Do you know what a Prohibited Transaction is? Its an impermissible transaction under the Internal Revenue Code that happens between an IRA and a disqualified person. A disqualified person could be an IRA owner, spouse, or owners lineal descendants. Some examples of IRA prohibited transactions are borrowing money from or lending money to your IRA, using your IRA as collateral for a loan, the sale, exchange or leasing of property involving your IRA.
Its ruled under the IRS that your entire IRA will lose its status as an IRA, if engaged with a prohibited transaction. This happens your tax-deferred IRA will then be treated as if assets were distributed to you on the first day of the year the prohibited transaction occurred. Income tax will be due on the distributed amount and if under fifty-nine you will also be subject to a 10% early distribution penalty.
Many people face the common problem of making prohibited transactions, here’s a quick tip that could help.
Tip: If you’re not certain the transaction you want to make is IRA prohibited, consider splitting your IRA prior to transaction. The idea is to cut out the amount you want to use from your original IRA, making a separate IRA only for the questionable transaction. By doing this you won’t destroy your entire IRA if the transaction was prohibited and only impact the IRA with the prohibited transaction.
Source: America’s Tax Solutions Photo: Pexels
If you own or are the beneficiary of an IRA, 401(K) or other retirement plan, review this to avoid an RMD ( required minimum distribution) error. Failure to take at least the RMD amount each year results in a 50% penalty by the IRS !
Photo : https://www.flickr.com/photos/stevendepolo/5437288053 Source: www.irs.gov
Hello all…so a slow start to my blogging…but I see so much, I think other than by Tweets and Facebook posts and newsletters…here is a way to continue to stay in touch.
Recently a came across an article which reported Robert Redford was suing New York over a $1.6 million dollar tax tab for selling the Sundance Channel. You can read the entire article at:
As a diligent accountant, I read this matter with great interest. Now for my response:
Dear Mr. Redford:
I am sure you are hopping mad at the tax bill you received. However, your anger is misplaced. Please head to your powder room and look into your mirror. Then, please ask yourself if you had discussion with your accountants, brokers and other advisers responsible for preparing your tax return.
New York State, as do many other states which impose state income taxes, access taxes on your income in that state regardless of your residency.
Now, my advice here is free—-so you can take it for what it’s worth, BUT I highly doubt you will prevail in your lawsuit.
No matter where this error in reporting your income originated, it is, regardless, an error. Your accountant, should amend your returns to correct your Utah State income tax (removing the portion of income resulting from the sale of the New York asset) and prepare a New York State income tax return to include the income from the sale of the asset.
You should then request abatement of penalties and understand you will be responsible for interest on unpaid taxes.
So, Mr. Redford, I am sorry to hear of your situation, but attorneys and lawsuits are not always the answer.
Certified Public Accountant.
PS….I am currently accepting new clients.
Photo Credit: Robert Redford at an event at the US Embassy in London.
Date: 25 April 2012, 19:13:55
Author: U.S. Embassy photographer JP Evans
Rhonda A. Mannes,