Top K-1 Myths: Myth 1
BY Scott Turner
“My accountant handles that”
As a former public accountant, I love this response; but I honestly never knew I had so much power. It has always amazed me that the savviest business professionals — ones that can dissect a financial statement with laser precision — simply give up when it comes to understanding the K-1.
There are probably a few reasons for this: lack of standardization, complex reporting requirements, and issues with how the actual K-1s are produced. I would contend that if we presented information in a consistent and transparent manner, more people would understand what the K-1 document means.
But what is really surprising to me is the broader assumption that if you hire an outside preparer, your worries are over. The reality is, there is more work done by in-house accounting staff than they are credited for. Data collection, organization and acquiring an in-depth understanding of investors is all done in-house. After all, for tax accountants to get involved and do their jobs successfully, they need data. Unless your accounting firm owns your investor data and is responsible for your investor relations and questions, a good portion of that work is done in-house.
After all, for tax accountants to get involved and do their jobs successfully, they need data.
Don’t get me wrong. Tax is an extraordinarily complex subject and I’m not suggesting that you bring this work in-house. But whether you’re producing K-1s or receiving K-1s, I would review the following checklist to fully understand your role in the process and gauge the amount of time and resources you are expending in this area.
For producers of K-1s:
For recipients of K-1s:
Now that you’ve gone through these checklists, let me leave you with a simple but important question: would technology help you and your accountants bridge some of the staffing gaps everyone is experiencing? Can you altogether eliminate some of the more manual tasks and replace them with more value-added risk analysis?
Experience tells me most organizations that outsource their K-1s to accountants are already spending far more time and resources preparing and/or aggregating their K-1s than they might realize.
Experience tells me most organizations that outsource their K-1s to accountants are already spending far more time and resources preparing and/or aggregating their K-1s than they might realize. The time spent (and even the compliance risks associated) with K-1s does not magically disappear by bringing on accountants.