What Is Carried Interest And How Is It Taxed

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What Is Carried Curiosity and How Is It Taxed?

Carried curiosity is a type of compensation given to funding fund managers. It’s a share of the income that’s paid out to the supervisor primarily based on the efficiency of the fund. As such, the sort of earnings is commonly topic to a particular tax remedy.

How Carried Curiosity Works

Fund managers sometimes obtain a price for managing the fund’s belongings. This price is often a hard and fast proportion of the whole asset worth. Along with this price, fund managers typically obtain a portion of the income generated by the fund. This portion of the income is known as carried curiosity.

Fund managers could obtain carried curiosity as a one-time fee, as a deferred fee, or constantly because the fund performs. This fee is calculated as a proportion of the whole income generated.

Tax Therapy of Carried Curiosity

The tax remedy of carried curiosity relies on quite a lot of elements, together with whether or not the association is structured as a partnership or as an LLC.

Typically, earnings generated by means of a partnership is taxed as atypical earnings, which is topic to earnings tax and self-employment tax. Because of this the fund supervisor is accountable for paying each the earnings tax and the self-employment tax on their portion of the income.

If an LLC is used, nonetheless, the carried curiosity could also be eligible for a particular tax remedy often known as “pass-through” taxation. Beneath pass-through taxation, the income generated by the LLC are handed by means of to its members, who’re then accountable for paying the earnings tax and self-employment tax on their respective shares of the income.


Carried curiosity is a type of compensation given to fund managers for the efficiency of their methods. It’s sometimes paid out as a proportion of the fund’s income. The tax remedy of the sort of earnings relies on the construction of the fund and could also be topic to both atypical earnings tax or pass-through taxation. As such, it is very important perceive the tax implications of any carried curiosity association.

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