Feb 07

Some of the Major Advantages of the Self-Directed Roth IRA LLC Structure

Tax-Free Investing: The primary advantage of using a Self-Directed Roth IRA LLC to make investments is that all income and gains associated with the Roth IRA investment grow tax-free and will not be subject to tax upon withdrawal or distribution. This is because unlike traditional IRAs, you are generally not subject to any tax upon taking Roth IRA distributions once you reach the age of 59 1/2.

Investment Options: With the Self-Directed Roth IRA LLC, you can invest in almost any type of investment, including real estate, private business entities, tax liens, precious metals and cryptocurrencies tax-free!

Diversification: With the Self-Directed Roth IRA LLC, you can invest in almost any type of investment, including real estate, allowing you to diversify and better protect your retirement portfolio.

“Checkbook Control”: With a Self-Directed Roth IRA LLC, you have even more advantages, including what’s called “checkbook control.” As manager of the Self-Directed IRA LLC you will have the ability to make IRA investments without seeking the consent of a custodian. Instead, all decisions are truly yours.

Access: With a Self-Directed Roth IRA LLC, you will have direct access to your IRA funds allowing you to make an investment quickly and efficiently. There is no need to obtain approvals from your custodian, or deal with time delays in awaiting approval from your custodian, or pay any review fees.

Speed: With a Self-Directed Roth IRA LLC, when you find an investment that you want to make with your IRA funds, simply write a check or wire the funds straight from your Self-Directed Roth IRA LLC bank account to make the investment. The Self-Directed Roth IRA LLC allows you to eliminate the delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself.

Lower fees: Another advantage to a Self-Directed Roth IRA LLC account is that you can save a lot of money on custodian fees. With the “checkbook control” Self-Directed Roth IRA LLC structure, you will not be required to seek custodian approval when making IRA investments allowing you to eliminate custodian transaction fees and account valuation fees.

Limited Liability: By using a Self-Directed Roth IRA LLC with “Checkbook Control”, your Roth IRA will benefit from the limited liability protection afforded by using an LLC. By using an LLC, all your Roth IRA assets held outside the LLC will be shielded from attack. This is especially important in the case of Roth IRA real estate investments where many state statutes impose an extended statute of limitation for claims arising from defects in the design or construction of improvements to real estate.

Asset & Creditor Protection: By using a Self-Directed Roth IRA LLC with “Checkbook Control”, the Roth IRA holder’s Roth IRA will be protected for up to $1 million in the case of personal bankruptcy. In addition, most states will shield a Self-Directed Roth IRA from creditors attack against the Roth IRA holder outside of bankruptcy. Therefore, by using a Self-Directed Roth IRA LLC, the Roth IRA will be generally protected against creditor attack against the Roth IRA holder.

Self-Directed Roth IRA LLC Structure

To view a diagram of the Self-Directed IRA LLC structure, please select the image below.

Self Directed IRA LLC

 

Please contact one of our IRA Experts at 800-472-0646 for more information.

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Feb 05

What To Know Before Deciding To Use Retirement Funds To Purchase Cryptocurrencies

Here’s another article from Forbes.com

The cryptocurrency craze has created enormous demand from retirement account investors who are seeking tax-efficient ways to purchase cryptocurrencies.  In addition, some retirement account investors have looked to cryptocurrencies as a way to better diversify their retirement portfolios.  Of course, purchasing cryptocurrencies with retirement funds can be decidedly risky due to its volatility and is undoubtedly not for everyone.  For those adventurous or daft enough to take on the risk of using retirement funds to purchase cryptocurrencies, here are a few important tips.

Do Your Research. Cryptocurrencies are a relatively new asset class that is quite volatile.  There are thousands of crypto coins available for purchase.  Hence, it is important to do you research and understand the technology behind each coin or token you purchase.   There are plenty of free reliable sites that will provide background information, pricing, market cap, etc. on most of the popular cryptos.  However, be mindful of the news source you are reading.  It is a good idea to try to surround yourself with people who are familiar with cryptocurrencies and who have investment experience.  Also, be cautious of pyramid schemes or multi-level marketing arrangements.

What To Know Before Deciding To Use Retirement Funds To Purchase CryptocurrenciesSelecting a Cryptocurrency Exchange. Once you have decided on the types of cryptocurrency you wish to purchase, the next part is deciding what exchange you will use in order to convert your U.S retirement dollars (fiat) into cryptocurrencies.  There are a number of popular cryptocurrency exchanges in the United States.  However, it is important to do your diligence in selecting the exchange(s) you feel most comfortable with.  Most retirement account holders prefer using a United States based exchange, especially after hearing about the $450 million theft that occurred at the Japanese exchange, Coincheck, in January 2018.

Each cryptocurrency exchange has a different fee model, so it is a good idea to familiarize yourself with their fee schedules before signing.  Fees can usually range from as low as nothing up to 2% or so.  In addition, it is advisable to be cautious of third-party brokers whose fees/commissions can go as high as 5% for their services.  In addition, it is helpful to examine the order book volume of the exchange in order to get a good idea of the type of cryptocurrency trading volume the exchange handles.  An exchange with a higher order book is a good way of checking the liquidity of the exchange. Also, it is crucial that you do not open the exchange account in your own name.  Several of the more popular cryptocurrency exchanges offer specific business and retirement account options.

Wallet Options. For many beginner cryptocurrency investors, understanding how the cryptocurrency wallet works can be quite confusing. It is imperative that one understands how a cryptocurrency wallet works if considering investing in cryptocurrencies. The following is a simplified way of understanding how a cryptocurrency wallet works. Assume you have a glass safe with a locked lid. Inside the glass safe is a gold coin. Anyone can see the glass safe, which is the public key or address. The gold coin contained in the glass safe is the cryptocurrency address. However, only the key holder can actually open the glass safe and get the coin. The key to the glass safe is the private key. It’s like your ATM card pin number or keys to your home. Cryptocurrency users can have multiple wallets, each wallet can hold multiple addresses, and each address holds a balance of cryptocurrency.

When investing in cryptocurrencies, it is imperative that one controls the wallet private key.  A wallet is essentially a digital computer file that contains information used in sending and receiving units of a virtual currency. You can hold your retirement account owned cryptocurrencies at an exchange wallet, such as Coinbase, or you can hold your own digital (hot) or hard (cold) wallet.  After the events that occurred with Coincheck in Japan, using a digital or hard wallet is considered more secure.

When using retirement funds to purchase cryptocurrencies, it is advisable to use a retirement account plan, such as a self-directed IRA LLC or Solo 401(k) plan, if eligible, that will allow you, as the retirement account holder. to have control over the cryptocurrency wallet. In addition, both types of plans will allow you, as the retirement account holder, the ability to buy and sell cryptocurrencies at your convenience directly through an exchange without having to go through an IRA custodian or third-party broker.

No Self-Dealing. When it comes to using retirement funds to invest in cryptocurrencies, one must be cautious of the IRS prohibited transaction rules outlined in Internal Revenue Code Section 4975(c). In general, with respect to cryptocurrency investments, one cannot buy, sell, or exchange cryptocurrencies with any disqualified person. The definition of a “disqualified person” (Internal Revenue Code Section 4975(e)(2)) extends into a variety of related party scenarios, but generally includes the IRA holder, any ancestors or lineal descendants of the IRA holder, and entities in which the IRA holder holds a controlling equity or management interest.  Thus, so long as you do not buy, sell, or exchange cryptocurrencies with a lineal descendant or an entity associated with a disqualified person, the IRS prohibited transaction rules should not be an issue.  In addition, one should be mindful of not holding cryptocurrencies owned by a retirement account in the same wallet with personally owned (non-retirement funds) cryptocurrencies.

Mining Cryptos and Hidden Taxes. In general, all gains associated with the sale or exchange of cryptocurrencies will be tax-exempt if done through a retirement account. However, if you will be using your retirement funds to invest in a passthrough entity, such as an LLC, that does mining activities, any income generated over $1000 could be subject to a tax called unrelated business taxable income (UBTI or UBIT).  Under the IRS tax rules, any income generated by a retirement account from a business operated through a passthrough entity could be subject to the UBTI tax rules.  Because the IRS treats cryptocurrency mining activities as a business, as per IRS Notice 2014-21, income generated from cryptocurrency mining activities could be subject to the UBTI tax rules.  The maximum UBTI tax rate is close to 40%.  Hence, anyone considering using retirement funds to invest in a cryptocurrency mining business should be mindful of these rules.

Because cryptocurrencies are so passive in nature, such as stocks, using retirement funds to make cryptocurrency investments is not considered high risk from an IRS prohibited transaction perspective. However, cryptocurrency investments, such as bitcoins, are uncertain and highly volatile.  Any retirement account investor interested in using retirement funds to invest in cryptocurrencies should do their diligence and proceed with caution.

For more information about using a Self-Directed IRA to invest in cryptocurrencies, please contact us @ 800.472.0646.

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Feb 01

Can You Get a Mortgage on Property with a Self Directed IRA?

Yes. The mortgage would need to be a non-recourse type of loan. With a nonrecourse loan, if your IRA fails to make the payments, the only recourse the lender has is the property itself. Also, note that if your IRA obtains a loan, unrelated debt financing income tax (UDFI) will apply, which will subject the portion of the income or gains that are debt financed to Unrelated Business Taxable Income (UBTI).

Can You Get a Mortgage on Property with a Self Directed IRA?“Debt-financed property” refers to borrowing money to purchase the real estate (i.e., a leveraged asset that is held to produce income). In such cases, only the income attributable to the financed portion of the property is taxed; gain on the profit from the sale of the leveraged assets is also UDFI (unless the debt is paid off more than 12 months before the property is sold).

Why Buy Real Estate Using a Self-Directed IRA LLC?

  • Gains are tax free
  • Positive cash flow is tax free
  • No time limit for holding property
  • IRA can borrow money – Leverage your investment with non-recourse financing
  • Potential to earn a larger rate of return on invested capital

Please contact one of our Self Directed IRA Experts at 800-472-0646 for more information about using your IRA to purchase real estate.

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Jan 29

Separating Myth And Reality Of How Cryptocurrencies Are Taxed And Regulated

Here’s another article, written by our own Adam Bergman, from Forbes.com that talks about Cryptocurrencies and Taxes –

Surfing the web for information on how cryptocurrencies are taxed and regulated can lead to some mystifying and conflicting information. With the IRS and SEC starting to turn attention to the cryptocurrency industry, it is important to have accurate facts. The following are some of the more popular questions I have received from clients seeking clarity on various tax and regulatory matters regarding the taxation and regulation of cryptocurrencies.

Cryptocurrency is treated as a currency for tax purposes: False.

According to IRS Notice 2014-21, for federal tax purposes, cryptocurrency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. The character of the gain or loss associated with the cryptocurrency investment generally depends on whether the cryptocurrency is a capital asset in the hands of the taxpayer. A taxpayer generally realizes capital gain or loss on the sale or exchange of cryptocurrency that is a capital asset in the hands of the taxpayer. For example, stocks, real estate, and other investment property are typically capital assets. Whereas, a taxpayer generally realizes ordinary gain or loss on the sale or exchange of cryptocurrency that is not a capital asset in the hands of the taxpayer, such as business income from mining or other business activities.

The IRS will never be able to find out if I had taxable gains from cryptocurrency investments. False.

First, a taxpayer failing to maintain adequate records faces serious consequences. The IRS can impose penalties for negligence or fraud or require the taxpayer to use an IRS-prescribed method to determine income.

Separating Myth And Reality Of How Cryptocurrencies Are Taxed And RegulatedThe IRS has been watching the cryptocurrency industry with some suspicion for years. Because the majority of cryptocurrency transactions have likely resulted in significant gains due to the surge in value of most cryptocurrencies in 2017 coupled with the fact that the gains are likely short-term capital gains (subject to ordinary income tax rates), the IRS has good reason to be concerned.

As a result, in a petition filed November 17, 2016, with the US District Court for the Northern District of California, the US Department of Justice (DOJ) asked the court for a John Doe summons to be issued to the Bitcoin exchange Coinbase Inc. The John Doe summons would require Coinbase Inc., the largest Bitcoin exchanger in the United States, to provide the DOJ with information related to all Bitcoin transactions it processed between 2013 and 2015. The DOJ would then share the information received with the IRS to be matched against filed tax returns. In addition, there is a good chance the IRS will be targeting other cryptocurrency exchanges through their John Doe summons power to gather additional taxpayer information on cryptocurrency transactions.

Therefore, it is crucial that any taxpayer that has generated any net gains or losses from cryptocurrencies investments in 2017 be prepared to report them on his or her individual income tax return. It is a good idea to work with a tax professional who can help calculate the aggregate annual net short-term or net long-term capital gains or losses generated from all 2017 cryptocurrency investments.

The SEC is not currently regulating the cryptocurrency industry? True & False

In a statement by the Securities & Exchange Commission (“SEC”) Chairman Jay Clayton on cryptocurrencies on December 11, 2017, Mr. Clayton was clear that the SEC has “interests and responsibilities” with respect to cryptocurrencies. Mr. Clayton did express caution for investors looking to make initial coin offering (“ICO”) investments. In addition, Mr. Clayton was clear that if an ICO shared the same characteristics of a security then it must be subject to securities laws.

In July 2017, the SEC ruled that some of the ‘coins’ for sale in an ICO are actually securities—and are subject to SEC regulation. In its ruling in the DAO case, which involved DAO, an unincorporated organization; Slock.it UG (“Slock.it”), a German corporation, the SEC essentially held that the tokens for sale are simply a new form of shares—and that selling them without a license could violate federal securities laws. The SEC ruling was based on an SEC investigation into a German corporation behind a group called the DAO, which raised $150 million in ICO last year. In addition, in December 2017, the SEC announced that its newly created Cyber Unit has filed a complaint against a Canadian initial coin offering (ICO) fraud. Moreover, state regulatory agencies are also starting to look at cryptocurrency transactions. On January 9, 2018, regulators from the North Carolina Securities Division outlined the temporary cease-and-desist, stating that BitConnect, who was seeking to do an ICO, had not registered to deal or sell securities in North Carolina.

In sum, the SEC has not gone on record holding that cryptocurrencies are securities and are, thus, subject to securities law, however, they have taken the lead in prosecuting various cryptocurrency related cases and it does appear that they are potentially heading in that direction. In any event, anyone looking to raise money through an ICO should be mindful of the SEC securities laws.

Cryptocurrencies are subject to Foreign Bank Account Reporting (“FBAR”) Rules? False

With cryptocurrency investments, taxpayers may find it more difficult to determine whether they own other financial accounts for FBAR reporting purposes. The regulations clarify that bonds, notes, and stocks of foreign issuers directly held by a reporting person aren’t financial accounts. Other financial arrangements aren’t so clear. For example, the IRS maintains that accounts that hold non-cash assets, such as gold, are subject to FBAR reporting. However, the IRS has informally stated that taxpayers aren’t required to report cryptocurrency, such as Bitcoin, on an FBAR. The thinking is that cryptocurrency is treated as property for federal income tax purposes and therefore isn’t considered to be an interest in a foreign financial account. However, this could change as the agency’s attention on foreign assets heightens.

Cryptocurrencies can be purchased with retirement funds? True

The Internal Revenue Code does not describe what a retirement account can invest in, only what it cannot invest in. Internal Revenue Code Sections 408 & 4975 prohibit “disqualified persons” from engaging in certain types of transactions, such as collectibles, life insurance, and self-dealing and conflict of interest type transactions. The definition of a “disqualified person” (Internal Revenue Code Section 4975(e)(2)) extends into a variety of related party scenarios, but generally includes the retirement account holder, any ancestors or lineal descendants of the 401(k) plan participant, and entities in which the 401(k) plan participant holds a controlling equity or management interest.

Because the IRS treats cryptocurrencies, such as Bitcoins, as a capital asset, such as stocks or real estate, a retirement account is permitted to buy, sell, or hold cryptocurrencies, subject to the prohibited transaction rules found under Internal Revenue Code Section 4975(c).

Cryptocurrencies gains can be sheltered though the 1031 Like-Kind Exchange Rules? Maybe

In general, Internal Revenue Code (“IRC”) Section 1031 provides an exception to the recognition of gain on a business or investment property transaction and allows one to postpone paying tax on the gain if the individual reinvests the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free. However, IRC Section 1031 specifically excludes stocks, bonds, notes, and other securities or debt from the definition of property under the IRC 1031 exchange exemption. In IRS Revenue Ruling 79-143, the IRS did suggest that gold coins held for investment of the same nature or character can benefit from IRC Section 1031 gain exemption.

IRC Section 1031 does not mention “cryptocurrency” since Section 1031 preceded the arrival of cryptocurrencies and IRS Notice 2014-21 does not reference IRC Section 1031 like-kind exchanges. Moreover, under the Trump tax plan, beginning in 2018, IRC Section 1031 exchanges are now only limited to real property. Therefore, for 2018 and beyond, the like-kind exchange exemption will not be applicable to cryptocurrency investors. But will the like-kind exchange exemption apply to cryptocurrencies for the 2017 taxable year? Some suggest that the fact that the tax plan narrowed the definition of property for purposes of IRC Section 1031, is proof that there was concern about the use of like-kind exchanges for cryptocurrency investments. However, there does not appear to be any evidence of this.

Overall, there is an argument that IRC Section 1031 exchange rules could apply to cryptocurrencies for 2017 so long as the crypto was held for investment purposes and was exchanged for “like-kind property.” For example, a Bitcoin held for investment purposes exchanged for ethereum could be considered a property of the same nature and character. Whereas, cryptocurrencies have not yet been defined as a stock or security or other type of property exempted from the like-kind exchange rules. Nevertheless, satisfying all the IRC Section 1031 rules could prove difficult for some cryptocurrency investors. Accordingly, taking the position that cryptocurrency gains can be sheltered using IRC Section 1031 exchange is risky and may not be respected by the IRS.

The wash rule for stocks likely do not apply to cryptocurrencies? True

Under IRC Section 1091, the IRS prohibits a taxpayer from claiming a loss on the sale or trade of a security in a wash sale. The rule defines a wash sale as one that occurs when an individual sells or trades a security at a loss, and within 30 days before or after this sale, buys a “substantially identical” stock or security, or acquires a contract or option to do so. Currently, cryptocurrencies are treated as property by the IRS and have not been treated as a stock or security by any government agency. Accordingly, the wash sales rules are believed to not be applicable to cryptocurrencies.

The Trump Tax Plan Passthrough Tax Reduction Can Help Cryptocurrency Investors? True & False

Under the Trump tax plan, passthrough entities, such as limited liability companies (“LLC”s), would receive a deduction allowing people with pass-through income — profits from a partnership or sole proprietorship, for instance — to write off 20% of that income before calculating their taxes. Hence, cryptocurrency active traders who wish to treat themselves as a business, could avail themselves of the passthrough income deduction. However, the new passthrough income tax regime will still likely result in a higher tax rate than holding cryptocurrencies for investment or personal purposes, especially if the cryptos are being held for longer than twelve months, thus, being subject to the long-term capital gains regime.

Overall, cryptocurrency is an asset class that is still evolving. The IRS has provided some clarification as to its tax treatment under Notice 2014-21, however, some uncertainty still remains. In addition, the lack of direct guidance by the SEC and state regulatory bodies have only added more confusion.

Taxpayers should be diligent and precise when reporting cryptocurrency gains or losses to the IRS and should be cautious when taking aggressive tax positions, such as the application of like-kind exchange exemption rules. Taxpayers would be best served consulting with a tax professional for more direct guidance on these matters.

For more information about using an IRA to invest in cryptocurrencies, please contact us @ 800.472.0646.

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Jan 25

IRA Financial Group “Wallet Control” IRA Solution to Provide Self-Directed IRA Cryptocurrency Clients with Private Key Security & Low-Cost Exchange Options

IRA Financial Group provides self-directed IRA clients with total control over their cryptocurrency wallet and the ability to purchase any digital assets on their own with low commissions

IRA Financial Group, the leading provider of self-directed IRA LLC and Solo 401(k) Plans , is excited to announce the launch of its “Wallet Control” IRA solution for cryptocurrency investors. With IRA Financial Group’s “Wallet Control” Bitcoin self-directed IRA and Solo 401(k) plan solution, bitcoin and cryptocurrency investors will be able to open a cryptocurrency exchange account at any exchange and control the wallet associated with the retirement account owned cryptocurrency. IRA Financial Group clients will be able to control the costs associated with the purchase and sale of cryptocurrencies and will gain the added security of holding the cryptos on the wallet of their choice. “We believe that cryptocurrency investors should always maintain control over their retirement account owned cryptocurrencies and should control the wallet and private key associated with the digital asset.” stated Adam Bergman, a partner with the IRA Financial Group.

IRA Financial Group “Wallet Control” IRA Solution to Provide Self-Directed IRA Cryptocurrency Clients with Private Key Security & Low-Cost Exchange OptionsAccording to Mr. Bergman, many cryptocurrency investors are looking for a cost effective option for using retirement funds to purchase bitcoins and other cryptocurrencies while gaining the ability to control the wallet and private key.

IRA Financial Group & IRA Financial Trust Company’s Bitcoin IRA platform with checkbook control will allow retirement account holders to buy, sell, or hold Bitcoins and other cryptocurrency assets and generate tax-deferred or tax-free gains, in the case of a Roth IRA. The primary advantage of using a self-directed IRA LLC to make Bitcoin investments is that all income and gains associated with the IRA investment grow tax-deferred or tax-free in the case of a Roth IRA.

IRA Financial Group & IRA Financial Trust Company has partnered to offer a total control private key Bitcoin IRA LLC platform for cryptocurrency investors. With IRA Financial Group’s private key cryptocurrency solution, the retirement account holder have total control over his or her cryptocurrencies and can hold them through an exchange or via a digital or hardwallet. No need to pay commissions and account value fees to IRA custodians, with IRA Financial Group’s “Wallet Control” IRA one can take control of their cryptocurrencies. IRA Financial Group’s cryptocurrency self-directed IRA LLC is an IRS approved structure that allows one to use their retirement funds to make Bitcoin and other investments tax-free and without custodian consent.

IRA Financial Group is the market’s leading provider of self-directed retirement plans. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate and cryptocurrencies without custodian consent.

The IRA Financial Trust Company, a self-directed IRA custodian, was founded by Adam Bergman, a partner with the IRA Financial Group. Mr. Bergman is a leading expert on the taxation of retirement funds and has authored multiples articles on how to use a self-directed IRA to buy cryptocurrencies.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

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Jan 23

The Self-Directed Simplified Employee Pension Plan

What is a SEP?

A SEP is a simplified employee pension plan. Any employer can establish a SEP. An employer can maintain both a SEP and another plan. Annual contributions an employer makes to an employee’s SEP-IRA cannot exceed the lesser of (i) 25% of compensation, or $55,000 for 2018. However, special rules apply when figuring out the maximum deductible contribution for a self-employed individual (typically 20% of compensation).

What is a SEP Self-Directed IRA LLC?

The Self-Directed Simplified Employee Pension PlanA Self Directed SEP IRA LLC “Checkbook Control” structure is an IRS approved and Tax Court certified structure that offers one the ability to use his or her SEP IRA funds to make almost any type of investment on their own without requiring the consent of any custodian. Tired of being forced to invest in stocks or mutual funds? Have an investment opportunity, such as real estate or a business investment that you would love to make with your SEP IRA funds… then the Self Directed SEP IRA LLC is your solution.

By gaining “checkbook control” over your SEP IRA funds you will gain the following advantages:

“Checkbook Control”: You will no longer have to get each investment approved by the custodian of your account. Instead, as manager of the SEP self directed IRA LLC, all decisions are truly yours. To make an investment, simply right a check and use the funds straight from your Self Directed SEP IRA LLC bank account.

For example, Jen, who is self-employed, has established a SEP Self Directed IRA LLC. Jen’s SEP IRA care of the custodian is the sole member of the LLC and Jen will be appointed as manager of the LLC. Jen has opened her Self Directed SEP IRA LLC bank account at a local bank. The name of Jen’s Self-Directed SEP IRA LLC is ABC LLC. Jen wishes to use her IRA funds to purchase a home from Jack, an unrelated third-party (non-disqualified person). Jack is anxious to close the transaction as soon as possible. With a “checkbook control” Self Directed SEP IRA LLC, Jen, as manager of the LLC, can simply write a check using the funds from the ABC LLC bank account or can wire the funds directly from the account to Jack. Jen, as manager of the LLC, no longer needs to seek the consent of the custodian before making the real estate purchase. With a regular Self Directed IRA without “checkbook control”, Jen would likely not be able to make the real estate purchase since seeking custodian approval would have likely taken too much time.

Investment Opportunities: With a Self-Directed SEP IRA LLC, you will be able to invest in almost any type of investment opportunity that you discover, including: real estate (rentals, foreclosures, raw land, tax liens etc.), private businesses, precious metals, hard money & peer to peer lending, cryptocurrencies as well as stock and mutual funds; you’re only limit is your imagination. The income and gains from these investments will flow back into your SEP IRA tax-free.

Low Custodian Fees: A Self-Directed SEP IRA LLC “Checkbook Control” structure will help you save a significant amount of money on custodian fees. With a Self Directed SEP IRA LLC with “checkbook control” you no longer have to pay excessive custodian fees based on account value and transaction fees. Instead, with a “checkbook control” Self-Directed SEP IRA LLC, an FDIC backed IRS approved passive custodian is used.

The custodian in the “checkbook control” Self Directed SEP IRA LLC structure is referred to as a “passive” custodian largely because the custodian is not required to approve any SEP IRA related investment and simply serves the role of satisfying IRS regulations. By using a Self Directed SEP IRA LLC with “checkbook control” you can take advantage of all the benefits of self-directing your retirement assets without incurring excessive custodian fees and custodian created delays.

All the Passive Custodians we work with are FDIC backed and IRS approved. Once your custodian has transferred your retirement funds to the IRA Passive Custodian, the IRA Passive Custodian will immediately transfer your funds to your new SEP IRA LLC which can be opened at any local bank, where you as manager of the SEP IRA LLC will have “Checkbook Control” over those funds.

Investments Made Quickly: With a Self-Directed SEP IRA LLC “Checkbook Control” structure, you will have the power to act quickly on a potential investment opportunity. When you find an investment that you want to make with your SEP IRA funds, as manager of the SEP IRA LLC, simply write a check or wire the funds straight from your Self Directed SEP IRA LLC bank account to make the investment. The Self Directed SEP IRA allows you to eliminate the delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself.

Tax-Free Gains: With the Self-Directed SEP IRA LLC “Checkbook Control” structure, all income and gains from the SEP IRA investments will generally flow back to your SEP IRA LLC tax-free. Because an LLC is treated as a pass-through entity for federal income tax purposes and the SEP IRA, as the member of the LLC, is a tax-exempt party pursuant to Internal Revenue Code Section 408, all income and gains of the LLC will flow-through to the IRA tax-free!

Direct Access: With a Self-Directed SEP IRA LLC “Checkbook Control” structure, you, as manager of the SEP IRA LLC, will have direct access to your SEP IRA funds allowing you to make an investment quickly and efficiently. There is no need to obtain approvals from your custodian, or deal with time delays in awaiting approval from your custodian or paying any review fees.

Limited Liability: By using a Self-Directed SEP IRA LLC with “Checkbook Control”, your SEP IRA will benefit from the limited liability protection afforded by using an LLC. By using an LLC, all your SEP IRA assets held outside the LLC will be shielded from attack. This is especially important in the case of SEP IRA real estate investments where many state statutes impose an extended statute of limitation for claims arising from defects in the design or construction of improvements to real estate.

Asset & Creditor Protection: By using a Self-Directed SEP IRA LLC with “Checkbook Control”, the SEP IRA holder’s IRA will be protected for up to $1 million in the case of personal bankruptcy. In addition, most states will shield a Self Directed SEP IRA from creditors attack against the IRA holder outside of bankruptcy. Therefore, by using a Self-Directed SEP IRA LLC, the IRA will be generally protected against creditor attack against the SEP IRA holder.

To learn more about the Self Directed SEP IRA LLC solution, contact one of our SEP IRA Experts at 800-472-0646 today!

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Jan 19

Do You Need to Pay Taxes on an IRA to Roth IRA Rollover?

Yes. A distribution rolled over to a Roth IRA from a traditional IRA, qualified plan, tax-deferred annuity, or eligible deferred compensation plan is included in gross income (although not adjusted gross income for purposes of the $100,000 ceiling). A traditional IRA can be converted into a Roth IRA, but the conversion is treated as a distribution from the traditional IRA and a rollover contribution to the Roth IRA.

Starting in 2010, everyone qualifies to convert to a Roth IRA. As with any rollover, you will want to arrange a direct rollover from the plan to the Roth IRA to avoid mandatory income tax withholding and not worry about the 60-day window which the transfer must be completed.

Do You Need to Pay Taxes on an IRA to Roth IRA Rollover?A rollover or conversion from a traditional IRA to a Roth IRA is usually advantageous for taxpayers who can pay the resulting tax from other funds. Assume A, who is taxed at 30 percent at all relevant times, converts a traditional IRA containing $100,000 into a Roth IRA and pays the resulting $30,000 tax from other funds. Before the conversion, each dollar of income accumulated in the IRA faced a 30 percent tax on distribution, but the conversion eliminates this prospect. A accomplishes this by effectively investing an additional $30,000, after taxes, in the IRA, but this $30,000 will itself produce earnings within the IRA on which A will never be taxed. The conversion thus has the effect of a $30,000 nondeductible contribution to the Roth IRA, free of the usual annual ceiling on IRA contributions. The conversion is also advantageous if the taxpayer is taxed at a lesser rate for the year of the conversion than is expected in the year or years of ultimate distribution (e.g., because of losses or other large deductions in the year of the rollover or conversion).

If an amount “properly allocable” to a traditional-to-Roth rollover is distributed during the year of the rollover or any of the succeeding four years, the early distribution penalty tax of Internal Revenue Code Section 72(t) applies as if the entire distribution (or, if less, the gross income recognized at the time of the rollover) were included in gross income. The deemed gross income is taxed under Internal Revenue Code Section 72(t) unless the distribution is made after the owner of the IRA attains age 59 1/2 , becomes disabled, or dies or some other exception from the penalty applies.

Please contact one of our Roth IRA Experts at 800-472-0646 for more information.

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Jan 17

Counting Cryptocurrency Gains And Losses Without Running Afoul Of IRS Rules

Here’s another article from Forbes.com from Adam Bergman, talking about cryptocurrencies –

2017 is viewed by many as the year of the crypto. However, with the increase in popularity and surge in value of cryptocurrencies, a significant number of cryptocurrency investors are now finding themselves in the uncomfortable position of trying to determine what, if any, is their tax liability attributable to their 2017 cryptocurrency transactions. The heightened level of taxpayer concern with correctly reporting the tax liability associated with their transactions can be directly associated to the John Doe summons the Internal Revenue Service (IRS) issued to Coinbase, one of the largest cryptocurrency exchanges in the United States.

The IRS is concerned that many U.S. taxpayers may not be accurately reporting the gains or income they have generated from their cryptocurrency transactions. Since the majority of cryptocurrency transactions have likely resulted in significant gains due to the surge in value in most cryptocurrencies, coupled with the fact that the gains are likely short-term capital gains (subject to ordinary income tax rates) since the cryptocurrencies were likely held less than 12 months, the IRS has good reason to be concerned.

As a result, in a petition filed November 17, 2016 with the U.S. District Court for the Northern District of California, the U.S. Department of Justice (DOJ) asked the court for a John Doe summons to be issued to Coinbase. The John Doe summons would require Coinbase to provide the DOJ with information related to all Bitcoin transactions it processed between 2013 and 2015. The DOJ would then share the information received with the IRS to be matched against filed tax returns. The IRS summons power is extremely broad and has been protected by the courts over the years. However, Coinbase actually had some success defending the John Doe summons issued by the IRS and was able to limit its demand to ask only for accounts that conducted Bitcoin transactions (either exchanging Bitcoin for dollars or sending or receiving coins from another Bitcoin user) worth $20,000 or more between 2013-2015.

IRS Notice 2014-21 stated clearly that for federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. In addition, the Notice made it clear that virtual currency is not treated as a currency for tax purposes. The Notice then confirmed that cryptocurrency would be treated as a capital asset. IRS Notice 2014-21 holds that cryptocurrencies, such as Bitcoins, will be considered property, which is a capital asset and subject to the capital gains tax rules so long as it’s not held for business purposes.

As long as one holds cryptocurrencies for personal or investment purposes, any gain/loss from the sale of the cryptocurrency would be subject to the capital gains tax regime. If the cryptocurrency was held for less than twelve months (short-term capital gains), then ordinary income tax rates would apply. Whereas, if the cryptocurrency were held for twelve months or more, the favorable long-term capital gains rate would apply. The determination of a taxpayer’s overall net capital gain or loss is based on a netting formula involving all capital (cryptocurrency) transactions during the year, with the short-term gains netted against the short-term losses and the long-term gains netted against long-term capital losses. However, if one was considered in the business of trading cryptocurrencies or mining cryptocurrencies, they could be subject to the ordinary income tax rate.

The tax law divides capital gains into two different classes determined by the calendar. Short-term gains come from the sale of property owned one year or less; long-term gains come from the sale of property held more than one year. Short-term gains are taxed at your maximum ordinary income tax rate, where the maximum tax rate was lowered to 37% under the Trump tax plan. Most long-term gains are taxed at either 0%, 15%, or 20% and can be subject to the additional 3.8% tax under Obamacare. For lower-bracket taxpayers, the long-term capital gains rate is 0%.

There are exceptions, of course. The long-term capital gains rates were not impacted by the Trump tax plan. In order to determine whether your capital gains transaction will be subject to the short-term or long-term capital gains tax rules, one will need to determine their holding period. The holding period in connection with the capital asset transaction is the period of time that you owned the property before sale. When figuring the holding period, the day you bought property does not count, but the day you sold it does. So, if you bought a Bitcoin on April 20, 2017, your holding period began on April 21, 2017. Thus, April 20, 2018 would mark one year of ownership for tax purposes. If you sold on that day, you would have a short-term gain or loss. A sale one day later on April 21 would produce long-term tax consequences, since you would have held the asset for more than one year. The tax rate you pay depends on whether your gain is short-term or long-term.

On the other hand, a capital loss is a loss on the sale of a capital asset, such as a stock, mutual fund, real estate, or cryptocurrency. As with capital gains, capital losses are divided by the calendar into short-term and long-term losses and can be deducted against capital gains, but there are limits. Losses on your investments are first used to offset capital gains of the same type. So, short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. Net losses of either type can then be deducted against the other kind of gain. So, for example, if you have $2,000 of short-term loss from a cryptocurrency investment and only $1,000 of short-term gain from a cryptocurrency investment, the net $1,000 short-term loss can be deducted against your net long-term gain (assuming you have one).

If a taxpayer makes a number of stock or cryptocurrency trades in a particular year, the end result could be a mix of long-term and short-term capital gains and losses. If you have an overall net capital loss for the year, you can deduct up to $3,000 of that loss against other kinds of income, including your salary and interest income, for example. Any excess net capital loss can be carried over to subsequent years to be deducted against capital gains and against up to $3,000 of other kinds of income. If you use married filing separate filing status, however, the annual net capital loss deduction limit is only $1,500.

Since the IRS has treated cryptocurrencies as property for tax purposes and the SEC has indicated it should be treated as a security, it is believed that an individual taxpayer can generally determine whether they will be using the specific indication method, which lets one identify the specific cryptocurrency to be sold, or the first-in-first out (FIFO) method for determining the cost basis of the cryptocurrency. The FIFO is the default accounting method by the IRS, unless one has records to support another method. The specific identification option is the method likely to give one the most flexibility and potentially the best tax result. The net capital gain or loss is reported on the individual taxpayer’s federal income tax return (IRS Form 1040 – Schedule D).

It is important to remember that each time you sell or exchange a cryptocurrency for either cash, another cryptocurrency, or for goods or services, the transaction would be considered a taxable event, which would be subject to either, short-term or long-term capital gain/losses based on the basis (what you paid for the crypto), holding period, and the price the cryptocurrency was sold or exchanged for. Moreover, if the transaction was part of a business, such as mining activity, the applicable corporate or ordinary income tax rates would apply. The good news is that new mobile applications and wallets are available that can help taxpayers keep track of the necessary tax reporting information needed to properly calculate and report their tax liability with respect to their cryptocurrency transactions during the year.

In sum, as long as one purchases cryptocurrencies for personal or investment purposes, any gain/loss from the sale or exchange or the cryptocurrency would be subject to the capital gains tax regime. If the cryptocurrency was held less than twelve months, then ordinary income tax rates would apply and if the cryptocurrency were held for twelve months or more, the favorable long-term capital gains rate would apply. The total short-term and/or long-term tax due or loss recognized would be determined based off a netting formula. However, if one is considered in the business of trading cryptocurrencies or mining cryptocurrencies, the taxpayer could be subject to ordinary income tax rates.

Investing in cryptocurrencies can be a risky and speculative investment option. Nevertheless, with the potential for financial success comes real and complex tax reporting obligations. It is important to consult with a tax adviser when navigating the cryptocurrency-related tax reporting rules.

For more information about investing in cryptocurrencies, please contact us @ 800.472.0646 today!

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Jan 16

No Taxation Without Decentralization: The IRS Closes in on Crypto

Here’s a recent article from financemagnates.com talking about cryptocurrencies and the IRS –

As cryptocurrency rises in popularity, the US government is keener than ever to impose taxes on it.

2017 was a manic year for Bitcoin and cryptocurrencies all across the globe. The world suddenly began to take cryptocurrency seriously as hundreds of thousands—or perhaps millions—of new traders entered the cryptosphere for the first time.

2017 was also the year that cryptocurrency caught the eyes of the world’s governments in a serious way. The global fever to regulate cryptocurrency has certainly not passed through the West without affecting none other than the Internal Revenue Service (IRS), the United States government’s department of taxation.

In addition to the exponential rise of the crypto markets at large, the IRS has certainly taken notice that a relatively low number of tax returns reporting crypto capital gains have been filed despite the fact that so many new investors came into the space.

While no large-scale action has been taken quite yet, the IRS demanded that the popular Coinbase app hand over 480,000 of its users’ personal information and account records in November of 2017.

Initially, Coinbase attempted to stave off the probe, but a federal judge in California eventually ruled that the company was required to turn over 14,000 accounts of users who had profited by $20,000 or more in 2017. Coinbase declared the ruling a “partial victory.”

So far, there has been no direct implication that the United States government is taking steps to seize information from other centralized crypto wallets and exchanges. However, the fact that it has happened at all is certainly some indication of the future.

One thing is clear–the IRS has a vested interest in collecting on funds gained from trading and holding cryptocurrency.

Closing in on Crypto: Controversial Tax Bill of Late 2017 Closed Loophole

The United States federal government has never considered cryptocurrency to be legal tender. Rather, Bitcoin and other kinds of cryptocurrency have traditionally been legally classified as property for federal tax purposes. Practically, this has the effect of “imposing extensive record-keeping rules and significant taxes on [their] use”, according to a Forbes report.

The recent controversial tax bill that was signed into effect at the end of 2017 closed a long-standing loophole for crypto traders. Previously, crypto investors could avoid having to pay short-term capital gains taxes by using ‘1031 exchanges’.

This kind of exchange supports what’s known as a ‘like-kind’ trade in which a qualified third-party intermediary must declare that the properties being exchanged are the same kind of asset (i.e. a business for a business, or one piece of investment real estate for another). The beauty of 1031 exchanges, of course, is that they are tax-exempt.

In the past, the law regulating 1031 exchanges made no specific mention of whether or not cryptocurrencies could be traded through this medium. Now, the law explicitly states that cryptocurrencies cannot be traded on a 1031 exchange.

Under the new tax bill, any profitable trade of one cryptocurrency for another is subject to federal and state capital gains taxes. According to a report from Quartz, gains made from the sale of digital assets can be subject to a federal tax of as much as 37% as well as a state tax from 3-13%.

Long-term gains (profits from assets held for at least 366 days) will be taxed at a lower rate, somewhere between 0-20%. A single person whose income surpasses $200,000 a year could be subject to an addition 3.8% Net Investment Income Tax (NIIT).

Reporting gains can be a particularly complicated task due to the unique technical nature of some crypto gains (i.e. currencies distributed through hard forks). Additionally, crypto holders who have assets based abroad must report their holdings to both the IRS and the US Treasury using form 8938 and FinCen form 114, respectively.

Quartz also reported that funds raised through cryptocurrency cleverly could be used for charitable donations, and then claimed as tax deductions. However, the cryptocurrency must be donated as is, without converting it into fiat first, as such a conversion would “trigger a tax on the gains.”

Tax on Crypto in the United States for Business Owners, Employees, and Freelancers

As Bitcoin and other cryptocurrencies have become more popular, the practice of paying employees or freelancers in cryptocurrency has risen in popularity as well. While no cryptocurrency has been classified as legal tender in the United States, the IRS taxes income earned or paid in cryptocurrency just the same as fiat income.

If you are a business that is planning on paying a freelance or independent contractor using Bitcoin or another cryptocurrency, you must convert the amount paid into USD and then report the payment on an IRS Form 1099 (just as you would with fiat). Businesses paying their employees with cryptocurrency must follow the same process with W2 forms.

Extra Benefits for Long-Long-Term Crypto Holders?

Before and after the passage of the most recent large-scale tax bill in the US, taxation policies on cryptocurrencies have favored retirement account investors.

In a report for Forbes, IRA Financial Trust Company President Adam Bergman wrote that if funds from a retirement account are used to generate capital gains from the purchase and sale of a capital asset, the funds generated will not be taxed until the account holder receives a distribution from the account. In the case of Roth IRA or Roth 401k, qualifying distributions may not be taxed at all.

The Beast Charges Ahead

Given the largely anonymous nature of most cryptocurrencies, It’s not entirely clear how the IRS and the US government’s various other financial institutions will be able to track the trading and ownership of cryptocurrencies outside of centralized platforms and apps (like Coinbase). With the imminent advent of decentralized exchanges, this task may only become more difficult.

However, the US government–while rather slow moving, in this case–has a lot of crypto tax revenue to collect. It seems somewhat clear that the US government does want to regulate with too heavy a hand, and thereby stifle the growth of the blockchain startup industry in the United States. That being said, the US government will not drop the effort to collect what it views as rightfully its own.

For more information about using a Self-Directed IRA to invest in cryptocurrencies, please contact an IRA Expert from the IRA Financial Group @ 800.472.0646.

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Jan 11

IRA Financial Group’s Business Funding Services

The IRA Financial Group was founded by a group of top law firm tax and ERISA professionals who have worked at some of the largest law firms in the country, including White & Case LLP and Dewey & LeBoeuf LLP.

IRA Financial Group's Business Funding ServicesIn developing our Business Acquisition & Compliance Solution Structure (“BACSS”), our in-house retirement tax professionals have carefully examined and researched IRS and Department of Labor guidance to design a structure that is fully compliant with IRS and ERISA rules. Each client of the IRA Financial Group is assigned an individual retirement tax professional who will help customize a structure that satisfies his or her financial and retirement needs while ensuring the structure is developed in full compliance with IRS and ERISA rules and requirements. Our services include:

  • Establishment of “C” Corporation including Filing Fees;
  • Filing LLC Articles of Incorporation with the state;
  • Application for Corporation EIN;
  • Drafting all required initial corporate resolutions and minutes;
  • Drafting of customized Stock Purchase Agreement;
  • Drafting of customized Employee Stock Purchase Agreement;
  • Free consultation with in-house retirement tax professional on the BACSS structure;
  • Adoption of 401(k) Plan;
  • Basic Plan Document;
  • EGTRRA Amendment;
  • Summary Plan Description;
  • Trust Agreement;
  • Appointment of Trustee;
  • Beneficiary Designation;
  • Application for Plan trust EIN;
  • Assistance in the establishment of business and 401(k) Plan bank accounts;
  • Assistance with the transfer of funds to your new 401(k) Plan bank account;
  • Assistance in coordinating the completion of all IRS required information returns
  • Assistance in coordinating the acquisition of an independent business appraisal;
  • Free consultation with in-house retirement tax professional on the BACSS structure;
  • Tax support on the BACSS and the 401(K) Plan; and
  • Annual compliance review

We have developed a process that ensures speed and compliance, by using standardized procedures that work via phone, e-mail, fax, and mail. Your funds will typically be ready for investment into your new or existing business within 14-21 days.

Is there an annual fee?

In order to ensure the structure remains in compliance with IRS and ERISA rules and procedures, the IRA Financial Group suggests that each of its clients elect to use IRA Financial Group’s annual tax compliance services. Our low annual fee includes tax advice on the structure and the 401(k) Plan, as well as includes the delivery of new Plan documents in the case of a change in law. In addition, IRA Financial Group will work with you to coordinate the filing of any IRS information returns as well as the attainment of the annual business appraisal.

Please contact one of our Business Acquisition Experts at 800-472-0646 for more information.

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