All investment vehicles formed on Sydecar are LLCs classified as partnerships for tax purposes.
Partnerships are pass-through entities that generally do not pay income taxes. Instead, each year, all tax items such as income, expenses and credits are passed through to each of the members of the LLC based on their percentage of interest in the partnership.
These tax items are organized and presented on various federal and state tax forms, namely the IRS Schedule K-1, IRS Schedule K-3, and any state Schedule K-1 equivalents. Each member uses this information to prepare their individual federal and state tax returns.
- IRS Schedule K-1: Reports most federal tax items from the operation of the partnership including income & expenses by type, credits, capital account information, and other relevant items.
- IRS Schedule K-3: Reports items of international tax relevance from the operation of a partnership (if applicable).
- State Schedule K-1 equivalents: Each state has its own tax laws that may not conform to federal tax law. These differences, as well as additional state-specific tax items, are reported on state tax forms. These forms may have various names and identifiers but are similar in structure to IRS Schedule K-1.
For more information, please see Partner’s Instructions for Schedule K-1 (Form 1065) & Partner’s Instructions for Schedule K-3 (Form 1065).