I remember working in the banking industry over a decade ago when the Roth IRA was first introduced. For months after the Roth came out I was approached by clients about how the Roth worked and whether they should roll their money into the Roth from their traditional IRA's. Although brand new at the time, it was clear to me that the Roth might work well for my younger clients, but not necessarily for those nearing retirement age.
As the Roth v. Traditional IRA issue has recently come up with a client of mine, I thought I would take a moment to briefly outline the tax advantages of each.
Traditional IRA Tax Advantages
The real benefit to a Traditional IRA is that any money you deposit into the IRA each year (up to the legal limit) can be deducted from your taxes.
Thursday
1031 Exchange: The Near-Simultaneous Requirement
The Near-Simultaneous Requirement
In 1984, the IRC was modified to add the requirement that a like-kind exchange be done "nearly simultaneously" to receive nonrecognition treatment. Nonrecognition treatment does not apply to an exchange of property unless the property received by the taxpayer is identified within 45 days of the transfer of the property relinquished by the taxpayer. Also, the property must be received by the taxpayer within 180 days of the transfer of the relinquished property, or by the due date (including extensions) of the transferor’s tax return for the year in which the transfer of the relinquished property occurs, whichever is earlier. This provision was enacted to curb the practice of deferred exchanges, often called "Starker" exchanges, in which a taxpayer would transfer property to a purchaser who would promise to purchase an as yet unidentified property in the future, at the taxpayer’s direction, for transfer to the taxpayer.
Read my other articles on 1031 Like-Kind Exchanges.
In 1984, the IRC was modified to add the requirement that a like-kind exchange be done "nearly simultaneously" to receive nonrecognition treatment. Nonrecognition treatment does not apply to an exchange of property unless the property received by the taxpayer is identified within 45 days of the transfer of the property relinquished by the taxpayer. Also, the property must be received by the taxpayer within 180 days of the transfer of the relinquished property, or by the due date (including extensions) of the transferor’s tax return for the year in which the transfer of the relinquished property occurs, whichever is earlier. This provision was enacted to curb the practice of deferred exchanges, often called "Starker" exchanges, in which a taxpayer would transfer property to a purchaser who would promise to purchase an as yet unidentified property in the future, at the taxpayer’s direction, for transfer to the taxpayer.
Read my other articles on 1031 Like-Kind Exchanges.
Tuesday
Get A Tax Attorney Involved
Do you cringe when I mention the date April 15? If you don't its probably because you are one of the millions of Americans who give the government an interest free loan during the course of each year and then anxiously await repayment (that's what a tax refund is). But whether you owe taxes or receive a refund each year you may want to consult a tax attorney way before the taxes become due.
Most people don't think about consulting a tax attorney until they are faced with a negative IRS audit. Although this is certainly one of the biggest incentives to consult a tax attorney there are other reasons as well. For example, do you know what a 1031 like/kind exchange is? The IRS will allow you to "exchange" one piece of investment property for another, tax free.
1031 (Like/Kind) Exchange
Suppose I have a job as a traveling nurse and I am currently working in Nevada and own a beach house in California. One day I decide to relocate to a New York travel nurse job and I have to move with it. Living in Nevada allows me to stay in my California beach house every weekend. Moving to New York will make using the beach house nearly impossible. If I sell the beach house in the usual manner and buy a mountain house in New York I will be required to pay taxes on the sale (probably long term capital gains). However, the IRS allows me to "exchange" the beach house in California tax free for a mountain home in New York provided certain legal criteria are met. The sale of the California beach house would be performed in the usual manner but the proceeds from the sale would go into a special holding account until you found the mountain house you wanted to "exchange" for. A tax attorney will be able to advise you on the best method for setting up the exchange and update you on any changes to the law.
Estate Planning
Another reason to consult a tax attorney is for Estate Planning. The terms Will, Trust, Power of Attorney, Beneficiary, Life Insurance, Health Care, Enhanced Life Estate Deed and Lady Bird Deed should be somewhat familiar terms. A tax attorney can show you how to best structure your estate to minimize your current estate taxes and allow you to pass your estate onto your heirs with the least amount of tax burden.
Tax Law Constantly Changes
Remember, tax laws are constantly changing; so what may be the law in 2006 may not be the law in 2007. If you don't believe me, ask yourself why "do-it-yourself" tax companies like Turbo Tax and other online business and tax companies are able to make money selling new versions each year. A friend of mine selling nursing scrubs recently discovered the value of a tax attorney who was able to explain to her a complex tax issue that her CPA was not able to explain. Tax attorneys monitor changes to the laws and can advise you if a change affects your tax structure.
For more tax related information, you may also want to read an article about maintaining a Permanent Tax Home.
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