Revel Systems (www.revelsystems.com), the leader in iPad point-of-sale (POS) solutions for restaurant, grocery and retail business establishments, today announced a complete integration of its reporting suite with QuickBooks, the accounting software suite developed by Intuit. As of this week, Revel Systems' award-winning iPad POS system will be able to directly export all sales, product mix and other financial information into QuickBooks, making it the latest accounting software addition to integrate directly with Revel POS, including Ctuit, and RTI (franchise reporting). This will save store owners and accountant's countless hours and save them significant amount money every month. "We have been hearing requests for QuickBooks integration for some time now," Lisa Falzone , co-founder and CEO of Revel Systems said. "In our drive to provide the most robust point-of-sale to meet our customers' needs, we wanted to make sure that we were able to integrate completely with as many versions and variations of QuickBooks as possible, and we are happy to say that's exactly what we've done." By integrating into QuickBooks Anywhere, clients are able pull all of their information, automatically to any edition of QuickBooks, regardless of software version. "It's a great opportunity for businesses to keep all of their existing data, and continue with the accounting suite they have always used, without any extra steps or changes," Revel co-founder and CTO Christopher Ciabarra contributed.
Thursday, February 21, 2013
The Most Tax-Friendly States for Retirees
Robert Powell is editor of Retirement Weekly, published by MarketWatch, he writes: Taxes, as many know, are among the biggest expenses retirees face in retirement. So it should come as no surprise that many retirees and would-be retirees ponder the thought of moving to a tax-friendly state. But which are the most tax-friendly states? Well, it’s not an easy question to answer according to Kathleen Thies, a state tax analyst with CCH, a Wolters Kluwer business. States that have high personal income-tax rates might have low property tax rates and states with low personal income-tax rates might have high property tax rates.
And so the end game for those looking to find the most tax-friendly state is to review all their sources of income in retirement including earned income, Social Security, pensions, and unearned income; all the different types of taxes they might face in retirement including personal income, sales, property and the like; and their overall tax burden, Thies said in an interview.
For instance, those who depend less on Social Security and more on earned income in retirement might consider moving to a state with lower or no income-tax rates. Others who rely heavily on Social Security, by contrast, might consider moving to a state that doesn’t tax such benefits.
“People think they will move to Florida, or Texas, or Nevada and they won’t have any income tax,” she said. “But you have to remember that every state is a business and they need to create revenue. So if they aren’t doing it through income tax they will get it some other way, such as sales or property taxes.”
To be fair, taxpayers who contemplate retiring to one state or another or who contemplate retiring in place also have to calculate whether deducting certain taxes—income, sales, and property—on their federal tax return will make a difference on their overall tax burden.
“It’s so difficult to say which is the most tax friendly state because there are so many variables for each individual,” said Thies. “Overall, it’s a case-by-case basis.”
So what then are the key taxes seniors should assess when evaluating the financial implications of moving or staying put? According to Thies and CCH, they include the following:
State taxes on retirement benefits
Seven states do not tax individual income—retirement or otherwise, CCH said in a release. Those include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two other states—New Hampshire and Tennessee—impose income taxes only on dividends and interest (5% for New Hampshire and 6% for Tennessee for 2012 and remain the same in 2013), CCH said.
In the other 41 states and the District of Columbia, CCH said, tax treatment of retirement benefits varies widely. For example, some states exempt all pension income or all Social Security income. Other states provide only partial exemption and some tax all retirement income.
States exempting pension income entirely are Pennsylvania and Mississippi. States exempting a portion of pension income include: Arkansas, Colorado, Delaware and New York. States generally taxing pension income include: Arizona, California, Minnesota and Rhode Island. (See pdf chart for additional details.)
“Looking at states that don’t tax individual income tax is good place to start when thinking about which state to retire,” said Thies. “There are reasons why so many people move to Florida. Much of it is the weather but some of it is the favorable tax treatment.”
Thies also said taxpayers should keep an eye on the funded status of their state and city pension plans. Those with underfunded pension plans, for instance might be forced in the future to raises taxes or reduce government services, or both.
The Pew Charitable Trusts has two reports on the health of pensions for states and cities. For instance, Connecticut, Illinois, Kentucky, and Rhode Island were the worst among the states, with pensions funded under 55% in 2010, according to one report. And in four cities—Charleston; Omaha; Portland, Oregon; and Providence, Rhode Island—pension systems were more poorly funded than those in Illinois, which at 51% was the lowest-funded state, according to another Pew report.
Read The Widening Gap Update: States are $1.38 Trillion Short in Funding Retirement Systems. Read those reports to learn which other states and cities are most at risk of raising taxes, cutting services, or both.
In general, Thies said, there’s been so much uncertainty at the federal and state levels that the time to drill down on which might be the most tax-friendly state for you is when you’re ready to sell your home. “We generally don’t hear about people picking up and move just for the favorable tax treatment,” she said. Instead, other factors play a role including whether a person has friends and family in a new locale.
States announcing changes to income tax for retirement plans
A handful of states announced changes to income tax for retirement plans in 2012. According to CCH, those include:
Georgia: The personal income retirement exclusion amount has been capped at $65,000 for taxpayers 65 years of age or older and $35,000 for certain taxpayers between ages 62 and 65—for tax years beginning on or after Jan. 1, 2012.
Kentucky: At the end of 2012, The Kentucky Blue Ribbon Commission on Tax Reform proposed a reduction in the individual income tax pension exclusion from $41,110 to $30,000 and implemented a dollar-for-dollar phase out for income over $30,000.
Maine: In 2012, a law was enacted to limit the income tax deduction for certain retirement benefits for tax years beginning after 2013. This raises the deduction from $6,000 to $10,000 (reduced by the total amount of the taxpayer’s Social Security benefits and Federal Railroad Retirement benefits). The deduction is also expanded to include all federally taxable pension income, annuity income and individual retirement account (IRA) distributions, except pickup contributions for which a deduction has been allowed.
Michigan: The deduction for pension benefits for senior citizens is curtailed based on the taxpayer’s birth year and household resources. Currently, this deduction is limited by a dollar amount, but no other limitation applies. Specifically, for persons born before 1946, the deduction for pension benefits is unchanged (see pdf chart). However, for persons born in 1946 through 1952, the deduction for pension benefits is limited to $20,000 for a single return and $40,000 for a joint return. And after that person reaches age 67, the pension benefits deduction is no longer applicable, but the taxpayer is eligible for a deduction of $20,000 for a single return and $40,000 for a joint return against all types of income. A third set of options is available for taxpayers born after 1952, when they reach age 67.
Screening states in or out based on how they tax income is a good place to start, but Thies also noted that much could change in how states raise revenue in the future. For instance, she said some states are starting to lower personal income-tax rates this year, but increase sales tax rates. Massachusetts and Nebraska are two such states that have proposed lowering personal income-tax rates and raising sales tax rates.
Decreasing personal income-tax rates and increasing sales tax rates is a way to relieve the burden on the income tax side and put more money in the pockets of consumer in hopes of stimulating the economy. “It’s a way of collecting taxes tax on the back end,” Thies said. “I expect that this will be a trend that will continue and it will be interest to see how much traction it will get.”
Retirees will certainly benefit in states that follow this trend. Instead of being taxed up front on their personal income, retirees can choose when to be taxed and by how much. “People can regulate their spending” said Thies.
Fourteen states tax Social Security
While some states tax pension benefits, only 14 states impose tax on Social Security income, according to CCH. Those include Colorado, Connecticut, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, North Dakota, Rhode Island, Vermont and West Virginia. These states either tax Social Security income to the same extent that the federal government does or provide breaks for Social Security income, often for lower-income individuals, CCH said in its release.
Retirees can rule in or out certain states to which to retire based on whether and how they tax Social Security. After all, Social Security represents on average 36.5% of all types of income for all retirees and 17.9% for those retirees in the upper income quintile. But they should review that list annually, Thies said.
That’s because many states are moving away from taxing Social Security. “It’s something to look out for,” she said. “But every year it seems like we get one more state that does away with taxing Social Security to the same extent that the federal government does. What happens on the pension income side, however, is another story.”
Thies noted that many would-be retirees and retirees often think they are leaving a high-tax state for what they think is a low-tax state only to find out that they were wrong. “People tend to think the grass is always greener on the other side,” she said. But if you are a high-end wage earner with lots of unearned income you might want to move to a state that also taxes dividends and interest.
Still, one shouldn’t let the tax tail wag the retirement state dog. Retirees and would-be retirees should contemplate nontax factors as well before deciding where to live, Thies said. “You also need to think about family responsibilities and care of elder parents and relatives,” she said. “There are lots of things to consider, taxes being just one of them.”
State income-tax rates
In addition to state taxes on retirement benefits, other taxes that seniors should consider when evaluating the financial implications of where they may to retire include state income-tax rates, CCH said.
For example, income-tax rates also can have a significant financial impact on retirees in determining where they want to live and can vary widely across the country, CCH said.
“As some retirees will face higher federal income taxes, they may look more closely at states with lower or no income-tax rates as one way to help offset their overall tax obligation,” said Thies.
While seven states have no income tax and two tax only interest and dividend income, several have a relatively low income-tax rate across all income levels. For example, the highest marginal income-tax rates in Arizona, New Mexico and North Dakota are below 5%.
Some states have a relatively low flat tax regardless of income, with the three lowest: Indiana (3.4%), North Dakota (3.99%) and Pennsylvania (3.07%) for 2013.
State and local sales taxes
Forty-five states and the District of Columbia impose a state sales and use tax (only Alaska, Delaware, Montana, New Hampshire and Oregon do not impose a state sales and use tax), CCH said.
States with a state sales tax rate of 7% include Rhode Island, Indiana, Mississippi, New Jersey and Tennessee, CCH said. California has a state sales tax rate of 7.5%.
According to CCH, local sales and use taxes, imposed by cities, counties and other special taxing jurisdictions, such as fire protection and library districts, also can add significantly to the rate. Given that, you ought to look at the combined state and local sales tax when looking for a state to call home in retirement.
For instance, Tennessee (9.44%), Arizona (9.16%), Louisiana 8.87%), Washington (8.86%) and Oklahoma (8.67%) have the highest combined state and local sales taxes according to a new report from the Tax Foundation.
And the five states with the lowest combined state/local rates greater than zero are Alaska, Hawaii, Maine, Virginia and Wyoming, according to the Tax Foundation.
And five states have no statewide sales tax, according to the Tax Foundation: Alaska, Delaware, Montana, New Hampshire and Oregon. Of these, Alaska and Montana allow cities and towns to levy local sales taxes.
State and local property taxes
While property values have declined over recent years in many areas, that has not necessarily been the case for property taxes, CCH said. “However, many states and some local jurisdictions offer senior citizen homeowners some form of property tax exemption, credit, abatement, tax deferral, refund or other benefits,” CCH said in its release. “These tax breaks also are available to renters in some jurisdictions. The benefits typically have qualifying restrictions that include age and income of the beneficiary.”
For the record, in 2010, the residents of New York, New Jersey, and Connecticut paid the highest state-local tax burdens in the nation, according to the Tax Foundation. These are the only three states where resident taxpayers forego over 12% of income in state and local taxes.
Residents of Alaska, who have consistently been the least taxed state for nearly three decades, again paid the lowest percentage of income in 2010 at just 7%, the Tax Foundation said in its report. The next lowest-taxed states were South Dakota, Tennessee, and Louisiana.
Thies said property taxes represent a large and growing portion of a retiree’s expenses, especially if they own a large home. So retirees often must face the decision of living in place, downsizing but relocating to a lower property tax rate municipality not far from where they might already live, or relocating to a municipality with low property tax rates. “We do that property tax rates go up every year,” said Thies. Yes, many retirees want to stay in familiar surroundings but they really need to consider whether they need to live in the same house as when they were raising a family. “Property taxes can really affect retirees living on a fixed income,” Thies said. “It’s a difficult to decision to make because many people are tied to their homes emotionally. But it may cost you a lot more than you realize.”
To be sure, this is a classic between-a-rock-and-hard place issue. If a retiree ages in place, their property taxes will in fact rise. But if they move, even to a low property tax municipality, they might find that their overall tax burden is unchanged or worse, higher.
State estate taxes
Estate taxes also can influence where seniors want to retire. Rules vary from state to state as well as from federal estate tax laws. For example, 18 states impose a tax on estates valued below the $5.25 million federal threshold for 2013 ($5.12 million for 2012); only Delaware, Hawaii and North Carolina use the federal exclusionary amount. However, three states have no estate tax at all—Kansas, Oklahoma and Arizona.
Thies said she doesn’t see state estate taxes being a major factor for average Americans deciding where to retire. “People who have estate tax issues are at the top end,” she said. “They are in a different echelon.”
Indeed. “The American Taxpayer Relief Act of 2012 brings more clarity on the federal level that only estates above the $5 million mark indexed for inflation will be subject to the federal estate tax,” James Walschlager, an estate planning analyst at CCH said in a release. “However, the threshold in some states can be below $1 million for state estate taxes, which can impose additional planning challenges.”
Most states follow federal estate tax and would have seen a windfall to state coffers had the estate tax sunset to the pre-Bush era maximum 55% tax rate on estates over $1 million. However, even though that didn't happen, some states have decoupled from federal estate tax law over the past several years as a way of holding on to tax revenues. In many of these states, residents can expect to pay taxes on estates well below the $5.25 million federal threshold for 2013 ($5.12 million for 2012).
“States that have stayed with the federal estate tax law, assuming it would be returning to the lower exclusion amounts, may now reconsider,” Walschlager said.
According to CCH’s release, states currently following the pre-Bush era estate tax provisions include: Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Rhode Island and Vermont as well as the District of Columbia.
Only Delaware, Hawaii and North Carolina follow the federal estate tax exclusion threshold. A few other states have enacted their own estate tax law separate from federal law. These include Connecticut, Oregon and Washington, as well as effective Jan. 1, 2013, Maine. Ohio repealed its stand-alone estate tax and has now recoupled with the federal estate tax law effective as of 2013.
Four states and the District of Columbia also allow domestic partners to file joint tax returns, CCH said in its release. This allows the partners to be recognized under their state’s estate tax laws and thereby enables the surviving spouse to avoid paying any taxes on the decedent’s estate.
Three states have no estate tax at all. These are Kansas, Oklahoma and Arizona, CCH said.
In addition to estate taxes, eight states also collect an inheritance tax, CCH said. “This is a tax on the portion of an estate received by an individual. It is different from an estate tax, which taxes an entire estate before it is distributed to individual parties,” CCH said. “These states are Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania and Tennessee ‒ which is phasing out its inheritance tax in 2015. Assets transferred to a spouse are exempt from the inheritance tax, and some states exempt assets transferred to children and close relatives.”
So, really, there are no tax-friendly states per se—but there are plenty of states that might be friendly for you, if you’re willing to crunch the numbers.
Five Ways To Pay Your Taxes When You Don't Have The Cash
Kelly Phillips Erb (The Taxgirl) for Forbes writes: The good news for taxpayers? More than half of us didn’t owe taxes for the last tax year on record. The bad news for taxpayers? The other half of us did. Hopefully, if you fall in the latter category this year, the amount that you owe isn’t too bad. But if it’s more than you counted on, don’t panic and do something to make it worse. Instead, take a deep breath and consider these options:
Help is available. However you choose to resolve your debt, don’t simply ignore the IRS. If you owe federal income taxes and refuse to pay, you can be subject to liens, levies, seizure and in some extreme cases, prison. Don’t lose control. There are a lot of opportunities along the way to make things right. Take advantage of them.
"I am doing some tax planning for 2013 and expect significant capital gains. Can you advise how the limitation of itemized deductions will be calculated for 2013 returns?"
Kathleen Pender, Chronicle Columnist for SF Gate answers this tax question: A: The "fiscal cliff" legislation resurrected the Pease limitation, which reduces most itemized deductions by 3 percent for every dollar your adjusted gross income exceeds $250,000 (single) or $300,000 (married filing jointly). However, the limitation won't reduce these deductions by more than 80 percent. Capital gains are included in adjusted gross income, so a big windfall could push you into Pease territory. Suppose you are married and your adjusted gross income is $400,000. Multiply $100,000 by 3 percent and you will lose $3,000 worth of these deductions. (Few people will hit the 80 percent limit.) The limitation applies to mortgage interest, charitable contributions, state and local taxes, income and property taxes, and miscellaneous itemized deductions. It does not apply to deductions for medical and dental expenses, investment interest and casualty, theft, or gambling losses - which are less common. Pease adds roughly 1 percent to the top three marginal tax rates, says Michael Kitces, a partner with Pinnacle Advisory Group. If you are subject to the alternative minimum tax, it's a little more complicated. You first figure your taxes the regular way, including the Pease limitation if applicable. Then you figure out your taxes under the AMT. Although there is no Pease limitation in the AMT calculation, the AMT itself disallows 100 percent of certain itemized deductions - including state and local income taxes, and property taxes. You then pay whichever tax is higher. For people who are deep into the AMT, Pease usually won't have an impact because their AMT will still be higher than their regular tax, says Mark Luscombe, a principal tax analyst with CCH. People who are barely into the AMT may find that the return of Pease puts them back into the regular tax system, resulting in a tax increase. In California, Pease is almost irrelevant because most people who earn enough to be affected by it are in the AMT, Kitces says. One exception: At very high income levels, many people are subject to regular tax, and would be hit by Pease. In 2010, roughly 85 percent of California tax returns with adjusted gross income between $200,000 and $1 million paid AMT, but only 40 percent of those with incomes over $1 million did. The fiscal cliff legislation brings back another stealth tax starting in 2013. The personal exemption phaseout will reduce the deduction you get for each person on your tax return by 2 percent for every $2,500 (or fraction thereof) in adjusted gross income that exceeds $250,000 (single) or $300,000 (married). The exemption amount for 2013 is $3,900 per person. If your adjusted gross income exceeds those thresholds by more than $122,501, your exemptions are completely eliminated.
Firms Puzzle Over Tax Riddle
Emily Maltby for the Wall St. Journal writes: Business owners can't change the tax code, but many of them say they might change the way their businesses are structured in order to pay less tax. Chris Pullen of Fort Collins, Colo., is grappling with whether to convert his growing business into a so-called C-Corporation, as a potential tax-savings move. Mr. Pullen, president of 20-employee RLE Technologies, is among the nearly 30 million business owners who include their business profits on their personal income-tax returns. Changing the company to a C-Corporation would let him pay corporate taxes separately from his personal taxes. RLE, which makes sensors that monitor data centers, hospitals and other facilities for temperature, humidity and water leaks, had more than $5 million in revenue last year. It is structured as an S-Corporation, which means its profits "flow through" to its owners, who pay taxes on that money at personal tax rates. "The more taxes we pay, the less we have to reinvest," says the 54-year-old Mr. Pullen, who became a part-owner of the company last year. He says RLE's five shareholders generally take $100,000-a-year salaries. But claiming their share of business profits drives their collective taxable income several hundred thousand dollars higher—even though most profits go back into the business to pay for new employees or equipment.
This year personal income-tax rates for the highest earners—single filers exceeding $400,000 and joint filers exceeding $450,000—rose to 39.6% from 35% in 2012. The problem for shareholders of RLE, which has 12% annual revenue growth, is that the business could be bringing in enough profit within a few years to bump them into the highest tax bracket.
The top corporate-tax rate, by contrast, is 35%, though it might decline if Congress overhauls corporate taxes. President Barack Obama called for a cut in business-tax rates in his State of the Union speech last week, and has previously proposed eliminating loopholes and subsidies in order to reduce the highest corporate-tax rate to 28%. Such a move would make switching to a C-Corporation structure "even more appealing," Mr. Pullen says.
Lowering taxes is a top priority for business owners this year, especially in light of the higher individual tax rates. Tax worries are "right up there with health care, cash-flow concerns, debt obligations and financing" as big problem areas for U.S. small business this year, says Scott Berger, tax principal at the accounting firm Kaufman, Rossin & Co. in Boca Raton, Fla.
Thirty-five percent of 848 small-business owners and chiefs surveyed by The Wall Street Journal and Vistage International, a peer-advisory firm for CEOs and senior executives, said they would consider reorganizing into C-Corporations if corporate-tax rates were cut.
The survey, conducted online Feb. 4-13, included businesses in manufacturing, construction, retailing and other industries with annual revenue between $1 million and $20 million.
Larger companies are commonly organized as C-Corporations. Unlike S-Corporations, the structure allows for multiple classes of stock and an unrestricted number of shareholders.
Massis Chahbazian, 50, president and chief executive of Printery Inc. in Irvine, Calif., says he would "consider changing over" to a C-Corporation if the corporate-tax rate were cut. His digital printing firm, an S-Corporation, has 30 workers. He eventually plans to sell the firm to fund his retirement. Retirement planning also will influence his decision about its structure, he says.
David Gracey, 45, expects to be in the highest personal tax bracket this year. He runs Network 1 Consulting, an information-technology outsourcing business in Atlanta, as an S-Corporation. After he files his 2012 taxes, he says, he plans to consult his accountant about switching to a C-Corporation. "All options are on the table," he adds.
Ninety-five percent of all business entities declare business profits on their owners' personal tax returns, according to an August 2012 report from Congress's Joint Committee on Taxation. Some experts say C-Corporations may not significantly lower these business owners' tax bills—and might raise their tax burden.
"Even though on the surface you're looking at 35% versus 39.6%, it's a deceptive comparison," says Robert W. Wood, a tax lawyer with Wood LLP in San Francisco. "There may be a slight short-term advantage in C-Corporations, but there are a number of negative long-term implications that would outweigh short-term benefit."
For example, C-Corporation profits can be double-taxed. In addition to the corporate tax on profits, owners also would owe personal taxes on any money they take out of the company as dividends. The double tax kicks in when a business is sold, too.
Another potential problem is that a firm that switches from an S-Corporation generally has to remain a C-Corporation for at least five years.
Carol Piccaro, 54, is CEO of U.S. Chemicals LLC in Darien, Conn., a chemical-distribution firm her father founded in 1960. It started out as a C-Corporation, but she changed it to an LLC about 15 years ago for estate-planning reasons. The move was designed to reduce her tax burden when the company is sold.
Ms. Piccaro says she has no intention of going back to a C-Corporation, even if corporate tax rates do go down, in part because the costs in time and money to make the switch might offset any tax savings.In the survey, 29% said they wouldn't consider reorganizing into C-Corporations, even if corporate tax rates fell.
IRS Predicts Remaining ATRA-Affected Forms Will Be Accepted In Early March; High Traffic Slows “Where’s My Refund?”
The IRS has reported on its social media feeds that it is processing returns with Form 4562, Depreciation and Amortization, and returns with Form 8863, Education Credits, and expects to start accepting the remaining forms affected by the American Taxpayer Relief Act of 2012 (ATRA) during the first week of March. The IRS also asked taxpayers to use the popular Where’s My Refund? online tool and the refund feature on the IRS2Go smartphone app only once a day because of very high usage. At the same time, the Obama administration has cautioned that pending sequestration will impair the IRS’s customer service and enforcement operations.
Forms
After President Obama signed ATRA into law on January 2, the IRS cautioned that the start of the 2013 filing season would be delayed because the agency needed time to reprogram its processing systems for many changes made to the Tax Code by ATRA. The IRS began accepting and processing most individual returns January 30.
The IRS is now able to accept returns with the education credits and depreciation forms following reprogramming of its processing systems. The agency reported that work continues on reprogramming its processing systems to accept the remaining forms affected by ATRA. The IRS predicted that the remaining forms, including Forms 3800, General Business Credit, Form 5695 Residential Energy Credits, and Form 8582 Passive Activity Loss Limitations, will be accepted during the first week of March. The IRS indicated that a more specific date is expected to be announced as soon as possible.
Comment
The AICPA asked the IRS to consider relief from the failure-to-file and failure to pay penalties. "The IRS cannot extend deadlines but it can ameliorate penalties," Goldstein noted. The AICPA also asked for more clarity about the timing for the release of the remaining tax forms.Refunds
Taxpayers can check the status of their refund using the online tool Where’s My Refund? or smartphone app. Because of the large number of inquiries, the IRS urged taxpayers to check on the status of their refunds once a day, preferably weekday evenings or on weekends. The IRS explained that its systems are only updated once a day, usually overnight, and the same information is available on the internet or the smartphone app.
Comment
According to the IRS, nine out of 10 taxpayers typically receive refunds in less than 21 days when they use e-file with direct deposit.Sequestration
After February 28, across-the-board spending cuts are scheduled to take affect unless Congress takes action to avert them. Acting Treasury Secretary Neal Wolin recently told Congress that sequestration would trigger furloughs of an unspecified number of IRS employees. Additionally, Treasury would need to reduce payments that support some state and municipal bond programs through lower levels of refundable tax credits and direct payments to issuers, Wolin predicted.
Comment
Cuts to operating expenses and expected furloughs would prevent millions of taxpayers from getting answers from IRS call centers and taxpayer assistance centers and would delay IRS responses to taxpayer letters, Wolin told lawmakers.Real Estate IRA Tax Rates
New Direction IRA writes: Question: When you receive an IRA distribution of cash that was made from the sale of real estate, it is taxed at ordinary income tax rates. Isn’t this rate much higher than the capital gains rate you would pay on the sale of real estate outside of the IRA?
Yes, but this is true for any IRA asset, not just real estate. Even if your IRA invested in securities like stocks and mutual funds instead of real estate, distributions of any gains will be taxed ordinary income tax rates. Traditional IRAs give you a tax deduction for contributions and you pay taxes on distributions. Both are at ordinary income rates which are higher than capital gains rates.
If your goal is to minimize taxes at distribution you may wish to convert your existing Traditional IRA to a Roth IRA. Distributions from Roth IRAs are generally tax-free. Conversion may be done at any time; income tax at ordinary income tax rates will be due on the converted amount. Many investors feel the Roth IRA is a much better long term plan as the taxes are effectively prepaid on the money; both contributions and the income and profits may be withdrawn tax free if conditions are met.
Much of the appeal of real estate investing is the positive cash flow it can generate. For IRAs owning real estate, generating income can make it an attractive option even without the potential for appreciation. The tax your IRA may incur at the end of an investment is only one factor to consider. Investors have the ability to generate significant revenue from rent. Cap rates of 4 to 10% are not uncommon and, when compared to returns from other assets, can be very enticing for investors in today’s economy.
In many cases, income generated from real estate assets can cover any Required Minimum Distributions (RMDs) required to begin for Traditional IRAs at age 70 ½ .
Remember, the point of owning real estate or any asset in an IRA is to increase the total value of your IRA.
Like all investments, due diligence is required to decide what will work best for your IRA and its investments. New Direction IRA can help with the administration and bookkeeping of your IRA, and will ensure your transactions and/or conversions are done according to IRS code.
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