<p>Once the S-Corporation&#39;s Form 1120S is prepared, you are ready to begin preparing Schedule K-1 for each shareholder.</p><p>Schedule K-1 of Form 1120S is used to report each shareholder&#39;s pro-rated share of net income or loss from an S-Corporation, along with various separately stated income and deduction items. Schedule K-1 can also be used to summarize a shareholder&#39;s beginning and ending stock basis for the year.</p><p>Here&#39;s the minimum you need to prepare the Schedule K-1:</p><ul><li>a completed 1120S tax return for the S-Corporation, </li><li>a complete transaction history and summary statement of each shareholder&#39;s capital accounts, </li><li>tax software that prepares 1120S tax returns. </li><li>complete information about each shareholder: name, address, and SSN.</li></ul><h3>S-Corporation Shareholder Allocations</h3>If shareholders have owned their S-Corporation stock during the entire tax year, then stock basis will determine their pro-rated share of income and expenses. If stocks have been bought, sold, or transferred during the year, then income and expenses need to be pro-rated first on a per-day basis, and secondly on a per-share basis. If a shareholder has terminated her entire equity position in the S-Corporation, then the S-Corporation may choose to allocate income and expense items according to the company&#39;s books and records instead of using the per-day method.<h3>Reporting Net Profit or Loss</h3>The S-Corporation nets non-separately stated income and expenses, and reports the net income or loss to shareholders. The profit or loss is allocated in strict proportion to the shareholder&#39;s percentage of ownership in the S-Corporation.<h3>Separately Stated Items Reported on Schedule K-1</h3>The S-Corporation must report certain income and expenses separately from the net profit or loss amount. These income and expense items retain their tax characteristics when passed-through to the shareholder, and are subject to the limits and tax rates on each shareholder&#39;s personal Form 1040. Separately stated items are the following:<ul><li>Section 1231 gains and losses, </li><li>Net short-term capital gains and losses, </li><li>Net long-term capital gains and losses, </li><li>Dividends eligible for the dividends received deduction (if a shareholder is a C-Corporation), </li><li>Charitable contributions, </li><li>Taxes paid to a foreign country, </li><li>Tax-exempt interest and related expenses, </li><li>Investment income and expenses, </li><li>Amounts previously deducted, such as bad debts, </li><li>Real estate income and expenses, </li><li>Section 179 deductions, </li><li>Tax credits, and </li><li>Non-deductible expenses, such as 50% of meals and entertainment expenses.</li></ul>Separately stated items are allocated in strict proportion to each shareholder&#39;s percentage of ownership in the S-Corporation.<h3>Deadline for Sending Schedule K-1</h3>S-Corporations are required to issue a Schedule K-1 to shareholders by March 15th (the deadline for Form 1120S), or by the extended deadline (September 15th).