accounting
K-1 (Schedule K-1)
A Schedule K-1 is an IRS tax form that reports each partner's or S-corp shareholder's share of business income, deductions, and credits.
Definition
What it means.
Partnerships, S-corporations, and some LLCs are pass-through entities, they do not pay federal income tax at the entity level. Instead, each owner's share of income or loss is reported on a K-1 and flows to their personal return (Schedule E).
For underwriting purposes, lenders use K-1s to verify the owner's true share of business income, which may differ dramatically from W-2 wages or distributions. A borrower who takes a minimal salary but holds a large K-1 pass-through income is a stronger credit profile than the W-2 alone suggests. SBA underwriters and conventional lenders require two years of K-1s for any business with pass-through ownership.
Example
An S-corp owner draws a $60K salary but receives a K-1 showing $180K of pass-through income. The lender underwrites on $240K total, not $60K, meaningfully changing the approved loan size.
Now what?
Get an offer that accounts for k-1 (schedule k-1).
Soft-pull credit check. Quick application. No obligation.