John R. Bullis: Tax forms can be befuddling
If you received a Schedule K-1 with information that should be reported on your 1040 form, U.S. Individual Income Tax Return, you know that form can be confusing.
Schedule K-1 forms come from partnerships (and limited liability companies known as LLCs) on Schedule K-1 form 1065.
Schedule K-1 forms also come from corporations that have elected to be taxed as an S corporation-Schedule K-1 form 1120S.
Also, Schedule K-1 forms are issued by trusts and estates. That is Schedule K-1 form 1041.
But the Schedule K-1 forms from big or publicly traded partnerships are the most confusing of all.
I don’t think small investments in big or publicly traded partnerships are good for your regular investment account. If your retirement plan or IRA invests in those items, at least there are no special tax-reporting rules to follow. The retirement plan or IRA does not have to file a return that lists all those types of income, deductions, credits and types of gains. The distributions from the retirement plan or IRA are taxable to you as ordinary income, and that is easy to do.
Unless you have a big investment in that publicly traded partnership, it seems to me the investment should only be in your retirement plan or IRA. Even then, perhaps investing in something you don’t fully understand can be a mistake.
The fees to invest in that can be high. And it is sort of like some other things in life, easy to get into but difficult to get out of.
Why not leave that investment to the millionaires and very wealthy? I talked to a geologist once about oil and gas limited partnerships. He explained how those are usually for a small area. If valuable resources are found in that, there can be some good gains. But mainly they just prove the big deposit or resource for the main holdings that are not your investment; they are held by others or the main company.
Did you hear? “Good judgment comes from experience, and a lot of that comes from bad judgment.” — Will Rogers
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.