Category Archives: First Time Home Buyer IRA

Questions About Converting an IRA To A Roth IRA

Question: “Does it make sense to convert my IRA to a ROTH IRA?”

Answer: We need a lot more information to answer that question. The answer will depend on your marginal projected tax rate for the year, along with your projected marginal tax rate at retirement. It also depends on how long you project between conversion and beginning withdrawals. While Roth IRAs can be a great choice, the conversion should not be done without fully understanding the tax ramification and what your plans and needs will be for the money in the account. If you know that you will be in a low tax bracket this year due to being out of work or having deductible business losses it can make a lot of sense to convert some or all or your IRA to a Roth IRA. Just how much to convert depends on your projected income and how much you can get in at the projected lower marginal rate.

We welcome your questions. Just email them to Info@RMSAccounting.com or call us at 954-563-1269.

Employee vs Independent Contractor

Would your business be safe from the reclassification of independent contractors to employees if the IRS or Department of Labor (DOL) decided to audit your use and classification of independent contractors? As the cost of having employees has increased over the years, more and more businesses are trying to avoid those costs by replacing services performed by employees with services provided by independent contractors. However, simply calling someone an independent contractor does not necessarily make them an independent contractor.

Misclassification can become very expensive when challenged by the IRS or the DOL. The result can be responsibility for uncollected taxes, penalties, even disallowance of pension plans and health insurance costs.

To help you better understand the proper classification of independent contractors and employees, we have just released a new publication “Can You Pass an IRS or DOL Audit of Independent Contractors vs. Employees?” It’s available free. To download a copy, simply  click here.

Tax Savings for First Time Home Buyers.

First time home buyers can take up to $10,000 from an IRA without being subject to the 10% early withdrawal penalty.  Beware that this exemption to the early withdrawal applies only to IRAs and not to 401(k)s or other retirement plans.  This was recently confirmed by the U.S. Tax Court in the following case (Soltani-Amadi, TC Summary Opinion 2019-19).

If you don’t have an IRA but do have a 401(k), or another employer plan, all is not lost. All you have to do is set-up an IRA and roll $10,000 from the employer plan you have to that IRA before you make the distribution. But be careful. You have to be sure the rollover is made before the distribution. If you are under 59½, doing this could save you $1,000.00 in early distribution penalties.

For help with this or any other tax strategy, just give us a call.

IRS can have your U.S. Passport Revoked

By: Steven J Weil, PhD, EA, President RMS Accounting

Did you know that the IRS can have your U.S. passport revoked if you have delinquent tax debt of $52,000 or more? The Fixing America’s Surface Transportation Act (FAST -P.L. 114-94), enacted on 12/4/2015, gave the IRS the authority to have the passports of those with seriously delinquent tax debt revoked.

The good news is that if your address is up to date with the IRS, you should receive a letter notifying you of the IRS’s intent to request that the U.S. Department of State revoke your passport.  That means that you won’t have to face finding that out when trying to reenter the country from a business trip or vacation.

To prevent the IRS from taking this action, you can pay the tax or (if this is not possible) enter into an installment agreement and make payments over time.

For more information see IRS Information Release IR-2019-141 or call us at 954-563-1269.

School Won’t Teach Your Children About Money

By: Steven J Weil, PhD, EA, President RMS Accounting

School Won’t Teach Your Children About Money. That’s your job as a parent, and if you fail at it, or just avoid it, your children will lack the skills to be successful adults. Worse yet, they might just end up living in your house until the end of time.

When do you start teaching them that money is a tool and how to deal with it? For my wife and I, the lessons started early when our children were in elementary school. In those days, money was tight and we had to spend wisely, which meant the kids could not have everything they asked for every time we went to the store. We needed a way for them to understand that buying things was about choices.

Our solution was the creation of the “Bank of Mom and Dad.” Each week they got an allowance, and it was deposited to the Bank of Mom and Dad. We kept running balances for each child, and when they wanted us to buy them something at a store, we would tell them how much they had in the bank of mom and dad. If they had enough, they could buy it with their money.  If not, they could save up for it, and buy it when they had enough money.

An interesting development was that often, if they had to spend their own money, they did not think it was worth it. This had never occurred to them when they were spending our money.

Over the years the amounts they received increased, and they had chores to do in order to earn some of the money that ended up in their accounts. At age thirteen, we opened real checking accounts for them. They could not sign, of course; but they had checkbooks and had to keep track of how much was in their account as well as learn to write checks and record them. They also became responsible for more of their expenses, such as school supplies, school lunches and other small items.

I will never forget the look on my oldest son’s junior high school band teacher when she told me that he needed a band uniform and the cost was $25.00.  I told her that he had his own money and that it was his responsibility, not mine. She looked even more surprised when the kid got out his checkbook.

Yes, our children learned early about money, and they did not all learn at the same rate. My oldest saved his money and bought a TV for his bedroom while his sister, just a year younger, bought toys and junk until she realized that she could not buy a TV since she had not saved her money.

All three of my children are now self-supporting with high credit scores and their own homes. They range in age from 24 to 31 and understand the importance of work and money management. 

All three went to college on a budget where they controlled their own money (and some that their parents contributed) so they had to make tuition payments, pay for housing and food, dating and other personal expenses. They knew that running out of money was not an option. They were expected to budget for their expenses, and they knew how to do that.

I am proud of all three of my children and hope that they will pass on the knowledge they gained about money to their children. I know that the ability to deal with money is one of the best things I did for them, and it gave them a skill that many of their friends don’t have.

If you want to know more about The Bank of Mom and Dad drop me a line at steve@RMSAccounting.com.

IRS Notifies Virtual Currency Owners

Released July 26, 2019

Last week, the IRS began sending educational letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly.

There are three versions of the letter, all of which aim to help these taxpayers understand their tax obligations and how to correct errors in reporting. Recipients are also directed to information on the IRS website that pertains to their situation, including forms, and schedules.

It is estimated that more than 10,000 taxpayers will receive these messages by the end of August.

More information about the tax status of virtual currency and how general federal tax principles apply to virtual currency transactions is available here. Further guidance will likely follow as the IRS continues to consider feedback from taxpayers and practitioners.

A Guide to Buying a Small Business

Determining How Much You Can Afford to Invest!

Before acquiring any business you must to determine how much of an investment your looking to make. When making this consideration it is important to consider not

only the the monetary value, but the amount of time and effort your willing to commit to your new business as well. Typically, the minimum down payment needed by a buyer is between 20% and 30% of the purchase price of the business. For example, if the business purchase price is $200,000 then in order to finance the business the buyer’s down payment needs to be $40,000 to $60,000. Obviously, you are always able to put down more, or purchase the business without obtaining lender financing.

In addition to that initial purchase price, possible expenses a purchaser needs to consider are the costs of inventory, supplies, escrow fees, license and permit fees, franchise transfer fee (if applicable), and other associated costs of acquiring the business.

And then you have to set criteria of desired business. Which includes location of business, type of business, price range of business, desired income of business.

Finding a Business to Invest In!

After you decide how much you are looking to invest and the type of business your looking to become involved with, You will need to begin to look for a business you can acquire that meet those criteria.

There are a number of ways to find businesses for sale. You can search business through one of the multitude of online business listing services, search local newspapers and trade publications, or go through local business brokers and sales agents. One often overlooked avenue is professional connections. Lawyers, Accountants, and other professionals often learn of business’s looking to sell even before anyone else does, so building a good report with these types of professionals can help you find the deals that not everyone knows about.

Understanding the Business and Making an Offer!

You have found a business that you want to purchase, now what? You will need to evaluate the business. While their are many methods of evaluating a business’s value most of them rely on determining the potential income stream and equity that business has the ability to offer. To learn more about how businesses are valued, click here.

You should sit down with the current owners and look at how the business is currently operating. Try to identify what the business is doing right and potential areas which could me improved, streamlined, or eliminated. Learn the businesses core values and philosophy and see if that is the right fit not just for your budget, but your personal business philosophy. While you can change the way systems operate when you take over, it is very difficult to change a businesses culture, so you want to make sure it is something you can grow with.

Only after you have done those steps can you make decision whether to pursue purchasing business or not. If the business seems like the right fit for your business philosophy and budget it is time to create Purchase and Sale Agreement. This document will have all of the details about when, how, and how much the business will sell for. It may also include things like agreements of former owners to stay on for a transition period, or other things you come up with.

When you are crafting an offer, make sure the document includes the following items: Your offering price, Initial deposit amount, financing terms, closing date. In addition to these fundamentals it may be advantageous to add things to the offer such as loan approval contingencies, lease information and lease transfer approval from landlord, requirements that the buyer be able to obtain all necessary licenses and permits, required franchise information (If your dealing with the a franchise), the buyer’s Satisfaction of books and records, how closing costs are to be allocated, a buyer training session with seller (Or stay on provision), guarantees on the business equipment and fixtures, information on inventories and supplies amount, non-compete agreements, and any other important details that pertain to your deal. This offer is now your starting point.

Negotiating with the Seller!

Now that you have crafted your offer it is time to present your offer to the seller. When you present the offer know you will likely be countered. Know your sticking points and where your willing to make concessions. No is the time to negotiate the price, terms, and conditions. It may take several rounds of going back and fourth to get the right deal but eventually, with any luck, you will settle on a final price and terms of the deal.

Once you have arrived at your finalized terms you will need to dot the I’s and Cross your T’s. Obtain needed licences, secure any financing if needed, make sure leases or other steps are taken. You want to make sure everything is in order for the most important step in squiring a business.

Closing the Deal!

All of the terms have been worked out, financing has been secured, and everything is ready. Now is the time when you sign over the business, pay the seller, and handle any needed legal steps. Congratulations, your now the owner of your new small business.

Thieves Make Off With $64 Million in Bitcoin from NiceHash Hack! Miners and Investors May be Able to Claim these Losses as Theft and Casualty Losses.

As the world watched Bitcoins price soar to new heights last week, thousands of Bitcoins went missing from the popular mining application NiceHash. The company, which makes it easy for people to mine the most profitable “alt” coins and pays you out in Bitcoin, was robbed of over 4,700 coins at some time in early Wednesday morning, December 6, 2017. This not only left many in the crypto-currency community with their mining rigs running cold (the process of mining produces an immense amount of heat, so a cold miner is a broke miner), but it also left those same miners missing possibly thousands of dollars or more of mining profits. In addition, it left those who had money stored through the company’s wallet system high and dry. http://www.bbc.com/news/technology-42275523
The IRS has made it clear this year that it expects miners to report all income they receive from cryptocurrency, and based on this news, the IRS will be coming down hard on those who fail to report income. But reporting this income also means Miners will be able to deduct these kinds of losses on their tax forms as well. In the case of the stolen coin using the casualty and theft loss deduction.

Depending on your individual tax situation you may be able to claim the losses as either a personal return under Schedule A, or a business loss under Schedule C of the 1040 Form. https://www.irs.gov/taxtopics/tc515.

Personal Losses

If your tax situation requires you to claim any lost coins as a personal loss, you will be subject to the same deduction rules that apply to all itemized deductions for theft. To calculate the amount a person is eligible to deduct you must subtract $100 from the value of the loss then subtract 10% of your adjusted gross income (subject to a maximum of your adjusted basis in the coins). This number will give your allowable loss deduction. It is also important to note if this loss exceeds your total net income for the year, you’re eligible to carry over a net operating loss (NOL) on your return to future years even if it is not business income. (This is an exception to the general rule which exists for casualty and theft income.)

To record and report all this information to the IRS you will need to file a Form 4684 (Section A).

Another important thing to note is that as this deduction is an itemized deduction you can only take the greater of the combination of your itemized deductions or the standard deduction. Thus, this strategy may not make sense if your losses are small, or you can not combine the amount with other itemized deductions.

Business Losses

Losses which are considered business assets from the theft can also be deducted. Following a similar procedure of filing a Form 4684 (Section B), one can deduct the losses against their business income. One benefit of this method is that these deductions are not subject to the same value reduction and can be used to directly offset business income. If these losses exceed income, then you can carry over a NOL to subsequent years.

At the end of the day, the tax right off is never going to make up for the entirety of the loss from any theft. But with the IRS coming after the cryptocurrency market with a vengeance this year, it may help to take some of the sting away to know that Uncle Sam will cut you a small break.

 

UPDATE!!!

NiceHash has released a press release, and while no details were given it seems they may make whole the people whose accounts were drained. It will take time but we are working on a solution to ensure all users are reimbursed. “In an exclusive interview with WikiTribune, Marko Kobal, the CEO of NiceHash – a Slovenian-based crypto-mining marketplace – said that his company is “working on a solution to ensure that all users are reimbursed” for the $60m hack that took place last week.” This means you may not be able to deduct these losses. As of yet, it remains unclear as to whether the company will ever recover, but until more information comes out, a possibility exists that the coins will be returned or reimbursed by the company.

The bad news if this reimbursement goal is true is it will mean no Theft and Loss deduction can be used on the missing funds (Until we know for sure the money is stolen and not coming back). The good news, if this news is true, Nicehash patrons will have your missing Crypto-Coin back.

10 MISTAKES THAT CAN CAUSE A GOOD BUSINESS TO FAIL

By: Steven J Weil, PHD, EA, LCAM

According to the U.S. Small Business Administration, there are around 28.8 million small business located in America. Small businesses, which maintain fewer than 500 employees, account for 99.7% of all business in the US. Around 82% of small businesses fail due to cash flow problems, a US Bank study discovered. But, Dr. Weil says that cash flow isn’t the only issue that small businesses face. Below are 10 main reasons why business in America fail:

  1. Having too strong an attachment to sales at any cost.
    While everyone knows sales are important, what is often forgotten is that sales without profits serve no purpose. Every sale needs to contribute to the bottom line.
  2. Cash flow is the lifeblood of every business. If you run out cash, the business dies. It’s important to understand what cash you do or don’t have for a given undertaking. Your cash flow is impacted negatively when you are carrying accounts receivable for creditworthy but slow-paying customers.
  3. Know your true costs. A business owner who forgets to include costs because they are not paid at the time of a sale can quickly find the business in the red with unaffordable payments due.
  4. Understand your sales tax and other tax obligations. Failure to collect sales tax from a customer does not get you off the hook for paying that uncollected sales tax. By the time an audit comes about, your lack of knowledge could cost you tens or even hundreds of thousands of dollars.
  5. Be sure to follow all employment laws. Both the state and federal governments have a say in everything from minimum wage to overtime. Even if your employees agree to something less, you can and will still be held accountable to comply with the law. Failure to do so can create huge financial liabilities.
  6. Keep good records, and do keep business and personal information separate. Not only will you need to have books and records for your business at tax time, but having accurate books and records can help you spot developing problems before they drag your business under.
  7. Consult experts when the need arises. Guessing at the tax consequences, labor rules or meaning of a contract can cost you everything. When you are not sure, consult an accountant, attorney or whatever expert. One thing you can be certain of is that consulting an expert to avoid a problem will be a lot less expensive than using an expert to resolve a problem.
  8. Be careful about borrowing. Getting cash today by pledging credit card receivables or factoring can be expensive and rob cash flow that you will need to operate. Be mindful of the cost of any borrowing along with the repayment terms.
  9. Never risk more than you can afford to lose on just one customer. We have seen more than one business allow a “good customer” to run up a large account or place an order so big that failure to pay or a problem with the order can result in a catastrophic business failure.
  10. Never let just one customer be responsible for more than 10% of your total business. A business that has one or two customers that represent 50% of its total sales is not really a business; it’s a de facto employee without the benefits.