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Items from pass-through entities

REG Chapter 13 · Area IV · Blueprint IV.B

A lot of individual income never shows up on a W-2. It arrives on Schedule C from a sole proprietorship, on Schedule E from a rental or a single-member LLC, and on Schedules K-1 from partnerships, S corporations and trusts. The Blueprint asks you to take that information and report each owner's share of ordinary business income and separately stated items in the right place on Form 1040. Rosa Delgado is a partner in Brightline Design Partners, Ivan owns 40% of Delgado Plumbing Inc., an S corporation, and Owen runs his bakery as a sole proprietor, so between them they bring every kind of pass-through item to Reggie. Figures are for tax year 2026.

In this chapter

1. How pass-through income reaches Form 1040
2. Schedule C: the sole proprietor
3. Schedule E: rentals, royalties and vacation homes
4. Partnership Schedule K-1: ordinary income and separately stated items
5. S corporation Schedule K-1 and shareholder-employees
6. Putting K-1 items on the return and reviewing them

This chapter has 6 lessons, 50 practice MCQs with explanations and 20 simulations, plus flashcards and a recall sheet.

What this chapter covers

• Schedule C and E
• reporting Schedule K-1 ordinary income and separately stated items on the individual return
• disregarded entities

Chapter 12: Gross income: inclusions and exclusions · Chapter 14: Adjustments and deductions