What is a K-1? Schedule K-1 is an Internal Revenue Service (IRS) tax form issued annually for an investment in partnership interests to report each partner's share of the partnership's earnings, losses, deductions, and credits.

This time of year can be extra stressful for fund managers because they have to track down paperwork from their portfolio companies and ensure their LPs receive K-1s in a timely manner.

But don’t worry — K-1s are (relatively) straightforward and the process should be simple.

Like most tax documents and workflows, the process is simpler than the explanation.

Let's cover the basics first.

• When you invest in an LLC or partnership, the IRS requires that company to send you a special tax form called a K-1.
• The K-1 breaks down your share of the profits and losses from the LLC or partnership.
• This information then goes into your personal return for that year.

Sounds simple, right? Well, there’s a little more to it than that.

4 Practical Tips LPs and Fund Managers Should Keep in Mind About K-1s

You see, most fund admins  will file standard extensions. This means that investors might not get their K-1s when they’d like to, before the April deadline.

Usually investors will file an extension too. This makes their lives easier and gets them aligned with their portfolio companies.

Here’s 4 more practical tips to keep in mind:

1. It is common for LPs to file an extension if they’re investing in multiple private deals.

It is common for private equity and venture capital investors to file extensions to avoid the need for amendments.

Most often, this is due to pending information from a portfolio company. In such cases, investors may also need to file an extension to file their personal or business tax returns. Individuals can file Form 4868 for a six-month extension, while businesses file Form 7004.

K-1 forms are typically not included with personal tax returns, but we encourage you to deliver your K-1 forms to your CPA.

2. If you didn’t receive a distribution, your tax activity should be minimal.

If you did not receive any distributions during the tax year, you will likely incur an expense in Box 13W of your K-1.

In this case, the expense on your K-1 is likely a non-deductible expense and will likely not affect your calculations for filing a personal extension.

3. Fund managers are not always issued a K-1.

If your money is invested in an LLC or partnership — as opposed to a C-Corp — then by law that company must issue each of its investors one of these forms.

Fund managers can expect to receive K-1s from their investments but only if they actually invested or have carry in the deal.

4. You can expect K-1s on an ongoing basis.

Two details on this:

First: K-1s are issued on an annual basis to investors within a SPV or Fund. You can expect a K-1 every year when you are a partner or shareholder in a business organized as a pass-through entity. This applies even if the business has operated at a loss for the year.

Second: K-1s contain information related to your investment in that SPV or Fund, including any income or losses as well as any distributions made to you by the entity during that tax year.  You'll need this information when you file your personal taxes.

How Your K-1 Workflow Works as an Allocations Client

What if tax season wasn’t so stressful? Well we don’t think it has to be.

If you’re reading this, you’re probably managing your investments on another platform.

Or maybe you’re duct-taping your fund operations together with spreadsheets, email, and fax machines.

Whatever you’re doing,  we offer a new, simpler way to manage your SPVs and Funds — especially during tax season.

Instead of trying to manage this workflow in your head, you can use Allocation’s Tax Dashboard to see what’s done and what to expect  next.

Here’s how it looks when you’re a client of ours:

I’m Already an Allocations Client. What should I expect?

Allocations prioritizes issuing K-1s as soon as possible and our tax team works around the clock to process returns.

You can view status updates on our Tax Dashboard, and you’ll receive a notification immediately once K-1s are available.

Our team is continuously updating the tax dashboard as returns are being processed, in real-time.

Tax Season Shouldn’t Be So Stressful

At Allocations, we’re focused on making tax season less stressful for our clients.

Get ahead of next tax season. Upgrade and migrate your fund operations to Allocations today.

Looking for some additional support with your taxes and accounting? We can help with that too. Check out our Accounting & Tax Services and go into the next tax season with peace of mind.

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Disclaimer: The information provided in this document does not, and is not intended to, constitute legal, tax, investment, or accounting advice; instead, all information, content, and materials available are for general informational or educational purposes only and it represents the personal view of the author. Please consult with your own legal, accounting or tax professionals.

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