The question gets asked in the wrong shape, which is why it is hard to answer: *how do I create the K-1s?*
You do not create them. Drake generates a Schedule K-1 for each partner automatically, out of numbers the rest of the return already computed. If a K-1 is wrong, blank, or refuses to appear, the cause is almost never on the K-1 itself — it is upstream, in the partner setup or in how the trial balance was classified.
Here is what actually produces a correct set of K-1s, and where the process breaks.
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The partner information has to exist before anything can be allocated
Drake needs one partner record per partner, and each one carries the details that drive both the K-1 header and the allocation:
- Name, address and taxpayer identification number
- Entity type — individual, corporation, another partnership, disregarded entity, estate or trust — which determines checkboxes on the K-1 and can affect withholding
- Whether the partner is a general partner or member-manager versus a limited partner or other LLC member. This one is not cosmetic: it drives whether the partner's share of ordinary income is treated as self-employment earnings in Box 14
- Profit, loss and capital sharing percentages, at the beginning and end of the year
The percentages have to total 100%. A K-1 set that does not add up to the return is nearly always a percentage problem — a partner entered at 33% three times, or a partner admitted mid-year whose beginning and ending percentages were both set to the ending figure.
If a partner's K-1 is not generating at all, check that the partner record exists and has an ownership percentage greater than zero. Drake will not produce a K-1 for a partner it has no allocation basis for.
Ordinary income is not the whole story
The most consequential decisions for the K-1 happen long before you get to the partner screens. They happen when you classify the trial balance.
Every account has to be routed to one of three destinations:
Page 1 — the operating income and deductions that combine into ordinary business income. That single figure flows to Schedule K line 1 and then to Box 1 on each K-1, allocated by profit percentage.
Schedule K, separately stated — interest income, dividends, capital gains, section 179, charitable contributions, investment interest expense, nondeductible expenses, foreign taxes. These deliberately bypass page 1 because each partner has to apply their own limitations to them. Charitable contributions are the clearest case: the partnership does not deduct them, it passes them through, and the partner applies their own AGI limits on their 1040.
Capital accounts only — distributions. They never appear on page 1 and never reduce income. They reduce capital.
Misrouting between these is the error that quietly damages every partner's return. A charitable contribution left in operating expenses reduces ordinary income for everyone, never appears in Box 13, and the partners cannot claim it correctly. Interest income buried in miscellaneous income becomes ordinary business income subject to self-employment tax for general partners instead of portfolio income that is not.
Nothing in the software flags this. The return computes, the K-1s generate, the arithmetic is internally consistent, and the answer is wrong.
Guaranteed payments do not follow ownership percentage
Ordinary income splits by profit percentage. Guaranteed payments do not — they go to the specific partner who received them, in the amount they received.
That means guaranteed payments need to be entered as a special allocation to that partner rather than left to the automatic split. A two-partner firm where one partner takes $120,000 of guaranteed payments and the other takes none will produce two identical Box 4 amounts of $60,000 if you let the ownership percentage do the work, and both K-1s will be wrong.
Guaranteed payments also flow to Box 14 as self-employment earnings for the receiving partner, on top of their share of ordinary income if they are a general partner.
Self-employment income is its own calculation
Box 14 is not simply Box 1 plus Box 4. Whether a partner's distributive share is self-employment income depends on the partner's status — general partners and member-managers generally yes, limited partners generally not for their distributive share, though guaranteed payments for services remain self-employment income regardless.
If Box 14 is empty for a partner you expect it populated for, check the general-versus-limited designation on the partner record before you look anywhere else.
The beginning capital account is entered per partner, not on Schedule M-2
A specific mechanical point that costs people time: you cannot type the beginning capital balance onto Schedule M-2. That field is a computed total, summed from the partners' individual beginning capital accounts, so the software will not let you edit it.
The entry happens on each partner's K-1 screen. Enter each partner's beginning capital there and Schedule M-2 fills itself in.
Two things to get right while you are there. Copy the ending capital account from each partner's prior-year K-1 — that is what becomes this year's beginning. Grabbing the prior year's beginning column instead is an easy slip, because you are filling a field labeled "beginning capital," and the resulting difference equals one year of that partner's activity, which is not a number you will recognize when the return fails to reconcile.
And enter profit/loss percentage and capital percentage separately. They are frequently different — a partner can hold 63% of profit and loss and 79% of capital — and both matter, because any partner at 50% or more of profit, loss, or capital triggers Schedule B-1.
Item L: the capital account, on tax basis
Since the 2020 tax year, partner capital accounts on Item L of the K-1 have to be reported on tax basis — not GAAP, not section 704(b), not "whatever the client's books say."
Each partner's Item L rolls the same way: beginning capital, plus contributions, plus their share of income or loss, less withdrawals and distributions, equals ending capital.
Two checks catch most problems here:
Every partner's beginning capital account should equal that partner's ending capital account on last year's K-1. When it does not, either the prior year was wrong or the current-year setup lost something — and both are worth resolving before the return goes out.
The partners' capital columns have to sum to the total on Schedule M-2. If they do not, an allocation is off somewhere.
A last check that catches nearly everything
Add up Box 1 across every K-1. It has to equal ordinary business income on page 1, which equals Schedule K line 1. Then do the same for the separately stated boxes against their Schedule K lines.
If those totals tie, the allocation mechanics are working. If they do not, the difference tells you where to look — a percentage that does not total 100%, a special allocation that overrode more than you intended, or a partner record that is not participating.
Where this goes wrong before Drake is even open
Notice how much of the above is not a Drake question. Partner percentages and special allocations are genuinely software work. But the classification decisions — is this account ordinary income, a separately stated item, or a capital transaction — happen back in the trial balance, and they determine whether the K-1s are right.
That is the part with no safety net. A misrouted charitable contribution produces a return that balances, computes, e-files, and is wrong on every K-1 that goes out to a partner's personal return.
Getting the classification right before it reaches the K-1s
This is the specific problem Ledger IQ addresses. You upload the partnership's trial balance and map each account to an actual return line — "Sch K Ln 13a — Charitable contributions," "Ln 10 — Guaranteed payments to partners," "Sch K Ln 5 — Interest income" — rather than to a code or a generic bucket. Suggestions come from built-in rules, your firm's own mapping history, and AI, and every one has to be reviewed before it counts toward anything.
Because the mapping is per software and per form type, an account cannot land on a line that does not exist for a 1065. And the Tax Lines view shows the return the way the return is organized — page 1 income, Form 1125-A, page 1 deductions, Schedule K, Schedule L — so you can see at a glance whether the separately stated items are actually separately stated instead of hiding in ordinary income.
The Working Trial Balance closes the loop with an income proof that ends exactly where the K-1s begin: net income per books, plus book-to-tax differences, less separately stated items, equals ordinary business income on page 1 — which is Schedule K line 1, which is Box 1 on every K-1. When that proof ties before you open Drake, the K-1s Drake generates are working from the right numbers.
Supports Forms 1065, 1120-S and 1120, with exports for Drake, Lacerte and UltraTax CS. The Drake walkthrough is in the Drake Tax resource guide.