K1s

[Tracy Lee]

TP gets a 1099 R  showing: Charles Schwab & Co Inc Cust SEP-IRA with gross & taxable distribution, code 7 and IRA box marked.

He also gets a K1 in his name that shows Charles Schwab & Co Inc Cust SEP-IRA with Box 1,2,5,6a  income, do I also add that K1 to tax return or is it all taxed thru that 1099R?

I always find these confusing.

[schirallicpa]

Does it show the same account number.  

 

[Abby Normal]

A K1 inside a retirement account is not entered. And you have to be careful with K1 investments inside retirement accounts because they can result in taxable income, although it's rare.

[b#tax]

Generally when I see these with the same account number the 1099R will be reported on the tax return and the K-1 is there to report the unrelated business taxable income which would not be reported on the return but reported on a 990-T. If memory service me correctly, they can have up 1000.00 of UBTI before you have to report. Many brokerages often handle the reporting and paying the UBTI for the client by filing the 990-T so you may need to check with the client. 

[Tracy Lee]

Account number is different; so sounds like I need to enter the K1?

Thank you for reminding me about the account number because it doesn't show up on the K1 itself, just on the supplemental page.

[jklcpa]

1 hour ago, Tracy Lee said:

He also gets a K1 in his name that shows Charles Schwab & Co Inc Cust SEP-IRA

What type of entity is shown on the K-1 as the owner of the account?  Should be box "I" (Cap letter i) partway down the left side. Does it say "individual" or "retirement" or "IRA", or just what is in that box?

[Tracy Lee]

Both his K-1's (1065) show Box I1 Type of Entity as IRA/SEP/Keogh.  He had no separate Charles Schwab Form 1099 Year End Summary, just the 1099R, and the account numbers did not match to his K1's.  I did NOT enter his K1's.

Her K-1's (1065) show Box i1 Type of Entity as Individual.  She had a separate Charles Schwab Form 1099 Year End Summary with statement page showing her K1s as NOT being reported to IRS with matching numbers tying them all together, so I entered her K1s.

So, did I do this right, or should I enter his K1's as well?

[jklcpa]

I think your handling is correct.  His K-1 activity is inside his IRA. Nothing to report on the 1040 except the 1099R.

Her partnership investment is in a taxable investment but not on the broker's consolidated 1099, so you would enter the K-1 activity on the 1040.

[Lion EA]

Is the tax ID # his SSN? Or, an EIN XX-XXXXXXX ? If it's an EIN (not your client's SSN) then have client check if Charles Schwab is filing any required Form 990-T.

I think B#TAX is right about the $1,000 threshold, but that includes UBTI from ALL income sources within that IRA.

[Slippery Pencil]

It's not his K1, it's his IRA's K1.  Check the ID# as Lion suggested.  It will be the IRA's EIN, not his SSN.

[JohnH]

I think these partnerships that investment advisors purchase, especially within IRA’s, must pay really generous commissions.  
 

After all, SOMEBODY needs to benefit from all this mess created by the k-1’s. 

[mcb39]

On 5/7/2025 at 8:34 AM, JohnH said:

I think these partnerships that investment advisors purchase, especially within IRA’s, must pay really generous commissions.  
 

After all, SOMEBODY needs to benefit from all this mess created by the k-1’s. 

I have never seen so many small, meaningless and unprofitable K1s in my life as I have seen this year.  Almost everyone with investments has two or three of them.

[Abby Normal]

I'll never forget the look on my clients' faces when they bought 10 of these K1 investments, and I told them each K1 adds $75 to their tax prep bill, every year, and $150 when the each K1 is sold, so I hope they make a lot of money on these. They went back and told their broker who then called me.

Of course these are prices from about 10 years ago.

[JohnH]

I think there are two main factors.  

1) A misguided  (or potentially deceptive) effort to create the illusion of "diversification".  In fact, these small investments have virtually no impact on performance because they are so small in relation to the size of the portfolio.  Whether they gain or lose, they don't move the needle very much in the long term.  But they generate lots of paperwork which conveys the illusion that they're working hard for the client.  After all, my guy must really be looking out for me if these sophisticated investments require all this fancy reporting. 

2) A commitment to stay focused on focusing on specific funding objectives.  Client: "You said this strategy would be good for the college fund for our kids."  Broker, "Oh, you must have misunderstood. I was talking about building the college fund for MY kids. These LP's/ MLP's/ REIT's pay awesome commissions!"

[Abby Normal]

I think the only factor that matters is the big commission stream earned by the broker. They have a huge conflict of interest.

I explain to my clients that these partnerships were created because borrowing money from the banks is expensive and the operators didn't want to risk their own money, so they went public to get unsuspecting investors to buy in, and they pay brokers big fees to foist these investments on you.

[Abby Normal]

I had one client who had 30k in phantom income when she sold these because a large portion was currently taxable ordinary income, and the big capital losses had to be carried forward because she already had plenty of capital loss carryforwards.

[BulldogTom]

I stay out of my client's investments, until last year, I broke my rule.   Client is in a PTP for 30 days, loses $100 and the K-1 drops a few dollars of interest expense and depreciation on her.   Add in my charge for Sch E page 2 and the 1256 straddle form and she lost a couple hundred bucks for a 30 day investment.  I asked if she knew what the partnership did, she had no clue.   So I gave her some questions to ask the advisor.   She called me back and said he promised not to put her into those investments again.

I never know where the line is to talk to my clients about their investments when I think they are being taken advantage of.   I try to tell myself it is none of my business, but I care about my clients and it pi$$3s me off when I see these "professional advisors" putting their profits before my clients best interests.

Tom
Longview, TX

[Sara EA]

I stay out too, but sometimes you just have to say something.  I was called in by one of our CPAs whose clients were setting up a trust to explain to them the tax effects.  Talking with them, it was obvious they had no idea why they were doing this.  They had limited assets, not much to protect, and had gone to one of those free dinners.  I ended up telling them to write down a list of questions and go back to the advisor, warning them not to sign anything until they got answers.

Another time a client came in with a dozen 1099Rs.  His advisors were buying him annuities and cashing them out for new annuities every single month, costing him enormous fees.  That one we just had to call the state insurance commissioner on.