Seller Financed Deals and Installment Sales

Seller financed deals can be a win-win strategy for buyers and seller of real estate or businesses. Seller financing means the seller of the asset, whether a business or property, agrees to take payments over time for the purchase price and as a result the seller is financing the sale of the asset to the buyer. This has many benefits for a seller as it only opens up more buyers and hopefully a higher sales price but it also includes a tax incentive to the seller who will get to consider the sale of the asset as an installment sale. An installment sale allows the seller to defer recognition of the gain until the time the payments and the resulting gain are received.

In an installment sale, you report your gain on the sale of asset only as it is received. Each payment will be partially non-taxable as it represents a return of basis (what you invested into the asset) and the taxable part which is your profit (gain, appreciation). So, when you sale an asset on an installment sale you do not pay all of the taxes in the year you sale the asset because you have not fully received payment. Instead, you pay taxes only as you receive payment. To correctly report the taxes, you need to determine what portion of each installment payment is a return of basis versus profit.

To do this, you divide your gross profit (selling price minus basis) by the contract price. For example, say you purchased a property for $100,000 and later sell it for $400,000 under seller financed terms. Since you purchased the property for $100,000, you have a basis of $100,000 (you would also adjust the basis for improvements, depreciation, and other factors) and we are assuming here a contract sale price is $400,000. This gives you a gross profit of $300,000 (selling price minus basis). You then divide your gross profit of $300,000 by the $400,000 contract sale price, which equals 75%. You then take this 75% and apply it to each payment to determine which portion of the payment is taxable. This makes sense because each payment you receive, in this example, equally consists of a return of your basis, which is not taxable, and a payment towards the gross profit, which is taxable. To finish this example at 75%, if the annual payments totaled $40K, you’d have $30K that is taxable and $10K that is not taxable. If there is interest charged on the amount due that interest portion is also taxable as it is received.

The tax benefit of the installment sale is that you only take a portion of the gain into income each year over time. This gives the advantage of deferring taxes over time and can also keep you in a lower tax bracket on your other income. The major disadvantage is that you do not obtain the sale proceeds immediately and as a result you cannot invest them elsewhere. To counter this, most sellers will charge the buyer interest on the seller financed balance that is due, say 7-10%, to offset the inability to invest the funds immediately. As a seller, you will want to have a properly drafted promissory note as well as a security document that is secured against the asset being sold (e.g. mortgage/deed of trust recorded against the property). Make sure you are collaborating with experienced professionals when selling assets with seller-financing as there are tax considerations and legal protections you want to ensure are being considered in the structuring and documents.


Huge Changes to IRAs and 401(k)s in New Budget Law that Affects Everyone


The Omnibus budget bill signed into law today, December 27, 2022, has significant changes that will affect everyone saving for retirement. From more Roth options, improvements on required minimum distributions, and increases to contribution amounts, IRA and 401(k)s will become even better vehicles to build long-term savings and wealth for retirement. Rules for prohibited transactions remain substantially the same. Prior language which would have fixed the death penalty on prohibited transactions for IRAs did not end up in the final version of the bill. There are some positive developments on fixing IRA mistakes in the final law through the DOL’s EPCRS.


One major theme in the bill is “rothification”. Congress loves Roth accounts because they don’t give up tax revenue today as there is no tax deduction for contributing to a Roth IRA or Roth 401k. Traditional accounts, on the other hand, result in a tax deduction today (although taxed on the way out) and that reduces taxes paid and the amount of money congress gets to spend. Here are the new Roth account rules that benefit investors.

  • Simple and SEP Roth IRAs – Under prior laws, SIMPLE and SEP IRAs could only receive traditional (pre-tax) dollars. Under the new law and beginning in tax year 2023, a SIMPLE IRA or SEP IRA can be a Roth account. In other words, you can have a Roth SEP IRA or ROTH SIMPLE IRA. Contributions to these accounts are not deductible but grow and come out tax free like Roth IRAs and Roth 401(k)s. This change is significant as the inability to do Roth dollars in SEP and SIMPLEs was a major disincentive to these account types and why we didn’t see many investors want them or use them at our company, Directed IRA.
  • 401(k) Employer/matching contributions can be Roth – Under prior laws, employer/matching contributions in a 401(k), including solo 401(k)s, must be traditional dollars. Under the new law, effective now, employer/matching contributions can be Roth (or they can be traditional if you want as well). The Roth employer/matching contributions are not deductible, and the amounts contributed by the employer for the employee are taxable income to the employee (likely to be included on W-2, waiting for guidance) but grow and come out tax-free similar to all other Roth accounts. This will likely require a plan amendment before employer Roth contributions are allowed but there may be transitional relief and we’re waiting on guidance from the IRS/DOL.
  • No RMD on Roth 401(K)s – Under prior laws, required minimum distributions (RMD) applied to Roth 401(k) accounts. Under the new law, and beginning in tax year 2024, Roth 401(k) accounts (including solo Roth 401ks) will not be subject to RMD rules. This will harmonize the rules between Roth IRAs and Roth 401(k)s as Roth IRA have always been exempt from RMD.
  • Unused 529 Plan Funds Can Be Rolled to a Roth IRA – Under the law, unused 529 plan funds can be rolled to a Roth IRA of the 529 account beneficiary up to a maximum aggregate of $35k. The 529 plan must have been maintained for 15 years. Also, the amount distributed cannot exceed the aggregate amount contributed.

RMD Age Improvement and More Catch-Up Contributions

  • RMD goes from 72 to 73 in 2023 and then 75 in 2033 – The age of required minimum distributions (RMD) will increase from 72 to 73. The age will then adjust over time up to age 75 by 2033. This will apply to traditional (pre-tax) IRA and traditional 401(k) and other pre-tax retirement accounts. RMD does not apply to Roth IRAs and under the new bill will not apply to Roth 401(k) funds either.
  • Increased Catch-Up Contribution for those 60-63 – Current catch-up contributions are allowed for those 50 or older and are in the amount of $6,500. Under the new law, and effective in 2025, an additional catch-up contribution is allowed between ages 60-63 as the $6,500 is increased in those four years to $10,000. This catch-up contribution must be Roth if the taxpayer’s adjusted gross income is $145k or greater.

Prohibited Transaction Rules Remain the Same

One significant part of the bill for self-directed investors was regarding the “death penalty” on prohibited transactions. Under the current law, if a prohibited transaction occurs in an IRA, then the entire account is distributed. A prior version of the bill included a fix to this and would have changed a penalty to be only on the amount involved in the prohibited transaction, similar to prohibited transactions on 401(k)s, but this fix was unfortunately removed in the final negotiations. There are changes in the bill to prohibited transactions, but they merely codify existing case law and guidance from the IRS/DOL and do not fix the death penalty on prohibited transactions that occurs if someone makes a prohibited transaction mistake with their IRA. One positive development is the ability to use the EPCRS for IRA mistakes. EPCRS is the employee plans compliance resolution system and was only allowed for employer-based plans. Under the new law, EPCRS will be available to IRA custodians who can seek relief for IRA account owners for “eligible inadvertent failures” in an IRA.

Self-Directed IRA Versus Solo 401(k)

Many self-directed investors have the option of choosing between a self-directed IRA or a self-directed solo 401k. Both accounts can be self-directed so that you can invest in any investment allowed by law such as real estate, LLCs, precious metals, or private company stock. However, depending on your situation, you may choose one account type over the other. What are the differences? When should you choose one over the other?

We’ve been advising clients for over a decade on self-directed IRAs and solo 401(k)s and what we’ve learned is that there is no universal answer to the question. Instead, you need to learn what is best based on your personal situation and investment objectives. Do you even qualify for a solo(k)? What investments do you plan to make and does one account type make a difference for your investments? The good news is that either way you go, we can help with a self-directed IRA at Directed IRA, where we are a licensed trust company and can serve as custodian of your IRA. Or, we can set-up a solo(k) at KKOS Lawyers using our pre-approved plan documents.

 IRA Solo 401K
Qualification Must be an individual with earned income or funds in a retirement account to roll over. Must be self-employed with no other employees besides the business owner and family/partners.
Contribution Max $6,000 max annual contribution. Additional $1,000 if over 50. $61,000 max annual contribution (it takes $140K of wage/se income to max out). Contributions are employee and employer.
Traditional & Roth You can have a Roth IRA and/or a Traditional IRA. The amount you contribute to each is added together in determining total contributions. A solo 401(k) can have a traditional account and a Roth account within the same plan. You can convert traditional sums over to Roth as well.
Cost and Set-Up You will work with a self-directed IRA custodian who will receive the IRA contributions in an SDIRA account. Most of the custodians we work with have an annual fee of $300-$350 a year for a self-directed IRA. You must use an IRS pre-approved document when establishing a solo 401k. This adds additional cost over an IRA. Our fee for a self-directed and self-trusted solo 401(k) is $995 with Atty consultation or $495 for the plan only.
Custodian Requirement An IRA must have a third-party custodian involved in the account (e.g. bank. Credit union, trust company) who is the trustee of the IRA. Of course we recommend our company, A 401(k) can be self-trustee’d, meaning the business owner can be the trustee of the 401(k). This provides for greater control but also greater responsibility.
Investment Details A self-directed IRA is invested through the self-directed IRA custodian. A self-directed IRA can be subject to a tax called UDFI/UBIT on income from debt leveraged real estate. A Solo 401(k) is invested by the trustee of the 401(k) which could be the business owner. A solo 401(k) is exempt from UDFI/UBIT on income from debt leveraged real estate.


Keep in mind that the solo 401(k) is only available to self-employed persons while the self-directed IRA is available to everyone who has earned income or who has funds in an existing retirement account that can be rolled over to an IRA.


Based on the differences outlined above, a solo 401(k) is generally a better option for someone who is self-employed and is still trying to maximize contributions as the solo 401(k) has much higher contribution amounts. On the other hand, a self-directed IRA is a better option for someone who has already saved for retirement and who has enough funds in their retirement accounts that can be rolled over and invested via a self-directed IRA as the self-directed IRA is easier and cheaper to establish.

Another major consideration in deciding between a solo 401(k) and a self-directed IRA is whether there will be debt on real estate investments. If there is debt and if the account owner is self-employed, they are much better off choosing a solo 401(k) over an IRA as solo 401(k)s are exempt from UDFI tax on leveraged real estate.

Choosing between a self-directed IRA and a solo 401(k) is a critical decision when you start self-directing your retirement. Make sure you consider all of the differences before you establish your new account.

Mat has been at the forefront of the self-directed IRA industry since 2006. He is the CEO of Directed IRA & Directed Trust Company where they handle all types of self-directed accounts (IRAs, Roth IRAs, HSAs, Coverdell ESA, Solo Ks, and Custodial Accounts) which are typically invested into real estate, private company/private equity, IRA/LLCs, notes, precious metals, and cryptocurrency. Mat is also a partner at KKOS Lawyers and serves clients nationwide from its Phoenix, AZ office.

He is published regularly on retirement, tax, and business topics, and is a VIP Contributor at Mat is the best-selling author of the most widely used book in the self-directed IRA industry, The Self-Directed IRA Handbook: An Authoritative Guide for Self-Directed Retirement Plan Investors and Their Advisors.

Stuck With a 401K Loan and Leaving Your Job

Have you taken a loan from your employer 401(k) plan and plan on leaving? Unfortunately, most company plans will require you to repay the loan within 60 days, or they will distribute the amount outstanding on the loan from your 401(k) account. Its one of the ways they try to keep their employees from leaving. “Don’t leave or we’ll distribute your 401(k) loan that you took from your money in your 401(k) account.”

How to Buy Yourself More Time & Avoid the Distribution

The good news is that following the Tax Cuts and Jobs Act (TCJA) you now have the option to re-pay the loan to an IRA to avoid the distribution and you have until your personal tax return deadline of the following year (including extensions) to contribute that re-payment amount to an IRA. By re-paying the amount outstanding on the loan to an IRA, you will avoid taxes and penalties that would otherwise arise from distribution of a participant 401(k) loan.

How It Works In Practice

Let’s say you left employment from your employer in February 2019 and that you had a 401(k) loan that was distributed by your employer’s plan following your termination of employment. You will have until October 15th of 2020 (if you extend your personal return, 6 month extension from April 15th) to make re-payment of the amount that was outstanding on the loan to an IRA. These funds are then treated as a rollover to your IRA from the 401(k) plan and your distribution and 1099-R will be reported on your federal tax return as a rollover and will not be subject to tax and penalty. While it’s not perfect it’s far greater time than was previously allowed. Traditionally, you had 30 or 60 days at most to make re-payment.


The ability to rollover an outstanding 401(k) loan amount to an IRA is only available when you have left an employer (for any reason). It does not apply in instances where you are still employed and have simply failed to re-pay the loan or to make timely payments.

Mat has been at the forefront of the self-directed IRA industry since 2006. He is the CEO of Directed IRA & Directed Trust Company where they handle all types of self-directed accounts (IRAs, Roth IRAs, HSAs, Coverdell ESA, Solo Ks, and Custodial Accounts) which are typically invested into real estate, private company/private equity, IRA/LLCs, notes, precious metals, and cryptocurrency. Mat is also a partner at KKOS Lawyers and serves clients nationwide from its Phoenix, AZ office.

He is published regularly on retirement, tax, and business topics, and is a VIP Contributor at Mat is the best-selling author of the most widely used book in the self-directed IRA industry, The Self-Directed IRA Handbook: An Authoritative Guide for Self-Directed Retirement Plan Investors and Their Advisors.

6 Critical Trademark Considerations

Many clients wonder whether they need to trademark their business name. A trademark is a legal protection given to a business name or slogan and allows the owner to prevent others from using the same name or slogan. The purpose of a trademark is to give the owner of the mark exclusive use of the name or slogan so as to distinguish itself from its competitors. Trademarks provide protections against counterfeits or cheats trading on a good business name (and cashing in on someone else’s marketing) and also allow a business to avoid having someone else operate under the same name which helps to avoid confusion amongst consumers.

For example, the business name “Google” is a trademark of Google, Inc. This trademark grants Google, Inc. the exclusive use of this name in their industry and prevents a competitor from simply opening up a website or business and offering products or services with the good “Google” name. This also protects consumers from doing business with someone they weren’t intending to do business with and also prevents other businesses from benefiting off of someone else’s marketing and brand recognition.

When deciding whether to trademark your business name or service you must first determine whether you want your name protected in the marketplace from use by others. An attorney operating as Mathew Sorensen Attorney at Law may not worry about someone operating under his business name and may see little benefit from a trademark. But a business named something like Paramount Real Estate Brokerage which conducts marketing under that name, maintains a website under that name, provides services under that name, and which employs many agents using that name would see much more benefit from a trademark. Trademark protection is done on a national basis so when your trademark is approved it grants national protection of your name or slogan. Those who use the name in violation of the trademark are in violation of law and can be sued by the owner of the mark for damages.

Key Trademark Considerations


When applying for a trademark keep in mind the following items.

1. Trademark Availability- Make sure nobody else has filed a trademark with your word/name. This can be searched at the website. Keep in mind that there can be similar names or marks in different industries (see point 3 below).

2. Trademark Must be Unique- The mark may not be merely descriptive. For example, you cannot expect to trademark the business name Boats, Inc. to sell boats as that is merely descriptive of what you do and doesn’t distinguish your business from others. A name like Eagle Boats, Inc. on the other hand is distinguishable since your use of the word Eagle in the industry could be unique.

3. Trademarks Are Granted by Industry/Class- A trademark is granted based on the industry your business is in (called class by USPTO). What this means is that your mark is protected in your area of business but is not protected across all businesses and product lines. For example, the word Paramount may be registered by one group in the USPTO entertainment class as Paramount Pictures but may be registered and owned by a totally different group as Paramount Real Estate in the USPTO real estate class. Keep in mind that your business may cross over into two classes and you may want the mark approved in more than one class.

4. Trademarks Must be In Use- The trademark must be in use in the economy (on a website, in a brochure) before the mark will be approved and this use must be shown to the USPTO with your filing. You can also state an intent to put the mark in commerce without actually doing it yet but then you need to go back to the USPTO to show the use later and this is much more of a hassle. It also costs more in fees.

5. Trademark Cost- The USPTO fee to do a trademark is $350 per class. Our fees at the law firm are $1,000 per mark for all the work, filings and consulting related to the mark.

6. Trademark Time Frame and Maintenance- It typically takes about 9 months on average to get approval of a trademark with the USPTO. After the mark is approved you can start using TM next to your name or slogan (if you desire). You also have to show continued use of the mark to the USPTO every 5 years or so to maintain the mark. If you fail to show continued use the mark expires and may be picked up by someone else.

Trademarks are a great way to build long-term protection of your business name or product/service. They are a necessity for many businesses that invest significant marketing dollars into their business name or products/services. If you want to learn more, please contact the law firm at 435-586-9366 to speak with one of the attorneys.


Solo 401K Form 5500 Tax Filing and Five-Point Compliance Checklist

Solo 401(k)s have become a popular retirement plan option for self-employed persons. These plans put the business owner in control of the plan but with that control also comes responsibility. Unfortunately, many solo 401(k) plans are not properly maintained and are at the risk of significant penalty and/or plan termination. If you have a solo 401(k), you need to ensure that the 401(k) is being properly maintained. Here’s a quick checklist to make sure your plan is on track:

1. Does your Solo 401(k) need to file a Form 5500-EZ?

There are two primary situations where you are required to file a Form 5500 for your Solo 401(k).

  1. If your Solo 401(k) has more than $250,000 in assets, and
  2. If the Solo 401(k) plan is terminated (regardless of total asset amount).

If either of these instances occurs, then the Solo 401(k) must file a Form 5500 to the IRS annually. Form 5500 is due by July 31st of each year for the prior year’s plan activity. Solo 401(k)s can file what is known as a 5500-EZ. The 5500-EZ is a shortened version of the Standard Form 5500. Unfortunately, Form 5500-EZ cannot be filed electronically and must be filed by mail. Solo 401(k) owners have the option of filing a Form 5500-SF online through the DOL. Online filing is preferred as it can immediately be filed and tracked by the plan owner. In fact, if you qualify to file a 5500-EZ, the IRS and DOL allow you to file the Form 5500-SF online, but you can skip certain questions so that you only end up answering what is on the shorter Form 5500-EZ. We regularly file Form 5500-EZs and 5500-SFs for Solo K clients in the law firm for only $250.

2. Is the plan up-to-date?

The IRS requires all 401(k) plans, including Solo 401(k)s, to be amended at least once every six years. If you’ve had your plan for over six years and you’ve never restated the plan or adopted amendments, it is not compliant and upon audit, you will be subject to fines and possible plan termination (IRS Rev Proc 2016-17). If your plan is out of date, your best option is to restate your plan to make sure it is compliant with current law. On average, most plan documents we see updated every two to three years as the laws affecting

the plan documents change. We’ve had two different plan amendments to our IRS pre-approved plan in the past six years.

3. Are you properly tracking your plan funds?

Your Solo 401(k) plan funds need to be properly tracked and they must identify the different sources for each participant. For example, if two spouses are contributing Roth 401(k) employee contributions and the company is matching employer Traditional 401(k) dollars, then you need to be tracking these four different sources of funds, and you must have a written accounting record documenting these different fund types.

4. Plan funds must be separated by source and participant

You must maintain separate bank accounts for the different participants’ funds (e.g. spouses or partners in a Solo K), and you must also separate traditional funds from Roth funds. In addition, you must properly track and document investments from these different fund sources so that returns to the Solo 401(k) are properly credited to the proper investing account.

5. Are you properly reporting contributions and rollovers?

If you’ve rolled over funds from an IRA or other 401(k) to your Solo 401(k), you should have indicated that the rollover or transfer was to another retirement account. So long as you did this, the company rolling over the funds will issue a 1099-R to you, but will include a code on the 1099-R (code G in box 7) indicating that the funds were transferred to another retirement account, and that the amount on the 1099-R is not subject to tax.  If you’re making new contributions to the Solo 401(k), those contributions should be properly tracked on your personal and business tax returns. If you are an S-Corp, your employee contributions should show up on your W-2 (traditional and roth), and your employer contributions will show up on line 17 of your 1120S S-Corp tax return. If you are a Sole Prop, your contributions will typically show up on your personal 1040 on line 28.

Make sure you are complying with these rules on an annual basis. If your Solo 401(k) retirement plan is out of compliance, get with your attorney or CPA immediately to make sure it is up-to-date. Failure to properly file Form 5500 runs at a rate of $25 a day up to a maximum penalty of $15,000 per return not properly filed. You don’t want to get stung for failing to file a relatively simple form. The good news is there are correction programs offered for some plan failures. But, don’t get sloppy, or you’ll run the risk losing your hard-earned retirement dollars.

Check out the latest  Directed IRA , Ep 62: Solo 401(k) Required Filings and Avoiding Common Mistakes. In this episode Mark and I outline common mistakes made in solo 401(k)s (aka, QRPs) when it comes to creation, documentation, contributions, handling of funds, and filings. They cover plan documents and update requirements (required every 6 years) as well as 5500-EZ solo 401(k) tax return filings.