Navigating the U.S. tax system can be a challenge for any individual. In fact, the Internal Revenue Service (IRS) has more than 800 different tax forms and schedules. The good news is that most taxpayers have a relatively small number of tax forms to navigate. However, it is important to fully understand which tax forms are relevant to your situation and what to do with those documents to avoid any tax penalties. Forms that often spark questions from CamAm’s investors include the Schedule K-1, W-2 and Form 8805. Below are some answers to frequently asked questions to help provide a better understanding of these tax forms.
Frequently Asked Questions for a Schedule K-1
What is a Schedule K-1 document? A K-1 is a tax form that is issued annually for investors in partnerships, LLCs, S-Corps and other structures that have pass-through income. The document details your individual share of any income gained or any financial loss from ownership in the entity during a tax year.
Why do I receive a K-1? The main purpose is for annual tax reporting to the IRS. The IRS uses the form to verify that an individual taxpayer is paying all of the appropriate taxes. The K-1 Schedule documents any income or losses from an investment, such as income earned from dividends or any income or loss from the sale of an asset. It serves a similar purpose as IRS Form 1099-MISC or 1099-NEC, which reports dividends or interest from securities or income from the sale of securities. CanAm and its affiliates provide annual K-1s to all investors in its EB-5, private equity and other investment funds. Individuals also may receive a K-1 from other non-CanAm investments, such as an Exchange Traded Fund that operates as a partnership.
What information is included in a K-1? The three parts of a K-1 Schedule are:
1. Issuing entity information
2. Partner/shareholder information
3. Financial details
When do I receive my K-1? It is common to receive a K-1 much later than other tax documents. Tax forms that provide annual income information, such as a W-2 or 1099, are issued by the end of January, while the deadline to receive K-1 Schedules is March 15.
Will I receive multiple K-1s from CanAm? Normally, an investor will receive one K-1 from CanAm. A redeployment investor who invests into different redeployment projects will only receive one K-1.
What should I do with my K-1? The entity issuing the K-1 files the form with the IRS and provides a copy to its investors. Individuals need to provide a copy of their K-1 to their tax preparer or accountant along with other tax forms and documents when preparing their annual tax return.
Frequently Asked Questions for a W-2