A former investment manager put a small amount of my money in a limited partnership. TaxCut does not handle it and it took me several hours to figure out what to do with all the numbers on the K1.
Does the software that professional tax preparers use do it any better? About how long would it take for a professional to handle a limited partnership?
"mort" wrote
The whole return? Or the K-1?
With a few exceptions, K-1's take a few minutes longer than inputting a W-2 - multi state issues aside.
Good question!
Is my software better than yours? I hope so, I pay about $5K a year for it!
But the trick is NOT in the software. The software is nothing more than a tool - like a work truck. Does a $100K truck do a better job than a $10K truck? Probably not really, though it may make the job easier to do it is NOT a replacement for professionalism.
I, and I'm sure the vast number of pros who lurk and contribute here, could very likely have done a good on your return with your software BECAUSE we know (or are supposed to know) what should happen with the information reported on the K-1 not because we have better software. Having a $5,000 saw doesn't mean your cuts will be straight if you don't have good saw skills to start with. On the other hand, knowing how to operate a saw will well allow me to produce better cuts with a cheaper saw.
For example, you say you have some money in a limited partnership - are you aware that you are subject to the Passive Loss Rules? For example, if the LP threw off losses on Line 1 of the K-1 your ability to deduct those losses on your return is limited because you are a passive investor? You can deduct these losses but only up to the amount of your passive income. Now for the professional level question - we know that interest income and dividend income is passive, but what about capital gains distributions thrown off by the mutual fund company? Now what about real gains if you managed to sell an investment at a gain - can that be used to allow you to deduct some of your passive loss from the LP?
How long would it take ME to deal with your K-1? Depends on what all is on it and if it was issued correctly - you'd be surprised how many small LPs try to cut corners (like you're doing) by prepareing a complicated return in house. Last week I had a client with a 1065 K-1 that we KNEW had tax free municipal interest from multiple jurisdictions - the K-1 said as much but failed to include a list of the jurisdictions and the percentages of income associated with each. Poorly prepared K-1 took longer than usual to deal with.
On the other hand, in my office it matters not how long it would take to deal with the K-1. We bill on a fee schedule basis - our fee is based on the forms and schedules required and caused by your activities. So if your K-1 had only $1.00 in interest income the cost to your final return would be negligible. BUT if your K-1 included income from multiple states, which require returns for each state, and it had rental activity in addition to ordinary business activity, and it included Section 1256 Straddles and a Section 1031 Exchange then the K-1 itself could cost more than the rest of your return combined. It all depends on what's included. I can tell you this - the minimum fee increase to a 1040 for dealing with a K-1 is $55.
If you're investing in limited partnership, oil and gas ventures, low income housing units and other things you really do need a professional tax preparer.
Good luck, Gene E. Utterback, EA, RFC, ABA
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