What California Schedule K-1 (565) (2022) Is For
California Schedule K-1 (565) (2022) reports a partner’s share of a partnership’s income, deductions, credits, and other tax items for the 2022 tax year. The partnership prepares this schedule when filing Form 565 (Partnership Return of Income) with the Franchise Tax Board (FTB). The form helps partners understand how much of the partnership’s activity must be reported on their own state individual income tax return.
Partners in general partnerships, LPs, and LLPs receive Schedule K-1 (565) directly from the partnership. You do not submit the K-1 with your personal return; the partnership files it with the FTB. You use the entries—especially the California adjustments and sourcing amounts—to complete Form 540 or Form 540NR.
When You’d Use California Schedule K-1 (565) (2022)
You use the 2022 Schedule K-1 (565) when filing a 2022 California return and you were a partner in a partnership required to file Form 565. Resident partners report their full distributive share on Form 540, while nonresidents report only California-source amounts on Form 540NR.
Calendar-year partnerships had a March 15, 2023, deadline to file Form 565 and issue K-1s. California provides a seven-month automatic extension to October 16, 2023, but the extension does not delay the due date for the $800 annual tax owed by LPs and LLPs.
You may also receive a corrected or amended K-1 if the partnership updates its return or if federal audit changes flow through to California. When a corrected K-1 affects your state tax liability, you may need to file an amended California individual income tax return.
Key Rules or Details for 2022
California-specific differences
California does not allow the federal qualified business income (QBI) deduction under IRC §199A. Section 179 expensing is capped at $25,000 with a $200,000 phaseout threshold. These differences often create California adjustments that appear in column (c) of the K-1.
Commercial cannabis businesses must attach Form FTB 4197 and provide extra partner-level statements. California also uses single-sales-factor apportionment and market-based sourcing for business income.
Residency and sourcing
Residents report all distributive items, regardless of source. Nonresidents rely on column (e) of Schedule K-1 (565), which lists the California-source share of each income, deduction, and credit item. Partners involved in a unitary business may see amounts separated into Table 1 (unitary business income) and Table 2 (nonbusiness income).
Loss limitations, capital reporting, and withholding
Before deducting losses, partners must apply basis limits, at-risk rules, and passive activity loss limits. Disallowed losses are carried forward according to California law. Partnerships must also report each partner’s tax-basis capital account in Section L.
Withholding for nonresident or foreign partners appears in Part III, Section J. This withholding can be claimed as a credit on the partner’s individual return.
Step-by-Step (High Level)
Step 1: Partnership prepares federal and state returns
The partnership completes federal Form 1065 and federal Schedules K-1, then prepares California Form 565 and Schedule K (565). A separate Schedule K-1 (565) must be completed for each partner, reflecting federal amounts, California adjustments, and California-source figures.
Step 2: Partnership issues K-1s to partners
The partnership verifies partner names and tax IDs and expresses ownership percentages to four decimal places. Required supplemental statements must be attached. Form 565 and all K-1s must be filed with the FTB by the deadline or extended due date.
Step 3: Partner reviews the K-1
Partners confirm personal information and review income, deductions, credits, withholding, and all adjustments. Nonresidents confirm column (e) amounts, which determine what must be reported to California.
Step 4: Partner applies loss limits
Partners apply basis, at-risk, and passive activity limitations before deducting partnership losses. Forms FTB 3801 and FTB 3802 may be required.
Step 5: Partner reports K-1 items on their return
Partners transfer amounts to Form 540 or Form 540NR, Schedule CA, and other applicable forms. Column (c) helps reconcile federal and California income differences.
Step 6: Partner retains the K-1
You do not attach Schedule K-1 (565) to your California return. Keep it with your records for at least four years.
Common Mistakes and How to Avoid Them
- Missing K-1 for a partner
- Ensure a K-1 exists for every partner listed on Form 565
- Incorrect partner information
- Confirm names and tax IDs with W-9 forms
- Percentages not shown to four decimals
- Use entries like 0.3333 instead of 33.33%
- Totals not reconciling to Schedule K
- Verify that all K-1s add up to Schedule K (565)
- Using only federal K-1 amounts
- Apply California adjustments from column (c) and sourcing from column (e)
- Not tracking basis or at-risk limits
- Maintain annual records of contributions, distributions, and prior-year losses
What Happens After You File
Once the partnership files Form 565 and all K-1s, the FTB processes the return and may send notices for missing forms, unpaid annual tax, or mismatched totals. Late or incomplete K-1s may trigger penalties of $18 per partner per month, up to 12 months.
Partners use the K-1 information to prepare Form 540 or Form 540NR and claim any withholding reported. If tax is owed, paying by the original deadline avoids penalties and interest. Refunds follow normal FTB timelines.
Both the partnership and partners may be audited for four years from the original due date or filing date. If federal or state adjustments occur later, the partnership may need to amend Form 565, and partners may need to amend their individual returns.
FAQs
Do I file Schedule K-1 (565) with my California return?
No. The partnership files all Schedule K-1 (565) forms with Form 565. You keep the K-1 for your own records and use it to prepare your return.
What if I receive my K-1 after the filing deadline?
Request an extension and pay your estimated tax by the original April deadline. File once you receive the K-1 to minimize penalties and interest.
How do I know if I’m a resident or nonresident?
Residents report all distributive items on Form 540. Nonresidents report only California-source amounts on Form 540NR using column (e) of the K-1.
What’s the difference between columns (d) and (e)?
Column (d) lists federal distributive items. Column (e) lists the portion sourced to California, which is critical for nonresident reporting.
Does the $800 annual tax appear on my K-1?
No. The $800 annual tax is paid by LPs and LLPs at the entity level. It does not flow through to partners on Schedule K-1 (565).
How do I use California adjustments in column (c)?
Use column (c) to reconcile federal and California tax differences when completing Schedule CA for Form 540 or Form 540NR.
