If a borrower files a K-1 with their tax returns, what does this indicate?

When a borrower files a K-1 with their tax returns, it indicates that they are a partner in a partnership or a shareholder in an S corporation. A K-1 form is used to report income, deductions, and credits from partnerships and S corporations, which typically involves self-employment income since these entities do not pay corporate taxes at the business level. Instead, the income is passed through to individual partners or shareholders to report on their own individual tax returns.

Being associated with a partnership or S corporation is often linked to self-employment, as individuals in these roles are actively involved in the business operations and contribute to generating the income reported on the K-1. This is distinct from a salaried employee, who would not typically receive a K-1 but rather a W-2 form. Other options like personal investments or a side job may involve income reporting but do not necessarily align with the definitive connection to self-employment as indicated by the K-1 form.