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Form 720S (2013)

Page 3

KENTUCKY SCHEDULE K-1

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

Commonwealth of Kentucky

DEPARTMENT OF REVENUE

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

SPECIFIC INSTRUCTIONS—Kentucky Resident Shareholders

report to each shareholder the shareholder’s pro rata share

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

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

the net difference between your federal Schedule K-1 amounts

Kentucky individual income tax as provided by KRS 141.020 on

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

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

items of income, loss and deductions used to compute your

whether distributed or undistributed.

federal adjusted gross income to the Kentucky amounts shown in

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

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

Lines 55 through 57.

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

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

Line 55—Include on this line the Kentucky Schedule K-1 amounts

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

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

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

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

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

deductions.

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

Do not change any item on your copy.

Line 56—Include on this line the federal Schedule K-1 amounts

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

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

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

dividend distributions the S corporation paid to you. The S

deductions.

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

You report actual dividend distributions on federal Schedule B

(Form 1040). Refer to the shareholder instructions you received for

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

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

Lines 55, 56 and 57 to exclude any income, loss, deduction or ex-

basis in corporate stock, elections to be made by you separately

pense related to a passive activity. Complete the passive activities

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

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

tions to or subtractions from federal adjusted gross income. See

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

Form 740 instructions for Schedule M, Line 7 and/or Line 19.

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

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

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

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

limitations, do not include on Lines 55 and 56. Complete federal

nonresident shareholder must report the portion of his or her

Schedule D using Kentucky amounts to determine additions to

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

or subtractions from federal adjusted gross income.

Kentucky. A resident is an individual domiciled within Kentucky

or an individual who is not domiciled in Kentucky but maintains

Line 57—Enter difference of Lines 55 and 56. If Line 55 is greater

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

than Line 56, enter the difference as an addition to federal adjusted

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

gross income on Schedule M, Line 3. If Line 56 is greater than

any individual not a resident of Kentucky.

Line 55, enter the difference as a subtraction on Schedule M,

Line 15.

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

carried on as a trade or business or for the production of income

by the S corporation and you, the shareholder, have amounts

Caution: If the amount on Line 55 is a (loss) and Line 56 is a (loss),

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

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

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

to determine the difference, subtract the smaller dollar amount

figure the allowable loss to report on your Kentucky income tax

from the larger dollar amount. If the amount on Line 55 is a (loss)

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

and Line 56 is an income amount, or the amount on Line 55 is an

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

income amount and Line 56 is a (loss), the income amount is the

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

greater amount; therefore, add the two amounts to determine

6198, if required, the S corporation will provide a schedule showing

the difference.

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

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

Passive Activity Limitations—The passive activity limitations

individual who is required to file Form 740-NP, Kentucky Individual

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

Income Tax Return Nonresident or Part-Year Resident, or who

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

elects to file Form 740-NP to take advantage of capital loss and net

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

operating loss carryovers shall enter the amounts from Schedule

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

K-1, Column (b) as follows:

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

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

K-1 (Form 720S) and if you must file Form 8582-K, Kentucky

If the percentage in Item B(2) is “100%,” the amounts on Lines 1

Passive Activity Loss Limitations. When applicable, the passive

through 5 and 8, portions of Lines 6 and 10 and the portion of Line

activity limitations on losses are applied after the limitations on

39(b) actually deducted for the current year must be entered on

losses for a shareholder’s at-risk amount.

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

Kentucky Schedule K-1 (Form 720s) - Shareholder'S Share Of Income, Credits, Deductions, Etc. - 2013 Page 3

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