Top Tax Myths

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BY Scott Turner
August 27

And their Hidden Costs to Your Organization

It’s a rare day to find anyone that gets excited about taxes. But there’s one area in particular that always manages to boil someone’s blood — and that’s the Schedule K-1. With more than 30 years of collective experience, the K1x team has yet to ask anyone how they feel about the K-1, and more specifically the K-1 process, without getting an eye-roll (or worse)! It is, by far, the worst part of investing.

The value and volume of alternative investments have roughly doubled each year recently and are projected to reach $23 trillion by 2026.

Despite the financial community’s collective disdain for the K-1, alternative investments are still a very popular vehicle for investing. According to the market research firm Prequin, the value and volume of alternative investments have roughly doubled each year recently and are projected to reach $23 trillion by 2026. If we apply this same growth rate to the IRS statistic of the number of K-1s, that means we could expect to see 124 million K1s produced each year. That also means 124 million K1s received by investors.

Given the accounting industry’s significant labor shortage, adding this amount of additional work is sure to clog the capital markets system. As a result, a process that is  already considered incredibly confusing, expensive, and cumbersome will inevitably become an impossible burden from which to recover.

So what are we, the collective industry, going to do about it?

Most in this industry would say this is an impossible crisis to solve — it’s too big, too complex, too unstructured, and there are too many stakeholders involved. While I agree with the sentiments, I disagree with the pessimism and the proposed solution. If we make some adjustments in our overall view, this is a solvable problem. And, quite frankly, a solution already exists.

But for change to truly happen successfully, we need to implement a mind shift away from some of our original thinking. That is why I would like to debunk some of the misinformation that I continue to hear. That is the first most critical step that will point us in a new direction; one without the chaos and drama associated with K1s.

Select a myth below to debunk: 

My accountant handles that
We need to wait until the IRS does something about it.
Investors want K1 packets to mirror what was sent last year.
Portals have helped the K-1 problem.
K1s are an accounting and tax department problem.
We know our ROI.
If you’ve seen one K-1, you’ve seen ONE K-1.
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