Tax shelters offered high income taxpayers an easy way to reduce and even eliminate federal income taxes at the individual level. The growing tax avoidance schemes, many questionable in nature, threatened to collapse the U.S. tax system. Hence the need for tax reform and the Economic Recovery Tax Act of 1981 (ERTA). New rules cannot keep a tax professional down. Real estate was once again the favorite tool for reducing taxes. Enter cost segregation. Couple that with bonus depreciation and the automatic change of accounting method using Form 3115 , and you have a recipe for serious tax reduction. The tax shelters of the 1970s were often questionable. Cost segregation is still a valid way to accelerate deductions for income property owners. But none of that compares to the tax benefits available under the Inflation Reduction Act of 2022 (the IRA).
New year, new rules, the changing features of United States Tax Court practice and procedure confront the tax practitioner (even those who don't practice in Tax Court themselves), who must keep current among all the demands on our time, especially as the season opens. Let's jump in.READ MORE
How to Do a Backdoor Roth IRA (Safely) and Avoid the IRA Aggregation Rule and Step Transaction Doctrine
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.Read More
Avoiding Passive Loss Limitations Through Short-term and Alternative Rentals
Short-term rentals like AirBnb are becoming increasingly popular with taxpayers who invest in real estate. For many taxpayers, the appeal of these properties is the flexibility and cash flow potential. However, there may be an overlooked third tax benefit. In many situations these short-term rentals may not qualify as a rental activity to the IRS, and that may offer a big tax break. While many rental activities generate losses, this can leave taxpayers facing the frustrations of not always getting to deduct those losses right away due to the passive activity limitations.Read More