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Tax & Business Tips

Tax Tip of the Week: Do you have unrelated business taxable income in your IRA?

By October 16, 2013No Comments

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.