Tax Season – Not All K-1’s are Created Equal, Be Careful What You Report

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. 

Form K-1

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!

JK

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