Death & Taxes newsletter ? Fall 2012 | Amicus Law Group

Posted on November 7, 2012 by Warren Baker

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Below is the plain text version of my quarterly newsletter, entitled ?Death & Taxes? ? ?Planning advice for the two certainties in life?. If you would like to subscribe to the HTML version (which is much nicer to look at!), please let us know.

Is it possible that Mitt Romney owes $50 million or more in federal taxes due to the past transactions conducted within his retirement account?

Although it is difficult to know for sure, if his IRA?s investments resulted in a direct financial benefit to himself personally (as a retired partner at Bain Capital), a strong argument could be made that the revocation of his IRA?s tax-exempt status is not only possible, but legally required. Regardless, the current self-directed IRA investment world is filed with misinformation and noncompliance that will likely lead to increased IRS scrutiny going forward.
For full article:

http://digital.financial-planning.com/financialplanning/201210#pg47

Does establishing an IRA that invests into real estate (or other ?nontraditional assets?) increase my risk of an IRS audit?

Although IRS audit patterns are not public record, it appears the answer is currently ?no.? However, there are several reasons why scrutiny of SD IRA transactions might occur. First, if a third-party bank or brokerage house incorrectly issues a Form 1099 under the IRA owner?s social security number, rather than under the SD IRA?s tax ID number, an IRS audit is almost guaranteed. The reason is the disconnect between the IRA owner not reporting the income on his/her personal tax return, but the IRS attributing the income to the IRA owner personally, rather than the IRA. Second, despite the increase of SD IRAs over the past ten years, the number of SD IRA investors who do not understand the legal and tax issues is still frighteningly high. The saying ?a bad apple ruins the barrel? comes to mind?

Will the estate tax be repealed regardless of who wins the election?

Most analysts believe that no significant changes will occur in 2013 despite the eminent expiration of the current structure ($5.12 million exemption and 35% top tax rate). An extension of the current policy could occur before the end of the year, or perhaps more likely, a retroactive extension at some point in 2013 [I guess taxes are certain, but when exactly they will apply is not!]. Some Democrats would favor a lower exemption amount and higher top tax rate (e.g. $3.5 million and 45%), but what if these same Dems are offered a deal: tax on millionaires (as President Obama wants) but complete repeal of the estate tax (as most Republicans want). Would Dems accept this deal because the revenue from an increased income tax on high-income earners would far exceed the current estate tax? Either way, the pending ?fiscal cliff? will likely lead to very interesting (and convoluted) deals being struck in Congress over the next 2-4 months.

Is a Roth IRA conversion in 2012 a good move?
It might pay off, particularly for high-earners. A new 3.8% Medicare tax on unearned income comes into play in 2013, which will affect taxpayers with over $200k (singles) and $250k (couples) of adjusted gross income. Income realized when a pre-tax IRA is converted to a Roth is not subject to the 3.8% tax, but it will raise a taxpayer?s overall income ? which means that other unearned income could be subject to the new tax. Another issue to consider for all you self-directed IRA investors out there: converting your IRA to a Roth will almost always require a rock solid appraisal. Not taking this step could subject your valuation method to IRS scrutiny down the road ? particularly if it appears as though the IRA?s value was artificially low.

I have heard that you can start a business using almost 100% retirement money. Is that true?

Yes, but not without substantial risks to your future golden years. Many companies are promoting what the IRS calls ?rollovers as business startups? or ROBS. These structures involve the funding of a newly created 401(k) plan via rollovers of existing retirement assets (e.g. an IRA or old employer 401(k)). The 401(k) plan then purchases substantially all of a new corporation?s stock which then in turn uses the funds to start a new business or purchases an existing one. ROBS structures present many legal and tax issues, but most of all, they can easily result in the complete loss of the 401(k) investment (and the client?s nest egg) if the business fails.

Copyright ? 2012 Amicus Law Group, PC, All rights reserved.

Source: http://amicuslawgroup.com/death-taxes-newsletter-fall-2012-2/

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