TAX TIPS NEWSLINE - June 2017

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TAX TIPS NEWSLINE Proudly Published in the USA

JUNE 2017

Produced monthly for Clients & Friends of the ADVISORY GROUP ASSOCIATES.

Our Mission. Sharing Solutions that deliver real value.

This “TAX TIPS NEWSLINE” is compiled by the founder of the Tax & Advisory firms, Frank

L. Zerjav, CPA and team of Professional Tax Associates, and then it is sent by email each month

because you need tax and compliance knowledge. It’s a big part of your life and the entities that

you operate.

The CPA firm engages in proactive Strategic Tax Planning for privately-held businesses and

their owners, professionals, investors and individuals. Our clients minimize their tax burden by

appropriate

proven strategies, which help them to keep more of what they earn. Advisory Group’s Tax

Resolution Experts also engage in resolving tax problems with either Federal or State tax

agencies for clients who need these specialized, proven solutions and options. Our devoted

team of Professional Tax Advisors and Tax Resolution Experts do care; their primary

objective is the well-being of clients, their family and their survivors, as well as their

satisfaction with the work we do, while our goal is to be the premier choice of Tax &

Advisory firms, not the biggest firm by sharing solutions that deliver real value.

SUMMER HOURS: The office will close at 12pm on Fridays during June, July and August

Inside this Month’s Issue

Contact Us

About A Sane Approach To Taxes

Stress-Free Tax Compliance For Business Owners

Consider a “Solo” Individual 401(k) Retirement Plan

Tax Return Preparers are Part of Tax Compliance

Lock in the Home-Office/Storage Deduction for Your Corporation

The Home-Office/Storage Deduction – General Opportunities

Avoid Lost Deductions When Vehicle is in your Personal Name

IRS Mileage Rate Costs Deductions on a Leased Vehicle

Rental of Home to C or S Corporation

Improve Retirement Savings with an HSA

Minimize Taxes on Lawsuit Awards & Settlements

ROTH IRA Conversion Strategy to Avoid Taxes

Wide Range of Services Offered

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Contact Us - There are many events that occur during the year that can affect your tax situation.

Preparation of your tax return involves summarizing transactions and events that occurred during

the prior year. In most situations, treatment is firmly established at the time the transaction

occurs. However, negative tax effects can be avoided by proper planning. Please contact us in

advance if you have questions about the tax effects of a transaction or event, including the

following:

• Pension or IRA distributions. • Sale or purchase of a residence or • Self-employment.

• Significant change in income or deductions. other real estate. • Charitable contributions of

• Job change. • Retirement. property in excess of $5,000.

• Marriage. • Notice from IRS or other revenue • Gifts (over $14,000 to an

• Attainment of age 59½ or 70½. department. individual).

• Sale or purchase of a business. • Divorce or separation. • Starting new business.

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ABOUT A SANE APPROACH TO TAXES

Taxes are the kind of thing that tends to drive a professional, business and real estate owner up a

wall. With complex laws, strict enforcement agents, and constant changes, the tax code can

easily trip up someone who spends most of their time focusing on creating a viable business. It’s

important for you to maintain a sane approach to taxes, and our goal is to enable you do that.

Taxation Background

U.S. income taxes stem from the 16th Amendment, passed in 1913. Direct taxes on individuals

had been forbidden previously, and over the past century the tax laws have steadily grown, along

with the Internal Revenue Service designed to implement taxation policy. There are five major

sources of tax law and interpretation in the United States:

Internal Revenue Code, tax laws passed by Congress;

Regulations, interpretations made by the Treasury Department;

Revenue Rulings, which are specific interpretations made by the IRS;

Revenue Procedures, which are specific policy statements the IRS makes; and

Case Law, rulings made by federal courts about taxation issues.

It all works together to create a tangled web that applies to both individuals and corporations,

enforced by the IRS and its agents. Tax rules are constantly changing, with new developments in

each of the five areas listed above. The complex code has created an industry for tax

professionals, who must spend countless hours every year keeping current on the various tax

laws, using that expertise to handle the process for the average citizen, who can’t possibly keep

up.

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Taxation is serious business, because the IRS and its agents are tasked with making sure that

each entity pays the taxes it owes. You don’t want to get involved in a long, costly legal fight

with the IRS. Although you shouldn’t just “cave in” to a situation where you have a strong case

that would significantly benefit your business, you need to choose your battles carefully. As a

government agency, the IRS has a lot more resources than you, and can often turn a fight into a

no-win situation.

How should you think when it comes to taxes? Even though none of us will ever enjoy filling out

our annual tax forms, you need to keep a balanced approach. An extreme reaction to taxation can

lead you to make mistakes that you’ll regret down the road. Here are tips about a balanced, sane

approach to taxes:

Recognize your responsibility to pay your fair share of the government’s budget.

Recognize the IRS’s right to collect the income tax.

Stay away from tax evasion schemes. If someone offers you a tax kit that will supposedly

exempt you from tax, or puts your money in some offshore bank you’ve never heard of,

just say no.

Identify and claim every deduction you’re legally entitled to, no more, no less.

Learn about the IRS—the way it thinks, operates, and acts as it approaches its assigned

task.

Focus more on knowing how the IRS interprets the law; the interpretations in practice

tend to be more important than the actual letter of the law.

Learn how to report your income without providing excess data that increases the chance

of an IRS audit.

Even if you prepare your own tax returns, find a trustworthy Professional Tax Advisor;

you can always get some help and guidance and benefit from a professional’s review of

your returns to find mistakes or missed opportunities.

Don’t be afraid of the IRS. There are some true stories of IRS abuses, but the IRS is

usually reasonable when dealing with taxpayers, and the Taxpayer Advocacy Program is

an effective help for dealing with a large, complex system.

Never, ever, ever intentionally fail to report your income or file returns when you

can’t remit the tax due.

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STRESS-FREE TAX COMPLIANCE FOR BUSINESS OWNERS

For most people, tax time only comes once a year, but for Professionals, business, real estate

owners, and the self-employed, it rears its ugly head in the form of quarterly tax payments four

times a year. And because owners already have so many worries on their plate, thinking about

and planning for taxes can be an easy task to keep moving down the To Do list.

Often entrepreneurs launch their first business without giving taxes much of a thought. Of

course, when it was time to make their first tax payment that was something they deeply

regretted. Over time, they get better at managing the tax-side of the business and even grow to

appreciate the process. If you’re a business owner overwhelmed with anxiety at the thought of

paying your taxes, here are a few tips:

Take full advantage of a home business. If you run your business from home, take full

advantage of the benefits that come with it. For example, depending on how much of your home

facilities are devoted to your business and how much business you do from home (e.g. do you

use it for significant management or administrative activities?) you can claim the Home

Office/Storage Tax Deduction.

The good news is that because of the growing sharing economy there are many options for

entrepreneurs who want to start businesses out of their homes. For example, you can turn your

love for dogs into a dog-sitting business. You might also convert your love of writing into a

copywriting business or your knack for drawing into a graphic design business. There are many

websites where you can offer your services, or you can always tap into your social media

networks to get hired.

Stay organized. While it can certainly be a bummer to send off a portion of your hard-earned

money to the IRS, that isn’t usually where the anxiety and stress of paying taxes factors in for

business owners. From our experience, and in speaking with fellow entrepreneurs, the real drag

is compiling all of the information you need in order to figure out your tax bill. Tracking down

all those receipts, invoices, pay stubs, etc. takes a lot of time out of a business owner’s already

very busy day. The best way to avoid that tax time stress is to stay organized throughout the year.

Implement systems or use software that will help you keep track of all those details.

Don’t miss out on deductions. The bright light in the taxes tunnel are deductions, so be careful

not to leave any of those stones unturned. As a business owner, you’ll have many opportunities

for deductions. In fact, there are many opportunities for taking deductions that you shouldn’t

miss. Along with the home facilities deduction, you should also look for deductions if money is

spent for office furniture, supplies, or other equipment. You can also deduct insurance premiums,

retirement contributions, and half of your Self-Employment taxes.

Identify and claim every deduction you are entitled to, no more, no less.

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Don’t go it alone. Business owners often are convinced that they can do everything themself.

If they can juggle managing employees, attracting new clients, and taking care of customers,

then doing their taxes should be a breeze. They often will realize how wrong they were and

didn’t have the skill set needed to effectively and efficiently do their taxes, and that is okay.

There is no shame in having someone else do the accounting, payrolls and taxes. In fact, it’s

probably the best way to ensure you take advantage of all the deduction opportunities and other

incentives and credits that are available for you. Outsourcing allows you to spend more time

growing your business, not doing administrative, compliance and bookkeeping tasks, in addition

to earning bigger net profit margins.

Paying taxes will never be fun. But when steps are taken to make it less stressful, you can

ensure your tax worries don’t take valuable time away from actually focusing on your

business. And who knows, it may even lead to a very satisfying tax refund!

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CONSIDER A “SOLO” INDIVIDUAL 401(k) RETIREMENT PLAN

Strategy: Launch a “solo 401(k) plan.” If you qualify, you can effectively benefit from both

“employee” and “employer” contributions. In many cases, this dual tax winner can’t be beat

because it often allows you to sock away and deduct more money than any other type of

retirement plan.

An owner-employee and family employees participating in a traditional 401(k) plan can make an

elective deferral contribution to the plan within the annual limits and the employer may match

part of the contribution, usually up to a single digit percentage of their salary.

A solo 401(k) offers even more. For 2017, you could defer an employee elective contribution up

to $18,000 of compensation, plus an extra catch-up contribution of $6,000 is allowed if you’re

age 50 or older - the same as with elective deferrals to a traditional 401(k). Of course, the limits

on deductible employer contributions still apply, but here’s the kicker: Elective deferrals to a

solo 401(k) don’t count toward the 25% cap. The owner-employee can combine a 25% employer

contribution, plus make an employee elective deferral contribution for greater savings.

Those contributions to a solo 401(k) grow tax-deferred until you’re ready to make withdrawals.

If the business isn’t incorporated, the 25%-of-compensation cap on employer contributions is

reduced to 20% because of the way contributions are calculated for self-employed individuals.

But that still leaves you with plenty of room to maneuver.

A solo 401(k) offers other advantages. For instance, the plan can be set up to allow loans and

hardship withdrawals. Also, you might roll over funds tax-free from another qualified plan if you

previously worked somewhere else and benefit from total asset protection of your funds held in a

ERISA protected 401(k) trust even after the business itself is closed.

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Tip: Contributions are discretionary. Therefore, the participant can cut back on their

annual contribution - or skip it entirely - if the business is having a bad year.

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TAX RETURN PREPARERS ARE PART OF TAX COMPLIANCE

Our team of Professional Tax Advisors & Experts want you to know that they are on your

side when it comes to tax law planning strategies and Compliance.

On the Compliance side, tax law has some rules that force us to be on your side. For example, to

avoid tax code penalties, our Professionals are required to:

• give you a copy of the tax return we prepared;

• sign the tax return that was prepared;

• put preparer tax identification number (PTIN) on the tax return;

• retain copies of the tax returns prepared or keep a list of the tax returns prepared

(either is acceptable) for three years; and

• retain the names, taxpayer identification numbers, and work locations of any tax

return preparers employed for three years from the end of each return period.

As an individual, investor, professional, real estate or business owner, you have to like pretty

much all of those above penalties, because those penalties help make sure that we are taking care

of you.

All tax law penalties that apply to our team of tax Professionals are not necessarily favorable to

you. For example, we have to complete a paid preparer’s due diligence checklist and attach that

to your tax return when you qualify for certain tax credits. The checklist turns the tax return

preparer into an IRS auditor for those credits.

That sounds horrible, but it’s really not bad. After all, whom would you rather have as an

auditor, our team or the IRS? And with us in your corner, you get this added benefit: lower

chances of an IRS audit. That’s what our signature on your tax return means.

There is one area where you can help with your planning. By law, our team is exposed to

penalties for any unreasonable position on your tax return. Positions supported by the tax

law are not unreasonable. When you come to us with a new idea, please make sure (as we

would do with an idea) that the idea is grounded in the tax law. Even better, bring us the

idea supported with tax code references.

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LOCK IN THE HOME-OFFICE/STORAGE DEDUCTION

FOR YOUR CORPORATION

The home-office/storage tax deduction provides tax savings to professionals and business or real

estate owners. It turns otherwise nondeductible personal expenses into valuable business

connected deductions.

When you operate your business as a proprietorship, you simply deduct home-office expenses on

Schedule C. But when you operate your business as either a C or S corporation, you face special

rules to achieve the same benefits.

And then, there’s just one right way to get the full benefit of the home-office deduction for your

corporation, and that’s by using the reimbursement method. The reason the reimbursement

method is the one right way is simple - it’s the only way that works! Here’s how:

1. As an employee of your corporation, you submit expense reports to your corporation for

the expenses of your home office.

2. The corporation reimburses you for the home office and claims 100 percent of the

home-office deduction as office space on its corporate tax return.

3. You receive the reimbursement as reimbursed employee business expenses. Such

employee reimbursements are not taxable to you.

With the home office at the corporate level, you (the employee) need to submit expense reports

that satisfy the rules for the home-office deduction. This can be tricky, and that’s where one of

our Professional Tax Advisors comes in to help with this.

The recent IRS Newswire Issue Number IR-2017-96 stated that the Home Office/Storage

deduction is often overlooked by professionals and business or real estate owners and lists two

methods for computing the business use of home facilities:

Regular Method. The first option for calcu1ating the Home Office Deduction is the Regular

Method. This method requires computing the business use of the home facilities by dividing the

expenses of operating the home between personal and business use. Direct business expenses are

fully deductible and the percentage of the home floor space used for business is assignable to

indirect total expenses. Self-employed taxpayers file Form 1040, Schedule C, Profit or Loss From

Business (Sole Proprietorship), and compute this deduction on Form 8829, Expenses for Business

Use of Your Home.

Simplified Method. The second option, the Simplified Method, reduces the paperwork and

recordkeeping burden for small businesses. The simplified method has a prescribed rate of $5 a

square foot for business use of the home. There is a maximum allowable deduction available

based on up to 300 square feet. Choosing this option requires taxpayers to complete a short

worksheet in the tax instructions and entering the result on the tax return. There is a special

calculation for daycare providers. Self-employed individuals claim the home office deduction on

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Form 1040, Schedule C, Line 30; farmers claim it on Schedule F, Line 32 and eligible employees

claim it on Schedule A, Line 21.

Regardless of the method used to compute the deduction, business expenses in excess of the gross

income limitation are not deductible currently, but can be carried forward. Deductible expenses for

business use of a home include the business portion of real estate taxes, mortgage interest, rent, casualty

losses, utilities, insurance, depreciation, maintenance and repairs. In general, expenses for the parts of the

home not used for business are not deductible.

Deductions for business storage are deductible when the dwelling unit is the sole fixed location of the

business or for regular use of a residence for the provision of daycare services; exclusive use isn’t

required in these cases.

Further details on the home office deduction and the simplified method can be found in IRS Publication

587, including the principal place of business requirements.

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THE HOME-OFFICE/STORAGE DEDUCTION – GENERAL OPPORTUNITIES

If you work out of your home you’re part of a growing trend. What’s important to you, however,

is that you may qualify for some valuable federal income tax deductions. You may be able to

deduct part of your home’s normal operating expenses for items such as utilities and insurance,

you may be able to claim write-offs for depreciation or lease payments, depending on whether

you own or rent, and you may even get some extra business car deductions. The tax-saving

opportunities available to you will depend not only on the type of work you do at home, but

where in the home you perform it.

You won’t get any home-office-type deductions unless you regularly and exclusively use a

room or specific area in your home or apartment for business. So, for example, you don’t get

deductions if you work out of a room that your family also uses as a den. In addition, generally

the office must either be the principal place of your business, or a place where you meet or deal

with clients or customers.

If you’re a professional such as a doctor, dentist, or consultant who regularly meets with clients

or patients in the home, you probably qualify for home-office deductions, but you may benefit

from help on how best to allocate “shared” personal/business expenses.

If you don’t meet with clients in your home office, qualifying for home office deductions usually

still is no problem if your home is your only business location. However, the rules are more

complicated if some aspects of your business are performed in the home, and others are

performed outside the home. In this situation, there is a question as to whether or not the office is

your principal place of business. Often, there is a fine line between qualifying and not

qualifying. And the rules seem to change often.

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If you’re an employee who regularly comes home from the office with a loaded briefcase,

catching up on paperwork at home won’t do you any tax good. Employees qualify for

home-office deductions only if they work at home for the convenience of their employer. So

there are no deductions if you decide on your own to do office work during evenings and

weekends, or work a couple of days a week at home because you’ll get more done. And even if

your employer requires you to work at home, you don’t get any extra deductions unless you also

get by the home-office hurdles.

One drawback to the home office deduction is the impact it may have upon the eventual sale of

your home. If you have taken depreciation deductions on the part of your home you use as an

office, that amount will not qualify for the tax-exemption you otherwise get on the gain from the

sale of your house, although gain from depreciation recapture can be deferred if the residence is

exchanged for like-kind business property. And if 100% of your home did not qualify as your

principal residence for at least two of the five years preceding the sale, you will have to pay

capital gains tax on the business portion of your house. Generally, though, if a home office is

physically part of the residence, the entire residence qualifies for the home-sale exclusion. An

additional consideration for the many taxpayers who now find themselves within the reach of the

alternative minimum tax (AMT) is the requirement that some prior depreciation may be subject to

“recapture” as additional income for AMT purposes.

A simplified option. The simplified option allows a taxpayer to calculate the amount of

allowable deductible expenses for business use of a home for the tax year by multiplying the

allowable square footage by the prescribed rate. The allowable square footage is the portion of

the home used in a qualified business use of the home, but not to exceed 300 feet. The prescribed

rate is $5.00. Effectively, the simplified option provides a maximum deduction of $1,500 (300

square feet multiplied by $5.00). The IRS indicated that it may update the prescribed rate from

time to time. Although the overall tax benefit in using the simplified option may not be as great

as when all related expenses are accounted for, it may be worth exploring to reduce compliance

and recordkeeping costs.

As you can see, working at home may be anything but simple from a tax standpoint. We’ll be

happy to supply complete details on how the rules work in your situation, and how to make the

most of them. If you need any help, don’t hesitate to call. We can help you weigh the advantages of

a home office deduction against the potential for subsequent increased taxes. You should also

contact one of our Professional Tax Advisors if you’ve been taking a home office deduction and

you’re now thinking of selling your combined home office/storage. With some advance tax

planning, you may be able to minimize taxes on the transaction.

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AVOID LOST DEDUCTIONS WHEN VEHICLE IS IN YOUR

PERSONAL NAME

If you are considering buying a new or replacement vehicle, this brings up some tax issues to consider. First, should you own the vehicle in your personal name, or should you have your corporation

own the vehicle?

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Let’s say that it makes financial sense for you to own the vehicle personally.

The best alternative is to have the corporation reimburse you for the vehicle expenses. This is true

regardless of your method of deduction (IRS standard mileage rate or actual expenses method).

Here’s what happens when your corporation properly reimburses you for the expenses:

1. You as the employee do not have taxable income.

2. The corporation gets the full deduction the law allows for the expenses.

3. If the corporation is an S corporation, then those expenses reduce the corporate income, and the

corporation passes that reduced income to you— as a shareholder of your corporation.

To make this work at the corporate level, you need the corporate reimbursement of:

• Either business mileage at the mileage rate or actual operating expenses, such as gas and oil and

insurance, to follow the general requirements for an “accountable reimbursement plan” expense

report; and

• Section 179 expensing, bonus depreciation, and MACRS depreciation to follow an “accountable

reimbursement plan” enhanced expense report.

If you are looking for your corporation to reimburse you for actual expenses (perhaps even Section

179 deductions and/or bonus depreciation), one of our Professional Tax Advisors can help you get

the required accountable expense reporting plan in place.

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IRS MILEAGE RATE COSTS DEDUCTIONS

ON A LEASED VEHICLE

Here’s some news: Three reasons that leasing might make keeping receipts likable:

1. The IRS creates the mileage rate based on you personally owning the vehicle.

2. The IRS adds an unfriendly rule for those who use the mileage rate on a leased vehicle.

3. The mileage rate includes a zero tax deduction for interest expense meaning that when

you own the vehicle you can separately deduct the business interest. But with a lease,

there’s no separate interest deduction.

The three reasons add up to the possibility that the standard IRS mileage rate is to your monetary

disadvantage on a lease. And if that’s true and you choose the mileage rate, you encounter the

unfriendly rule that saddles you with the money-losing mileage rate for the life of that lease.

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This means on a leased vehicle you really need to determine whether the actual expense method

or the IRS mileage method is best before you select your method and file your tax return. With

the lease, once you file your return, you have established your deduction method for the life of

the lease and if that’s to your disadvantage, too bad.

You need to select the best option for tax effective results which would be the actual

expense method when leasing a vehicle. This method also requires keeping receipts of the

expenses incurred.

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RENTAL OF HOME TO C OR S CORPORATION

We had a great conversation with one of our clients about the rental of their personal home for

14 DAYS OR LESS to the corporation for its business meetings.

To give context to this, here’s a basic result from this strategy: John rents his home to his

corporation for 14 days of corporate meetings. The fair rental value of the home is $1,400 a day

for a total deduction of $19,600 for the corporation.

John receives the $19,600 tax-free because he rented his personal residence for 14 days or less

during the year.

Our team of Professional Tax Advisors examined the law together, and agreed that the law

allows both this deduction to the corporation and tax-free receipt by the homeowner. It’s a great

strategy, yet others might believe it to be too aggressive.

In our opinion, if a strategy comes directly from the tax law, it’s about impossible to be too

aggressive. It’s simply a matter of law.

The 14-days-or-less rental of your personal home to the corporation is a great strategy that comes

directly from the law, and we would like to discuss how this strategy can work to your benefit.

If you are interested, please contact one of our Advisors to set up a time to discuss how and

when this works. And if it does work for you, to help you put the strategy in place.

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IMPROVE RETIREMENT SAVINGS WITH AN HSA

We are big on wanting clients to plan their retirement savings.

Our team of tax professionals doing some tax research noted this extra boost that you can give to

your retirement savings. It’s the health savings account (HSA), which is in a way the Swiss

Army knife of savings accounts. Not only does the HSA provide big benefits for medical

expenses, but it is also a powerful tool to supplement your retirement savings.

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If given a choice of putting money into either a traditional IRA or an HSA, the money in the

HSA would perform better than the money in the IRA. Why? With the HSA, it’s possible to

avoid taxes forever. You can’t do that with a traditional IRA because you pay taxes on the back

end when you withdraw funds.

With an HSA, you can withdraw funds at any time, tax free, to use for qualified medical

expenses. When you reach Medicare-eligibility age (age 65), you qualify for an added benefit

because you can use the HSA funds to cover your health insurance premiums, including

Medicare Part B premiums and long-term care insurance premiums. These expenses are

inevitable, so why not pay them with tax-free cash?

Of course, we want you to have all your retirement accounts growing tax free or tax deferred.

Now you could have both the traditional IRA and the HSA. You should also consider the Roth

IRA, the 401(k), and the defined benefit plan.

The HSA can work very well if that fits your medical needs at the moment. And if it fits your

needs for many years, you could have a nice nest egg later.

If you would like to discuss the various retirement planning options available to you, please

do not hesitate to contact one of our Professional Tax Advisors.

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MINIMIZE TAXES ON LAWSUIT AWARDS & SETTLEMENTS

In many cases the government hits your lawsuit award or settlement with the double whammy of

• a tax bill on the gross dollar amount of the award or settlement, and

• a reduction to or even elimination of your legal fees tax deduction.

If you win your case, you can’t make the taxable part of the award disappear if the award isn’t

due to a physical injury or illness.

But with some tax planning, we can help you increase the possibility of turbocharging your legal

deductions. To make this happen, you need to qualify the legal fees deduction as an adjustment

to income.

An adjustment to income is much more valuable to you than the standard legal fees deduction:

• You don’t have to itemize deductions to benefit from the adjustment.

• There’s no 2 percent of adjusted gross income (AGI) threshold to meet before you get

your adjustment.

• You don’t add the adjustment back to your income for alternative minimum tax (AMT)

purposes.

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• Since the adjustment lowers your AGI, you might be able to take tax breaks for lower-

AGI tax deductions (such as education credits) or avoid taxes on higher-AGI tax triggers

(such as the net investment income tax).

To qualify for this favorable above-the-line treatment, you must pay the legal fees in connection

with an action involving one of the following types of claims:

• Unlawful discrimination

• Certain claims against the United States government

• A private cause of action under the Medicare Secondary Payer statute

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ROTH IRA CONVERSION STRATEGY TO AVOID TAXES

If you have money in a traditional IRA and want to take advantage of a Roth IRA conversion,

you need to know about the pro-rata tax treatment of conversions.

If you have both tax deferred and after tax money in a traditional IRA, you could face hefty taxes

on the deductible IRA money, since you must convert a pro-rata amount of deductible and

non-deductible money.

If you want to convert just your after tax money, which is common when using a backdoor Roth

IRA strategy, you can use this Roth IRA conversion strategy to avoid taxes if your 401k provider

allows transfers of IRA money.

Roth IRA Conversion Strategy to Avoid Taxes. When you make a Roth IRA conversion for

your IRA you must include a portion of tax-deferred money in the IRA in proportion to the

amount held.

Example:

Let’s say you have an IRA worth $100,000, with $50,000 (50%) tax deferred and $50,000 after

tax. If you complete a conversion of $20,000 to a Roth IRA, you will be responsible for taxes on

$10,000, or 50%. You cannot specify to convert only the after-tax money in the account.

If your 401k provider allows transfers of IRA money, you can transfer your deductible IRA

money to your 401k. When you convert your remaining non-deductible money in your

traditional IRA to your Roth IRA, it will be tax free!

Example:

If you used the tax-free strategy below, you would first move $50,000 of tax deferred money to

your 401k. Then, when you make your $50,000 Roth IRA conversion, the taxable amount will be

$0.

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Tax Free Roth IRA Conversion Steps:

1. Identify how much money in your IRA was (or will be) deducted on your taxes.

2. Move your deductible IRA money to your 401k.

3. Make a Roth IRA Conversion with your non-deductible money.

4. Report your conversion with 100% basis on form 8606.

5. The conversion will be tax free.

MORE CONSIDERATIONS

Which IRAs count? Don’t forget to account for all of your IRA money when you determine

how you might make this work. All IRAs including rollover IRAs are considered one IRA for

conversion purposes. The traditional IRA also includes your SEP-IRAs and SIMPLE IRAs.

Add additional money. Before your conversion, you can also contribute to a non-deductible

traditional IRA at your broker of choice up to the IRA Contribution Limits.

Don’t have a 401k? If you don’t have a 401k, or your current 401k provider doesn’t accept

incoming money, you could establish a solo 401k for the purpose of moving your deductible

money in your traditional IRA.

Keep detailed records. If you do this, you need to retain permanent, very detailed records.

Early retirement and Roth IRAs. This strategy sounds like a lot of work to move money into a

Roth IRA.... why would you want the hassle? If you are considering an early retirement, the Roth

allows much more flexibility in early withdrawals than a traditional IRA. After a conversion, you

only need to wait 5 years, then you can withdraw your conversion money tax free. A real benefit

for anyone considering early retirement!

******

Contact us to schedule your consultation to identify proven

tax-smart strategies, options & solutions that deliver real value for

the professional services needed based upon your particular

situation by calling (314) 205-9595.

******

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TAX ACCOUNTING ADVISORY

Providing a wide array of specialized non-traditional solutions plus offering

traditional CPA services including:

Real Estate Transactions

Entity Structuring

Asset Protection Solutions

Tax & Business Advisory

Strategic Tax & Business Planning

Comprehensive Accounting Solutions including data and payroll processing

Representation for Resolution of Tax Problems involving levy, liens, audit defense,

payment plans, un-filed tax returns, penalty abatement and offer in compromise.

Tax Return Preparation for individuals, investors, professionals, real estate and business

owners, Corporations, Partnerships, Trusts and tax exempt organizations.

Our knowledgeable and experienced team of dedicated Professional Accounting Professionals

are committed to providing personal attention, quality work, reliable, proactive, helpful services

and solutions to make complex accounting and compliance tasks easier, gain greater financial

control and increase profitability by providing timely, accurate and complete accounting, data

and payroll processing services. This allows you more time to focus on growing your

enterprise.

Professional Tax Advisors & Experts consult on all aspects of tax compliance, advisory and

planning, as well as, Tax Return preparation and Tax Problem Resolution Specialized Solutions.

These tax related services are provided by Zerjav & Associates, Certified Public Accountants,

which has an alternative practice structure that is a separate and independent entity which works

together with Advisory Group Associates to serve clients’ needs.

Our Core values include: Accountability, Accuracy, Collaboration, Commitment, Efficiency,

Integrity, Passion, Quality, Respect and Service Excellence offered by our team of Professional

Tax & Accounting Associates.

Our primary objective is the well-being of clients, their family and their survivors.

as well as their satisfaction with the work we do, while our goal is to be the premier choice

of Tax & Advisory firms, not the biggest firm, by sharing solutions that deliver real value.

16

Visit our NEW website launched January 25, 2017:

www.advisorygroupassociates.com

Are we providing the Tax, Advisory & Accounting services you want?

How may we better service you?

Your opinion matters!

For More Information, Contact by phone or email

(314) 205-9595 or toll free (888) 809-9595

[email protected]

Our professional service offerings are tailored to each stage of a client's tax life, from basic

compliance and tax return preparation, where our process is imperative to minimizing costs, to

many complex circumstances, where both our process and specialized knowledge is the key to

successful results and the best outcome.

Our complimentary monthly electronic newsletter to subscribers provides comprehensive and

timely insight on a wide range of taxation issues including federal and state tax incentives and

current issues.

We also offer an initial complimentary consultation to help identify proven tax-smart strategies,

options and solutions that deliver real value for the professional services needed based upon the

particular situation of any taxpayer.

ADVISORY GROUP ASSOCIATES’ Tax & Advisory Firms

Trusted Advisors & devoted professional experts providing tax, accounting, compliance and

business solutions.

Our Mission: Sharing Solutions that deliver real value.

NOTICE: This “TAX TIPS NEWSLINE” publication is designed to provide accurate and authoritative

information regarding the subject matters covered. The information contained herein have been

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providers, professionals or products nor offer any investment recommendations which carry inherent

risks.

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