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Tax Prep Tips for Investment Managers

By Ian Nichols January 23 2025 min read
AppFolio Blog 2024 IM Tax Preparation 1140x530 1

As tax season ramps up, sponsors should focus on preparing for tax season and managing communications with investors. While it can be a busy time, staying organized and proactive will help ensure smooth operations and mitigate surprises. Below is some guidance for sponsors in managing their end-of-year tax tasks, investor communication, and financial information.

Prepare Your Investors

One of the most important aspects of managing your investment is maintaining clear and transparent communication with your investors. The end of the year is a critical time to make sure that they are prepared for tax season and understand when and how they will receive important documents like the K-1s. Here’s how to approach it:

  • Update Investor Tax Information: Ensure that any changes to the legal entity, employer identification number (EIN), ownership structure, and tax addresses (particularly for K-1s) are up to date. Make any ownership transfers in your record-keeping system before providing information to your tax preparers. 
  • Set Expectations for K-1 Timing: K-1s are essential for investors to file their taxes, and it’s crucial to manage their expectations. The best practice is to under-promise and over-deliver. Always provide a conservative timeline, ensuring you deliver before the promised date to avoid investor dissatisfaction. If it looks like you’ll be late, it’s always better to inform investors earlier rather than later.
  • Communicate Early and Often: If you anticipate any issues, whether they’re good or bad, communicate them as soon as possible. Delivering any challenging news in advance allows investors to plan accordingly, while you can address questions before finalizing returns.

Know Key Tax Deadlines

Understanding key tax deadlines is vital for both you and your investors. Missing these deadlines can lead to penalties or delays. Here are the key dates to remember:

  • March 17, 2025 (March 15th falls on a weekend in 2025): Deadline for filing a partnership tax return. For most syndications structured as partnerships, this is when the tax return is due or when you must file for an extension.
  • April 15, 2025: Personal tax return deadline for your investors. They will need to file their personal returns by this date or file an extension.
  • September 15, 2025: Extended partnership tax return deadline. If you filed an extension for the syndication return, this is the final date.
  • October 15, 2025: Extended personal tax return deadline. This is the last date for investors to file if they request an extension.

Being proactive with these deadlines will help avoid last-minute issues and allow you to stay organized.

Prepare Your Books

Accurate financial records are the foundation of tax reporting. Before handing off information to tax preparers, make sure your books are in order to facilitate tax filing and K-1 preparation:

  • Reconcile Bank Accounts: Ensure that your bank accounts are fully reconciled. This might include pre-reconciling accounts to avoid last-minute discrepancies.
  • Clean Up Your Records: Take time to clean up your financial records, including journal entries (JEs), write-offs, bad debt, and fixed asset management. Address any outstanding issues, such as asset additions or disposals.
  • Review Equity Roll Forwards: Check your equity roll-forwards, ensuring all shareholder investments and distributions are properly tracked.
  • Prepare Supporting Schedules: Be sure that all supporting schedules are ready for review, such as depreciation schedules, fixed asset reports, and any cost segregation support.
  • Investment Management Software Reconciliation: Ensure that your AppFolio Investment Manager records align with your financials, as this is a critical aspect of tax filing accuracy.
  • Cost Segregation Studies: If you haven’t already, a cost segregation study should be completed by now. This study helps accelerate depreciation deductions and is essential for maximizing tax benefits.

Prepare Your CPA/Tax Preparer

Collaborating closely with your CPA or tax preparer is key to meeting tax deadlines and filing timely returns. Here’s how to ensure you’re ready:

  • Provide Timely Financials: Share your year-end financials with your CPA as early as possible. If you plan to meet the March 17th deadline, providing the information immediately will help your CPA prepare the returns in time.
  • File for Extensions When Necessary: If meeting the March deadline is unrealistic, proactively extend your partnership tax returns and communicate the revised timeline. A partnership can extend a tax return by filing Form 7004 with the IRS on or before the regular due date. Because filing an extension could delay the issuance of K-1s to investors, sponsors should review their partnership agreement closely. If you file an extension you extend the tax filing and K-1 issuance to the September 15th deadline.
  • Notify Your CPA of Ownership Changes: If there have been any changes in ownership, make sure your CPA is aware of these changes so that they are accurately reflected in the tax filing.
  • Discuss Tax Withholdings: This is one of the most overlooked aspects of syndication tax preparation. Some investors may require tax withholding, while others may not. Make sure you and your CPA have a clear understanding of who needs withholding and how this will impact future distributions.

Prepare Yourself and Your Team

It’s important to have a plan and checklist in place to ensure that everything is completed efficiently and on time. Here are some ways to get organized:

  • Develop Checklists: Ensure that you have checklists in place for month-end, quarter-end, and year-end tasks. These checklists should include everything from real estate taxes to personal property taxes, so nothing falls through the cracks.
  • Annual Insurance Renewal: Don’t forget to renew your insurance policies. This will ensure that your coverage is current for the upcoming year.
  • Update Real Estate Tax Accruals: Depending on your tax jurisdiction, new property tax statements could be available. Download new statements and update real estate tax accruals accordingly.
  • Focus on the End Goal: As tax season looms, make sure your main goal is to finalize returns and get K-1s out the door. Prioritize critical tasks and postpone non-urgent items until after the busy tax season.

Want to streamline your syndication processes and partner with industry-leading solutions? Explore how  Red Cedar  partners with AppFolio to offer financial management capabilities. Learn more about the  AppFolio StackTM Solution Partner  program and how it can help you better manage your real estate syndication operations and tax requirements.

Author: 

Ian Nichols, CPA

Red Cedar Advisory Services

Market Director Advisory Services – Western Region

NAIOP  Tax and Finance Subcommittee Member