TaxConnections Blog Post

CHAPTERS 1, 2, and 3 have brought the tax risk management process to a point where a Tax Risk Management strategy is in existence, with a participating tax team and a positive attitude toward proactive tax risk management.

This entire process for small businesses is taken care of through the tax-Radar program and the completion of the Tax Risk Matrix with the small businesses accounting firm.

This chapter deals with Tax Risk Management Step 4. Read More

TaxConnections Blog Post

Chapter 4

Insular? Be come More Transparent

Executive Summary

THE FOLLOWING POINTS are an extract from a survey* conducted over a period of two years and demonstrates the fact that the function of tax compliance within businesses is very insular and lacks the requisite interaction with other key persons in the business.

• No documented tax strategy – 78% Read More

Taxconnections Picture - Money Down the DrainPart II is a continuation from yesterday’s October 14, 2013 post.  See Part I HERE.

Nontraditional investments favored by many self-directed IRAs can lead to unexpected taxation of unaware IRA account holders.

Example 2: IRA-Owned LLC Invests in Real Estate Partnership

Setup. Mark, a retired airline pilot with $1.5 million in his 401(k) account, was afraid of another stock market meltdown and viewed real estate investments as a safer alternative and a diversification technique for his retirement savings. After learning about SDIRAs from a friend, he did some preliminary research online. Mark quickly found numerous IRA custodians and companies that promoted “checkbook control IRAs” (i.e., the SDIRA/LLC concept discussed above) and decided that the lower annual custodian fees and overall control made the SDIRA/LLC the best option for him.

Mark executed a partial rollover of his 401(k) account into his new SDIRA. Subsequently, the SDIRA invested all but $300 into a newly formed LLC, thus creating an SDIRA/LLC structure (it is typical to leave the smallest amount of cash in the IRA as possible). From there, the IRA custodian had very little involvement because all of the investments were made at the LLC level, with Mark facilitating transactions as the LLC’s sole manager.

Investment. Mark’s goal for his SDIRA/LLC was to invest in residential rental real estate, either directly out of the LLC or through a “project LLC” (i.e., a partnership) with other investors. Mark found a real estate investment group that frequently Read More

Taxconnections Picture - Money Down the DrainNontraditional investments favored by many self-directed IRAs can lead to unexpected taxation of unaware IRA account holders.

The appeal of investing retirement funds outside of the typical securities market has driven a surge in the use of self-directed IRA (SDIRA) investment structures. These structures come in various forms, but they all start when an IRA account holder forms an SDIRA with a custodian (e.g., a bank or trust company) that is amenable to holding “nontraditional” types of investments. In other words, the feature that makes an IRA “self-directed” is not its general legal framework, but rather the fact that the SDIRA’s custodian permits a wide array of investments and maximum control by the account holder.

Investments within SDIRAs frequently include real estate, closely held business entities, and private loans and can include any other investment that is not specifically prohibited by federal law—anything other than life insurance and collectibles can be held in an SDIRA. The SDIRA itself can be structured as a self-employed plan (SEP), a savings incentive match plan for employees (SIMPLE), or a traditional or Roth IRA, and is normally funded by a transfer from an account holder’s other IRA or a rollover from a qualified retirement account (e.g., a 401(k)). However, one common theme is that the IRA account holder wants to diversify away from 100% stock market-based investments and/or believes that better investment returns exist outside the securities market. Read More