The 1031 Like-Kind Exchange (LKE) provides a great potential benefit to taxpayers who want to sell rental properties to purchase others in the United States. IRC § 1031 allows you to defer a taxable gain that would normally be taxed at the time of sale of a rental property. However, there are situations when a 1031 exchange may not be the best option for the taxpayer, and it could potentially dilute the tax savings when compared to a traditional sale or other gain minimization strategies. To take advantage of the tax deferral benefits of a 1031 exchange, you’ll need to follow a specific set of guidelines. Here, we will dive into the circumstances that you should review to determine if a 1031 exchange will be the best option in mitigating the taxes you owe.

The basic concept of the “backdoor Roth IRA contribution” is relatively straightforward. Contributing directly to a Roth IRA is restricted for higher-income individuals; once a married couple has an AGI in excess of $193,000 (or $131,000 for an individual), the maximum contribution limit to a Roth IRA reduces to zero. However, anyone with earned income can contribute to an IRA, regardless of how high their income is; at worst, higher income levels may limit the deductibility of that IRA contribution (for those who are an active participant in an employer retirement plan), but not the ability to make the IRA contribution. In addition, under the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), there have been no income limits on Roth conversions of traditional IRAs since 2010. As a result, anyone who has funds in a traditional IRA, whether originally deductible or not, is eligible to do a Roth conversion. In other words, while income limits remain on Roth contributions, there are no income limits for a Roth conversion.

As we navigate a world with COVID-19, large swings in the stock market have become the norm. Many buy and hold-style investors are more actively managing their portfolios to take advantage of these swings. The IRS has a special trader status for taxpayers who frequently engage in trading. This status includes a special accounting method, not available to the average investor, that can come with substantial tax savings. The status allows an investor to make special deductions and opens the door to a wide range of tax reduction strategies unavailable to the casual investor. However, with potential savings also come risks that could end up costing the taxpayer/trader more than the average investor. Weighing the pros and cons of this status is crucial in minimizing tax liability. The big question for tax planning is this — does obtaining trader tax status result in less tax?

If you made money on your real estate investment, congratulations! You’re now in the same club that more than 90 percent of the world’s millionaires do to create wealth. Now it’s time for tax on that profit. A large tax bill generally means you made a large profit. But avoiding the tax can be like having your cake and eating it too. A 1031 Exchange is an incredibly powerful tool for you to defer the tax when used in the right circumstances. Many real estate investors and landlords look to the 1031 Like-Kind Exchange (LKE) as an excellent method of selling investment real estate without paying tax at the time of sale. This gives you more use of the cash you get at the sale and more time to use it.

Question: I’m familiar with Qualified Improvement Property (QIP) and the technical correction made in 2020. What is everyone doing for returns when, if corrected, the client could benefit? Is it something you can amend the 2018 tax return for if you took a 179 expense instead of a bonus?

The IRS loves to issue penalties to taxpayers. In fiscal year 2019, the IRS imposed a whopping $40.5 billion in civil penalties.1 If a taxpayer wants to contest an IRS penalty, it usually takes a really good explanation plus a lot of time and effort. However, there is a little-known IRS policy that allows a taxpayer to get penalty relief with no explanations required. Taxpayers who file returns late can quickly rack up huge penalty bills.

Timing might be one of the oldest, most valuable tax strategies known. Essentially, a timing strategy allows a taxpayer to pay tax when rates are generally lower rather than when in a higher tax bracket or when facing increasing tax rates. Given this, 2020 may have been an optimal time to sell capital assets if tax rates rise under the new administration. President-elect Joe Biden has suggested taxing capital gains as ordinary income for high-income taxpayers (more than $400,000), as well as raising the top tax rate from 37% to 39.6%. Here’s how to cash in on the lower rates and, more importantly, when. While tax law changes seldom pass quickly, we often see changes made retroactive to the beginning of the year they are voted into law. Based on a recent story in The New York Times, Bob Dylan may have anticipated the increase when he sold the copyrights to his catalog of more than 600 songs for $300 million. Not to fret if you found yourself missing the beat of Dylan’s lead, there are many things a taxpayer can do to reduce capital gains tax, especially for self-created works of art. Here’s how.

Question: Given the recent passing of the stimulus law (CAA 2021) permitting a business to deduct payroll expenses paid with Paycheck Protection Program (PPP) funds, how does an S corporation or Partnership basis negatively impact this? I’m hearing that even though the law allows the deduction, some businesses will have suspended losses due to PPP funds. Which is true? Can a business deduct losses from PPP payroll or not?