How to File IRS Form 1040 Schedule E
Schedule E Explained
Schedule E is a form for reporting supplemental income to the IRS. It is used in conjunction with form 1040 and filed with your taxes each year whenever you have certain types of income.
Any time you have income from nonemployment sources such as an S corporation, rental properties, or distributions from a trust, you must file Schedule E. Learn more about when this form is required and how to file.
What Is Schedule E?
Certain business entities, such as S corporations, pass their profits and losses through to the owners or shareholders of the business. These individuals must then report those profits or losses on their own personal IRS Form 1040 and Schedule E.
An S corp doesn't pay any income tax of its own, although it's required to file form 1120S if it has more than one owner or shareholder. Form 1120S reports the profits that are passed to each individual shareholder. An S corp must also issue a Schedule K-1 to each of its shareholders, reporting each individual's share of business income, losses, credits, and deductions.
Technically, though, Schedule E is for "supplemental income and loss," and this encompasses more than just pass-through income from partnerships and S corps. This can include rental income and royalties, as well as income from trusts, estates, and real estate mortgage investment conduits (REMICs).
Who Uses Schedule E?
Most taxpayers with income from a partnership, S corporation, rental real estate, royalties, estates, trusts, or special mortgage investments called REMICs must file Schedule E with their form 1040. It does get confusing, though, as some types of income belong on different schedules depending on small distinctions. Let's look at a few examples.
Business Income or Loss
Ordinary net business income or loss from partnerships and S corporations is generally reported on Schedule E. Other sources of income are reported on their own schedules, then entered on the appropriate line of the 1040 tax return.
For example, interest and dividends passed through by an S corporation to a shareholder are reported on Schedule B. Capital gains are reported on Schedule D. Your tax software program will take the information on the K-1 input screen and report the income and expense amounts in the right place.
Schedule E Rental Income
Rental income or losses are reported on Schedule E, provided that you don't operate your rental properties as a business. In other words, you don't actively manage several properties as your livelihood, or even a portion of your livelihood. and you don't provide a variety of services to your tenants.
Completing the rental income portion of the Schedule E might be appropriate if you're renting out a single property that you purchased as a long-term investment.
The IRS would most likely consider you to be self-employed if you're actively involved with your rentals. You would therefore file Schedule C rather than Schedule E, and you would be subject to the self-employment tax in addition to income tax.
Schedule E for Royalties
Like rental income, Schedule E is only appropriate for reporting royalties if you're not self-employed. Authors, songwriters, and others who might be expected to hold copyrights are generally self-employed by IRS standards. They would file Schedule C, not Schedule E, for royalties received.
The distinction is whether you personally hold the copyright and if publishing is an ongoing activity for you, not a one-and-done isolated deal. If so, the IRS takes the position that you created the asset with the intention that it would earn income, so you're self-employed and subject to the self-employment tax.
Schedule E Losses
The good news is that you can deduct your costs of doing business on Schedule C, whereas Schedule E losses are limited to the amount for which the IRS considers that you were "at risk." For example, your partnership might have lost $10,000 over the course of the year, but you're not at risk and it's not a Schedule E loss if you're not responsible for reimbursing that entire $10,000. If you invested that $10,000 yourself, however, that represents a personal risk and could most likely be reported on Schedule E.
Where to Get a Schedule E
If you're doing your own taxes and filing by mail, you can print a copy of Schedule E from the IRS website and fill it out to file with your 1040. Otherwise, your tax accountant can provide a copy or software such as TurboTax will automatically include it in your return if applicable.
How to Fill Out and Read Schedule E
Schedule E is only two pages, and the instructions for filling it out are fairly straightforward.
- Part I of the form is reserved for rental and royalty income and losses.
- Information regarding your pass-through income or losses reported on Schedule K-1 is entered in Part II.
- Estate and trust distributions or losses go in Part III.
- Part IV reports income or losses from REMICs.
Once you have completed Schedule E, follow the instructions for the information you need to transfer to form 1040.
You need only use the part of the form that's applicable to the type of income or losses you're reporting—you can ignore the others.
Can Schedule E Be E-Filed?
You can e-file schedule E with your 1040 through tax software or a tax-preparation service. There are free and paid options available.
Where to Mail Schedule E
The IRS has offices throughout the U.S., and your tax processing center will depend on your state. See the IRS website for where to mail your Schedule E, along with the rest of your return and any amount due.
How to File Schedule E
You can file Schedule E online or by mail with the rest of your 1040. Remember to file by the tax deadline, which is normally April 15—or the next business day if it falls on a weekend or holiday. You can request an extension of your deadline to file, but this does not remove your obligation to pay your taxes by the due date.
If you were impacted by winter storms in Texas, you are allowed to delay filing your taxes until June 15. This automatic extension applies to all affected individuals and businesses, including any businesses with due dates on March 15.
Shareholders Can Request an Extension to File
The first thing any S corporation shareholder should do is request an automatic extension of time to file their tax return. The deadline for a corporation’s form 1120S is March 15. Few S corporations can actually meet this deadline and most will take extensions of their own. S corporations can file Form 7004 to request an automatic extension of six months until September 15 to file their 1120S returns.
S corporations won't issue Schedule K-1s until their Forms 1120S are completed, so shareholders usually have to wait to file their own returns until the corporate return is finished. Shareholders should request an automatic extension as well, making their personal tax returns due October 15 rather than April 15.
A Note About Schedule K-1
Not all Schedule K-1s are the same. They don’t all reflect only S corporation tax information. You might also receive a Schedule K-1 if you’re a partner in a business or if you're the beneficiary of an estate or trust that has passed tax liability for its earnings on to you.
All these Schedule K-1s report similar information, but they’re slightly different. If you receive multiple Schedule K-1s or you expect to, it's probably best to take them to a tax professional so you can be sure that you report all information correctly on your 1040.
- Schedule E is a form taxpayers should use to report nonemployment income from various sources, including S corporations, partnerships, trusts, and rental real estate.
- The form is meant to be filed with IRS form 1040 when you file your annual tax return.
- In some cases, some of the same types of income should be reported on other forms. Taxpayers should consult a tax professional if they are unsure about whether they need to fill out Schedule E.