How to Report a K-1 on an IRA Account

Generally speaking, earnings on an IRA account are tax exempt until you begin taking distributions. However, certain situations exist where earnings on an IRA account may be taxable. If the IRA has invested your money in an income-producing venture, such as another business or rental property, any income from the investment is considered unrelated business taxable income, and is taxable if it exceeds the Internal Revenue Service allowed maximum earnings for the year.

Confirm that the K-1 was issued to you and not the IRA account. If the K-1 was issued to the IRA account, all you need to do is file it with your other investment records. If the IRA account received unrelated business taxable income, the amount will be listed in Box 20 on the K-1 with the letter “V” in front of it.

Obtain IRS Form 990-T—Exempt Organization Business Income Tax Return. Access the IRS website to download and print the form. (See Resources)

Complete the top section of Form 990-T with your personal information, such as name, address and Social Security number. Designate a business activity code for the type of unrelated business activity the IRA received income from in Box E. The IRS provides a list of applicable codes in the Form 990-T Instructions document. Enter a description of the activity in Line H.

Complete Lines 1 through 13 on Part 1 of Form 990-T. You only need to complete Column A for unrelated business activity. Transfer the information directly from your K-1 to the Form 990-T.

Enter the expenses reported on the K-1 in Line 13-Column B if the total income on Line 13 is $10,000 or less. If the total income on Line 13 is more than $10,000, enter a detailed breakout of the expenses in Part II of Form 990-T.

Enter the net amount of income and expense in either Line 13-Column C or Part II-Line 30, depending on whether or not you had to provide a detailed listing of expenses.

Complete the remaining calculations on Lines 31 through 34 to determine the taxable portion of the unrelated business taxable income. For the 2009 tax year, unrelated business taxable income is limited to $1,000.

Complete Part III and Part IV of Form 990-T to determine the amount of tax due on the unrelated business taxable income, if the net income is greater than the allowed maximum for the year. If the net income is less that the allowed maximum for the year, you do not need to file the Form 990-T at all unless you are requesting a refund due against estimated tax payments made during the year.