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How do you keep my information confidential?

We are often asked this question by prospective clients, and we are always happy to provide our answer because we are confident in the proven protocols we’ve established to protect our clients confidentiality.

As long-standing experts in the family office accounting and outsourced bill pay fields, and with decades of experience working with high-net-worth-individuals and family offices, Plumb understands that financial privacy and security is of paramount importance.

We proactively protect sensitive data in several vital ways.

• We have a customized cloud network built on unique specifications, backed on a singular data center that keeps all data stored and safe from localized data loss. This data center is certified PCI 3.0 compliant, HIPAA compliant, and SSAE-16 Type II compliant.

• We maintain state-of-the-art bank-level security and an in-house IT department that provides constant monitoring and oversight. Our vigilant IT department educates and updates our meticulous Plumb team on cyber-safety on a regular basis.

• We have strict supervision over internal access to client information.
  • Only select designated Plumb team members have access to client records.
  • Only our Executive Team has wire and other approval rights.

• We focus on a clear segregation of duties among our team.
  • This provides not only protection of confidentiality, but also the essential checks, balances, and oversight that only multiple reviews and sets of eyes can offer.

We pride ourselves on our effective and all-important quality controls, security measures and confidentiality guardianship. Please let us know how we can assist you in your family office accounting or bill pay needs.

Plumb Family Office Accounting delivers financial peace of mind by assisting high-net-worth individuals and family offices know where your money is going, so your trusted advisors can effectively manage it. We work in partnership with your team — including wealth, CPA, and other advisors — to provide the highest quality of data and financial reporting to establish a holistic view of your assets and financial holdings. This gives you true control of your wealth and establishes the foundation for effectively implementing your financial strategies.

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Hedge Funds and Private Equity Investments have a few similarities but have different end-goals.

They are similar in that they:

• Typically appeal to high-net-worth individuals due to the high cost of entry.
• Are often structured as limited partnerships.
• Both pay managing partners in a similar fashion: with management fees as well as a percentage of the profits earned.

One other key similarity between the two is that the accounting of both types of investments require specialized experts who are trained and knowledgeable about the nuances involved in these complex investment platforms.

This article will explain the differences between hedge funds and private equity funds as well as the accounting requirements necessary for reporting on these investments.

First, let’s dive a little further into the definitions – and the differences between – hedge funds and private equity funds.

Hedge Funds

Hedge funds are actively managed alternative investments that use pooled money and an assortment of strategies to earn returns for their investors.

The goal of a hedge fund is to get the highest investment returns possible as quickly as possible and they are focused on short-term profits. Hedge Funds are not regulated by the SEC. These types of funds are viewed as riskier than others for a few reasons:

• They require a significant minimum investment or net worth to participate in the fund.
• They employ risky investment strategies and often rely on borrowed money.
• They expect high returns in a short period of time.

Private Equity Funds

Private equity funds are the funds used by investors to invest directly in companies. They might purchase a private company but are equally as likely to purchase stock shares of publicly traded companies. These funds are focused on long-term earning potential.

Unlike hedge funds who are only required to make a one-time investment, those who invest in private equity funds are required to invest their capital whenever called upon to do so.

Even still, private equity investments are seen as less risky than hedge funds because of their focus on long-term viability and returns. They typically seek to purchase a controlling interest in a company, and then bring on new management or provide guidance to the existing management team of that company. Their aim is to improve profitability with the ultimate goal of selling the company after their improvements have been implemented, and the increase in profits has been realized.

Hedge Fund Accounting

The accounting related to hedge funds requires the compilation of all brokerage statements that reflect on the fund. Every investment must be accounted for and included.

In addition, hedge fund accounting will help to determine the break periods. Or, in other words, the accounting helps to regulate the timing of when earnings made by the fund will be paid out to the principles and partners of the fund.

Perhaps the most important report issued by a hedge fund accountant is the NAV, or the net asset value report. This report is required once a year, and it is used to demonstrate the hedge fund performance record. It is this use that makes it such an important deliverable: it is based on these results that many investors decide where to invest. In addition, hedge fund accountants must also provide the annual income tax reports to the investors of the fund.

Private Equity Accounting

Private equity funds must follow the standards set forth by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). However, the operations and financial situation of the private equity fund might – and most likely will – require modifications to the accounting format of these standards. This is because these original standards were not created with private equity funds in mind.

Another important aspect to private equity accounting is an understanding of and reporting about the amount of control the fund has over an entity.

And of course, the accounting standards used by the private equity will have an impact on how and what is reported. The US GAAP (generally accepted accounting principles) differs from the UK GAAP, and both can be different from the IFRS (international financial reporting standards).

Plumb Family Office Accounting & Bill Pay has decades of experience working with both hedge fund and private equity investors. We understand the refinement, complexity, and intricacy involved in the accounting required for both investments. If you are a hedge fund or private equity investor – or a financial advisor to a client who is – please let us know if we can help.

Sources

www.wallstreetmojo.com

www.investopedia.com

www.smartcapitalmind.com

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K-1s are often the last in the long line of documentation needed when filing taxes. As such, we always recommend to our clients that they begin this process as early as possible. In fact, it is our policy to begin collecting and reconciling K-1s in July and August, and even into September.

What is a Schedule K-1?

• A Schedule K-1 lists taxable income related to certain business entities.
• K-1’s should be filed by entities who are permitted to shift the income tax liability from the entity earning the income to those who have an interest in it.
• The Schedule K-1 is the form that reports the amounts that are passed through to each party with an interest in the entity.
• The form itself itemizes the income received from these businesses and breaks it down into specific categories.

Who Has to File a Schedule K-1?

• There are two main groups of taxpayers who need to file K-1s:
  • Owners of Pass-Through Entities and Beneficiaries of Trusts or Estates.
  • The Owners of Pass-Through Entities include S-Corps, Partnerships, and LLCs taxed as S-Corps or Partnerships.

Pass-Through Entities

• A pass-through entity is a business entity for which income, losses, credits, and deductions are reported on the owners’ personal tax returns. That income is then taxed at the owners’ individual income tax rates.
• Each partner or shareholder – basically, anyone who has a beneficial interest in the entity – is expected to attach the Schedule K-1 form to their personal income tax return.
  • S- Corps use tax return Form 1120S for their annual tax returns. The S Corporation provides Schedule K-1s that reports each shareholder’s share of income, losses, deductions and credits. The shareholders then use the information provided on the K-1 to report the same information on their separate tax returns.
  • Partnerships prepare a Schedule K-1 to report each partner’s share of income, losses, tax deductions and tax credits that the business reported on the informational 1065 tax form.

What’s Reported?

A Schedule K-1 shows the income or loss depending upon the share of business owned, or percentage of stock owned, by that partner or shareholder.

• Dividends, deductions, gains, and losses are reported on each partner’s or shareholder’s K-1.
• Guaranteed payments are also reported on partner’s K-1s where relevant.
• A capital account analysis for each partner, or percentage of stock ownership for each shareholder, is included on the K-1.

Beneficiaries of Trusts & Estates

Beneficiaries of a Trust or Estate also need to file a Schedule K-1.

• There are Trusts & Estates who will pay their taxes directly, but oftentimes it is passed through to the beneficiary to pay. When this occurs, the beneficiary will receive a K-1 that shows the income they are required to report on their personal tax returns. When a beneficiary receives a distribution of income, the Trust or Estate reports a deduction for the same amount on its 1041.

The biggest difference between the Trusts & Estates group and the Pass-Through Entity Ownership group is that Trusts & Estates beneficiaries should not include the Schedule K-1 with their tax return. Instead, they can keep the K-1 with their records and only use it to report trust or estate income losses, deductions, or credits.

When are K-1s Due?

• Schedule K-1s are due to the taxpayer by March 15^th. If an extension is filed, the due date is September 15^th. Those who have received a K-1 are expected to include it with their tax filings (when relevant) in April.
• Because K-1s are often received late, and since they can add complexity to a tax filing, Plumb works with our clients as early as possible to begin the K-1 collection process on their behalf.

At Plumb, we can help you manage, track, and collect all the various K-1s you are due to receive each year.  As K-1s are received, we reconcile them against the transactions in your books to ensure accuracy and work with the appropriate parties if corrections are needed.  We can then provide reconciled year-end financial statements to the CPA for finalizing tax returns.

Plumb Family Office Accounting delivers financial peace of mind by assisting high-net-worth individuals and family offices know where your money is going, so your trusted advisors can effectively manage it. We work in partnership with your team — including wealth, CPA, and other advisors — to provide the highest quality of data and financial reporting to establish a holistic view of your assets and financial holdings. This gives you true control of your wealth and establishes the foundation for effectively implementing your financial strategies.