Month: May 2025

If you are required to take minimum distributions from your traditional IRA and are charitably inclined, you might benefit from a qualified charitable distribution (QCD). 

A QCD allows you to transfer funds directly from your IRA to a qualified charity—excluding that amount from your taxable income. This can lower your adjusted gross income, reduce taxes on Social Security, lower Medicare premiums, and even reduce estimated tax payments.

To qualify, the funds must go directly from the IRA to the charity. 

One way to simplify this process is by using a traditional IRA checking account—offered by custodians like Schwab or Fidelity—to write a check directly to the charity. However, this option is not available if your IRA is set up as a self-directed LLC.

With this method, please keep in mind that the charity must cash your check by December 31 for you to have a QCD for that year, and you must receive a written acknowledgment for gifts of $250 or more. Also, ensure that the charity is a 501(c)(3) organization and that you received no benefit in return for your contribution.

If you want to discuss QCDs, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• May 30, 2025

According to recent Federal Trade Commission data, consumers reported losing more than $12.5 billion to fraud in 2024. They reported losing more money to investment scams—$5.7 billion—than any other category. Older people are particularly prone to being scammed. 

If you’re the victim of a scam, can you deduct your losses as a theft loss? In the past, you often could because losses due to fraud and larceny were deductible theft losses subject to certain limits.

All this changed in 2017 when Congress enacted the Tax Cuts and Jobs Act (TCJA). The TCJA added a new provision to the tax code, providing that from 2017 to 2025, personal theft losses are deductible only if they are attributable to a federally declared disaster. This means almost all theft losses are not deductible at all during these years.

But all is not necessarily lost for fraud victims. Thefts involving business property and those involving transactions entered into for profit are deductible without the need for a disaster. Thefts arising from for-profit activities are deductible as a miscellaneous itemized deduction on Schedule A, not subject to the 2 percent of adjusted gross income (AGI) floor.

Thus, if you’re the victim of a scam, you can get a theft loss deduction if it arose from a for-profit transaction.

The IRS Chief Counsel has provided helpful guidance explaining when common scams are deductible. The scams clarified involve victims transferring money from their IRA and non-IRA accounts to scammers, typically overseas.

The IRS Chief Counsel advised that losses due to compromised account scams, “pig butchering” investment scams, and phishing scams are deductible because the victims of these scams all have a profit motive: earning more investment returns or safeguarding IRA and non-IRA accounts established to earn a profit.

On the other hand, losses due to romance scams or fake kidnapping scams are not deductible as theft losses because the victims voluntarily transferred their money to the scammers out of mistaken love or intending to protect loved ones—which are not profit motives. Their losses were non-deductible personal theft losses.

In short, losses due to scams that rely on the victim’s greed are deductible. Losses from scams that count on the victim’s love or desire to help others are not deductible. 

This seems ridiculous, but it is the natural result of the very harsh rule established by the TCJA, which states that personal theft losses are never deductible. The IRS Chief Counsel tries to ameliorate the harshness of this rule by taking a relatively liberal view of what constitutes a transaction entered into for profit. 

If you want to discuss theft losses, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• May 23, 2025

If you’re involved in a real estate or investment venture with one or more other parties—perhaps co-owning property or collaborating on a business project—you might think you’re simply sharing ownership. 

But the IRS may see it differently. Without proper precautions, your arrangement could be classified as a partnership for federal tax purposes, triggering filing requirements and potential penalties you weren’t expecting.

Why It Matters

Under IRS rules, many informal joint ventures—syndicates, pools, or unincorporated business arrangements—can be treated as partnerships, even without a legal partnership agreement. 

This could mean:

• You would need to file Form 1065 annually.
• You would have to issue Schedule K-1s to all co-owners.
• You might lose eligibility for Section 1031 like-kind exchanges.
• You could incur potential IRS penalties of up to $255 a month per partner, limited to 12 months.

Fortunately, if your situation qualifies, you can elect out of partnership status and avoid these headaches.

How to Elect Out

The IRS allows co-owners of certain investments—such as real estate or oil and gas ventures—to opt out by filing a “blank” Form 1065 with specific details and a formal election statement. This proactive step ensures each owner can independently report income and deductions on their return, often using Schedule E or Schedule F of Form 1040.

Take Action Now

Failing to file a partnership return when required can be costly. If you’re unsure whether your joint venture qualifies for an election out, or if you need help preparing the necessary filing, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• May 20, 2025