As the tax season approaches, it is never too early to start getting ready to file your taxes. Our investors frequently ask about how their investments are taxed, and how to report them. This article will answer some of the most common questions we get and give you an overview of investment taxation practices.
Reporting your investments to the government
Federal Income Tax:
Income generated by investing in YieldStreet opportunities is reported as interest income, which is a type of ordinary income. By mid-March, you will receive an email from YieldStreet notifying you that you can download your federal K-1 form from the tax center. On line 5 of the K-1 form, you will find your interest income.
State Income Tax:
Every state is different when it comes to determining state taxes. Some states have a sliding scale – as income goes up, the tax rate goes up, others impose a flat tax. In some cases, investors may receive a state K-1 form in addition to their federal K-1 form. This is a state requirement that depends on the state in which the investor resides. Although not all investors will receive a state K-1 form, they should be mindful that they are still required to report their interest income on a state level, even if they didn’t receive a state-specific K-1.
How will I be taxed on YieldStreet investments?
How an investor gets taxed on their investments depends on the overall picture of each investor. The majority of investors will get taxed in their appropriate tax bracket, depending on their salary and other income.
Net Investment Income Tax
In some cases, investors are subject to the Net Investment Income Tax (NIIT). This is determined on whether the investor meets the income threshold for this type of tax. If the investor’s net adjusted income meets or exceeds the income threshold, and they report Net Interest Income, they will need to pay an additional 3.8% tax on their interest income. Find out more about net investment income here.
Where to Find the Tax Forms
Investors may locate their tax forms in the “Tax Center” section of their portfolio.
What state is the SPV formed in?
The Special Purpose Vehicle (SPV) is formed in Delaware, but it doesn’t mean that investors pay Delaware state tax. An investor’s taxes depend on the residence of the investor.
Can I offset my passive losses?
Although you may have heard us casually referring to YieldStreet investments as a way to generate “passive” income, from a tax perspective, YieldStreet investments are not classified as passive income. When we refer to generating “passive income” with YieldStreet, we are referring to the ability to make money passively, not actively working to earn, but instead relying on investments to gain capital. From a reporting standpoint, the earnings on YieldStreet investments are classified as interest income, thus they are not classified as “passive”, and cannot be used to offset passive losses.
Disclaimer: None of YieldStreet Inc. or its affiliates provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before making an investment or taking any other action that may affect your rights.
1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.
2 Represents a net estimated, unrealized annualized internal rate of return (IRR) of your portfolio and is based by reference to the effective distribution dates and amounts to and from the investments, as well as any outstanding principal and accrued and unpaid interest as of the current date, after deduction of management fees and all other expenses charged to the investments.[read more]
3 "Annual interest" represents an annual target rate of interest and "term" represents the estimated term of the investment. Such target returns and estimated term are projections of the returns or term and may ultimately not be achieved. Actual returns and term may be materially different from such projections. These targeted returns and estimated term are based on the underlying agreement between the SPV and borrower or originator, as applicable.
4 Reflects the initial quarterly distribution declared by the board of directors on February 6, 2020, which will be payable to stockholders of record as of June 10, 2020, and the initial offering price of $10 per share.
5 The Fund will cease investing and seek to liquidate the Fund's remaining portfolio no later than 48 months after the Fund's initial closing. It may take up to twelve months thereafter to fully monetize any remaining illiquid investments in the Fund's portfolio.
6 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.
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Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor.
Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.
Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.
Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.
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Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and willing and able to accept the high risks associated with private investments.
Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.
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Investment advisory services are provided by YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission.