Private equity tax treatment is one of the friction points investors underestimate. Plan ahead with your CPA.
K-1 filings
Every deal issues a Schedule K-1 reflecting your share of income, gains, losses, and deductions. K-1s typically arrive in March or April, after most personal returns would otherwise be ready.
State filings
If the portfolio company operates across multiple states, you may have nonresident filing obligations in each. Most sponsors provide composite returns to simplify this, but not all.
UBTI for IRAs
Investing PE through an IRA or 401(k) can trigger unrelated business taxable income, which is taxed at trust rates. Consult your tax advisor before using retirement capital.
Carried interest treatment
Sponsor promote is typically taxed as long-term capital gain after a three-year holding period, but tax law can change. Investor-side returns are generally long-term capital gain.
If you are evaluating a transaction in this space and want a candid second look, Solender Capital is happy to compare notes. Reach out through our contact page and share what you are working on.