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In this edition
August 6, 2019

Consider the Flexibility of a Self-Directed IRA

Podcast: The Affordable Care Act Cliff

Tax Document Retention Guidelines for Small Businesses
Consider the Flexibility of a Self-Directed IRA
Traditional and Roth IRAs can be relatively “safe” retirement-savings vehicles, depending on what they’re invested in. But a drawback is that they limit your investment choices. A self-directed IRA gives you more flexibility in your investment choices but comes with greater risk as well.

Gaining More Control

A self-directed IRA is simply an IRA that gives you greater control over investment decisions. Traditional IRAs typically offer a selection of stocks, bonds and mutual funds. Self-directed IRAs (available at certain financial institutions) offer greater diversification and potentially higher returns by permitting you to select virtually any type of investment, including real estate, closely held stock, limited liability company and partnership interests, loans, precious metals, and commodities (such as lumber and oil and gas).

A self-directed IRA can be a traditional or Roth IRA, a Simplified Employee Pension (SEP) plan, or a Savings Incentive Match Plan for Employees (SIMPLE). It’s also possible to have a self-directed individual 401(k) plan, Health Savings Account or Coverdell Education Savings Account.

Self-directed Roth IRAs are particularly powerful estate planning tools, because they offer tax- free  investment growth. (See “IRAs and your estate plan.”)

Navigating the Tax Traps

To avoid pitfalls that can lead to unwanted tax consequences, caution is required when using self-directed IRAs. The most dangerous traps are the prohibited transaction rules.
These rules are designed to limit dealings between an IRA and “disqualified persons,” including account holders, certain members of account holders’ families, businesses controlled by account holders or their families, and certain IRA advisors or service providers. Among other things, disqualified persons may not sell property or lend money to the IRA, buy property from the IRA, provide goods or services to the IRA, guarantee a loan to the IRA, pledge IRA assets as security for a loan, receive compensation from the IRA or personally use IRA assets.

The penalty for engaging in a prohibited transaction is severe: The IRA is disqualified and all its assets are deemed to have been distributed on the first day of the year in which the transaction took place, subject to income taxes and, potentially, penalties. This makes it very difficult to manage a business, real estate or other investments held in a self-directed IRA. So, unless you’re prepared to accept a purely passive role with respect to the IRA’s assets, this strategy isn’t for you.

Considering the Option

If you have assets such as precious metals, energy or other alternative investments, a self-directed IRA may be worth your while to consider. Contact our firm to discuss further.
Contact: Nicole Malueg, CPA
Direct: 920.684.2523
Email: nmalueg@hawkinsashcpas.com
IRAs and Your Estate Plan

IRAs are designed primarily as retirement-saving tools, but if you don’t need the funds for retirement, they can provide a tax-advantaged source of wealth for your family. For example, if you name your spouse as beneficiary, your spouse can roll the funds over into his or her own IRA after you die, enabling the funds to continue growing on a tax-deferred basis (tax-free in the case of a Roth IRA).

If you name a child (or someone other than your spouse) as beneficiary, that person will have to begin taking distributions immediately. But if the funds are held in an “inherited IRA,” your beneficiary can stretch the distributions over his or her own life expectancy, maximizing the IRA’s tax benefits.
 Podcast: The Affordable Care Act Cliff
As more and more people go onto the Health Care Marketplace to get their health insurance, they need to mindful of the cliff that can mean paying back tens of thousands of dollars of health insurance subsidies. This is an area where planning is critical if you are close to the limit.
Tax Document Retention Guidelines for Small Businesses
Retain records that support items shown on your tax return at least until the statute of limitations runs out — generally three years from the due date of the return or the date you filed, whichever is later. That means you can now potentially throw out records for the 2015 tax year if you filed the return for that year by the regular filing deadline. But some records should be kept longer.

For example, there’s no statute of limitations if you fail to file a tax return or file a fraudulent one. So, you’ll generally want to keep copies of your returns themselves permanently, so you can show that you did file a legitimate return.
Also bear in mind that, if you understate your adjusted gross income by more than 25%, the statute of limitations period is six years.

Some Business Specifics

Records substantiating costs and deductions associated with business property are necessary to determine the basis and any gain or loss when the property is sold. According to IRS guidelines, you should keep these for as long as you own the property, plus seven years.

The IRS recommends keeping employee records for three years after an employee has been terminated. In addition, you should maintain records that support employee earnings for at least four years. (This time frame generally will cover varying state and federal requirements.) Also keep employment tax records for four years from the date the tax was due or the date it was paid, whichever is longer.

For travel and transportation expenses supported by mileage logs and other receipts, keep supporting documents for the three-year statute of limitations period. Regulations for sales tax returns vary by state. Check the rules for the states where you file sales tax returns. Retention periods typically range from three to six years.

When in Doubt, Don’t Throw it Out

If you’re unsure whether you should retain a document, a good rule of thumb is to hold on to it for at least six years or, for property-related records, at least seven years after you dispose of the property. But, again, you should keep tax returns themselves permanently, and other rules or guidelines might apply in certain situations. We can answer any questions you might have.

Check out and save our Recommended Records Retention guide here:
Contact: Curt Bach, CPA
Direct: 715.748.1351
Email: cbach@hawkinsashcpas.com
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