How do I use a tax estimate before a K-1 is available?

Taxable income and loss is typically reported to investors in a fund on a Schedule K-1.

Partnerships (such as funds) frequently provide tax estimates in order to provide partners with visibility into expected taxable income before a final Schedule K-1 is prepared and available for the partner. 

The way you use tax estimates that are provided to you is up to you and your tax advisor. Most investors take one of two approaches:

  • Approach 1: Use the taxable income estimates to make estimated tax payments prior to filing their final tax return.
  • Approach 2: Use the estimate in place of the actual K-1 and include the estimate in filing their tax return. If the final K-1 received is materially different from the estimate, investors typically either amend the filed return or include the difference in the following year’s tax return.
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