Do you have unrelated business taxable income in your IRA?
Tax Tip of the Week
September 30, 2013
Do you have unrelated business taxable income in your IRA?
What does unrelated business taxable income have to do with your IRA?
You probably think of your individual retirement account as a personal savings vehicle, not a business. Yet it's considered a trust, and in some instances earnings in your account that are generated by a trade or business can be subject to federal income tax. Those earnings include income from certain LLCs, publicly traded partnerships, and real estate activities such as receipts from properties your IRA takes on debt to purchase.
Because the IRA is the owner of the assets, the income is reported separately from your individual return (Form 1040). If the gross amount of unrelated business income within your IRA exceeds $1,000 in a year, your IRA will need to file Form 990-T, Exempt Organization Business Income Tax Return. The form is due April 15 and your IRA must pay the tax, which means the money comes from cash or other assets already in the account.
When the income is substantial and ongoing, your IRA may need to make estimated tax payments. State taxes may also be due.
Give us a call if you're considering a nontraditional investment for your IRA. We'll help you figure out the tax implications.
"Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
© MC 2013
September 30, 2013
Do you have unrelated business taxable income in your IRA?
What does unrelated business taxable income have to do with your IRA?
You probably think of your individual retirement account as a personal savings vehicle, not a business. Yet it's considered a trust, and in some instances earnings in your account that are generated by a trade or business can be subject to federal income tax. Those earnings include income from certain LLCs, publicly traded partnerships, and real estate activities such as receipts from properties your IRA takes on debt to purchase.
Because the IRA is the owner of the assets, the income is reported separately from your individual return (Form 1040). If the gross amount of unrelated business income within your IRA exceeds $1,000 in a year, your IRA will need to file Form 990-T, Exempt Organization Business Income Tax Return. The form is due April 15 and your IRA must pay the tax, which means the money comes from cash or other assets already in the account.
When the income is substantial and ongoing, your IRA may need to make estimated tax payments. State taxes may also be due.
Give us a call if you're considering a nontraditional investment for your IRA. We'll help you figure out the tax implications.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
© MC 2013
