The problem of K-1's...

K-1s were late for the majority of real estate syndicators last tax season and that trend will continue this year as well. This isn't a tax preparer problem.

It's a back office problem.

Here's how it usually goes:

• February: Sponsors start asking their bookkeeper for the Y/E financials.
• March: The books still aren't clean or reconciled. Uncategorized transactions, unreconciled accounts, a bank feed that stopped syncing in October are just some of the issues still outstanding.
• Late March: The CPA/tax preparer finally gets clean books. They start the 1065 and that's when they start finding issues: capital account balances don't tie out, distributions recorded incorrectly, preferred returns not tracked properly, a depreciation schedule that's out of date, etc.
• April 15 (hopefully before): Investors get a notice saying "hey, file an extension, your K-1 isn't ready yet", not great.
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Investors hate this. Especially the ones with complex returns and/or state filings that depend on their K-1 to file. And again, this isn't the CPA's fault.

It's that the books weren't ready.

Why weren't they ready? Because nobody was maintaining them month by month. Period.

What is required for timely K-1's:

• A monthly close process that happens every month, without fail. This eliminates the "panic-February/March" scenario.
• Capital accounts that are reconciled quarterly (at least), not half-heartedly reconstructed 5 minutes before the tax return is due.
• A real time depreciation schedules that are updated when assets are acquired, not during the process of tax preparation.
• Real time communication between the accounting and the CPA/tax preparer so questions get answered in days instead of weeks and months.

This is operational. It requires a back office that's actually running consistently.

If your investors got an extension notice last April and it's looking like that'll happen again this April, now is the right time to fix the system. Procrastination is not your friend.

DM me if you want to talk through what that looks like.

P.S.: We offer a free 15-point back office audit for syndicators. DM me if you want one.