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How is taxable income and expense different from accounting?

Taxable income and expense may be treated differently than accounting income. In general, for the majority of SPVs, no taxable income or expense should occur during the year.

  • Convertible Note Interest: Under U.S. tax law, the interest that accrues on convertible notes during a period usually must be included in taxable income even when the company does not have an obligation to pay it during the period.

  • Passthrough Income from LLCs and Partnerships: If you invest in a fund that invests using a passthrough operating portfolio company, that operating company may pass-through taxable income without a corresponding cash distribution. This allocation may in turn flow through to your K-1.