This weeks question from our field of dreams (clients and friends) is about the K-1 tax form.
A K-1 is a document that reports ownership related income. Since many entities are pass through (non-taxable) entities and are generally not taxable, the K-1 form gives the IRS a trail of where the money went, and how much of it went to the receiving person or entity, creating a taxable event for the K-1 recipient.
Do not include K-1’s that reside in an IRA or other tax sheltered investment on your tax return!
If a K-1 recipient holds the investment in an IRA or other tax sheltered type of investment, DO NOT FILE YOUR K-1 INFORMATION ON YOUR TAX RETURN, YOU ARE PAYING EXTRA TAXES! Most K-1 creators rightly send them to all recipients regardless of the recipients tax status. If a tax filer shows unnecessary taxable income from the K-1 on his/her tax return, they may be paying extra taxes.
Why do K-1’s arrive so late during the filing season?
The IRS does not have a deadline for filing K-1’s, such as the February 15th deadline for most other tax statements. Also, K-1’s are often more complicated and may be only finalized after other types of returns are completed, thereby delaying their delivery.
We are not CPA’s, so be sure to check with your tax professional before making any changes based on this article.
If you are a K-1 recipient, be sure that K-1 investment is in a taxable account before reporting it on your return and you may avoid unnecessary double tax payments.
In closing, it’s a long weekend for many, as Banks and Markets are closed on Monday, in Honor of Presidents Day. As we often do, Monday will be a great day for us to sneak into the office and catch up on overdue items.
Have a Great Looong Weekend, and I look forward to bringing you comments from the Speaking Event tomorrow!
Thanks for reading!
JK
214-706-4300