The NPR funding debate is a litmus test of how serious Congress in general and Republicans in particular are about spending cuts. If Congress can’t even cut NPR it is a sign that deficits are here to stay and . . .dare I say it . . .tax hikes will be necessary. Or perhaps you don’t care that your children will be paying big chunks of their diminished incomes to the Chinese. [Martin Sullivan/Tax.com]
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After Today’s Job Report, Eric Cantor Can’t Imagine Why Anyone Would Think Raising Taxes Is Good Idea
- Caleb Newquist
- July 9, 2011
” ‘Disappointing’ is an understatement,” Cantor said on the floor in a colloquy with House Minority Whip Steny Hoyer (D-Md.). Cantor was citing the jobs report for June that said only 18,000 private-sector jobs were created in that month, and that the unemployment rate increased to 9.2 percent.
“Just look at the jobs report today,” Cantor added. “I cannot fathom how anybody, how anyone thinks right now is a good time to raise taxes. Who thinks that raising taxes on individuals and small businesses can help create jobs?” [The Hill]
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Don’t Get Too Anxious to Stuff Just Anything into Your IRA
- Joe Kristan
- May 20, 2010
Individual Retirement Accounts are a taxpayer’s dream, with constraints. The income they earn isn’t taxed until you distribute it; with a Roth IRA, it may never be taxed. It’s only natural for taxpayers to stuff anything they can that might generate income into an IRA.
That can be a terrible mistake.
Not everything is tax free in an IRA. Interest, dividends, capital gains – that stuff is fine. But beyond that things can get ugly.
Most problems arise when taxpayers try to use their IRAs to finance business ventures. Because IRAs are shirttail relatives of qualified pension and profit sharing plans, many pension plan rules, like those for prohibited transactions, bedevil IRAs, with taxes that can exceed 100%.
When an IRA owns an interest in a “passthrough” entity – usually a partnership, because most S corporations can’t have IRA shareholders – another complication arises. The tax law frowns on tax-exempt competition for taxable business. The frown takes the form of the “unrelated business income tax,” or UBIT. The UBIT hits otherwise tax-exempt entities with an income tax on their “unrelated business income.”
If an IRA owns an interest in a partnership (most LLCs are taxed as partnerships) that operates a trade or business, the IRA’s LLC income may be subject to UBIT, which applies at corporate tax rates. UBIT can also apply to an IRA if it owns an interest in mortgaged rental real estate. Some IRAs even run into UBIT by investing in publicly-traded energy partnerships, like Buckeye Partners, LP. Many states also have unrelated business income taxes.
The partnership is required to break out unrelated business taxable income and report it to the IRA. The IRA in turn must provide a tax identification number to the partnership to make it easier for the IRS to follow the UBIT to the IRA.
When an IRA is subject to UBIT, it can cause some awkward moments between the IRA investor and the trustee. Most IRA trustees want nothing to do with filing Form 990-T, the UBIT return. Of course the IRA owner doesn’t like the idea either, but it needs to be done. Having income tax in an IRA is especially ugly when it’s a Roth IRA, which normally would otherwise be tax-exempt forever, inside and out.
The threshold for filing a 990-T is “gross income” of $1,000 or more. Gross income is normally higher than taxable income – it is the IRA’s share of gross receipts less cost of goods sold, not reduced for any other expenses.
So be careful what you stuff into your IRA. Just because you can put something in there doesn’t mean you should.
Joe Kristan is a shareholder of Roth & Company, P.C. in Des Moines, Iowa, author of the Tax Update Blog and Going Concern contributor. You can see all of his posts for GC here.
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Here Are a Couple of Corporations Whose Taxes (or Lack Thereof) Are Actually Worth Bitching About
- Caleb Newquist
- May 8, 2012
Over the weekend, I aired some grievances that I've had with The New York Times and its tax […]