K-1's and taxes

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
jimmy
Posts: 45
Joined: Sat Apr 27, 2013 1:29 am

K-1's and taxes

Post by jimmy » Thu Sep 14, 2017 10:48 am

A co-worker is going to be investing in some publicly traded stocks (BX, IEP, etc) which are set up as limited partnerships and will be reporting K-1’s. It’s a small amount but was wondering for anybody who’s invested in these what is your experience? Is it complicated to report? A headache during tax time? Did you have to file an extension? thanks..

gogleheads.orb
Posts: 64
Joined: Fri Oct 18, 2013 12:34 pm

Re: K-1's and taxes

Post by gogleheads.orb » Thu Sep 14, 2017 11:01 am

It's a headache during tax time. The cheap tax programs don't help with them.

ChesaPeAke27
Posts: 13
Joined: Fri Mar 04, 2016 1:30 pm

Re: K-1's and taxes

Post by ChesaPeAke27 » Thu Sep 14, 2017 11:04 am

I'm a CPA at a local tax firm and these silly investments are a tax reporting nightmare. Many of the larger ones will not get their K-1's out in time for an April 15 filing. We tell many clients to avoid them.
ChesaPeAke27

runner3081
Posts: 549
Joined: Mon Aug 22, 2016 3:22 pm

Re: K-1's and taxes

Post by runner3081 » Thu Sep 14, 2017 11:29 am

I have an MLP with a K1. Pretty simple to log in TaxAct, but you must wait forever to file.

Going to dump it this year and take a loss just to avoid the hassle.

pshonore
Posts: 5576
Joined: Sun Jun 28, 2009 2:21 pm

Re: K-1's and taxes

Post by pshonore » Thu Sep 14, 2017 11:49 am

Turbo Tax will handle the simple parts of a K1 fairly easily. That would be the stuff in Box 1 - 20. Sales may require some additional work and research. Not for the faint of heart. Most publicly traded LPs with K1 forms are out in plenty of time.

Check out https://www.taxpackagesupport.com/ (where most of them are produced)

MarkNYC
Posts: 1166
Joined: Mon May 05, 2008 7:58 pm

Re: K-1's and taxes

Post by MarkNYC » Thu Sep 14, 2017 11:56 am

runner3081 wrote:
Thu Sep 14, 2017 11:29 am
I have an MLP with a K1. Pretty simple to log in TaxAct, but you must wait forever to file.

Going to dump it this year and take a loss just to avoid the hassle.
The major tax-reporting hassle comes in the year of sale. The brokerage 1099 will report the gain based on the original cost, but this will not be correct. Adjusted basis in the partnership units changes each year. Basis is increased each year by taxable income on the K-1, and decreased by deductions and non-taxable distributions. Once you have calculated the correct gain based on your adjusted basis, a portion of the gain is (almost always) taxed as ordinary income on Form 4797 and the remainder is taxed as capital gain.

The K-1 in year of sale will provide sub-schedules to assist you in the calculations.

Many people who owns these investments tend to own more than one, and they don't seem to own them for very long. I suspect the brokers have some involvement in this.

Katietsu
Posts: 718
Joined: Sun Sep 22, 2013 1:48 am

Re: K-1's and taxes

Post by Katietsu » Thu Sep 14, 2017 12:00 pm

Tell him don't. The potential benefit on a small investment is not worth the hassle. The forms required when you sell can be even more onerous if you actually want to be accurate.

I helped one older woman who had spent more in one year on the CPA to complete the extra forms than she would likely make in a lifetime. In her case, it was even worse because she was in a low tax bracket such that any income deferral was not beneficial. I was so annoyed I got her permission to call the advisor who had put her into the investment. He was surprised to learn the information I provided. (Eye Roll.)

alfaspider
Posts: 852
Joined: Wed Sep 09, 2015 4:44 pm

Re: K-1's and taxes

Post by alfaspider » Thu Sep 14, 2017 12:37 pm

MLPs are mostly good investments for elderly investors who intend to leave an inheritance. They get the benefit of the tax depreciation, but the basis gets reset to market value in the hands of their heirs- so the built in gain is never taxed. For most everyone else, they are more trouble than they are worth.

123
Posts: 2313
Joined: Fri Oct 12, 2012 3:55 pm

Re: K-1's and taxes

Post by 123 » Thu Sep 14, 2017 12:56 pm

K-1's are a tax headache. Spouse had one before we married. K-1 form always held up our taxes. The tax write-off wasn't worth the hassle. After a number of years it liquidated into bankruptcy. We got no proceeds. Someone felt like a fool and it wasn't the issuer of the instrument.
The closest helping hand is at the end of your own arm.

limeyx
Posts: 53
Joined: Wed Sep 07, 2016 5:34 pm

Re: K-1's and taxes

Post by limeyx » Thu Sep 14, 2017 2:54 pm

ChesaPeAke27 wrote:
Thu Sep 14, 2017 11:04 am
I'm a CPA at a local tax firm and these silly investments are a tax reporting nightmare. Many of the larger ones will not get their K-1's out in time for an April 15 filing. We tell many clients to avoid them.
Yes, this has been the case for me now for many years.
Finally liquidated every K-1 bearing asset in any taxable account

runner3081
Posts: 549
Joined: Mon Aug 22, 2016 3:22 pm

Re: K-1's and taxes

Post by runner3081 » Thu Sep 14, 2017 3:03 pm

MarkNYC wrote:
Thu Sep 14, 2017 11:56 am
runner3081 wrote:
Thu Sep 14, 2017 11:29 am
I have an MLP with a K1. Pretty simple to log in TaxAct, but you must wait forever to file.

Going to dump it this year and take a loss just to avoid the hassle.
The major tax-reporting hassle comes in the year of sale. The brokerage 1099 will report the gain based on the original cost, but this will not be correct. Adjusted basis in the partnership units changes each year. Basis is increased each year by taxable income on the K-1, and decreased by deductions and non-taxable distributions. Once you have calculated the correct gain based on your adjusted basis, a portion of the gain is (almost always) taxed as ordinary income on Form 4797 and the remainder is taxed as capital gain.

The K-1 in year of sale will provide sub-schedules to assist you in the calculations.

Many people who owns these investments tend to own more than one, and they don't seem to own them for very long. I suspect the brokers have some involvement in this.
Very tiny position in the portfolio and it will be sold at a loss, hoping it won't be a big deal tax-filing time.

Post Reply