What Is a K-1 for oil and gas investments?
Taxes can have a real impact on any investment opportunity and the forms that exists on any specific investment can vary. According to Turbotax.com, the Schedule K-1 is, “the form that reports the amounts that are passed on through to each party that has an interest in the entity”.
Businesses that operate as partnerships, like Honeyguide, are designed to use pass-through taxation, which means that all income and expenses pass through the corporation to the owners and partners. This is a good thing! Depletion incentives, intangible and tangible drilling expenses, and the favorable capital gains rate paid at sale are big advantages when investing in private oil and gas.
The K-1 is a tax form that all investors in Honeyguide will receive indicating their share of income, losses, deductions, credits, and distributions made during the year. The investor then reports this information on their tax return.
If you have invested in real estate in the past, you will have familiarity with the K-1. Remember that what is reported from our K-1 can be accounted for alongside any other K-1’s you may be filing in taxes.
If you are new to oil and gas investing and want to view a sample K-1 report, here is one that is populated as if it were completed. Granted, the form is from 2009, but it still provides an idea of what to expect should you enter into an investment. Also, you can print this out and have your accountant explain in detail how this may positively impact your investment portfolio.
Sources: Origin Investments; origininvestments.com
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Honeyguide Energy Partners
Finding value in lower-middle market of oil & gas assets