There is an extremely common misunderstanding about what it means to be an LLC and what an LLC does. An LLC is a designation by the state. It is intended to give your personal assets protection against claims that may be made as a result of your business activities. Simply being an LLC says nothing about the business' tax status before the IRS. If all you do is create an LLC, the IRS will "disregard" the LLC and the income from your LLC must be reported on your personal income tax return subject to an additional "self-employment tax". For many of our clients, it makes sense to take the next step to declare to the IRS that you want your LLC to be taxed as a corporation-- either C-Corp or S-Corp. Among the many advantages of taking this additional step is reduced self-employment or social security taxes, greater retirement plan deductions, and diminished audit risk for higher income taxpayers.
Self-Directed IRAs - Possibilities and Pitfalls
With the volatility of the stock market, many clients look for alternatives for their retirement savings investing. These alternatives include real estate and loans, among others. Self-directed IRAs can hold these types of investments. While the possibility of steady returns is enticing, there are pitfalls along the way that need to be overcome. There are prohibited investments and transactions, as well as Unrelated Business Income Tax (UBIT) and Unrelated Debt Financed Income (UDFI) . Any of these pitfalls can result in severe and significant tax consequences even on small amounts of income. Since each situation is unique, it is best to review these transactions before making a decision.
To Roth or Not to Roth
People often ask which is better -- a Roth or a Traditional IRA? Financial institutions sometimes provide calculators that attempt to answer this question. Unfortunately, these calculators have assumptions built into them and the big assumption that determines the answer is "What will your tax rate be at retirement?" Simply put, if you know your tax rate will be higher in retirement than it is now, the Roth is probably better. If not, then Traditional is better. And if you are not sure, it is ok to have both Roth and Traditional.