Posts Tagged ‘tax deductable’

Your Own 401(k) Plan!

Friday, April 30th, 2010

I am asked often why I encourage clients to pursue establishing a self directed 401k plan. To put it quite simply, it is best plan available for the self employed.   

If you can qualify for a self-directed 401(k) plan, you will enjoy more flexibility, lower overall costs, and the freedom to have real control over your retirement plan. You can choose which account to fund: your before tax contribution or your after tax Roth account contribution, without the income limitations imposed by IRAs.

You do not have to use a custodian or third party administrator, and that can save you thousands of dollars in custodial fees over the life span of your plan.

And,  you can borrow directly from your self directed 401(k) plan, pay yourself interest, and use that money for virtually any reason (subject to IRS requirements and provisions).

Here is a brief overview of the main differences between these two types of plans.

Features SDIRA Individual 401(k)
Contribution Limit (2009, thereafter adjusted for inflation in $500 increments, or as otherwise stipulated by the IRS) $5,000 to age 49, $6,000 age 50 and above $16,500 ($16,500 age 50 and above) pre-tax contribution and a total of $46,000 allowed between employee election and company contributions and/or profit share
Employer Matching Contributions Not Allowed Your business can match 100% of employee deferrals
Profit Sharing Allowed Not Allowed Your business can profit share in addition to, or in place of, matching contributions
Roth Provisions A separate Roth account must be established and will have its own additional custodian costs A separate Roth account can be established and will have its own additional bookkeeping requirements –  no additional custodial costs
Roth Contributions Contributions can be very limited – $5,000 in 2008 but not allowed when AGI is above $116,000 single or $169,000 joint Up to $15,500 after tax, with no income caps: employer contributions and profit share must be pre-tax however
Roth Rollovers rollovers allowed from one plan or custodian to another Rollovers generally not allowed, however, at retirement, 401(k) will allow rollover to individual Roth IRA
Roth Conversion Conversions from traditional IRA to Roth IRA are allowed without limitation in 2010! Not allowed
TAXATION – UBIT/UDFI (Unrelated Business Income Tax/ Unrelated Debt Financed Income Tax) UDFI applies to leveraged transactions UBIT applies but with certain exemptions. UDFI does not apply to leveraged real estate
Purchase Shares in a “S” Corp Not Allowed Allowed
Government Reporting Requirements Recommended Yes, more specifically form 5500-EZ is an annual requirement, other reporting may be required depending on investment choices
Loan Provisions Not Allowed Allowed, with certain pay back requirements and specific limits on amounts available
Tax Credits for low-income individuals Not Allowed Allowed, up to 50% of first $2,000 with certain income limits (see IRC § 25B)
Lease-back property purchased by plan Not Allowed Allowed, but with certain occupancy limits
Purchase of business Allowed, but no “s” corps Allowed, UBIT will apply outside of any exemptions

Imagine having the ability to save up to $16,500 after tax into the Roth account in your pension plan. Your growth, distributions, and death benefit are all tax free.

If you believe taxes will be rising over the course of your working career, paying taxes now and receiving tax free income in retirement is going to serve you and your very family well.

For more information contact the author at info@sdira401k.com

About the Author:

Roger P. Simard is the founding principal of Genesis Financial and Real Estate Services, LLC, Genesis Financial Advisors, LLC, and Genesis Tax Advisors, LLC. He heads the firm’s corporate and personal financial planning practice and oversees all operations. Mr. Simard concentrates his work in the fields of financial planning, real estate investing, tax planning, and portfolio management. Mr. Simard is a Certified Financial Planner™ and has over 19 years of experience helping individuals and businesses achieve financial success. Mr. Simard was a speaker for The Prudential Spirit of Community Awards, a nationwide youth recognition program honoring secondary school students for outstanding service. He is a frequent speaker and radio guest on business and taxation issues and successful investment strategies and has been quoted in the Personal Real Estate Investor Magazine.

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PREDICTED HOME BUY TAX CREDIT BETTER THAN EXPECTED

Friday, November 6th, 2009

Do You Qualify for this Tax Credit?
 
            November 6th 2009: Congress just extended and added more eligible buyers to what started as the $8,000 first time home buyer tax credit.  This credit was due to expire November 30. This extends the likelihood of stimulating the housing market as more people are eligible for these credits.
 
             The existing tax credit of $8,000 was for home buyers who have not owned a primary residence in their own name in last three years. It now offers a $6,500 tax credit for move-up home buyers. 
 
            The example from Certified Mortgage Planning Institute explains the credits this way: a $6,500 credit can apply to investors choosing to buy a move-up and rent an existing home. They can move out of an existing primary residence, provided they have lived there for five consecutive years in the last eight, buy a new house  and rent the previous home used as a residence.
 
            “If Jane purchased a home in 2002, lived there for 5 years as her primary home and moved out in 2007, and turned that home into a rental property she is eligible under the move-up tax credit,” says Gibran Nicholas, Chairman of the CMPS Institute. ”This tax credit based on the fact that she lived in the same residence as her primary home for at least five consecutive years out of the past eight.”
 
            “The tax credit applies to homes purchased under a binding contract for less than $800,000 before May 1, 2010 and closed by July 1, 2010,” Nicholas said. ”It works kind of like a gift certificate that can be redeemed for cash. You simply file a form with the IRS right after you buy your home, and the IRS will send you a check for the full amount of your credit.”

“The income limitation for single tax payers went up from $75,000 under the old rules to $125,000 under the new rules. For married tax payers, the income limitation went up from $150,000 to $225,000. ”This means that more people will qualify for the credit – especially in parts of the country with higher costs of living,” Nicholas said. ”This should help stimulate parts of the housing market that may not have been impacted by the old version of the credit.”
 
            There are creative ways of structuring your home purchase transaction in ways that maximize the benefits of the credit. Here are a few examples suggested by Nicholas (www.CMPSInstitute.org):

  • The credit applies to 1-4 unit homes as long as you live in one of the units as your primary residence – you could live in one unit and rent out the others
  • If two unmarried individuals buy a home, and only one of the individuals qualifies for the credit based on their income or past home ownership status, the individual who qualifies for the credit can claim the full credit. (Note: In the case of married couples, both spouses must qualify for the credit.)

The credit applies even if you have co-signers on your mortgage loan

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Your Job Search is Tax Deductable!

Thursday, July 9th, 2009

Our guest writer this week is Alex Starcevic, an Enrolled Agent with the IRS and principal of Genesis Tax Advisors.

Here are the top six things the IRS wants you to know about deducting costs related to your job search.

  1. In order to deduct job search costs, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.
  2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
  3. You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers as long as you are looking for a new job in your present occupation.
  4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
  5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
  6. You cannot deduct job search expenses if you are looking for a job for the first time.

If the readers have any of your own questions about payroll, taxes, accounting or bookkeeping or would like to hear about new topics each month concerning any tax, please call us at 888-902-9191 ext 205 or email at alex@genfinre.com.

You can review the June and July 2009 tax update at http://www.genfinre.com/subpage3.html

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