K-1

[Shooby]

I really don't understand all the particulars of K-1s. I get one because I have an S corp. I started a new S corp with a new partner. We want to do our own books and taxes next year. How would we go about generating a K-1?

[taxref]

For an S corporation, K-1s are part of the corporate income tax return (Form 1120S).  A K-1 takes information from the 1120S and tells each shareholder what his share of various items are.  The amounts are allocated based on the shareholder's percentage of stock ownership.

One copy of each K-1 is sent to the IRS with the 1120S, while another copy is given to each shareholder.  The shareholder uses his K-1 to prepare his own 1040.

As a word of caution, your question indicates you do not currently have a good deal of knowledge in regards to preparing an 1120S.  In addition to understanding accounting, its important that people who prepare returns for flow-through entities understand separately stated items.  If you do not gain the necessary knowledge prior to filing the first 1120S, it would be best to let a professional prepare the return.

[Shooby]

Thanks. I had a previous S Corp and it was all handled by an acct. My new partner is very much a DIY kind of person and I really want to learn how to manage it to. Is this manage able for a 2 person SCorp? Not sure how to handle and file corporate taxes.

[taxref]

The basics of the financial rules for corporations can be learned in just a few hours.  Those include such topics as not comingling business and personal funds/transactions, salary requirements for shareholder/employees, etc. Those are the kind of things that all corporate shareholder/employees need to know.

Its also not hard to keep the books for a small corporation.  The company checkbook is usually the main accounting record for the company.  Most owners of closely held corporations do this on a daily basis.

The actual accounting and/or preparing the 1120S, however, takes a fair amount of specialized knowledge.  Its certainly learnable, but it will be time consuming.  The consequences of making an error can also be expensive.  It should be thought of like home repairs. Its important to know what you can correctly do yourself, and what jobs you you need to call a professional to handle.  

On final note, do not rely on software as a substitute for knowledge.  Accounting and tax software are great tools for those who have an understanding of accounting/taxation at least equal to their own circumstances.  Advertising for such programs, however, is often misleading.  Ads often claim that software will enable almost anyone, with no knowledge of the subjects, to correctly do accounting/taxes ("Just answer a few simple questions!").  Those claims are wildly exaggerated, and I have had to unravel a few DIY QuickBooks/Turbotax disasters over the years.