Year End Tax Strategies for Business Owners and Real Estate Investors

Year End Tax Strategiesfor Business Owners

and Real Estate Investors

Kaaren Hall - Presidentwww.uDirectIRA.com

David Campbell - CEOwww.HassleFreeCashflowInvesting.com

Amanda Han - CPAwww.KeystoneCPA.com

AHan@KeystoneCPA.com KHall@uDirectIRA.com David@HassleFreeCashflowInvesting.com

Event Faculty

Begin with end in mindRELATIONSHIPS

IDEASOPPORTUNITIES

NOT a sales pitchNOT investment, legal, or tax

advice

Disclaimers & Cautionary Notes

This educational seminar is not a substitute for getting your own professional advice. This webinar is offered with the understanding that the speakers are not offering legal, financial, tax, investment or other professional advice. Any actions with regard to the information contained in this seminar should be undertaken only upon the advice and counsel of competent legal and tax and investment professionals. Receiving this information does not create a fiduciary or client relationship between you and the speaker. The information contained herein may be inaccurate and the speaker makes no representation about its accuracy.

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Today’s agenda* Top 5 Year-End Tax Strategies to save you taxes for 2012 and beyond* Strategies to pay yourself rather than the IRS* How you can make all your own choices about your retirement investing and not rely on the stock market* How IRA investing is different than investing with personal cash* How to buy profitable real estate inside your IRA even when you are starting with a small balance* Strategies for investing in real estate OUTSIDE your IRA when all of your cash is locked up INSIDE your IRA

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ProfitMoney + Time + HassleROI =

More profit with less invested

Stay to the end for a FREE report

Using a Solo 401k to avoid UDFI

(877) 975-0975 www.KeystoneCPA.com

U.S. HISTORICAL TAX RATES

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Taxes 2012 2013Federal Income Tax 35% 39.6%

State Income Tax 12% 12%

Payroll Tax 15% 15%

Capital Gains Tax 15% 20%

Estate Taxes 35% 55%

New Taxes ++

Tax Rates

Brand New TaxesUnearned Income Medicare Contributions Tax ….Wow, that’s a mouthful!

-Brand New Tax on Net Investment Income = Another 3.8%

Hospital Insurance Tax ….Another Innovative Brand New Concept

-Brand New Tax on Earned Income = Yet Another 0.9%

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(877) 975-0975 www.KeystoneCPA.com

The Unknown

WHAT DO WE KNOW FOR CERTAIN?

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• Tax Rates Will Increase

• Deductions & Credits Will Decrease

• Total Taxes Will Increase in 2013

• 2 New Tax Increases Become Effective in 2013

WHAT IS YEAR END TAX PLANNING?

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DIFFERENT TIMES, DIFFERENT STRATEGIES

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OLD NEW

INVESTMENT STRATEGIES

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(877) 975-0975(877) 975-0975

Income Shifting

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Dell

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Tax Efficient Profit Extraction

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Redirect Tax Dollars to Your Retirement Accounts

• Pay Yourself Rather than the IRS

• Create Tax Deferred Money to Invest and Grow Your Wealth

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ROTH IRA

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Roth IRA Conversion Strategies

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5 Strategies to Convert with Little or No Taxes

1)Contribute to Your Roth

2)Favorable Tax Positions

3) Unused Passive Losses

4) Real Estate Tax Benefits

5) Strategic Optimization

How to Self-Direct Your Retirement Savings

uDirect IRA Services, LLC is not a fiduciary and does not render tax, legal, accounting, investment, or other professional advice. If tax, legal, accounting, investment, or other similar expert assistance is required, the services of a competent professional should be sought.

Saving for Retirement

• There is a $6.6 trillion deficit between what Americans have & what we need for our retirement.

• $100,000 in retirement savings @ age 59.5 (assuming no growth or loss) means $396.83 a month if you live till 86.5.

Total Retirement Funds

• $4.6 Trillion in IRA money$4.3 Trillion in 401(k)s$4.2 Trillion in Pensions$2.3 Trillion in Defined Benefit Plans$1.6 Trillion in Annuities$17 Trillion in retirement funds and 97% of it remains to be self-directed.

Self-DirectionWhy Haven’t I Heard About This?

• Few attorneys are knowledgeable – About self-directed plans

• Few CPAs are knowledgeable– About self-directed plans

• IRS rules have allowed self-direction since IRAs were created in mid-1970s

What’s the Difference?

Typical IRA• Stocks• Bonds• Mutual Funds• CD’s

Self-Directed IRA• Rental Property• Notes• Private Stock• LLC’s• Tax Liens• Foreign Property• Raw Land• Etc.

What About Losses?

Losses

• Cannot be written off taxes

• Cannot be replaced in the retirement plan

What Are The Limits?

A Self-Directed IRA can invest in anything EXCEPT1. Life Insurance Policies2. Collectibles

1. Artworks2. Coins3. Collectible Cars4. Antiques5. Gems6. Stamps7. Rugs

What if your funds are with your current employer?

Your plan will probably NOT allow you to self-direct

Must wait until you leave the companyTo rollover retirement plan

You can request an “in-service” transfer from your current plan administrator.

Prohibited Transactions(IRS Publication 590)

•Borrowing money from the IRA• Selling property to it.•Using it as security for a loan.•Buying property for personal use (present

or future) with IRA funds.

Disqualified Person

• Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant).

Qualified Persons

• Aunts & Uncles• Cousins• Brothers & Sisters• Unrelated friends• Nieces & Nephews

Prohibited Transactions

• Neither you nor any disqualified people may benefit from IRA

• Cannot buy, sell or exchange property between plan and – Self or – Disqualified people

• Cannot provide goods, services or facilities

Self-Directed IRA - Structure

• You

• Your IRA

• TPA

• Custodian

Buying Real Estate With Your IRA

Pros1. Capital gains are tax free2. Positive cash flow is tax free 3. No time limit for holding property4. IRA can borrow money

– Leverage your investment

5. Potential to earn a larger rate of return on invested capital

Buying Real Estate With Your IRA

Cons1. No immediate tax advantages of owning

real estate 2. No deduction for capital losses3. You are solely responsible for all gains or

losses4. You cannot replace losses

Your IRA Can Take A Loan!

• Loan must be non-recourse

– Upon default, lender can seize subject property only

• Upon default, lender cannot– Seize other IRA plan assets– Seize your personal assets

Non-Recourse Loans

• Few lenders to choose from– Must be a portfolio loan– Cannot be sold on the secondary market

• Larger down payment required– 40% to 45%

• Cannot personally guarantee the loan

Personal Guarantees

• Personal guarantees by the IRA owner not permitted

• Can be personally guaranteed by a third party– Must not be a “disqualified” person– Disqualified people are

• Ascendants• Descendants• Spouse and self• And others

UDFI

• Unrelated Debt Financed Income tax• Any property held to produce income is

debt-financed property if at any time during the tax year there was acquisition indebtedness outstanding for the property.

UBIT• Unrelated Business Income Tax• If a tax exempt entity engages in a

business that is unrelated to its primary purpose, any income derived from such business will be subject to UBIT

• IRS Pub 598• UDFI & UBIT are reported on form 990-T

Buying Real Estate - The Process• Open a self-directed account• Shop for a property• Remember, it’s the IRA that is the buyer• Custodian to sign “Offer to Purchase”• Submit a Buy Direction Letter for earnest money

deposit• Funds wired to closing from your IRA• Fund & Record• Rents are made payable to your IRA

3 Types of Plans

• IRAs– Individual Retirement Accounts– What you are doing for your own retirement

• Qualified Plans– ERISA controlled– Typically, what an employer provides you

• Other Plans– Education– Health

Types Of Self-Directed Plans

IRAs Qualified Plans Other Plans

Traditional 401K/ 457/ 403b Coverdell

Roth Defined Benefit Health Savings Account

SEP Profit Sharing

Simple Individual K

Spousal

How Do I Self-Direct?

1. Complete an application1. Provide copy of driver’s license2. Copy of statement

2. Fund your account1. Annual Contribution2. Transfer3. Rollover

3. Tell us what you want to invest in

For More Information

Kaaren Hall, PresidentuDirect IRA Services, LLC(866) 447-6598KHall@uDirectIRA.com

uDirect IRA Services, LLC2522 Chambers Road, Ste 100

Tustin, CA 92780

www.HassleFreeCashflowInvesting.com

8 strategic resourcesCash

CashflowEquityCredit

_________

TimeTalent

Strategic RelationshipsControl of deal flow

INSIDE YOUR IRA

OUTSIDE YOUR IRA

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Real Estate AdvantagesBENEFIT INSIDE YOUR IRA OUTSIDE YOUR IRA

Profit from Cashflow

Tax Deferred Taxable

Profit from Appreciation

Tax Deferred Tax Deferred - potential 1031

Depreciation Losses do not offset other gains

Losses may offset other gains

Use of Financing Lower LTV / Higher Int. Rate / potential for UDFI

Higher LTV / Lower Int. Rate / no UDFI

Management business write off

Not allowed: excess contribution

Deductible expenses may shelter active income

How do I buyreal estate outside my IRA

when all my money is locked up inside my IRA?

IRA

PropertyPurchase

Cash Out Refinance

IRA distribution 401(k) loan

repaydistribution

within 60 day time window

(once per year)

401(k) five year

repayment

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withdraw pay taxinvest

72T ?

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Do the math with your advisors!

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Group InvestingSeveral individual investors combining their financial resources into a single investment

managed by a team of professionals.

Investing with your IRA when your balance is small

AHan@KeystoneCPA.com

KHall@uDirectIRA.com

David@HassleFreeCashflowInvesting.com

Event Faculty