Schedule K-1 (Form 1065) is a tax form issued to partners in a partnership to report their share of the partnership’s income, deductions, credits, and other financial items. Among the various sections of the K-1, Boxes 6a through 6c are crucial when it comes to investment income—specifically dividends and royalties. Understanding these boxes is key to accurate tax reporting and optimizing your tax position. This blog provides a detailed breakdown of Boxes 6a, 6b, and 6c, covering their purpose, differences, reporting obligations, and tax implications.
📦 Overview of Boxes 6a–6c on Schedule K-1
- Box 6a – Ordinary Dividends
- Box 6b – Qualified Dividends
- Box 6c – Royalties
Each of these boxes represents different types of passive income earned by the partnership and passed through to the partners. While they are all reported on the partner’s individual tax return, they are taxed differently depending on their classification.
💸 Box 6a – Ordinary Dividends
Box 6a reflects your share of ordinary dividends earned by the partnership. These are typically distributions from stocks or mutual funds held by the partnership. Ordinary dividends are taxed at your regular income tax rate, not at the preferential rates for long-term capital gains or qualified dividends.
🧾 Where to Report:
Report the amount from Box 6a on Schedule B (Form 1040), Part II – Ordinary Dividends. If your total dividend income exceeds $1,500, you must complete Schedule B. Otherwise, the amount can be entered directly on Form 1040, Line 3b.
📌 Example:
If your K-1 shows $500 in Box 6a, and you have no other dividend income, you can report it directly on Form 1040 without filing Schedule B.
📈 Box 6b – Qualified Dividends
Box 6b is a subset of Box 6a. It shows the portion of the ordinary dividends that are qualified dividends, which are eligible for the preferential long-term capital gains tax rates (0%, 15%, or 20% depending on your income level).
To qualify, the dividends must be paid by U.S. corporations or qualified foreign corporations, and the shares must be held for a specific minimum period—usually more than 60 days during the 121-day period beginning 60 days before the ex-dividend date.
🧾 Where to Report:
The qualified portion from Box 6b is reported on Form 1040, Line 3a. It’s important to report both Lines 3a (qualified) and 3b (total ordinary) correctly to ensure your return reflects the correct tax rate.
📌 Example:
If Box 6a shows $1,200 and Box 6b shows $800, that means $800 is qualified and taxed at a lower rate, while the remaining $400 is taxed as ordinary income.
⚠️ Important Notes:
- You cannot claim the qualified dividend tax rate unless you meet the holding period requirements.
- Foreign dividends might not qualify depending on the nature of the foreign corporation.
- Qualified dividends must also be reported on Schedule B if total dividend income exceeds $1,500.
📚 Box 6c – Royalties
Box 6c reports your share of royalty income earned by the partnership. Royalties are typically payments received for the use of intangible assets like patents, copyrights, trademarks, or natural resources. This income can originate from licensing intellectual property, leasing mineral rights, or other similar arrangements.
🧾 Where to Report:
Royalty income is reported on Schedule E (Form 1040), Part I, unless it is related to a business in which you materially participate (in which case it may be reported differently).
If the royalty income is from investments rather than active business activities, it is treated as passive income, not subject to self-employment tax.
📌 Example:
If Box 6c shows $2,000 in royalty income, report this amount on Schedule E under the “Royalty income” section and include details about the source and partnership.
💡 Passive vs. Active Royalties:
- Passive: Income from licensing intellectual property or mineral rights.
- Active: If the royalties stem from an active business in which you materially participate, they may be subject to self-employment tax and reported on Schedule C.
🧮 Summary Table: Boxes 6a–6c
| Box | Type of Income | Tax Treatment | Reported On | Subject to SE Tax? |
|---|---|---|---|---|
| 6a | Ordinary Dividends | Taxed at ordinary income rates | Schedule B and Form 1040, Line 3b | No |
| 6b | Qualified Dividends | Taxed at preferential capital gains rates | Form 1040, Line 3a | No |
| 6c | Royalties | Taxed at ordinary rates unless active trade | Schedule E (or Schedule C if active) | No (unless Schedule C) |
✅ Best Practices for Taxpayers
- Always cross-check that Box 6b is a subset of Box 6a. If not, consult the K-1 issuer.
- Determine whether your royalty income is passive or from active participation.
- Use Schedule B if your total dividends exceed $1,500.
- Keep documentation for royalty agreements or dividend statements to verify reported income.
- Consult a tax professional if you’re unsure about qualified dividend eligibility or royalty classification.
🔚 Final Thoughts
Boxes 6a, 6b, and 6c on Schedule K-1 offer important insights into the investment and royalty earnings passed through to a partner from a partnership. Understanding how to properly report ordinary and qualified dividends, as well as royalties, ensures compliance and may reduce your overall tax liability.
Because each type of income carries different tax implications, accurate classification and reporting are essential. Whether you’re dealing with mutual fund dividends, income from patented inventions, or natural resource royalties, taking the time to correctly handle Boxes 6a–6c will benefit your financial and tax planning in 2025 and beyond.
