Beginning in 2023, IRA Financial is excited to launch its in-house tax filing services for Self-Directed IRA LLC and Solo 401(k) plan clients.  IRA Financial has designed a specialized service for all clients, which will now offer them the necessary tax filing services to keep their self-directed retirement solution in IRS compliance.   Now, as part of our annual consulting service, IRA Financial will prepare IRS Form 1065 (U.S. Return of Partnership Income and the Schedule K-1), IRS Form 990-T (UBTI income tax return), IRS Form 5500-EZ, and IRS Form 1099-R.

Here is a brief explanation of each form IRA Financial will help prepare for Self-Directed IRA and Solo 401(k) clients:

Form 1065 – U.S. Return of Partnership Income

With a Self-Directed IRA with Checkbook Control, a special purpose LLC is established that would be owned by the IRA and managed by the IRA holder (you). As manager of your Self-Directed IRA LLC, you have the authority to make IRS-approved alternative asset investment on behalf of your IRA on your own without needing the consent of an IRA custodian. Since all your IRA funds will be held at a local bank in the name of the IRA LLC, all you would need to do to make the IRA investment is write a check straight from the IRA LLC bank account or simply wire the funds from the IRA LLC bank account.

In the case of a Self-Directed IRA, a single member IRA LLC is not required to file a partnership return (IRS Form 1065) as it is treated as a disregarded entity for federal income tax purposes. However, an LLC owned by two or more IRAs is treated as a partnership for federal income tax purposes and, in general, a partnership return (IRS Form 1065) must be filed by March 15, 2023 for the 2022 taxable year.

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Schedule K-1 (Form 1065)

Schedule K-1 is a schedule of IRS Form 1065, U.S. Return of Partnership Income. It’s provided to Self-Directed IRA and other partners in a partnership to report their share of a partnership’s profits, losses, deductions and credits to the IRS. The K-1 is filed with Form 1065 and is due March 15, 2023 for the 2022 taxable year.

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Form 990-T – Exempt Organization Business Income Tax Return

Form 990-T is the tax form where a charitable organization or retirement account, such as an IRA or Solo 401(k), reports income that would be subject to the Unrelated Business Taxable Income tax (UBTI or UBIT). In general, a Self-Directed IRA or Solo 401(k) plan will trigger the UBTI tax in the following circumstances:

1. Use of a nonrecourse loan to acquire an asset, such as stock
2. Use of a nonrecourse loan to acquire real estate.  Note – there is an exception for a Solo 401(k) plan
3. Investment in an active business operated through a pass-through entity, such as an LLC

For investors who will have Unrelated Business Taxable Income or Unrelated Debt Financed Income (UDFI) in excess of $1,000 after taking into account allowable deductions and expenses, such as depreciation, debt servicing, etc., the IRA would be required to file IRS Form 990-T, and Schedule A by April 15, 2023, for the 2022 taxable year. Filers may request an automatic extension of time to file the form by using Form 8868, Application for Automatic Extension of Time to File an Exempt Organization Return.

The return must be filed by the IRA or 401(k) plan, and not by the individual or plan trustee.  In addition, the retirement account should acquire its own Tax Identification Number if it does not already have one.

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Form 5500-EZ – Annual Return of A One-Participant Retirement Plan

IRS Form 5500-EZ is an annual information return that is required to be filed by every “One-Participant Plan” (owners and their spouses), also known as a Solo 401(k) Plan, with plan asset value in excess of $250,000 as of December 31 of the previous tax year. The purpose of filing and reporting the fair market value (FMV) of your Solo 401(k) plan’s assets is to inform the IRS of assets over $250,000 annually held in a Solo 401(k) Plan. The Form 5500-EZ is due by July 31, 2023.

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Form 1099-R – Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

IRS Form 1099-R must be filed for each Self-Directed IRA or Solo 401(k) plan participant that either made a distribution, Roth conversion, or 401(k) rollover.  For the 2022 taxable year, February 15, 2023 is the due date to distribute recipient copies, February 28, 2023 is the due date if you choose to file by paper, and March 31, 2023 is the deadline for Form 1099-R electronic filing.

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Conclusion

IRA Financial is excited to provide all of its clients with the market’s first tax filing service specifically geared to Self-Directed IRAs and Solo 401(k) plans.

We have helped over 24,000 clients with over $3.4 billion in assets take control of their future by investing in alternative assets with a self-directed retirement plan. IRA Financial is proud to be the only self-directed retirement company that offers its in-house tax filing services for Self-Directed IRA LLC and Solo 401(k) plan clients.  Have your plan set-up, administration, and IRS tax filing all in one place!