Eliminating K-1 pain points
Taxation services built into your private equity software
3 steps to make your tax filing better as an early stage and private market investor
- Give early access to your CPA to rough out your return before your K-1 comes in.
- Make sure your CPA knows private market investor filings, IRS Section 1204, and 1244 for capital gains, better tax discounts, and interest on loans.
- Use software to keep your K-1s in one place, and provide access for an accountant to upload and download the files needed, view your schedule of investments, and registrar.
Photo by Markus Winkler on Unsplash
Every investor knows the pain of tax season. The waiting game to get in contact with a CPA. The delays because you — and everyone else trying to contact their CPA at the same time — are waiting on their K-1’s to file. The inevitable extension that needs to be filed instead.
K-1s aren’t due until March 15th and if you file an extension (which happens in most cases) then the K-1 doesn’t have to be issued until September 15th. Your individual return is due on the same day as the K-1 and you can’t file your individual income tax return without your K-1.
Giving access early is best.
For this to run as smoothly as possible, get all of your other tax materials to your CPA as soon as you are able. Let them get started sifting through the pieces to rough out the return.
This also helps to give you a sense of where you are with your investments, capital gains; forms like Section 1202 and Section 1244. Once the K-1s come in just add the information in and you should be able to file.
* Section 1202 — If invested in equity in us c corp and hold for 5 years your capital gains taxes at the end of 5 years is *Zero*. this has to start as equity and convert, when it converts to equity is when the 5 year countdown starts.
* Section 1244 — For every investment part of the first 1MM. If the company closes you get access to short term write off vs long term write off and get a better tax discount.
* One exception to a cash based tax in the convertible note.
* Interest on loans — you have to pay interest on accrued interest on convertible notes before they convert on a yearly basis.
A CPA that understands early stage private market investments
So much time gets wasted navigating the best way to file. Make sure to pick a CPA that does this type of filing regularly. Access to a knowledgeable CPA means that the process gets done quickly, with less friction or back and forth.
K-1s can be complicated.
The best way to handle this is using software to help create a smooth workflow of data and information so the CPA can access what they need and have it ready for you — all in one platform.
We also found that the mad rush when everything is due can be alleviated by providing access year-round, in real time. This helps both the investor and CPA as they can be fined as tax preparer penalties under the IRS code for tax return errors.
As part of the fiifi SaaS model, get a small monthly bill for better, streamlined access to your dedicated CPA and skip the major $3–5k bill that lands on your desk after the filing. We help create an open dialogue between fund/investor and CPA to reduce stress.
No need to remember where your different documents are located.
The whole process & correspondence can be handled through fiifi. Within our Document section, all your tax docs and K-1s can be stored, filtered, and searched for. Your CPA can pull directly from the fiifi platform and you get notified when everything’s ready.
Want to streamline your K-1 process? Request a free product demo or reach out to firstname.lastname@example.org.