Tom's Blog

Today's entry is going to answer several questions from our teleseminar participants about tax and accounting. All of these questions make me wonder why so many? Thinking about this, I can only come up with two possibilities. Either, there are a lot of people who don't have an accountant or, they have asked their accountant and their accountant cannot give them a satisfactory answer.

Those of you asking the questions are making a significant effort taking our Wealth Strategy teleseminars. Let me suggest that if you do not have a CPA (CA in Canada), then get one soon. We will be talking about team building in our 4th session and I will address how to find a good accountant in that session.

If you do have a CPA/CA and they cannot answer your questions, it may be time to change accountants. As I told Arliss yesterday in my blog, many accountants do not have the knowledge or creativity necessary to create a high level of tax savings.

Now for the answers to your questions:

Q: From Jesus:

"My Question is we are contributing to corp bank account's with personal income and we have been writing on the checks "Capitalize Business Structure" is this correct? @ this time we are building mostly business credit for real estate investments etc.

A: This may be correct, depending on the type of business structure you have. Contributions to your company can either be treated as a loan to the company or as a capital contribution. This is the type of question that really must be addressed as part of a comprehensive Tax Strategy. Our website, www.ProVisionWealth.com, has more on Tax Strategy.

Q: From Daniel:

Is there a way to roll over a portion of an INHERITED Traditional IRA (inherited from a parent) into a Roth IRA? (I understand that if so, the money rolled over would be taxable as income in the current year.) The custodian of my self-directed IRA says “no,” and I did find in Publication 590 on irs.gov, the following statement: “If you inherited a traditional IRA from someone other than your spouse, you cannot convert it to a Roth IRA.” HOWEVER, I have talked to at least one highly experienced CPA who says he has had numerous clients who have done this without any problem.

A: The answer given in the IRS publication matches our understanding of the law. However, we don't really know all of the facts about the clients from this CPA. I would caution everyone to be careful not to take heresay as competent advice. Remember that just because someone gets away with something doesn't mean the IRS allows it. In addition, it may be that the IRA's converted to Roth's did come from their spouse. One question I would be asking that CPA is whether any of his clients who have done so have been audited and, if so, if the IRS has addressed the issue with them. The other question I would ask this CPA is whether he could please provide the legal support for this position.

It is always fair to ask a tax advisor for the legal support for their answer. If they won't give you the legal support, I would seriously question their answer. As with Jesus' question above, the best answer will always come from a tax advisor who has worked with you to create a comprehensive tax strategy so they know all of the facts and circumstances surrounding your question.

Louise asks:

Could you please explain what a Roth IRA is please...can I change my present IRA into a ROTH IRA?

How do I go about using my IRA to invest in real estate or is using a ROTH IRA easier?

A: When you contribute to a regular IRA, you receive a tax deduction for the contribution and all payments you receive from the IRA are subject to tax at your ordinary income tax rates. When you contribute to a Roth IRA, you do NOT receive a deduction for the contribution, but the payments you receive from the Roth IRA ARE NOT subject to tax when you receive them.

At ProVision, we are big fans of Roth IRA's. Whereas a regular IRA is merely a deferral of tax to a later year, a Roth IRA provides PERMANENT tax savings. You will need to speak to your CPA or Tax Coach about whether and when you can roll your regular IRA into a Roth IRA and the tax consequences for doing so.

As to investing in real estate through an IRA, I strongly recommend you speak to you CPA/Tax Coach about this. It is a fairly complicated question and your tax advisor needs to have ALL of your facts and your goals to determine even WHETHER you should invest in real estate through your IRA.

That's it for the tax/accounting questions for today. There are some wealth questions I will answer on Monday. Keep working on your Wealth Strategy workbooks. I will talk to you all on Tuesday.

Warmest regards,

Tom