2017 Essential Tax and Wealth Planning Guide
Ω
今
Tax implications of fund investing
Investment fund attributes
Introduction
What is an investment fund?
Types of investment
funds and income tax
characteristics
• Marketable securities
Hedge funds
• Private equity/venture capital
Publicly traded partnerships
Real estate funds
.
Fund of funds
Investment fund attributes
• Trader versus investor
.
.
entities
Passive versus
non-passive income
Separately stated activity
(including PTPs)
Qualified small business
stock (QSBS)
Unrelated business
taxable income
• State tax reporting
Conclusion
Resources
<弓
☑
||||
A
PTP investments are typically held through
an investor's brokerage account. The
monthly and year-end statements do not
typically adjust the investor's tax basis for
the investor's share of allocable income or
loss from the PTP. Therefore, it is important
for the taxpayer to track its tax basis in the
PTP, so that the appropriate capital gain
or loss can be calculated on disposition.
It is important to note that the PTP fund
will also provide details to the investor
regarding the portion of the gain that will
be recharacterized as ordinary in the year
of disposition.
As you can see from the description above,
the tax rules associated with holding PTP
investments are complex and can create
additional tax reporting requirements
and administrative work. Therefore, when
evaluating the rate of return related to
PTP investments, consideration should be
given to the incremental cost associated
with the additional tracking and reporting
requirements.
Qualified small business stock (QSBS)
Over the years, Congress has provided
a variety of incentives to encourage
investments in qualified small businesses.
Congress believes that targeted relief
for investors who risk their funds in new
ventures, small businesses, and specialized
small business investment companies will
encourage investments in these enterprises.
In the past several years, Congress has
made these incentives even more generous
Effective regular and AMT tax rates for sale of QSBS held for more than five years
Stock acquisition period
Prior to February 18,
2009
After February 18,
2009 and on or before
September 27, 2010
After September 27,
2010 and before
January 1, 2015
for QSBS acquired after September 27,
2010, to the point where a complete
exemption from federal income tax on gains
from the sale of certain stock is possible. VC
funds often make investments in companies
that may qualify as a QSBS and having a
good understanding of what investments
may generate QSBS gains could generate
significant tax savings.
The chart below summarizes the portion of
the gain from the sale of QSBS that may be
excluded from income depending on when
the stock was purchased. The chart also
outlines the effective regular and AMT rates
associated with the sale of QSBS.
Section 1202
exclusion amount
AMT treatment
Effective
regular tax rate
Effective
AMT tax rate
50% of the
realized gain
3.5% of the realized gain will be treated as
an AMT preference item
14%
14.98%
75% of the
realized gain
5.25% of the realized gain will be treated as
an AMT preference item
7%
8.47%
100% of the
0.0% of the realized gain will be treated as
realized gain
an AMT preference item
0%
0%
2017 Essential Tax and Wealth Planning Guide | Tax implications of fund investing
59View entire presentation