K-1's and taxes

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jimmy
Posts: 69
Joined: Sat Apr 27, 2013 1:29 am

K-1's and taxes

Post by jimmy »

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: 194
Joined: Fri Oct 18, 2013 12:34 pm

Re: K-1's and taxes

Post by gogleheads.orb »

It's a headache during tax time. The cheap tax programs don't help with them.
ChesaPeAke27
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Joined: Fri Mar 04, 2016 12:30 pm

Re: K-1's and taxes

Post by ChesaPeAke27 »

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
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Joined: Mon Aug 22, 2016 3:22 pm

Re: K-1's and taxes

Post by runner3081 »

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: 8212
Joined: Sun Jun 28, 2009 2:21 pm

Re: K-1's and taxes

Post by pshonore »

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
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Joined: Mon May 05, 2008 7:58 pm

Re: K-1's and taxes

Post by MarkNYC »

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
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Joined: Sun Sep 22, 2013 1:48 am

Re: K-1's and taxes

Post by Katietsu »

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
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Joined: Wed Sep 09, 2015 4:44 pm

Re: K-1's and taxes

Post by alfaspider »

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: 10415
Joined: Fri Oct 12, 2012 3:55 pm

Re: K-1's and taxes

Post by 123 »

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: 308
Joined: Wed Sep 07, 2016 5:34 pm

Re: K-1's and taxes

Post by limeyx »

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: 5994
Joined: Mon Aug 22, 2016 3:22 pm

Re: K-1's and taxes

Post by runner3081 »

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.
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