Tax Watch: Don’t Forget your Partnership Income!

It’s that time of year again and most of us hem and haw, and procrastinate when it’s time to give Uncle Sam his due.

And while we are given a couple of extra days to file this year (deadline=April 17, 2012), d-day will be upon us before we know it. So in the next few columns, I’m going to share some tax tips and reminders that often take folks by surprise.

And Schedule K-1, used to report partnership income, fits that bill! Often one of the last tax documents that investors receive, many folks are caught unaware by it, as they don’t even realize they are part of a partnership.

The form’s purpose is to report your share of the partnership's income, losses, deductions and credits. Partnership income is usually not taxed to the partnership, but you are still liable for your share and if you receive income from a limited partnership (LP), or even some exchange-traded funds (ETFs) that invest in commodities or an investment club, you can look forward to receiving a K-1.

Now, as you can see by following this link to the IRS, there are several Schedule K-1’s to choose from: IRS.gov Search Results

As if that’s not confusing enough, K-1 income may also need to be reported in multiple places on your federal tax return—in some cases, Schedule A, Schedule B, Schedule D and Form 6781.

 My advice: Use a tax-filing software program or an accountant so that you make sure you are filing properly.

 And for next year, if your K-1 income is due strictly to ETFs or LPs, think about moving those investments into your IRA. That way, any taxes will be deferred.