WS1907 What You Need to Look Out For on Your K-1 Tax Form in 2024 | Kelsey Head

Are you a real estate investor who's puzzled by the K-1 form? In this episode, we've got you covered! Our guest, Kelsey Head, a tax expert with nearly two decades of experience, breaks down everything you need to know about the K-1 form and how to make the most of it.

Kelsey emphasizes the importance of verifying personal information on the K-1 as soon as it's received. She points out that checking the basics like name, entity, social security number, address, and EIN can save a lot of time and hassle down the line. She also highlights the significance of ensuring that contributions and distributions are accurately reflected on the form.

We discuss the common confusion that arises during the sale year when LPs see a large amount of income reported on their K-1s. Kelsey clarifies that receiving cash from a sale does result in income because it's tied to the gain from the property sale.

Another concern for investors is the timing of filing their tax returns, especially if they're waiting on their K-1s. Kelsey reassures  listeners that filing a few weeks after the April 15th deadline is not an issue from an IRS standpoint and that there's no correlation between late filing and increased audit risk.

For those seeking further tax advice or who have questions about their K-1s, Kelsey is available via email at khead@headtyler.com, although she did mention that response times might be slower during the busy tax season. Take advantage of her expertise and ensure you have all the information you need for your real estate investments.


Don't forget to like, subscribe, and share the Real Estate Syndication Show with friends who could benefit from insights on real estate investing and tax matters.

VISIT OUR WEBSITE
https://lifebridgecapital.com/

Here are ways you can work with us here at Life Bridge Capital:
⚡️START INVESTING TODAY: If you think that real estate syndication may be right for you, contact us today to learn more about our current investment opportunities: https://lifebridgecapital.com/investwithlbc

⚡️Watch on YouTube: https://www.youtube.com/@TheRealEstateSyndicationShow

📝 JOIN THE DISCUSSION
https://www.facebook.com/groups/realestatesyndication

➡️ FOLLOW US
https://twitter.com/whitney_sewell
https://www.instagram.com/whitneysewell/
https://www.linkedin.com/in/whitney-sewell/

⭐ Be Our Guest!
We are continuously working hard to help our listeners with their journey to real estate syndication. If you think you can add value in any way to our listeners who are in commercial real estate, then we’d love to have you over.
Apply here: https://lifebridgecapital.com/join-our-podcast/

Transcript

Kelsey Head: The number one thing is, and this really goes back to when you initially filled out your investor sheets at the very beginning, when you get that K1, is the name right? Is the entity right? Social Security, address, EIN, all of the things that are very, very simple. Look at those things first.

Whitney Sewell: This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today, our guest is Kelsey Head. She's a partner at Head Tiler LLP, which she founded in 2020 during COVID after leaving a large firm. This is her 19th year in tax. I think she said to be approximately 18, 19 years of experience in tax as a CPA. She is going to dive into a series here with us. I hope you'll listen to each segment because we're going to dive into different questions that I get asked as an operator from our limited partners often. And so you're going to hear a number of things that I know you've had questions about. Kelsey, welcome. I'm honored to get this time with you to interview you and really go through some tax questions, right? Things that, questions I know I get asked all the time, and often I have to say, hey, I am not the one to be asking that question of, right? And so I have to look for obviously people like yourself, right? That are team members of ours, that we partner with, trusted experts like you that have those skill sets, and in your case, it's tax, which we seem to most of us need help in that world of tax. So happy to get to chat with you today. Welcome. Thank you. Appreciate you having me. Kelsey, well, you know, often I get the question, what to look for on your K-1. What does a K-1, like, why do I need a K-1? How do I read it? What does it mean for me? I, you know, people ask all the time, you know, like, well, you know, it doesn't seem very complicated. However, I don't know how it affects my taxes. Right.

Kelsey Head: And it comes up so often. The number one thing is, and this really goes back to when you initially filled out your investor sheets at the very beginning, When you get that K1, is the name right? Is the entity right? Social security, address, EIN, all of the things that are very, very simple. Look at those things first. Make sure that when you filled out your investor sheets to initially sign up for the offering, I'm going to give you a little bit of background on K-1. just exhausting to ourselves to get these K-1s out in a timely fashion, both from the operator side and the accountant side. It's a dual effort. And when those go out, if you will just immediately look to see if the big stuff is right, because ultimately what happens is we'll get to September 14th, and we're to the last day before it can be filed, and we'll have changes still coming in on the partners. And so many of those things can be handled in the first 30 seconds that you open that K-1. So take a look at those things first. The other important items, contributions, of course. If you put in $50,000, make sure that down in the left-hand corner where it says contributions, that left-hand corner is your friend, bottom left. If you look at your contributions, make sure that matches in year one. If you got $10,000 in distributions in that year, make sure it says $10,000 of distributions. You're not expected to know what the net income or loss ultimately is because obviously that goes through a ton of work and calculations, but the high level items of what did I put in? What did I get out? And is my name and social security number and address right? Those are all things that can really, really save a lot of time for just everybody. And then ultimately in a sale year, making sure that that distribution lines up to what you got, because that cash is going to ultimately help figure your gain. So if it's wrong, for some reason, ultimately, you're going to have a surprise one way or another on your K one for that income. So it's, it's not hard. But if you don't know what it is, then, you know, you don't know what you're looking for. But those are the high level items to take a look at.

Whitney Sewell: Yeah, I know, often, We get people asking questions about, Oh, wait a minute. That's not the entity I wanted on there. Right. Or that's not the, you know, wait a minute. That's what we have. Right. That's what you filled out on your subscription agreement. Right. When you wanted to invest in the deal. And then it's a process, right. To get that changed or corrected or, you know, and if it's, uh, in their personal name or if it's in a, the wrong entity, right. They wanted an entity and it's a, it's a process and sometime a legal process, right. To, to get that fixed.

Kelsey Head: Right, and it seems very easy of, well, I had it in, you know, Bob's name and I want it in Bob's LLC, just for color, just to change that in the system and redistribute and re-pull all the K1s and print it all again, all of the things that have to, the process on the back end of that. these tax returns now are 3,000 and 4,000 pages. So every time you change for one name, it's a 3,000 page process, you know, back to a file and zipped and sent out. So it's just, it's those things like that, if we can catch them in March and April versus September and October, it saves everybody a lot of time. And again, on the front end, the better you can do, the better off we all are.

Whitney Sewell: Yeah, for sure. It just leaves more room for mistakes long term, too, right? That's still in the first document. Because I can see us, too, where there's a question about somebody's return, or they even have a question about their K-1. We go back and look at that old subscription agreement. It's like, oh, yeah, it was in this entity. Oh, wait a minute. They actually changed that, but maybe we didn't see that. You know, it's like, I could not agree with you more. And I think sometimes, too, people, you know, they invest with their personal name and then they get in some of these groups and figure out, well, wait a minute, I should have created an entity to start investing. And I want that in that entity. Well, it's not just as easy as changing the name.

Kelsey Head: right right right and it can be so long as everyone knows but it's basically anytime you want to make a change you should have those changes to the operators and you know through your investor portal or however those need to be made have that done by you know the latest january 1st january 15th of the current year to where it happens before we start tax returns and before we're off in the midst of doing them, that makes it a lot easier.

Whitney Sewell: Yeah, no doubt about it. Anything else about a K-1, Kelsey, that an LP or passive investor should know about or think through when they receive it or any other questions that maybe you get from LPs?

Kelsey Head: Yeah, it's generally the only other questions are kind of on the, it's always in the sale year of why do I have all this income, it doesn't ever quite register. You know that because you got cash, you're going to have income and the two are always, they think of it more of a well I just got my capital back you did, but you got that capital back because we sold a property and have a gain. So the two always go hand in hand. And again, just having some tax advice somewhere along the way, you know, letting an accountant know if your personal CPA, letting them know, Hey, I sold this property to where it's not a surprise on the back end. And you can get pretty close by following the cash you received.

Whitney Sewell: You know, Kelsey, the K-1s, and it's a process, right? Our team has just, my goodness, I feel like we've been running through the ringer a few years, you know, trying to improve that process. And it's, we're trying to provide better service to our investors, right? Well, many of them are very concerned, right? That if it's, if they can't file by the first deadline, right? And so I just wonder, you know, what are your thoughts behind that concern? right? Should they be concerned if they're filing three or four weeks later, right? Or, you know, if it's even eight weeks, you know, after that deadline or, you know, what are your thoughts behind that?

Kelsey Head: I, I just don't see it as an issue. I know it's always, it's always a thing to, to rush to get these out by April 1st so that people can file by April 15th. And I do understand if you just have one K-1, And that's the only thing that's holding up your return. That's frustrating. But from an IRS standpoint, I've been at this, this is my 19th tax season. I've never seen any correlation between the two. I know there's some, you know, older school that maybe you got audited more if you filed in late, you know, late September, October. But I just don't think that, you know, May and June filings make any difference to April 15th. Obviously, you want to have your taxes paid in so that you don't have penalties and things, but the extension itself, it doesn't hurt you.

Whitney Sewell: Kelsey, I am so grateful for your time and being able to talk to a number of topics here that I know, I get questions about these things all the time. And again, I feel like, wait a minute, you know, I'm not your, your tax advisor, but I want you to get the, as our LPs, right. I want them to get the information they need and they need to be talking to somebody like yourself. Uh, you know, how can they get in touch with you? How can they learn more about you?

Kelsey Head: Right. If you ever have a question or want to reach out, you can either email me and maybe you can add my email and my contact information. The easiest way to get a hold of me is email. I'll get back to you as soon as I can. We are about to be super busy. So I may be a little behind the next couple of months, but we are ramping up and hiring up. And so I'm always glad to try to help field questions and help out wherever I can.

Whitney Sewell: Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to lifebridgecapital.com and start investing today.