Earlier this week, a client came in for his annual visit (call him John). John invested in a new investment partnership this year, and he was told by the partnership that the only item on his K-1 will be exactly $10 of interest income. But John does not have the K-1; indeed, he won’t have it until sometime in July. Does John have to wait until July to file his tax return?
Yes, he does.
The statement can be used to determine how much tax John owes for 2023; however, it cannot be used for filing. You must have all your tax documents including all K-1s before you file. It is far, far better to extend than amend. Yes, that K-1 (for John) results in $3 or so of tax and is close to irrelevant for his tax situation. But who knows what other items are on it?
When the K-1 is actually issued there could be:
- A change from the $10 in interest income to something else;
- Perhaps some of the interest income isn’t taxable on either the federal or state level; and
- Perhaps there are other items that will be on the K-1 that have to be entered.
The K-1 is determinative in preparing (and filing) a tax return; the statement is not. I know this personally: I’m an investor in a partnership whose K-1 shows up every year in early August. In late March I’ll get a statement (similar to the one John has) noting their projected items of income and deductions so I can file an extension (and make an extension payment). In the case of the partnership I invested in, they’ve invested in other entities and have to wait for the results of those underlying investments to formally arrive before issuing the K-1s.
When you invest in a partnership or S-Corporation, you need to be aware that to file by the April deadline you will have to have that K-1. Partnerships and S-Corporations can (and these days often) obtain extensions until September 15th. If you invest in an entity that takes the extra six months, you will be extending your tax return.
John knew coming in that he would be extending. He spoke to me last year about the new investment, and I told him an extension was likely. If you make such an investment, be aware that an extension is likely in your future.
Tags: 2024.Tax.Season