Author: Leon Clinton

Imagine this: your Schedule C business buys a home at the beach, uses it solely as an entertainment facility for business, pays off the mortgage, and deducts all the expenses. 

Now say, 10 years later, without any tax consequence to you, you start using the beach home as your own.

Is this possible? Yes. Are there some rules on this? Yes. Are the rules difficult? No.

Okay, so could you achieve the same result if you operate your business as a corporation? Yes, but the corporation needs to rent the property from you or reimburse you for the facility costs, including mortgage interest and depreciation—because you want the title to always be in your name, not the corporation’s name.

The beach home, ski cabin, or other entertainment facility must be primarily for the benefit of employees other than those who are officers, shareholders, or other owners of a 10 percent or greater interest in the business, or other highly compensated employees. In this situation, you create

• 100 percent entertainment facility tax deductions for the employer (you or, if incorporated, your corporation), and 
• tax-free use by the employees. 

The employee facility deduction is straightforward. It has three splendid benefits for the small-business owner:

1. You deduct the facility as a business asset.
2. Your employees get to use the facility tax-free.
3. You own the property and can use it personally without tax consequences once you no longer need it for business use. (Note that when you sell, you will have a gain or loss on the sale and some possible recapture of depreciation.)

If you think the entertainment facility could work for you, please give me a call on my direct line at 408-778-9651, and I’ll help you put this facility in place.

• By Leon Clinton
• March 23, 2022

These days, some IRA owners and investors may be worried about being overexposed to equities. That could be you. 

But the safest fixed income investments (CDs, Treasuries, and money-market funds) are still paying microscopic interest rates.

For example, when this was written, the 10-year Treasury was yielding about 1.92 percent. Ugh! 

Meanwhile, the pandemic might or might not be coming to an end, the economy might or might not be okay, and inflation might or might not be controlled. Who knows? 

In this uncertain environment, investing some of your IRA money in gold or other precious metals such as silver and platinum may be worth considering. Ditto for holding some precious metal assets in taxable form. 

Precious Metal Assets in Your IRA

At first blush, our beloved Internal Revenue Code appears to throw cold water on the idea of holding physical precious metal assets in an IRA. 

As a general rule, a physical IRA investment in any metal or coin is treated as the acquisition of a collectible for federal income tax purposes. As such, the transaction is characterized by the tax code as a taxable distribution from your IRA to you (the IRA owner), followed by a purchase of the metal or coin by you. 

In effect, this general rule appears to prohibit you from using an IRA to invest in precious metals or coins made from precious metals. 

But there’s a great big exception to the preceding general rule. Under the exception: 

• You can use your IRA to invest in certain gold, silver, and platinum coins and in gold, silver, platinum, and palladium bars (bullion) that meet the purity standards. 
• Your IRA trustee or custodian, rather than you, must hold the coins or bullion.

These rules apply equally to traditional IRAs, Roth IRAs, SEP accounts, and SIMPLE-IRAs. 

Your IRA Can Buy Precious Metal Coins and Bullion

Thanks to the exception, IRAs can own certain precious metal coins and bullion. Examples include

• American Gold Eagle coins; 
• Canadian Gold Maple Leaf coins; 
• American Silver Eagle coins; 
• American Platinum Eagle coins; and 
• gold, silver, platinum, and palladium bullion that meets the purity standards. 

For example, gold bars must be 99.5 percent pure or better, and silver bars must be 99.9 percent pure or better. 

If you would like to discuss precious metal investments, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• March 20, 2022

Working at a tender age is an American tradition. What isn’t so traditional is the notion of kids contributing to their own IRA, especially a Roth IRA. But it should be a tradition, because it’s a really good idea. 

Here’s what you need to know about IRAs for kids. Let’s start with the Roth IRA option. 

Roth IRA Contribution Basics 

The only federal-income-tax-law requirement for a child to make an annual Roth IRA contribution is to have enough earned income during the year to cover the contribution. Age is completely irrelevant. 

So if a child earns some cash from a summer job or part-time work after school, he or she is entitled to make a Roth contribution for that year. 

For both the 2021 and 2022 tax years, your working child can contribute the lesser of

• his or her earned income for the year, or 
• $6,000. 

While the same $6,000 contribution limit applies equally to Roth IRAs and traditional IRAs, the Roth option is usually better for kids.

Key point. A contribution for your child’s 2021 tax year can be made as late as April 15, 2022. So, there’s still time for that.

Modest Contributions to Child’s Roth IRA Can Amount to Big Bucks by Retirement Age

By making Roth contributions for a few years during the teenage years your kid can potentially accumulate quite a bit of money by retirement age. 

But realistically, most kids won’t be willing to contribute the $6,000 annual maximum even when they have enough earnings to do so. 

Say the child contributes $2,500 at the end of each of the four years. Assuming a 5 percent return, the Roth account would be worth about $82,000 in 45 years. Assuming an 8 percent return, the account value jumps to a whopping $259,000. Wow! 

You get the idea. With relatively modest annual contributions for just a few years, Roth IRAs can be worth eye-popping amounts by the time your “kid” approaches retirement age.

If you would like to discuss earned income and IRS options for your child, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• March 17, 2022