Alternative Investments Muddy Tax Filing, Advisors Say

ARTICLE KEY TAKE AWAYS

• High-net-worth clients are increasingly investing in alternatives like real estate, art, and venture capital, but these investments create complex tax situations, particularly with K-1 forms, often necessitating tax return extensions.

• The nature of alternative investments, typically structured as limited partnerships or LLCs, can lead to delayed K-1 issuance, complicating tax filing processes, especially with non-resident state tax returns and additional state K-1 forms.

• Advisors emphasize that while alternatives like private credit can yield significant returns, they often generate taxable income without cash distribution, increasing a high-earner's tax burden and complicating cash flow management.

• Not all clients suit alternative investments; advisors recommend that clients have substantial investable assets (at least $8 million) and consider whether the expected returns justify the associated tax complexities and potential additional CPA fees.