A place to put random occurrences in my life...

Wednesday, September 14, 2016

'Tis the K1 Season

Over the past 5 years or so, as an "angel" investor, I've had the opportunity to put my money to work in early stage tech companies, venture and real estate funds, restaurants and other businesses.  As such, I have the pleasure of harassing people for their K1s.  And, since most of these investments were through an LLC that I control, I'm also on the hook for generating my own K1.

For the most part, tech companies tend to be formalized corporations, commonly Delaware C Corps.  Some earlier stage tech companies start out as LLC - often partnerships - and convert to C corps once a more significant investor is brought in at the seed stage.  Venture funds and restaurants are almost always structured as partnership LLCs.  Any LLC filing as a partnership must generate a schedule K1 listing the share of income for each of the partners.  People and businesses on the receiving end of the K1 must then use the information provided in the K1 to file their own taxes.

The IRS allows for a 5 month extension in filing taxes, which many LLCs take advantage of.  The final date to file without penalty is September 15th.  At this point, I have ~10 investments that issue K1s and take advantage of the extended filing timeline.  For the most part, I have all of my K1s by July, but invariably there are always 2-3 that drag the process into August.  This year, I have one entity which still has not provided a K1 to me - as of September 14th - the day before the filing deadline!

In a review of the received K1s, two of them had erroneous information, each crediting me with larger distributions than what I had I actually received.  My hope is that early stage businesses are generally better at running their business than keeping up with their tax teams and ensuring accurate paperwork.

My accountant's review of the K1s was late as he had been waiting for all of the K1s before actively digging in.  Now it's a scramble to work with the tax teams for the companies that issues erroneous K1s - and of course I'm still waiting for that last K1 to come through.

Although I only have two partners in my LLC, I still have to generate the K1s and of course file my LLC taxes.  And such is the fun and joy of K1 season.