The revised tax brackets will let taxpayers earn more money this year without bumping themselves up to a higher tax rate. The new brackets mean you will pay less tax on higher income than you would have in 2008. The timing could not be better says Investor Business Daily.
With the market up strongly, a lot of taxpayers could rack up capital gains this year versus 2008’s losses. Even the economy is heating up; so some taxpayers may earn more this year thanks to everything from year-end bonuses to Roth IRA conversions and withdrawals from the traditional IRAs. In both cases, income from gains or job earnings, savvy moves may help you avoid taxes or reduce your taxes.
Each year, the brackets are adjusted for inflation. For example, the upper limit for the 25% bracket for couples filing jointly went from $131,450 in 2008 to $137,050 in 2009. That is an increase of 4.26%. Those numbers are for taxable income, after deductions from gross income. If you know where you stand you may be able to make some tax efficient moves by year end.
Take a hypothetical James Darren. His modified adjusted gross income (MAGI) will be under $100,000 in 2009. Since that is the income ceiling on eligibility for converting a traditional IRA to a Roth IRA, he can make the switch. Darren, who is single projects his taxable income for this year at $60,000 and that puts him in a 25% federal tax bracket.
That bracket goes up to $82,250 of taxable income in 2009, so Darren is under the ceiling by $22,250. So Darren converts $22.250 of his traditional IRA to a Roth IRA by year end. He will stay in the 25% tax bracket and he will owe the IRS only $5,562.50 on the conversion, which is 25% of the $22,250.
If Darren thinks his tax rate in the future will be higher, converting to a Roth IRA will be a good choice. After five (5) years and after age 59 ½ all withdrawals from the Roth IRA will be tax-free. Another opportunity might arise for Ann and Adam Anderson, a hypothetical retired couple. They’re tapping their traditional IRAs for living expenses to supplement Social Security. The Andersons project their 2009 taxable income at $50,000, so they are in the 15% tax bracket. That goes up to $67,900 in 2009.
The couple can take a total of $17,900 from one or both of their IRAs by year end. As long as they keep their joint taxable income no higher than $67,900 for the year, they will owe the IRS only 15% on these IRA withdrawals. The Andersons are both in their 60s, so they are in no danger of triggering the 10% penalty for a withdrawal from a traditional Ira before age 59 ½. Any penalty would be in addition to the income tax the Andersons would have to pay, but there are some exceptions to the 10% penalty.
You can avoid the penalty if the distributions are equal and at least annual, said Tom Ochsenschlager, Vice President of taxation at the American Institute of Certified Public Accountants. The IRS permits several methods of making this calculation, based on your age. Ochsenschlager said, you have the opportunity to change the amount of the withdrawal, at whichever is later:
Five years from when withdrawals began, or
When you reach 59 ½.
Arranging capital gains to fill up a tax bracket this year may be especially appealing, as long as you stay in a 10% or 15% bracket, you will owe no tax on gains in 2009 or 2010 from assets held more than one year. The 0% rate on long-term gains applies if your taxable income is no more than $33,950 this year or $67,900 on a joint return. If your income will be higher, shifting gains to a low bracket loved one can pay off big time.
Say Bob Smith holds appreciated stocks he plans to sell. Smith’s 24 year old son, Jake, is in school and expects $12,000 in taxable income in 2009 from his part time job. The Smiths can give Jake $26,000 in stock. That would use the $13,000 gift tax exclusion amount from Bob Smith and the $13,000 gift tax exclusion amount from Mrs. Smith. Now say the stock cost the Smiths $10,000. Jake sells the stock in 2009 and realizes a $16,000 long term capital gain. Now he has $28,000 in taxable income for the year of 2009. Jake, as a single taxpayer, can have up to $33,950 and stay in the 15% bracket and owe no tax on the long-term capital gains. In fact, the Smith’s son would have to take another $5,950 of long term gains before he would owe tax on any of the gains.
Similar strategies can work with gifts to an elderly parent or parents. Watch out for income shifts to children under the age of 24. Stay away from that transaction because if they are full time students, low taxed investment income is basically capped at $1,900 for 2009.
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This intellectual capital is of general nature and should not be acted upon without professional guidance. So if you know someone that is looking for ways to save taxes, avoid audits and remain invisible to the IRS, call us at 702-642-8953 or write us at isueirs@aol.com. With us there are No exceptions, No conditions. No time limits. No IRS.
Saturday, November 21, 2009
Saturday, July 11, 2009
GET YOUR RETIREMENT MONEY WITHOUT THE PENALTY
Want to tap into your retirement money? Where you hold the funds can determine whether you get hit with an early withdrawal penalty. Some people are better off siphoning cash from a 401K; while others should look into an IRA.
You usually owe income tax when you take money out of an IRA or 401K. And you probably will owe a 10% penalty if you withdraw before age 59 ½. Suppose a hypothetical 50 year old sets up a consulting business, but his pay is lower then what is required to pay is bills. Now he needs to tap his retirement fund to cover expenses. One option is to leave the money in his former employer’s 401K, then make withdrawals; but because he is under 59 1/2, he will be hit with the early withdrawal penalty.
If the 50 year old in the 25% tax bracket, the tax will cost him the 25% in tax plus the 10% penalty for a total of 35% on retirement fund withdrawals. That is the rate paid by the highest bracket taxpayers, therefore, the 50 year old would like to avoid the 10% surtax.
If the money is still in a 401K, there is no penalty, as long as, the account owner left the company after his or her 55th birthday, said Natalie Choat, an attorney with a Boston law firm. In fact they would be exempt from the 10% surtax if the separation from service was due to retirement, lay off, firing or quitting occurred any time during or after the calendar year in which he reached age 55. But our sample taxpayer is only 50 years old, therefore he would owe the 25% in tax and the 10% penalty on the withdrawal.
There are some reasons to keep money in the 401K, even if you leave the company before age 55. Payments to a spouse or a former spouse under a qualified domestic relations order in a divorce or separation avoid the surtax, coming from a 401K.
Another option for the 50 year old is to roll the 401K account at his former work place to an IRA. Some exceptions to the early withdrawal penalty apply to IRAs but not to 401K plans. One IRA exception is for first time homebuyer. That is someone who has not owned a home that he used as his principal resididence for the previous 2 years.
Our 50 year old could take out up to $10,000 for a home he would occupy as his principal residence. He also can withdraw the money and give it to his wife, child, grandchild or parent who is making a qualified home purchase, or any combination of those people. The $10,000 is a lifetime cap; so, if our 50 year old takes $4,000 from his IRA to help his son buy a home, he also can take $6,000 to help his daughter buy one. If both purchases qualify, there will be no penalty.
The wife can take out up to another $10,000 penalty free and give it to one or more qualified recipients. To avoid the surtax, the money must be used to buy or build a home within 120 days of the withdrawal. But our 50 year old does not plan to buy a home or help anyone else buy a home. So this exception will not help. The 50 year old can use another exception available to IRAs. That applies to outlays for higher education. So, suppose the 50 year old has two children in college this year. He expects to pay $30,000 for schooling in 2009. The 50 year old can withdraw up to $30,000 from his IRA this year and avoid the early withdrawal surtax. The money has to be spent at an accredited school. Expenses that count toward the penalty exception are those from tuition, fees, books, equipment and supplies. For students who are enrolled at least half time, penalty free withdrawals also are permitted for room and board. The student can be the IRA owner himself, the IRA owner’s spouse, child or grandchild, or any combination thereof.
An IRA rollover also makes sense if you lose a job and plan to go back to school to enhance your career prospects. If you have lost a job, you might benefit from another exception to the 10% surtax. This exception applies to health insurance premiums. You can withdraw IRA money to pay those premiums while you are unemployed, penalty free. To qualify, you must have received unemployment compensation for at lease 12 consecutive weeks. The penalty free withdrawals can be made in the year that unemployment compensation was received or in the following year.
That may be another reason to roll 401K money into an IRA if you leave the company before age 55. If you expect a long period of unemployment and substantial outlays for health insurance, you can take penalty free withdrawals from an IRA but not from a 401K. So the reason you may withdraw funds can dictate where you should hold your retirement funds. Usually, plans do not let members roll 401K assets to an IRA while they still work for the company.
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This intellectual property is of general nature and should not be acted on without professional guidance. So if you know someone that is looking for a way to save taxes and avoid the IRS, call us at 702-642-8953 or write me at isueirs@aol.com. No Restrictions. No Conditions. No Time Limit. No IRS.
You usually owe income tax when you take money out of an IRA or 401K. And you probably will owe a 10% penalty if you withdraw before age 59 ½. Suppose a hypothetical 50 year old sets up a consulting business, but his pay is lower then what is required to pay is bills. Now he needs to tap his retirement fund to cover expenses. One option is to leave the money in his former employer’s 401K, then make withdrawals; but because he is under 59 1/2, he will be hit with the early withdrawal penalty.
If the 50 year old in the 25% tax bracket, the tax will cost him the 25% in tax plus the 10% penalty for a total of 35% on retirement fund withdrawals. That is the rate paid by the highest bracket taxpayers, therefore, the 50 year old would like to avoid the 10% surtax.
If the money is still in a 401K, there is no penalty, as long as, the account owner left the company after his or her 55th birthday, said Natalie Choat, an attorney with a Boston law firm. In fact they would be exempt from the 10% surtax if the separation from service was due to retirement, lay off, firing or quitting occurred any time during or after the calendar year in which he reached age 55. But our sample taxpayer is only 50 years old, therefore he would owe the 25% in tax and the 10% penalty on the withdrawal.
There are some reasons to keep money in the 401K, even if you leave the company before age 55. Payments to a spouse or a former spouse under a qualified domestic relations order in a divorce or separation avoid the surtax, coming from a 401K.
Another option for the 50 year old is to roll the 401K account at his former work place to an IRA. Some exceptions to the early withdrawal penalty apply to IRAs but not to 401K plans. One IRA exception is for first time homebuyer. That is someone who has not owned a home that he used as his principal resididence for the previous 2 years.
Our 50 year old could take out up to $10,000 for a home he would occupy as his principal residence. He also can withdraw the money and give it to his wife, child, grandchild or parent who is making a qualified home purchase, or any combination of those people. The $10,000 is a lifetime cap; so, if our 50 year old takes $4,000 from his IRA to help his son buy a home, he also can take $6,000 to help his daughter buy one. If both purchases qualify, there will be no penalty.
The wife can take out up to another $10,000 penalty free and give it to one or more qualified recipients. To avoid the surtax, the money must be used to buy or build a home within 120 days of the withdrawal. But our 50 year old does not plan to buy a home or help anyone else buy a home. So this exception will not help. The 50 year old can use another exception available to IRAs. That applies to outlays for higher education. So, suppose the 50 year old has two children in college this year. He expects to pay $30,000 for schooling in 2009. The 50 year old can withdraw up to $30,000 from his IRA this year and avoid the early withdrawal surtax. The money has to be spent at an accredited school. Expenses that count toward the penalty exception are those from tuition, fees, books, equipment and supplies. For students who are enrolled at least half time, penalty free withdrawals also are permitted for room and board. The student can be the IRA owner himself, the IRA owner’s spouse, child or grandchild, or any combination thereof.
An IRA rollover also makes sense if you lose a job and plan to go back to school to enhance your career prospects. If you have lost a job, you might benefit from another exception to the 10% surtax. This exception applies to health insurance premiums. You can withdraw IRA money to pay those premiums while you are unemployed, penalty free. To qualify, you must have received unemployment compensation for at lease 12 consecutive weeks. The penalty free withdrawals can be made in the year that unemployment compensation was received or in the following year.
That may be another reason to roll 401K money into an IRA if you leave the company before age 55. If you expect a long period of unemployment and substantial outlays for health insurance, you can take penalty free withdrawals from an IRA but not from a 401K. So the reason you may withdraw funds can dictate where you should hold your retirement funds. Usually, plans do not let members roll 401K assets to an IRA while they still work for the company.
CALL ON US.
This intellectual property is of general nature and should not be acted on without professional guidance. So if you know someone that is looking for a way to save taxes and avoid the IRS, call us at 702-642-8953 or write me at isueirs@aol.com. No Restrictions. No Conditions. No Time Limit. No IRS.
Saturday, July 4, 2009
WHAT IS YOUR BUSINESS WORTH?
When valuing a business, the main element is the future income. One method to consider is the "Three Year Weighted Average." This approach uses three years to provide credibility, yet it puts the most weight on the immediate past year.
First you must adjust the three prior year profit and loss statements to allow for proper compensation for the owner, and to eliminate family expenses that may have crept into the company expenses. Now, multiply the profit or loss for the immediate past year by three; the second year old net figure by two; and the third year old figure by one.
Total your three answers and divide by six. You now have the "weighted average" for the prior performance with the greatest weight being applied to the immediate past year.
Divide the weighted average profit by your desired percentage return. This will provide you with a rought guideline as to the value of the business. Remember, you adjusted the profit and loss figure before you started your computation to allow for a proper return on the proprietor's time.
The investor who is happy with an eight percent return would be willing to pay a higher price for a business than an investor who demands a twelve percent return. Some buyers are satisfied with a lower rate of return on their investment, if they are also securing a full-time self-employment position.
Ultimately the business is valued on the amount of money it's expected to generare for the owner, as well as its associated risks. A way to measure these risks is to examine the business' cash flow or expected income. The general formula is that a business' selling price should be three (3) to five (5) times its cash flow, with the higher end being more appropriate for a bigger business. Therefore, if the firm produced a net profit of $100,000 last year, you might expect to buy it for $300,000.
Remember, though, these are just generalities and they don't account for the risks of an individual business, says Rick Shaffer, an Aurora, Ill business broker. Specific economic factors affecting your industry can change the valuation. For example, if you were buying a business that schedules Asian tours, the value of the firm could be affected by how the dollar is expected to perform.
That is why it is worth hiring a professional valuator; in fact, your lender may even require you to do so. A valuator can fully analyze all the conditions affecting the specific business. And the valuator will have information about the amount that other similar businesses have recently listed and sold for. This data isn't public, but certain agencies track sales and appraisers subscribe to their services.
Your business broker or accountant can usually point you toward a valuator. Expect to pay an hourly fee for the person's services, but it is well worth every penny.
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This intellectual property is of general nature and should not be acted upon without professional gudiance. So if you know of someone that is looking for a way to save taxes and avoid the IRS call me at 702-642-8953 or write us at isueirs@aol.com. No Exceptions. No Conditions. No Time Limits. No IRS.
First you must adjust the three prior year profit and loss statements to allow for proper compensation for the owner, and to eliminate family expenses that may have crept into the company expenses. Now, multiply the profit or loss for the immediate past year by three; the second year old net figure by two; and the third year old figure by one.
Total your three answers and divide by six. You now have the "weighted average" for the prior performance with the greatest weight being applied to the immediate past year.
Divide the weighted average profit by your desired percentage return. This will provide you with a rought guideline as to the value of the business. Remember, you adjusted the profit and loss figure before you started your computation to allow for a proper return on the proprietor's time.
The investor who is happy with an eight percent return would be willing to pay a higher price for a business than an investor who demands a twelve percent return. Some buyers are satisfied with a lower rate of return on their investment, if they are also securing a full-time self-employment position.
Ultimately the business is valued on the amount of money it's expected to generare for the owner, as well as its associated risks. A way to measure these risks is to examine the business' cash flow or expected income. The general formula is that a business' selling price should be three (3) to five (5) times its cash flow, with the higher end being more appropriate for a bigger business. Therefore, if the firm produced a net profit of $100,000 last year, you might expect to buy it for $300,000.
Remember, though, these are just generalities and they don't account for the risks of an individual business, says Rick Shaffer, an Aurora, Ill business broker. Specific economic factors affecting your industry can change the valuation. For example, if you were buying a business that schedules Asian tours, the value of the firm could be affected by how the dollar is expected to perform.
That is why it is worth hiring a professional valuator; in fact, your lender may even require you to do so. A valuator can fully analyze all the conditions affecting the specific business. And the valuator will have information about the amount that other similar businesses have recently listed and sold for. This data isn't public, but certain agencies track sales and appraisers subscribe to their services.
Your business broker or accountant can usually point you toward a valuator. Expect to pay an hourly fee for the person's services, but it is well worth every penny.
CALL ON US
This intellectual property is of general nature and should not be acted upon without professional gudiance. So if you know of someone that is looking for a way to save taxes and avoid the IRS call me at 702-642-8953 or write us at isueirs@aol.com. No Exceptions. No Conditions. No Time Limits. No IRS.
Monday, June 8, 2009
DEDUCTING STRANGE ASSETS
You can write off losses on a range of items from 529 plans to Roth IRAs. For those
hurt by the declining market values, one of the few remaining pleasures is harvesting
losses for tax deductions. If you realized losses last year, the deductions can go on your
2008 tax return, by amending. Otherwise, consider acting now for a 2009 write-off.
Examples include:
529 COLLEGE SAVINGS PLANS. If you have a 529 account with a current
balance below the amount you invested, you can close the account and pull out the
remaining cash. If you invested, say $20,000 but your account is down to $12,000 you
could walk away with an $8,000 loss. That loss is considered a miscellaneous deduction.
Other deductions in this category include investment expenses and un-reimbursed
employee business outlays. After you add up all your miscellaneous deductions, you can
deduct the amount in excess of 2% of your adjusted gross income.
Say your AGI this year is $200,000. The 2% threshold is $4,000. If all of your
miscellaneous outlays, including your 529 plan loss, equal $11,000, you can take a
$11,000 deduction. However, the deduction will be worth less or nothing if you owe the
alternative tax. You can't take this and most types of miscellaneous deductions against
the AMT.
If you liquidate a 529 account and get back less than you put in, wait more than 60 days to
reinvest the proceeds in a new 529 account. This advice comes from Jim Van Grevenhof,
senior tax analyst for the Tax and Accounting business of Thomson Reuters. If you
reinvest sooner in a 529 plan, the IRS won't allow you to take the write-off.
And stay clear of a potential wash sale violation. If you invest the liquidation proceeds
during the 60 days, don't put the money into anything substantially identical to the
original investment. It is easier and safer to simply park the proceeds in cash for 60 days.
ROTH IRAs. The rules here are similar to those for a 529 plan. To get the tax
loss, you must withdraw all of the money you have in any Roth IRA. But the potential
negatives can outweigh the one-time tax benefit. There is the hassle factor, for one.
If you have more than one Roth, you must close down all of them even any that do not
have a loss or whose loss you don't want to take. Why? The IRS treats all your Roth
IRAs as one pool of money. Going this route and claiming the Roth IRA-loss deduction
can also be costly. Suppose you invested $30,000 in one or more Roth's. Now the
balance is $19,000; you have lost $11,000 and you have paid the tax on the $30,000.
Now, if you are under the age of 591/2 and the Roth account is not at least five years old,
you risk getting hit with a 10% penalty. Also what about putting your assets back inside a
Roth, where earnings can grow tax-deferred? If you want to open a new Roth, wait until
the next calendar year. That way you will avoid triggering current year-end statements
from the financial firm holding your Roth, says Ed Slott, who publishes the IRA Advisor
newsletter.
The IRS could misinterpret such paperwork to mean you did not really close your Roth
account. And, wait the 60 days after closing your Roth account before opening a new
one. Again, such miscellaneous deductions over 2% of your AGI can be written off; but
they won't reduce your AMT obligation.
Can you deduct a similar loss from a traditional IRA? Probably not, Slott says. "you can
deduct an IRA loss only if the amount you get from closing your IRAs is less than your
basis" A Roth IRA holds after-tax money so all of your contributions provided you with
basis. But the IRS does not treat pre-tax contributions to a traditional IRA as basis for
this purpose. So you cannot take a loss on a traditional IRA built with deductible
contributions.
Nondeductible IRA contributions are different. You can get a miscellaneous deduction if
the amount you get from liquidating all your traditional IRAs, including those with
deductible contributions, is less than your nondeductible contributions.
WORTHLESS SECURITIES. The capital loss rules also apply when securities
you own become totally worthless. A stock or bond that you own will be considered
worthless when it has n liquidation value and no reasonable hope of providing any value.
Suppose a company is being liquidated in bankruptcy and the shareholder equity will be
wiped out. That's the sign the stock is worthless and you can claim a capital loss on your
tax return. Think GM.
CALL ON US. This publication is issued as a service to our clients and friends.
This intellectual capital is of general nature and should not be acted upon without
professional guidance. So if you know someone that is looking for a way to save taxes
and avoid the IRS, call me at (702) 642-8953 or write me at isueirs@aol.com. No
Exceptions. No Conditions, No Time limit. No IRS.
hurt by the declining market values, one of the few remaining pleasures is harvesting
losses for tax deductions. If you realized losses last year, the deductions can go on your
2008 tax return, by amending. Otherwise, consider acting now for a 2009 write-off.
Examples include:
529 COLLEGE SAVINGS PLANS. If you have a 529 account with a current
balance below the amount you invested, you can close the account and pull out the
remaining cash. If you invested, say $20,000 but your account is down to $12,000 you
could walk away with an $8,000 loss. That loss is considered a miscellaneous deduction.
Other deductions in this category include investment expenses and un-reimbursed
employee business outlays. After you add up all your miscellaneous deductions, you can
deduct the amount in excess of 2% of your adjusted gross income.
Say your AGI this year is $200,000. The 2% threshold is $4,000. If all of your
miscellaneous outlays, including your 529 plan loss, equal $11,000, you can take a
$11,000 deduction. However, the deduction will be worth less or nothing if you owe the
alternative tax. You can't take this and most types of miscellaneous deductions against
the AMT.
If you liquidate a 529 account and get back less than you put in, wait more than 60 days to
reinvest the proceeds in a new 529 account. This advice comes from Jim Van Grevenhof,
senior tax analyst for the Tax and Accounting business of Thomson Reuters. If you
reinvest sooner in a 529 plan, the IRS won't allow you to take the write-off.
And stay clear of a potential wash sale violation. If you invest the liquidation proceeds
during the 60 days, don't put the money into anything substantially identical to the
original investment. It is easier and safer to simply park the proceeds in cash for 60 days.
ROTH IRAs. The rules here are similar to those for a 529 plan. To get the tax
loss, you must withdraw all of the money you have in any Roth IRA. But the potential
negatives can outweigh the one-time tax benefit. There is the hassle factor, for one.
If you have more than one Roth, you must close down all of them even any that do not
have a loss or whose loss you don't want to take. Why? The IRS treats all your Roth
IRAs as one pool of money. Going this route and claiming the Roth IRA-loss deduction
can also be costly. Suppose you invested $30,000 in one or more Roth's. Now the
balance is $19,000; you have lost $11,000 and you have paid the tax on the $30,000.
Now, if you are under the age of 591/2 and the Roth account is not at least five years old,
you risk getting hit with a 10% penalty. Also what about putting your assets back inside a
Roth, where earnings can grow tax-deferred? If you want to open a new Roth, wait until
the next calendar year. That way you will avoid triggering current year-end statements
from the financial firm holding your Roth, says Ed Slott, who publishes the IRA Advisor
newsletter.
The IRS could misinterpret such paperwork to mean you did not really close your Roth
account. And, wait the 60 days after closing your Roth account before opening a new
one. Again, such miscellaneous deductions over 2% of your AGI can be written off; but
they won't reduce your AMT obligation.
Can you deduct a similar loss from a traditional IRA? Probably not, Slott says. "you can
deduct an IRA loss only if the amount you get from closing your IRAs is less than your
basis" A Roth IRA holds after-tax money so all of your contributions provided you with
basis. But the IRS does not treat pre-tax contributions to a traditional IRA as basis for
this purpose. So you cannot take a loss on a traditional IRA built with deductible
contributions.
Nondeductible IRA contributions are different. You can get a miscellaneous deduction if
the amount you get from liquidating all your traditional IRAs, including those with
deductible contributions, is less than your nondeductible contributions.
WORTHLESS SECURITIES. The capital loss rules also apply when securities
you own become totally worthless. A stock or bond that you own will be considered
worthless when it has n liquidation value and no reasonable hope of providing any value.
Suppose a company is being liquidated in bankruptcy and the shareholder equity will be
wiped out. That's the sign the stock is worthless and you can claim a capital loss on your
tax return. Think GM.
CALL ON US. This publication is issued as a service to our clients and friends.
This intellectual capital is of general nature and should not be acted upon without
professional guidance. So if you know someone that is looking for a way to save taxes
and avoid the IRS, call me at (702) 642-8953 or write me at isueirs@aol.com. No
Exceptions. No Conditions, No Time limit. No IRS.
Sunday, March 29, 2009
Real Estate Foreclosures, Modifications and Conveyances
Whenever you are unable to meet payments on a debt secured by real estaete, the creditor may foreclose on the loan or repossess the property. A foreclosure sale or repossession, including a voluntary return of the property to the creditor, is treated as a sale of the property on which you must figure your gain or loss. If the property was personal-use-property, the Mortgage Forgiveness Debt Relief Act of 2007 will prevent you from having to declare the 1099-A amount as income on your tax return. If you do not have to declare the conveyance as income, any loss you sustain on the conversion may not be taken on personal-use-property.
If you are personally liable on the debt, and if the value of the property is less than the cancelled debt, you generally realize ordinary income on the debt cancellation, but there are exceptions.
You have a gain or a loss equal to the difference between your adjusted basis in the property and the amount realized on the conversion. The amount realized depends on whether or not you are personally liable for the debt that secures the property.
If you are not personally liable on the debt secured by the property, the amount realized on the conversion includes, the additon to any foreclosure sale proceeds you receive, the full amount of the debt that is canceled as part of the transfer to the lender, even if the fair market value of the property is less than the canceled debt.
You do not realize income from the cancellation of nonrecourse debt upon a foreclosure or repossession. However if, in lieu of foreclosure, the lender offers a discount for early repayment or agrees to a loan modification in which the principal balance of the loan is reduced, the debt reduction results in income from the cancellation of debt even where you are not personally liable on the loan.
If you are personally liable on the debt secured by the property, the amount realized includes the smaller of the cancelled debt or the fair market value of the property transferred to the lender. This is in additon to any foreclosure sale proceeds received.
Where the canceled debt exceeds the fair market value of the property, the excess must be reported as ordinary income from the cancellation of debt, unless the law allows it to be excluded. For example, if you are insolvent at the time of the foreclosure, or the exclusion for restructuring debt on business real estate applies, you do not have to report the debt cancellation as income.
CALL ON US
This publication is issued as a service to our clients and friends. This intellectual capital is of general nature and should not be acted upon without professional guidance. So if you know someone that is looking for a way to save taxes and avoid the IRS, call me at (702) 642-8953 or write me at isueirs@aol.com. No Exceptions. No Conditions, No Time limit. No IRS.
If you are personally liable on the debt, and if the value of the property is less than the cancelled debt, you generally realize ordinary income on the debt cancellation, but there are exceptions.
You have a gain or a loss equal to the difference between your adjusted basis in the property and the amount realized on the conversion. The amount realized depends on whether or not you are personally liable for the debt that secures the property.
If you are not personally liable on the debt secured by the property, the amount realized on the conversion includes, the additon to any foreclosure sale proceeds you receive, the full amount of the debt that is canceled as part of the transfer to the lender, even if the fair market value of the property is less than the canceled debt.
You do not realize income from the cancellation of nonrecourse debt upon a foreclosure or repossession. However if, in lieu of foreclosure, the lender offers a discount for early repayment or agrees to a loan modification in which the principal balance of the loan is reduced, the debt reduction results in income from the cancellation of debt even where you are not personally liable on the loan.
If you are personally liable on the debt secured by the property, the amount realized includes the smaller of the cancelled debt or the fair market value of the property transferred to the lender. This is in additon to any foreclosure sale proceeds received.
Where the canceled debt exceeds the fair market value of the property, the excess must be reported as ordinary income from the cancellation of debt, unless the law allows it to be excluded. For example, if you are insolvent at the time of the foreclosure, or the exclusion for restructuring debt on business real estate applies, you do not have to report the debt cancellation as income.
CALL ON US
This publication is issued as a service to our clients and friends. This intellectual capital is of general nature and should not be acted upon without professional guidance. So if you know someone that is looking for a way to save taxes and avoid the IRS, call me at (702) 642-8953 or write me at isueirs@aol.com. No Exceptions. No Conditions, No Time limit. No IRS.
Monday, March 16, 2009
CARRY BACK OF 2008 LOSSES
The Internal Revenue Service announced today that small businesses with deductions exceeding their income in 2008 can use a new net operating loss tax provision to get a refund of taxes paid in prior years.
To accommodate the change in tax law, the IRS today updated the instructions for two key forms – Forms 1045 and 1139 -- that small businesses can use to make use of the special carryback provision for tax year 2008. These forms are used to accelerate the payment of refunds.
The new provision, enacted on February 16, 2009 as part of the American Recovery and Reinvestment Act of 2009, enables small businesses with a net operating loss (NOL) in 2008 to elect to offset this loss against income earned in up to five prior years. Typically, an NOL can be carried back for only two years. The IRS released legal guidance today in Revenue Procedure 2009-19 outlining specific details. Some taxpayers must make the election to use this special carryback by April 17, 2009.
“The new net operating loss provisions could throw a lifeline to struggling businesses, providing them with a quick infusion of cash,” said IRS Commissioner Doug Shulman. “We want to make it as easy as possible for small businesses to take advantage of these key tax benefits.”
With the economic downturn and the new law, the IRS expects record numbers of small businesses to be eligible for the refunds. The IRS is putting in special steps to ensure timely processing of these refunds to help small businesses during this difficult period.
Small businesses with large losses in 2008 may be able to benefit fully from those losses now, rather than waiting until claiming them on future tax returns.
The normal two-year carryback remains available if the small business does not elect the special carryback provision. If the loss exceeds the income for the carryback period, the taxpayer can continue to carry forward the remaining balance of the NOL for up to 20 years.
For small businesses that use a fiscal year, this special carryback may be used for an NOL in either a tax year that ends in 2008 or a tax year that begins in 2008. Once a taxpayer makes this election, it may not be changed.
To qualify for the new five-year carryback provision, a small business must have no greater than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL. Businesses with more than $15 million in gross receipts still qualify to carry back their 2008 NOL for two years.
There are several methods that a small business uses to elect the new provision as detailed in the Revenue Procedure.
If a small business previously elected to waive the carryback of 2008 NOL but now wants to elect this special carryback, the small business may revoke its previous election to waive the carryback. The election revocation must be made on or before April 17, 2009.
Generally small businesses that are not corporations (including sole proprietorships filing schedule C with their Form 1040) may accelerate a refund by using Form 1045, Application for Tentative Refund.
Corporations with Net Operating Losses may also accelerate a refund by using Form 1139, Corporation Application for Tentative Refund. The IRS will be closely monitoring these filings and will provide additional staff as needed to process these forms. The IRS will work to issue refunds within 45 days or even earlier to the degree possible.
Form 1045 or Form 1139, whichever the taxpayer uses, generally must be filed within one year after the end of the tax year of the NOL. In addition, the current year’s tax return must be filed by the date the Form 1045 or Form 1139 is filed. Form 1045 and Form 1139 are filed at the same place the taxpayer’s return is filed, as listed on the return instructions.
Accelerated refunds paid via Form 1045 or Form 1139 is described as “tentative” because the applications for refunds are potentially subject to review at a later date.
CALL ON ME
The intellectual capital is of general nature and should not be acted upon without professional guidance. As the founder and managing member, I want to be your guide. So if you know someone that is looking for a way to save taxes and avoid IRS audits, call me at (702) 642-8953 or write me at isueirs@aol.com. No Exceptions. No Conditions, No Time limit. No IRS.
To accommodate the change in tax law, the IRS today updated the instructions for two key forms – Forms 1045 and 1139 -- that small businesses can use to make use of the special carryback provision for tax year 2008. These forms are used to accelerate the payment of refunds.
The new provision, enacted on February 16, 2009 as part of the American Recovery and Reinvestment Act of 2009, enables small businesses with a net operating loss (NOL) in 2008 to elect to offset this loss against income earned in up to five prior years. Typically, an NOL can be carried back for only two years. The IRS released legal guidance today in Revenue Procedure 2009-19 outlining specific details. Some taxpayers must make the election to use this special carryback by April 17, 2009.
“The new net operating loss provisions could throw a lifeline to struggling businesses, providing them with a quick infusion of cash,” said IRS Commissioner Doug Shulman. “We want to make it as easy as possible for small businesses to take advantage of these key tax benefits.”
With the economic downturn and the new law, the IRS expects record numbers of small businesses to be eligible for the refunds. The IRS is putting in special steps to ensure timely processing of these refunds to help small businesses during this difficult period.
Small businesses with large losses in 2008 may be able to benefit fully from those losses now, rather than waiting until claiming them on future tax returns.
The normal two-year carryback remains available if the small business does not elect the special carryback provision. If the loss exceeds the income for the carryback period, the taxpayer can continue to carry forward the remaining balance of the NOL for up to 20 years.
For small businesses that use a fiscal year, this special carryback may be used for an NOL in either a tax year that ends in 2008 or a tax year that begins in 2008. Once a taxpayer makes this election, it may not be changed.
To qualify for the new five-year carryback provision, a small business must have no greater than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL. Businesses with more than $15 million in gross receipts still qualify to carry back their 2008 NOL for two years.
There are several methods that a small business uses to elect the new provision as detailed in the Revenue Procedure.
If a small business previously elected to waive the carryback of 2008 NOL but now wants to elect this special carryback, the small business may revoke its previous election to waive the carryback. The election revocation must be made on or before April 17, 2009.
Generally small businesses that are not corporations (including sole proprietorships filing schedule C with their Form 1040) may accelerate a refund by using Form 1045, Application for Tentative Refund.
Corporations with Net Operating Losses may also accelerate a refund by using Form 1139, Corporation Application for Tentative Refund. The IRS will be closely monitoring these filings and will provide additional staff as needed to process these forms. The IRS will work to issue refunds within 45 days or even earlier to the degree possible.
Form 1045 or Form 1139, whichever the taxpayer uses, generally must be filed within one year after the end of the tax year of the NOL. In addition, the current year’s tax return must be filed by the date the Form 1045 or Form 1139 is filed. Form 1045 and Form 1139 are filed at the same place the taxpayer’s return is filed, as listed on the return instructions.
Accelerated refunds paid via Form 1045 or Form 1139 is described as “tentative” because the applications for refunds are potentially subject to review at a later date.
CALL ON ME
The intellectual capital is of general nature and should not be acted upon without professional guidance. As the founder and managing member, I want to be your guide. So if you know someone that is looking for a way to save taxes and avoid IRS audits, call me at (702) 642-8953 or write me at isueirs@aol.com. No Exceptions. No Conditions, No Time limit. No IRS.
Saturday, March 14, 2009
2008 TAX FILING SEASON
Taxpayers are e-filing their Federal income tax returns from their home computers in record numbers this year the IRS announced today. As of March 6, more than 18 million income tax returns were filed from home computers, up 20 percent compared to the same time last year.
So far this year, almost 52 million tax returns have been e-filed, up 6 percent compared to the same time last year. However, the number of people using IRS Free File has fallen from almost 3 million last year to just under 2 million for the same time this year, a reduction of about 30 percent. A number of factors could be causing the decrease in Free File volumes, including national advertising of other free online tax preparation offers and the elimination of electronic filing fees by some software providers.
As of March 6, about 91 percent of tax returns resulted in a refund. This percentage however is usually at its highest at the start of the filing season because taxpayers expecting refunds usually file earlier than taxpayer who must make a payment.
The IRS cautioned that year-to-year analysis of total returns file will be an anomaly this year because last year’s results include those returns filed for the economic stimulus payment. As the year progresses, the IRS expects to receive and process more individual income tax returns during 2009 than in 2007 but fewer than in 2008.
2009 FILING SEASON STATISTICS
Cumulative through the weeks ending Mar. 7, 2008 and Mar. 6, 2009
Individual Income Tax Returns
2008 2009 % ChangeTotal Receipts
63,383,000 63,851,000 0.7%
E-filing Receipts Total:
48,795,000 51,793,000 6.1%
Tax Professionals
33,419,000 33,349,000 -0.2%
Self-prepared
15,377,000 18,444,000 19.9%
Web Usage:
Visits to IRS.gov
90,729,850 116,774,933 28.7%
Total Refunds:
Number
53,176,000 54,638,000 2.7%
Amount
$136.976 Billion $153.579 Billion 12.1%
Average refund
$2,576 $2,811 9.1%
Direct Deposit Refunds:
41,665,000 44,744,000 7.4%
So far this year, almost 52 million tax returns have been e-filed, up 6 percent compared to the same time last year. However, the number of people using IRS Free File has fallen from almost 3 million last year to just under 2 million for the same time this year, a reduction of about 30 percent. A number of factors could be causing the decrease in Free File volumes, including national advertising of other free online tax preparation offers and the elimination of electronic filing fees by some software providers.
As of March 6, about 91 percent of tax returns resulted in a refund. This percentage however is usually at its highest at the start of the filing season because taxpayers expecting refunds usually file earlier than taxpayer who must make a payment.
The IRS cautioned that year-to-year analysis of total returns file will be an anomaly this year because last year’s results include those returns filed for the economic stimulus payment. As the year progresses, the IRS expects to receive and process more individual income tax returns during 2009 than in 2007 but fewer than in 2008.
2009 FILING SEASON STATISTICS
Cumulative through the weeks ending Mar. 7, 2008 and Mar. 6, 2009
Individual Income Tax Returns
2008 2009 % ChangeTotal Receipts
63,383,000 63,851,000 0.7%
E-filing Receipts Total:
48,795,000 51,793,000 6.1%
Tax Professionals
33,419,000 33,349,000 -0.2%
Self-prepared
15,377,000 18,444,000 19.9%
Web Usage:
Visits to IRS.gov
90,729,850 116,774,933 28.7%
Total Refunds:
Number
53,176,000 54,638,000 2.7%
Amount
$136.976 Billion $153.579 Billion 12.1%
Average refund
$2,576 $2,811 9.1%
Direct Deposit Refunds:
41,665,000 44,744,000 7.4%
Friday, January 2, 2009
BUY REAL ESTATE WITH YOUR IRA
Did you know you could buy real estate legally with your IRA? Shrewd investors have been doing it for years. With the stock market in turmoil many people would like to shift investment assets to real estate, and they would like to hold real estate in their IRAs to increase the amount earned, tax deferred.
Placing part of your IRA in real estate may make sense, especially if you have experience in investment property. But doing this the proper way is necessary if you want to avoid these dangerous traps
1. Self dealing. The Tax Court allows you to defer tax in your IRA in order to provide your retirement. If you take steps that can enrich your personally right now, you may have to pay a penalty or even have your IRA annulled.
2. Unavailability of leverage. Most IRA custodians don’t let you borrow money with your IRA assets. However, the biggest profits from investing in real estate comes when you make a down payment and use a mortgage for most of the purchase price. So, how do you dodge the trap? Use my plan:
You must first hold your IRA as a self directed. This is an informal term rather than one found in the Tax Code. It means that you, the IRA owner have greater control over your IRA than is typically the case. With more control, you can access a wider range of investments, such as private companies and real estate.
You must use an IRA custodian that is willing to let you hold real estate in your IRA. Once you have the custodian, you can transfer your IRA to an account there. The Limited Liability (LLC) structure is best used holding real estate in an IRA. An LLC can protect property owner from liabilities that arise from owning real estate. But an LLC can protect you from the self dealing when owing real estate in an IRA. Don’t use the Member Managed LLC. Instead, use the Manager managed LLC.
You can not move a property you already own into the IRA. That is considered self dealing. Instead, your IRA has to acquire the property from an unrelated party. Also, you can not buy a property from your IRA. Buy you can distribute real estate out of your IRA in the same way you would make any other retirement plan distribution. If it is from a tax deferred IRA, you will pay the tax; and if it is from a Roth IRA, you will avoid the tax.
As noted above most IRA custodians don’t let you borrow money with your IRA. To solve the leverage problem, the LLC borrows the money and the loan is secured by the property, not by the IRA. You can use money from your self directed IRA to fund your LLC. Then, the LLC can make a down payment on a property you have chosen.
Generally, your LLC will have to put up at lease 30% of the purchase price. Lenders may be willing to put up the remainder, when secured by the property. You are prohibited from directly buying, selling or renting to or from your IRA. Therefore, you can not put money down on a property from your personal account and then have your IRA involved in the deal. If any of your personal asses touch the deal, it is tainted for your IRA. You can not even personally guarantee the loan if your IRA is investing in the property.
CALL ON US
This publication is issued as a service to our clients and friends. This intellectual capital is of general nature and should not be acted upon without professional guidance. So if you know someone that is looking for a way to save taxes and avoid the IRS, call me at (702) 642-8953 or write me at isueirs@aol.com. No Exceptions. No Conditions, No Time limit. No IRS.
Placing part of your IRA in real estate may make sense, especially if you have experience in investment property. But doing this the proper way is necessary if you want to avoid these dangerous traps
1. Self dealing. The Tax Court allows you to defer tax in your IRA in order to provide your retirement. If you take steps that can enrich your personally right now, you may have to pay a penalty or even have your IRA annulled.
2. Unavailability of leverage. Most IRA custodians don’t let you borrow money with your IRA assets. However, the biggest profits from investing in real estate comes when you make a down payment and use a mortgage for most of the purchase price. So, how do you dodge the trap? Use my plan:
You must first hold your IRA as a self directed. This is an informal term rather than one found in the Tax Code. It means that you, the IRA owner have greater control over your IRA than is typically the case. With more control, you can access a wider range of investments, such as private companies and real estate.
You must use an IRA custodian that is willing to let you hold real estate in your IRA. Once you have the custodian, you can transfer your IRA to an account there. The Limited Liability (LLC) structure is best used holding real estate in an IRA. An LLC can protect property owner from liabilities that arise from owning real estate. But an LLC can protect you from the self dealing when owing real estate in an IRA. Don’t use the Member Managed LLC. Instead, use the Manager managed LLC.
You can not move a property you already own into the IRA. That is considered self dealing. Instead, your IRA has to acquire the property from an unrelated party. Also, you can not buy a property from your IRA. Buy you can distribute real estate out of your IRA in the same way you would make any other retirement plan distribution. If it is from a tax deferred IRA, you will pay the tax; and if it is from a Roth IRA, you will avoid the tax.
As noted above most IRA custodians don’t let you borrow money with your IRA. To solve the leverage problem, the LLC borrows the money and the loan is secured by the property, not by the IRA. You can use money from your self directed IRA to fund your LLC. Then, the LLC can make a down payment on a property you have chosen.
Generally, your LLC will have to put up at lease 30% of the purchase price. Lenders may be willing to put up the remainder, when secured by the property. You are prohibited from directly buying, selling or renting to or from your IRA. Therefore, you can not put money down on a property from your personal account and then have your IRA involved in the deal. If any of your personal asses touch the deal, it is tainted for your IRA. You can not even personally guarantee the loan if your IRA is investing in the property.
CALL ON US
This publication is issued as a service to our clients and friends. This intellectual capital is of general nature and should not be acted upon without professional guidance. So if you know someone that is looking for a way to save taxes and avoid the IRS, call me at (702) 642-8953 or write me at isueirs@aol.com. No Exceptions. No Conditions, No Time limit. No IRS.
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