Ohio IT K-1 FAQs
1. Why use the Ohio IT K-1?
The Ohio IT K-1 should be used to report each investor’s or beneficiary’s proportionate or distributive share of Ohio income and credits. This includes both resident and nonresident investors and beneficiaries. For instance, if the PTE received an Ohio Development Service Agency credit and wanted to reflect the investor’s share, it could use the Ohio IT K-1 to easily convey that information to the investor and to the Department.
2. Is the Ohio IT K-1 mandatory?
While the Ohio IT K-1 is the preferred form of the Department, it is not currently mandatory. However, manufactured K-1 “equivalents” sent as attachments are often incomplete or difficult to follow. This can lead to follow up requests for information and billings that otherwise could have been avoided. The Ohio IT K-1 offers clear, concise, and easy to follow reporting of information needed by the taxpayer and the Department.
3. What should happen after the Ohio IT K-1 is completed?
The entity should prepare and provide an Ohio IT K-1 to each investor or beneficiary to attach when filing their Ohio return. The entity should also maintain a copy of the Ohio IT K-1 to provide upon request from the Department.
4. What pass-through entity type should be listed at the top of each Ohio IT K-1 for a trust? Why isn’t there a check box for Ohio IT 1140 beneficiary?
The “entity type” line represents the taxpayer/qualifying entity filing the IT 4708 or IT 1140 and filling out the Ohio IT K-1 on behalf of its investors or beneficiaries. Conversely, the IT 1140 qualified investor/ IT 4708 composite investor check boxes refer to the status of the investor. Thus, if a trust was withholding on its distribution to a nonresident beneficiary, the trust would be listed as the entity type at the top of the Ohio IT K-1 and would check the Non applicable box for the beneficiary.
5. Why should a trust use the Ohio IT K-1?
Although the trust pays their tax due on its retained earnings via the Ohio IT 1041, a trust is still required to withhold if it distributes some of its income to non-resident beneficiaries. The Ohio IT K-1 can be used to easily track the amount of income distributed to, and withholding for, the non-resident beneficiary.
6. What information does a trust need to provide on the Ohio IT K-1?
The trust should provide as much information as possible to accurately convey the Ohio income and/or credits it is distributing to its beneficiaries. That said, the trust does not need to provide the percentage of profit, loss or ownership of capital. Furthermore, the trust only needs to complete the entity apportionment percentage if it has apportionable business income.
7. What depreciation information is needed?
Provide the depreciation information as it relates to the entity preparing the Ohio IT K-1. The “Total current year bonus depreciation” is the aggregate deduction of all prior year add backs. The detail of the add backs should be included on the prior year lines with the amount, time frame and tax years listed. The depreciation information should be presented on the Ohio IT K-1 for any filer for which a depreciation adjustment is required. Use the supplemental information lines in the event the entity has 6 eligible years of depreciation deduction, or other special circumstances.
8. Is the Ohio IT K-1 useful for entities or trusts with only Ohio resident investors or beneficiaries?
Yes. Although withholding is not required, the Ohio IT K-1 can be used to assist with the tracking of credits for your resident investors or beneficiaries. For instance, if the PTE received an Ohio Development Service Agency credit and wanted to reflect the resident investor’s share, it could use the Ohio IT K-1 to easily convey that information to the investor and the Department.
9. How would QRX Partnership complete the Ohio IT K-1 for tax year 2017, with the following fact pattern: Example
Trust3 (Investor) has 20% ownership of QRX Partnership (Pass-through Entity). QRX Partnership filed a 2017 IT 1140 and included Trust3 on the return. Trust3 was also included on IT 1140 returns filed by QRX Partnership for tax years 2015 and 2016. $2,689,180.00 of the $3,155,196.00 distributed to Trust3 in 2016 is Ohio taxable income based on QRX Partnerships 2017 apportionment ratio. QRX Partnership withheld $134,459.00 in tax on behalf of Trust3 in 2017. Trust3’s portion of the 5/6th depreciation expense added back on prior year returns filed by QRX Partnership is $241,358.00 for 2015 and $482,717.00 for 2016. Based on the prior year add backs, Trust3 is allowed a 1/5th depreciation deduction of $144,815.00 for 2017. QRX Partnership has no property in Ohio or elsewhere. QRX Partnership has payroll in Ohio of $1,249,780 and everywhere of $2,000,000. QRX Partnership has sales in Ohio of $4,640,525 and everywhere of $5,000,000.