Tax treatment of Investments: What you need to know
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.
A K-1 will be issued only when there is a taxable event. This means that unless there was a change of control or distribution of exit proceeds during the tax year, there would not be a K-1 for that fund.
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 purchased 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
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.
Will I be receiving any financial updates for my investment? How often?
You will receive a K-1 for any fund investment that experiences an exit or other taxable event in the prior calendar year. K-1s are typically sent in early March of the following year in which the event occurred.
Note: We have provided this forum for informational purposes only and not as personal tax advice. You should consult your tax advisors for guidance specific to your circumstances.