Understanding The Updated Schedules K-2 & K-3

Understanding The Updated Schedules K-2 & K-3

Running a business is extremely difficult, especially when it comes to tax information for domestic and international business transactions. This complexity is only further compounded when you consider that many companies are formed as partnerships, with each member of that partnership having to file and claim their share of the tax liability. In order to simplify the process for partnerships and stakeholders, the IRS has updated Schedules K-2 and K-3 for the 1065 Form. If you have tax issues that you need help with, then contact Inside Out Tax Resolution Services today. Our resident tax expert can help you navigate even the most complex tax issues. Here is a high-level overview of the changes made to Schedules K-2 & K-3.

Clarity To Partners

One of the main focuses when the IRS and the Treasury Department were redesigning these schedules was to simplify the filing process for partners. This is especially true when it comes to international transactions, which will both make things easier for partners, and make it easier for the IRS to keep track of business completed overseas. These changes were also intended to make it simpler for partners to claim deductions and credits. The redesigned form comes equipped with a simplified guide to help partners file this information correctly without fear of an overbearing IRS audit. Many of the proposed changes would not affect domestic business, so if your company operates domestically only, then you won’t need to worry about these changes.

Who Do These Changes Apply To?

Although many domestic partners will not have to worry about these changes, you will have to pay attention to these updates if you file any of the following forms on an annual basis: Form 1065, 1120-S, or 8865. Once again, these changes will only apply if the entity filing these specific forms have any international tax relevance like foreign activities or foreign partners.

Early Release

One of the best parts about these changes is that the IRS is open to your input. The IRS intentionally released these changes early in the season in an effort to get ahead of any potential problems that could arise or confusion that taxpayers may experience. If you would like to help the IRS streamline this process or if you have recommendations for this or any international form, contact the IRS at lbi.passthrough.international.form.changes@irs.gov with the subject line: “International Form Changes.”

Although these changes were made in an effort to make taxes for international partnerships easier, it can be easy to get confused if you are not acclimated to these updates. If you need help getting your company out of any tax trouble, contact the expert team here at Inside Out Tax Resolution Services today.