With the 2023 tax year now closed, there are a few key areas Fund Managers should focus on to ensure the tax results of 2023 are as expected, prior to Schedule K1 and tax return preparation time. Here are a few key considerations Fund Managers should be navigating for Schedule K1 issuance, withholding tax payments, and tax return filings. Please note that these reminders are general in nature and each attract their own individual facts and circumstances, therefore please consult your tax advisor.
There are three very distinct rules surrounding the worthless security deduction of Internal Revenue Code Section 165. If any security which is a capital asset becomes worthless during the taxable year, the loss resulting therefrom shall, for purposes of this subtitle, be treated as a loss from the sale or exchange, on the last day of the taxable year, of a capital asset. In order for a security to qualify as worthless, and be eligible for the worthless security deduction, three criteria must be met:
- Security must have had value at the beginning of the tax year.
- There must have been a fixed and identifiable event that happened during the year that created worthlessness.
- There must be no value at the end of the tax year.
Security defined: a share of stock in a corporation; a right to subscribe for, or to receive, a share of stock in a corporation; or a bond, debenture, note, or certificate, or other evidence of indebtedness, issued by a corporation or by a government or political subdivision thereof, with interest coupons or in registered form.