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Defer and Eliminate Capital Gains With Opportunity Zones

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The Tax Cuts & Jobs Act of 2017 (TCJA) created Opportunity Zones (OZ). Taxpayers who invest in Qualified Opportunity Zones can reduce capital gains tax and pay zero tax on the investment’s future appreciation. For this reason, Opportunity Zones have a significant edge over traditional capital gain deferral strategies like the 1031 Exchange.

With more than 8,500 economic zones throughout the United States, investors and business owners have plenty of choices. Additionally, the investment gives them a chance to do some good in an economically depressed area, make some tax-free money, and achieve some permanent capital gain savings even after you’ve already sold your asset. What’s not to love?

There are a number of intricate rules concerning OZ investment tax breaks so if you want to begin or expand your business or real estate holdings using these tax breaks, read on to learn more.

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When a 1031 Exchange May Not Actually Save On Tax

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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.

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How to Do a Backdoor Roth IRA (Safely) and Avoid the IRA Aggregation Rule and Step Transaction Doctrine

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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.

How to Do a Backdoor Roth IRA (Safely) and Avoid the IRA Aggregation Rule and Step Transaction Doctrine Read More »

Is Trader Tax Status Worth It?

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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?

Is Trader Tax Status Worth It? Read More »

When a 1031 Exchange Should Be Used for Tax Savings

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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.

When a 1031 Exchange Should Be Used for Tax Savings Read More »

Get Automatic, No Questions Asked Penalty Relief

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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.

Get Automatic, No Questions Asked Penalty Relief Read More »

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