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Posted by Beliavsky on October 8, 2007, 3:53 pm
I invested $100K as a limited partner in a hedge fund
in 2006, which declined to $49K, but when I use
Turbotax, I am surprised that this investment has
greatly increased my taxes. On the K-1, the nonzero
items, in thousands of dollars, are
-21 (1) Ordinary business income
52 (5) Interest income
5 (6a) Ordinary dividends
-11 (11f) section 1256
-15 (11f) mixed straddle short term
-22 (11f) mixed straddle long term
1 (13v) management fees
1 (13v) operating expense
25 (13v) interest expense
13 (13v) dividend expense
My question is if the (13v) interest expense can be
reclassified as "investment interest expense"? What
about the (13v) dividend expense? Is there some other
way to get the dividend expense to offset the ordinary
dividends in (6a) and to carry over the dividend
expense to ordinary dividends recieved in future
years?
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Posted by Mark Bole on October 8, 2007, 9:17 pm
Beliavsky wrote:
> I invested $100K as a limited partner in a hedge fund
> in 2006, which declined to $49K, but when I use
> Turbotax, I am surprised that this investment has
> greatly increased my taxes. On the K-1, the nonzero
> items, in thousands of dollars, are
It's really a tax question, not a financial planning question.... you
might try misc.taxes.moderated.
However, one "free" resource that might help is:
www.taxpackagesupport.com
If your LLP is listed, you can "log in" and download a file of your
personal tax data for automatic import into Turbotax. This might help
you determine where everything goes. Try using a "dummy" tax return
first, just to see what happens when only your K-1 data is imported, and
no other items on the return.
Otherwise, the complexity and dollar amounts involved suggest you should
seek professional help.
-Mark Bole
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Posted by TB on October 8, 2007, 10:18 pm
Mark Bole wrote:
> Otherwise, the complexity and dollar amounts involved suggest you should
> seek professional help.
I agree with Mark, I suspect you'd need to do some overrides and direct
form entries to make it work in Turbotax (or heck in Proseries, Intuit's
professional analog to that product).
B- those "dividend expenses" are probably payments in lieu of dividends,
to the investors from whom shorted stock has been borrowed (guessing
that this is a long/short fund? Or at least, they do some shorting?) So
they're not in the nature of "expenses related to the production of
dividend income" which seems to be what you're reading into it. On your
personal return, if it were you borrowing the stock, they would be
treated as investment interest expense if some holding period
requirements were met. I don't know how a hedge fund passes them
through, though, meaning whether they determine those holding-period
requirements before preparing the k1. Perhaps those are the expenses
that did NOT qualify for investment-interest treatment, and the
"investment interest" item you mentioned (that wasn't coded 13G which I
believe is the normal coding of investment interest) represents dividend
expenses that DID meet the holding period. Too little info to tell (and
I don't know all that much about k-1 reporting for hedge funds so don't
read too much into my reply here).
My hunch is that not all of your loss and expense items are landing
properly on your tax return because of those "other" category line 11
and 13 items. But you may be hitting four different schedules and a few
obscure (for most people) tax forms to have it all sort out. Paying an
accountant is worth it rather than learning all the ins & outs of
pass-through taxation. This is why I tell clients buying into anything
generating a K-1 to budget a tax-advice cost alongside management fees
(on top of the actual tax costs).
You have my sympathy, I generally hand these kinds of returns off...
-Tad
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Posted by Beliavsky on October 11, 2007, 2:28 pm
<snip>
> You have my sympathy, I generally hand these kinds of returns off...
Thanks to you and Mr. Bole for your advice. I am looking for an
accountant but doubt that things will get done in time for the October
15 deadline (for people who have extensions). Since penalties for not
filing in time are steep, I guess I should try it myself, being
conservative (and paying the full tax due) and later file an amended
tax return with professional help. I only got the final K-1 forms
about two weeks ago and did not realize how complicated they would be.
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