Tax question about K-1 and sole proprietor

Discussion in 'Taxes and Accounting' started by primemod3, Jan 8, 2007.

  1. primemod3


    If a partnership has limited partners who receive a distribution of capital gains, a K-1 is sometimes filed.

    If a sole proprietor is running a private equity fund and needs to distribute capital gains to investors, what is the equivalent of a K-1 form that he would send?

    Thanks in advance to any replies.
  2. I believe you are talking about the 1099-DIV.
  3. primemod3


    What about short term capital losses? Are these reported under 1099-MISC?
  4. I believe you should still be reporting on the 1099-DIV. I am no expert on this, so I really think you may want to speak with a bookkeeper. Since there were no capital gains, the sale should go under box 3 and box 4 should show no taxes withheld. When the client goes to file their 1040, their cost basis will reflect the loss between the investment and the sale. Short term and long term losses do not matter because a loss is a loss.

    If it is just a loss, but they have not sold their shares, nothing is done. I was assuming that they took a distribution to move into another fund, or close their account.
  5. By definition, a sole proprietorship has NO investors. It therefore cannot pay dividends to anybody, nor distribute income or losses to anybody. The only thing that could come close to an investor in a sole proprietorship would be a LENDER who lent money to the business. Of course the business would pay back the lender principal plus interest.

    For tax purposes only, your "private hedge fund" needs to file a partnership tax return. Then each of your investors will receive a schedule K1. You should consult an Enrolled Agent or CPA that specializes in income tax.

    Have fun,

    Michael Benedetti, EA

  6. 1099 misc you will have to pay SS taxes. You shouldn't get that for capital gains. k-1, 1099 B, 1099 DIV( never received that one) but speak with your accountant about what you should be getting.