Be careful in the reporting of tax liabilities from K-1’s that may have made their way to you in the mail from an investment holding.
As a quick review a K-1 is used to report income attributed to ownership percentage generally from a partnership, corporation, or other similar entity.
Not all K-1’s are created equal.
K-1’s that you receive from a holding in an IRA or other tax deferred account DO NOT GO ON YOUR FEDERAL TAX RETURN as they are not a taxable event. If you report a K-1 from an IRA or other type of tax deferred account on your federal tax return you may pay extra taxes.
How to determine if your K-1 is from an IRA or other type of tax deferred account:
The way your name is written on the K-1 is the only way to be sure of the account type. Extra language such as “Trustee”, IRA, FBO, Sep or other, are signs your K-1 is possibly from a tax deferred type of account and might not be reportable. Upon discovery of this language it is a good idea to review your account holdings to determine if the K-1 is in fact from an IRA or other qualified holding. If in doubt contact your tax professional or you may call the number on the K-1 for greater detail as well.
If the K-1 is not taxable, why did they send it to me?
With the complexity of tax laws and investment products, most investment companies have made the decision to distribute K-1’s to all investors of their partnership or over report to everyone.
As a reminder, we are not tax professionals and this advice is general in nature. Please consult your tax professional for specific questions.
Have a Great Day!