Tax Day is upon us – but investors who have complicated tax returns may find themselves asking for an extension. April 18 is the filing deadline for your 2022 return, and on that day, you must pay any federal income taxes you owe. However, each year millions of filers ask the Internal Revenue Service for a six-month extension to submit their return: Those who go on extension have until Oct. 16 to submit their returns, but their taxes must be paid by April 18 to avoid penalties and interest. Last year, an estimated 19 million taxpayers asked for an extension to turn in their 2021 tax return, according to the IRS. “I think extensions in general are becoming more commonplace,” said Tim Steffen, CPA and director of advanced planning at Baird. “Given the complexity and the fatigue on the accountants’ side, if you come within a few weeks of the filing deadline, you’re getting extended.” To that effect, certain investments you hold in your taxable brokerage account could result in a more complex filing season – and take additional time for you to prepare. Limited partnerships Master limited partnerships – particularly the oil and gas MLPs that became an attractive yield play in 2022 – are traded like stocks, but can come with headaches at tax time. Notable energy limited partnerships include Enterprise Products Partners LP (EPD) and Energy Transfer LP (ET) . That’s because while the MLPs themselves aren’t subject to federal income taxes, the limited partners who receive income distributions are responsible for taxes. This is different from the tax treatment on income from a C-corporation, which is subject to double taxation: the business pays for corporate income taxes, and shareholders are on the hook for taxes on dividends. If you were in an MLP last year, you should have received your Schedule K-1 from the partnership, which will detail your share of income, deductions and credits. You need this form in order to file your income tax return, but partnerships may not send these details until mid-March, which could lead to investors going on extension. Another stumbling block for investors with publicly traded partnerships is if the investment is held in an individual retirement account, instead of a taxable brokerage account. This can trigger a tax liability and the IRA itself will have to file a return . Private partnerships, including private equity and venture capital investments, also come with their share of hiccups. For starters, the issue of late K-1s tends to be more prevalent with these businesses. “For private investments, you’re getting K-1s that might come in the summer, and you will have to extend,” said Jerrod Pearce, certified financial planner and certified public accountant at Creative Planning. Precious metal ETFs Investors who sold last year gold and silver exchange-traded funds – that is, funds that are backed by physical holdings of those precious metals – are also likely to hit a speed bump during tax season. The sale of these funds could be subject to a long-term capital gains tax rate of up to 28% , the rate that applies to collectibles. Meanwhile, the top long-term capital gains rate for when you’re selling a stock is 20%. Funds that are physically backed by precious metals include the iShares Silver Trust (SLV) , iShares Gold Trust (IAU ) and SPDR Gold Shares (GLD) . Vanilla investments with higher yields Back when interest rates were near zero, returns from certificates of deposit and higher-yielding savings accounts were negligible to investors. However, now that the Federal Reserve is more than a year into its rate-hiking campaign, taxpayers in these plain-vanilla investments might need to pay attention. “We don’t see people getting like $10,000 worth of interest, but you have to be ready for those to kick in taxwise,” said Dan Herron, CPA and founder of Elemental Wealth Advisors. Consider that Bread Financial is offering an annual percentage yield of 5.05% on a 1-year CD and its high-yield savings account touts a yield of 4.5%. Interest paid on a CD or a high-yield savings account is deemed taxable as ordinary income. Those rates are higher than the levies applicable to capital gains and can be as high as 37%. Taxable money market funds can also bite, so be sure to think about where you’re holding them: Could it make more sense to keep them in an IRA, where taxes are deferred, for instance? “It’s easy to get excited about a money market fund that’s paying 4%, but it might be more like 2% when all is said and done,” said Pearce.
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