Tax reporting for energy income trusts

"MyVeryOwnSelf" wrote

Look for the web site for each one for tax info. For one, the "profile" section of finance.yahoo's entry for each often has a link. SJT's web site has a "tax info" section that sends one to

. This booklet says income is reported on Schedules B and E, giving exact instructions for the lines on each schedule to use. CRT is similar:

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At one time these products were widely offered and were very popular among small investors in Canada because of their high yield in a period when interest rates were low. They were much sought by seniors seeking more income when bank CDs didn't provide enough for monthly needs. But beware. Part of the high yield was accounted for by "return of capital," in other words part of your own money coming back to you. Typically that feature was not mentioned in the sales pitches through which these products were sold. Another feature that was not often mentioned during the sales is that the products were very risky, as risky as the underlying companies offering them. Many seniors reveled in the big monthy checks that kept on rolling in, but then later tried to sell their shares and had to take a loss.

If these products are coming into vogue in the USA, I do hope that the US securities regulators are more alert to abuses than regulators in various Canadian provinces who did little or nothing to stop abuses when these products were all the rage.

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Elle is right, you need to research these one by one. Some caveats to keep in mind that the article may not have hit on (I didn't read it):

1. Schedule E implies K-1 reporting so you'll need to wait to file your tax return until you receive a K-1, which can be a pain in the neck (later than 1099s).
2. if you pay for tax prep, many preparers charge per-form even for a relatively easy Schedule E
3. this type of security can require slightly complicated basis tracking. It would be typical for basis to be adjusted downward each year, and the tax treatment of distributions changes after your adjusted basis hits 1. Schedule E implies K-1 reporting so you'll need to wait to file your tax return until you receive a K-1, which can be a pain in the neck (later than 1099s). 2. if you pay for tax prep, many preparers charge per-form even for a relatively easy Schedule E 3. this type of security can require slightly complicated basis tracking. It would be typical for basis to be adjusted downward each year, and the tax treatment of distributions changes after your adjusted basis hits $0. The sale of a share with such adjustments triggers ordinary income rather than capital gain to the extent of these basis adjustments. But this is specific to each. 4. do you have any state tax issues to consider? Because you're receiving income from a pass-through entity, it's possible you need to file a state income tax return in another state. 5. factor in any costs of dealing with the above as a cost of ownership that, in effect, reduces your yield. People may not want to own small positions of these, just on "administrative" grounds.. The sale of a share with such adjustments triggers ordinary income rather than capital gain to the extent of these basis adjustments. But this is specific to each.
4. do you have any state tax issues to consider? Because you're receiving income from a pass-through entity, it's possible you need to file a state income tax return in another state.
5. factor in any costs of dealing with the above as a cost of ownership that, in effect, reduces your yield. People may not want to own small positions of these, just on "administrative" grounds.

-Tad

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

Elle is right, you need to research these one by one. Some caveats to keep in mind that the article may not have hit on (I don't read that pub):

1. Schedule E implies K-1 reporting so you'll need to wait to file until you receive your K-1 which can be a pain in the neck (later than 1099s).
2. if you pay for tax prep, many preparers charge per-form even for a relatively easy Schedule E
3. this type of security can require slightly complicated basis tracking by each investor. It would be typical for basis to be adjusted downward each year, and the tax treatment of distributions changes after your adjusted basis hits 1. Schedule E implies K-1 reporting so you'll need to wait to file until you receive your K-1 which can be a pain in the neck (later than 1099s). 2. if you pay for tax prep, many preparers charge per-form even for a relatively easy Schedule E 3. this type of security can require slightly complicated basis tracking by each investor. It would be typical for basis to be adjusted downward each year, and the tax treatment of distributions changes after your adjusted basis hits $0. And the sale of a share with such adjustments triggers ordinary income rather than capital gain to the extent of these basis adjustments. But this is specific to each. More to the point, it's another thing to spend time researching. 4. do you have any state tax issues to consider? Because it's a pass-through entity, it's possible you need to file a state return in another state because of the type of income, it depends on the trust. 5. factor in any costs of dealing with the above as a cost of ownership that, in effect reduces your yield. For a small holding if your taxes cost another $150/yr to prepare you could end up in the hole, relatively speaking. People may not want to own small positions of these, just on "administrative" grounds.. And the sale of a share with such adjustments triggers ordinary income rather than capital gain to the extent of these basis adjustments. But this is specific to each. More to the point, it's another thing to spend time researching.
4. do you have any state tax issues to consider? Because it's a pass-through entity, it's possible you need to file a state return in another state because of the type of income, it depends on the trust.
5. factor in any costs of dealing with the above as a cost of ownership that, in effect reduces your yield. For a small holding if your taxes cost another 0/yr to prepare you could end up in the hole, relatively speaking. People may not want to own small positions of these, just on "administrative" grounds.

-Tad

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.