Schedule K-1 different gains (box8) when compared with my broker 1099B gain

[Jr12398543]

I am working on my taxes and I already loaded from Fidelity the realized gains and loses. So, the account on fidelity has a realized short gain of lets say $1500 for example on one stock. Which is actually the money that I received through my broker account and the money that I should have to pay taxes. However, when I received the K-1, they do some adjustments and on the column 8 Net Short-term capital gain have a a higher number. Lets say $2200. Hence I have 2 questions:

1) If I load the k-1 into my tax return then I will be double dipping the gains. I will have to report and pay taxes on the $1500 plus the 2200 since it does not know that it needs to correct or just use one value. So which one should I use or delete/update? Should I pay on the schedule K1 column 8 or what the 1099-B shows? 

2) If I need to use the corrected value from the K1 then should I go to the 1099-B and make corrections to the numbers reported by Fidelity? but this will create a discrepancy. Or should I just keep the 1099B as it is and do not report the column 8 and leave it blank? I did check my previous yer tax return and I found a similar situation where my tax advisor did this. 

Thanks

Jesus

[jtax]

Can you say a little more. Is the K-1 from a trust? Is it a grantor or non-grantor trust? Are you the trustee? Or is the K1 from an investment vehicle (an LLC, partnership, etc.)?

This is a confusing question because you should not get a 1099-B in your name for the same income that you get a K-1 for. They are usually separate things. 

Did you sell this investment (in the LLC, partership)? Is the K-1 marked "final?"

Also note that the  gain is almost never the amount you receive. The gain is the proceeds (that's what you get) minus the basis  (usually the cost). You are taxed on the gain which is not the proceeds or the cost. If the income is from an investment entity (LLC, etc.) what cash it give you may have no relationship to the income it throws off (passes through to you) on the K-1.

[Jr12398543]

Hi Jtax,

Thanks for you reply. These investments are publicly traded partnerships (PTP). I always have the limited partner option marked as well as the Domestic partner as an individual.

I do get the 1099-B under my name, what I see in the K1 is that they have different net gains. 

I sold this investment and yes the K1 is marked as final. 

So basically my realized gain that I know I received is the one on the 1099-B. The K1 shows a different net gain on column 8 based on the sales schedule which is calculated using column 5 on the schedule (cumulative adjustments basis) which includes the cumulative allocable partnership income, deductions, distributions, etc. 

Does this helps? What I am planning to do is to keep column 8 blank and avoid double dipping. 

Thanks

[jtax]

Thank you. That helps.

Does the K-1 usually have a box 8 entry?

Box 8 is your share of gains from the LP's investments during the year. That will change year to year. It has nothing to do with whether the LP distributes any cash to you, though they might. You can ask the LP to verify.

The 1099-B info very different. It is for your sale of the LP.  The proceeds should match the deposit in your brokerage account.

It is hard to know without seeing the  K-1 and the 1099 and perhaps statements, but what normally happens is you enter the K-1 info (paying tax on box 8 ) and then you enter the sale info during the interview (there will be a question asking if it is final year/and if you fully disposed of your interests.) Then you enter your basis (in your records and often on the k-1 or supplemental) and proceeds (from the 1099-B). TT will calc the gain on the LP sale (proceeds - basis) and allow any prior year passive losses that.

[Jr12398543]

Thanks Again, I definitely did not receive the amount reflected on the K1. I di dcheck all statements and transactions on my broker account. I only found 4 transactions. The time I bought and 3 for the 3 sales I did. As an example and as as close to the actual numbers. I bought in two different accounts maybe $5K. Sold them for 6K. Since I did it in both account I made close to 2K in gains. That's what it is on the 1099-B. I have to pay taxes on that short term no questions asked. 

On the K1 schedule Part II L it shows something like this, begg. 0, capital contributed 10K, current year net income 2700, withdrawls 13K, ending capital 0. Where does extra 700 come from? I have no idea but on the schedule they point out that. and If I put that number then suddenly I have to pay taxes also on the 2700.  So, now I go to Part III, column 5 is 16, column 8 2412,and column 11C 284, and 13W is 8. I guess I have to pay taxes on the 243, although again I did not see that money in any account. If I go to the schedule it shows the transactions for both accounts, and basically column 5 (cummulative adjustment bais) shows the 2704. 

Again, why paying taxes on 2700 when I actually only had a short gain of close to 2000? 

So TT does not associate the K1 with the actual transaction on 1099B, it does know is the same. Hence my thought is I leave the 1099B alone. and on the K1 just load part III and leave wow 8 empty. Also on Part II row L leave everything in blank. 

I also tried downloading the txt file directly from the proshares online, and when it loads in TT actually leaves in blank the row L on part 2, but by adding the row 8 on part 3, it increases the taxes that represents the 2700.

Am I correct? 

[jtax]

Hi @Jr12398543  ... this is confusing stuff. Let me go over a couple of your questions. I hope this helps a little bit. It's very complicated.

I am not very familiar with publicly traded partnerships, but what I'm saying applies generally to partnerships, LLCs, S-corps not electing to be taxed as corporations.

1. I assume when you say part III "column" N you mean "box" N. There aren't columns but there are boxes.

2. It is important to understand that pass-thru entities (LP's, LLCs) pass-through their income to you even if they never pay you a dime. This is one reason being a minority shareholder in such entities can be very dangerous. This is called phantom income. See https://www.investopedia.com/terms/p/phantom-income.asp ... for an investment entity though, the income should not be fictitious. It is more of a timing thing because any retained income in the entity will increase its value when sold (or decrease your loss). And it should increase your basis.

Therefore you will absolutely pay tax on many of the K-1 boxes. (E.g. 1, 2, 5, 8, 9) even if you don't get any cash. Indeed many rental entities will do the opposite. They will show a loss in box 2 while paying you cash (because of depreciation deductions).

3. Box 8 and 9 represent your share of the entities securities gains or losses. They will flow to the right spot on your Schedule D. (either line 5 or 12).  Such losses are not passive, you always get to take them.  Your box 8/9 amounts therefore are always taxed even if you haven't sold your LP/LLC interest. Your box 5 number should show up on your Schedule B as interest income.

4. Your basis is very important.  When you sell your interest your gain (or loss) is your proceeds (what you sell your interests for) minus your adjusted basis.

Your adjusted basis (can't be negative) is what

• you originally paid
• + any later investments 
• + any income (phantom or not)
• - distributions you received
• reduced for any losses

There are more things, but that  is a good starting point. See https://www.irs.gov/pub/irs-pdf/p541.pdf starting on page 9.

I don't understand if box 8/9 gains/loss effect your basis. The probably do. Oh given your numbers they do. You say your cum basis adjustment is +2704, which is box 5 ($16 interest) + box 8 ($2412 ST cap gain) + box 11 code C ($284 straddle income) - box 13W ($8 deduction). That's what you were taxed on (phantom or not) so that increases your basis.

Re: your K-1 Part II. Frequently it is hard to understand. You can ask the LP.  I think Part L should always add up and you should be able to find the numbers somewhere but it is often hard to figure that out. I don't understand why it doesn't add up and why it is 2700 and not 2704 or 2712.

So the $2704 is totally different from your gain or loss on selling your interest in the partnership. It is your gain from the year from the operations of the partnership. Your gain on the sale of the partnership is where you report the money you got for the sale minus your final adjusted basis. That seems like it is $13k, but I'm not sure since you mention you had previously sold some.

You aren't being taxed twice if you think about it like this. You invested $10k. You are taxed on $2.7k of phantom income. But that should increase the value of your interest by $2.7k (the all other securities owned by the partnership stay the same, which they won't). So you would then be able to sell for $12.7k. You gain on the sale would be $12.7k - 10k original basis - $2.7k basis change = $0 gain. Of course you might sell for more or less than $12.7k depending upon how the market moved.

You deal with that during the sale interview or in TT go to forms mode on the k-1 and look at the final amended section for the disposition checkboxes or "quickzoom" box for sale or disposition. You can probably get there from the interview as well.That's where you enter your basis for the sale and the gain or loss will flow to the right place. Be sure doesn't show up twice (especially if you imported the 1099-B).

[Jr12398543]

Many thanks. It helps me a lot to understand the K1, I will work on this tonight a little bit.

On your last comment, what should I do about the 1099B? Because the short gain income is there too. That is were the disconnection and main problem is. I already have aprox. 2K in gains in the 1099B for the same security. Now by using the schedule K1 as the correct number, even if I am paying 2700 (from k1)  instead of the 2k (1099B),  you are suggeting me to remove the sales proceeds and from the 1099B that I imported? 

Again thank you for your help 

[jtax]

No. If the $2700 gain is coming from box 8 (and smaller other boxes) it is totally different from the 1099-B. You have two gains. One from the k-1 and one from 1099-B.

However, the 1099-B gain may be less than you think. Because your basis in the LP is adjusted by the $2700 ish you were taxed on. So the 1099-B gain, if you received $2k in cash for your LP interests, it seems seems to be a 700 loss. Is the basis provided on the 1099-B? That seems very unlikely.

think of the k-1 like getting dividends and reinvesting them. Even if you never get cash you still pay tax on those gains.  when you sell those dividend reinvestment add to your basis reducing your gain.

For  publicly traded partnership as you work through the k-1 sale/disposition section, you would enter zero for proceeds and zero for basis and report the correct proceeds and basis on the 1099-b entry.