Tax treatment of Investments: What you need to know
This following should not be construed as professional tax advice; consult with a qualified tax professional for guidance specific to your individual situation.
Your investment in an EquityZen fund is taxed like any other fund investment. Our LLC funds are taxed as partnerships, meaning that the fund’s gains and losses would pass through to its investors. Generally, if an investment is held for more than one year before its disposition, any income resulting from that investment would be taxed at the long-term capital gains rate. The United States tax code allows certain types of entities to utilize pass-through taxation. This effectively shifts the income tax liability from the entity earning the income to those who have a beneficial interest in it. The Schedule K-1 is the form that reports the amounts that are passed through to each party that has an interest in the entity.
The fund will only issue K-1s in years where there is a taxable event. Generally, a fund expects to issue K-1s in years where the underlying investment experiences an exit event, such as an IPO, acquisition, or liquidation. For transfers or sales of interest in the fund during years where the fund will not issue K-1s, a K-1 equivalent statement will be sent to the relevant sellers.
K-1s will only be issued for you if the following cases occurred during the tax year:
You're invested in a diversified managed fund (e.g. Late Stage Fund, Growth Opportunity Funds, or Thematic Funds)
You received an exit distribution (shares or cash) in the calendar year
You sold interest in a fund via an express deal in the calendar year
You transferred ownership of an investment that closed in the calendar year
You invested in a fund in which the underlying company was liquidated (Bankruptcy) in the calendar year
You invested in a Dual-Layered deal
K-1s are typically distributed to investors in early March of the following year in which the event occurred. You may access K-1s by visiting your Documents page and navigating to the Tax Center. EquityZen will communicate with you via email if any changes are expected to this timing for a fund you have invested in.
Diversified managed funds issue K-1s every tax year from inception until final liquidation. These investment vehicles rely on tax reporting from underlying investment structures to produce accurate K-1s, and target late March to early April delivery for inclusion on your personal tax return ahead of the April 15th statutory filing deadline. EquityZen will communicate with you via email if any changes are expected to this timing for a fund you have invested in.
Dual Layer investment structures issue a K-1 to each investor every year from inception until the investment has a final exit event. These investment vehicles rely on tax reporting from underlying investment structures to produce accurate K-1s, which are often received after the April 15th personal filing deadline. Because of this, investors should expect a K-1 in August/September of the following tax year ahead of the extended personal filing deadline of October 15th.
For illustrative purposes, investors in a Dual Layer vehicle that closed in 2024 should expect to receive a 2024 K-1 in August/September 2025 to be included on their 2024 tax return. EquityZen will communicate with you via email if any changes are expected to this timing for a fund you have invested in.