Owners of Self-Directed IRAs which engage in certain types of “prohibited transactions” or invest in life insurance, foreign investments or collectibles may risk losing the tax-deferred status of their IRA accounts. If the owner (or beneficiary) of an individual retirement account, as described in I.R.C. §408(a), engages in any transaction that is prohibited under IRC §4975, the entire value of the IRA, determined as of the first day of the taxable year for which the account or annuity ceases to be an IRA, is treated as distributed to the IRA owner. See I.R.C. §408(e)(2)(B).
Which retirement account, vehicle or venture is best? One thing is certain, diversity still carries the day when it comes to investments as different ones afford the most flexibility. The returns on different types of investments are treated differently by the tax code, which logically means that some get better tax treatment than others. Qualified dividends and capital gains, for example, are taxed at a lower rate than ordinary income, and thus are attractive investment options for retirement.
In 2015, taxpayers were introduced to two new tax-friendly savings accounts that are designed for individuals who don’t earn an abundance of income, including low-income families which have members that are both young and disabled. ABLE (Achieving a Better Life Experience), and myRA (my Retirement Account) savings accounts were made available in January and November 2015, respectively. Let’s look at the benefits of the myRA first.
Taxpayers must always be vigilant regarding the legality of an action related to the filing of their taxes. This includes whether they are filing an IRS form, calculating income, claiming a deduction, characterizing assets, preparing a tax return, or communicating with a third party claiming to be a tax advisor or employee or agent of the IRS. Taxpayers must not knowingly or unknowingly participate in any scams that involve the calculation, filing, and payment of their taxes or the results may be devastating. Here are some new and old tax scams of which all taxpayers must be aware:
The IRS has made available several tax breaks for military personnel, especially over the last few decades. For federal tax purposes, the U.S. Armed Forces includes officers and enlisted personnel in all regular and reserve units controlled by the Secretaries of Defense, the Army, Navy and Air Force. The Coast Guard is also included, but not the U.S. Merchant Marine or the American Red Cross. Some of these tax breaks are retroactive, and thus require the filing of an amended return by the affected taxpayer. Remember that if you away from home because of duty in the military, your spouse can use a power of attorney to file a joint return on your behalf. Here are ten tax breaks worth noting for military personnel.