 740-NP and related schedules the

to report 100 percent of his or her share of income (loss), credits,

amounts shown on Lines 1 through 5 and 8, portions of Lines 6,

deductions, etc., for Kentucky individual income tax purposes.

10 and 11(a), and the portion of Line 35(b) actually deducted for

A nonresident shareholder must report the portion of his or her

the current year.

share of income attributable to the S corporation’s business in

If the percentage shown in Item B(2) is less than 100 percent, the

Kentucky. A resident is an individual domiciled within Kentucky

amounts on Lines 1 through 5 and 8, portions of Lines 6, 10 and the

or an individual who is not domiciled in Kentucky but maintains

portion of Line 35(b) actually deducted for the current year must

a place of abode in Kentucky and spends in the aggregate more

be multiplied by this percentage and entered on the appropriate

than 183 days of the taxable year in Kentucky. A nonresident is any

lines of the Nonresident or Part-Year Resident Income Tax Return,

individual not a resident of Kentucky.

Form 740-NP , and related schedules. Lines 7 and 9, and the portions

At-Risk Limitations—Generally, if you have a loss from any

of Lines 6, 10 and 11(a) which pass through to Schedule A should

activity carried on as a trade or business or for the production

not be multiplied by the percentage in Item B(2) since they will be

of income by the S corporation and you, the shareholder, have

prorated by the percentage on Form 740-NP , page 4, Line 35.

amounts invested in that activity for which you are not at risk, you

Refer to specific instructions below and federal Shareholder’s

will be required to complete federal Form 6198, At-Risk Limitations,

Instructions for Schedule K-1 (Form 1120S).

to figure the allowable loss to report on your Kentucky income

Lines 1 through 3—Enter on federal Schedule E using Kentucky

tax return. Your deductible loss from each activity for the tax year

amounts or on Form 8582-K, if applicable.

generally is limited to the amount you are at risk or could actually

Line 4(a)—Enter on Form 740-NP , Section D, Line 3.

lose in the activity, whichever is less. To help you complete Form

Line 4(b)—Enter on Form 740-NP , Section D, Line 4.

6198, if required, the S corporation has provided a schedule showing

Line 4(c)—Enter on federal Schedule E using Kentucky amounts.

your share of income, expenses, etc., for each at-risk activity.

Lines 4(d) and (e)—Enter on federal Schedule D using Kentucky

Passive Activity Limitations—The passive activity limitations

amounts or Form 8582-K, if applicable.

in IRC Section 469 are figured at the shareholder level and may

Line 4(f)—Enter on applicable lines of your return (see federal

apply to any loss reported on Lines 1, 2 or 3 and any other related

Shareholder’s Instructions for Schedule K-1 (Form 1120S)).

items of income, loss and deductions reported on Schedule K-1

Line 5—Enter on federal Form 4797.

(Form 720S). Refer to the federal Shareholder’s Instructions for

Line 6—Enter on applicable lines of your return (see federal

Schedule K-1 (Form 1120S) to determine if the passive activity

Shareholder’s Instructions for Schedule K-1 (Form 1120S)).

limitations apply to your share of loss(es) reported on Schedule K-1

Line 7—Enter on Schedule A, Form 740-NP .

(Form 720S), and if you must file Form 8582-K, Kentucky Passive

Line 8—Enter on federal Schedule E using Kentucky amounts.

Activity Loss Limitations. When applicable, the passive activity

Line 9—Enter on Schedule A, Form 740-NP .

limitations on losses are applied after the limitations on losses for

Line 10—Enter on Schedule A, Form 740-NP .

a shareholder’s at-risk amount.

For All Shareholders

SPECIFIC INSTRUCTIONS—Kentucky Resident Shareholders

Lines 11 and 35 through 41—See federal Shareholder’s

(Form 740 Filers)—You, as the shareholder, will need to determine

Instructions for Lines 12, 16 and 17, Schedule K-1 (Form 1120S).

the net difference between your federal Schedule K-1 amounts and

your Kentucky Schedule K-1 amounts. This will adjust the items

All Shareholders—Enter the net distributive share income from

of income, loss and deductions used to compute your federal

the Kentucky Schedule K-1 (Form 720S), Lines 1 through 5, 8 and

adjusted gross income to the Kentucky amounts shown in Column

portions of Lines 6 and 10 (multiplied by the percentage shown in

(b), Schedule K-1. To determine this difference, complete Lines 52

Item B(2) for nonresident shareholders) on Line 2 of the Kentucky

through 54.

Limited Liability Entity Tax Credit Worksheet for Forms 740, 740-NP

or 741. If the net distributive share income includes losses subject

Line 52—Include on this line, the Kentucky Schedule K-1 amounts

to passive activity or capital loss limitations, net distributive share

from Lines 1 through 5 and 8. Also include the amounts from

income must be adjusted to include only amounts allowed to be

Lines 6 and 10 that do not pass through to Schedule A as itemized

deducted on the applicable Kentucky tax return.

deductions.

Line 53—Include on this line, the federal Schedule K-1 amounts

Line 51—Enter on Line 7 of the Kentucky LLET Credit Worksheet

from Lines 1 through 9 and 11. Also include the amounts from

located in the Form 740, Form 740-NP or Form 741 instructions

Lines 10 and 12 that do not pass through to Schedule A as itemized

under Business Incentive Credits.

Estates and Trusts (Form 741 Filers)—Estates or trusts report the

deductions.

amounts shown in Column (b) on Form 741, Kentucky Fiduciary

NOTE: If Form 8582-K is required, adjust the amounts entered

on Lines 52, 53 and 54 to exclude any income, loss, deduction or

Income Tax Return, and related schedules. See federal Shareholder’s

expense related to a passive activity. Complete the passive activities

Instructions for Schedule K-1 (Form 1120S).

Form 720s - Schedule K-1 Shareholder'S Share Of Income, Credits, Deductions, Etc. Page 3

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