Tax Requirements for a Self-Directed IRA
What tax forms do I need to file for my Self-Directed IRA LLC?
Let’s step back to understand some basic concepts:
First, it’s important that you know that your LLC (Limited Liability Company) is owned by your IRA (Individual Retirement Account).
Second, IRAs are not subject to federal taxes. Also, the way your IRA withdrawals are taxed depends on the type of IRA you open. Is it a traditional retirement account? Is it a Roth? If it’s a traditional retirement account, contributions are taxed during withdrawals. Ideally, the withdrawal is made at when your 59 1/2 or older. If you make a withdrawal prior to that age, and it isn’t permitted, you will receive a penalty. If you have a Roth IRA, you pay taxes upfront. As a result, your earnings are tax-free.
Third, there is a difference between a single-member LLC and a multi-member LLC.
Multi-Member LLC vs Single Member LLC
A single-member LLC is a Limited Liability Company holding one set of IRA funds. In other words, the LLC only contains funds from one IRA. A single-member LLC can have a co-manager, as long as the co-manager is not contributing IRA funds into the LLC.
A multi-member LLC is defined as a Limited Liability Company that:
- More than one person (e.g., a husband and a wife) contributing IRA funds to the LLC
- Has more than one type of IRA funds in the LLC
For example, if one person contributes to a Traditional retirement account and a Roth IRA, then this is considered as a multi-member LLC.
What About Filing Tax Returns?
You don’t need to file any tax forms with the IRS (Internal Revenue Service) if your LLC is a single-member LLC.
The IRS requires an annual valuation of the LLC and its assets. Your passive custodian will send you the valuation form (Form 5498) to complete and will file it with the IRS on your behalf. This is how the IRS keeps record of your IRA LLC, its value and holdings.
With a multi-member LLC, you are required to file Form 1065 with the IRS.