Archive for Individual Taxes – Page 58

What is this IRS Form 5498 I just received?

Many taxpayers have received the last week of May a Form 5498 and are concerned that they missed reporting this on their 2015 income tax return.  Do not fret; your IRA trustee or issuer is required to file this form with the IRS by May 31st.  The copy that you received in the mail is for your records.

So what exactly is this Form 5498?

If you have contributed to an IRA you will receive a Form 5498 each year.  The institution that manages your IRA is required to report all contributions you make to the account during the year.

The Form 5498 covers a wide variety of IRAs.  Box 1 shows the amount you contributed to a traditional IRA; Box 9 reports the amount contributed to a SIMPLE IRA and Box 10 reports the amount contributed to a ROTH IRA.

A rollover or conversion from one retirement plan into an IRA is considered a contribution and therefore will be reported in boxes 2 & 3 on the Form 5498.

The other important reported on the Form 5498 is your required minimum distribution.  At age 70 ½ you are required to take a distribution from the account based on the value at the end of the prior year.  This form will provide the value and also will provide the required minimum distribution.

Why are they arriving after the tax deadline?  You can contribute to an IRA until the due date of your Federal tax return-mid April.   Therefore the account administrator prepares the forms after the April 15th deadline.

In closing, you may receive more than one Form 5498 since you can have multiple IRA trustees.

Last Minute Tax Questions

The final days of the 2016 tax season are upon us, and that means if you haven’t already filed your taxes you have just a few more days left.  Sandy Furuya, Senior Accounting Manager at [Wamhoff Accounting Services], answers last minute questions you may have.

 What is the deadline this year to file taxes?

  • While the deadline to file taxes is typically April 15th, this year we have a few more days due to Emancipation Day, which is a federal holiday that happens to fall on April 15th. So the deadline this year is Monday, April 18th.
  • There is an extension for those individuals and businesses affected by the December flooding. This includes a number of counties here in the local area, including St. Charles, St. Louis. Filing and penalty relief is provided to any taxpayer with an IRS address of record located in the disaster area. The deadline for those affected by the flooding is May 16th.
  • If you were affected by the floods, you do not need to contact the IRS to get the extension, as it’s based on your address. However, if you do receive a late filing or payment penalty notice, call the number on the notice and the penalty will be abated.

 What happens if I don’t file?

  • If you do not file your tax return, you will be charged a penalty for failure to file.
  • If you need more time to file, then file an extension. You can file an extension through the IRS.gov website, or by using form 4868.
  • An extension doesn’t give you more time to pay, however. You must still estimate and pay what you owe by April 18th to avoid penalties and interest.

 What happens if I can’t pay my taxes?

  • File your return even if you cannot pay. This will avoid a penalty for failure to file.
  • Pay as much as you can to avoid penalties and interest.
  • Contact the IRS as soon as possible to discuss payment options at 800-829-1040. There are several payment arrangements which you can work out with the IRS.
  • Short-term payment arrangements can be made for up to 120 days. There is no user fee for this extension, but interest and penalties will continue to accrue.
  • Long-term arrangements are available through an Installment Agreement, which can be requested by completing Form 9465. There is a one-time user fee of $120, or $52 if you choose to pay through direct debit from your bank account.
  • In some cases, the IRS may be able to waive penalties.
  • Respond to all IRS notices you receive. The IRS is willing to work with you, but you can’t delay in communicating with them.
  • Finally, you’ll want to ensure that the tax liability does not reoccur. It could have been a one-time occurrence, but if not, adjust your withholdings.

This Year’s Guide to Identity Theft

Last year, nearly 10 million taxpayers fell victim to tax-related identity theft in which someone uses a stolen Social Security number to file a tax return claiming a fraudulent refund. Most taxpayers don’t even know this has occurred until their return is rejected, or the IRS sends a letter that they have identified a suspicious return using your Social Security number.  Sandy Furuya, Senior Accounting Manager at [Wamhoff Accounting Services], outlines new measures for this filing season, and what you need to know.

What new measures will be in place for 2016?

  • If you prepare your own tax return with a tax software package, there will be new log-on standards.
  • Many states will be delaying refunds. Illinois, for example, which processes over 6 million returns (4.9 million electronically), will delay refunds until March 1, 2016. While they won’t disclose their new security measures, the delay is designed to allow more time for verification that the return is legitimate and the refund is going to the right party.
  • The Criminal Investigation division of the IRS has assisted in convicting close to 2000 identity thieves in the last three years, and is currently pursuing 1700 open investigations.

What should I do if I were a victim of tax-related identity theft last year?

  • Be sure you have completed Form 14039, which is the IRS’ identify theft affidavit
  • If you have already completed the form, you may still be waiting for your refund. The ID verification services division of the IRS is working diligently to complete the processing of all 2014 returns, but must do a thorough check of these returns as they typically have two returns for the same Social Security number – one legitimate and one fraudulent return.
  • You may have received a PTIN number to use for your 2015 income tax return. This PTIN number must be used in order to file electronically.

How can I ensure my records are safe with my tax professional?

  • Secure files are a must! Ensure that all files with any type of account numbers or identification numbers are sent secured.
  • All documentation should be shredded using a micro-cut shredder.
  • Ask your tax professional about their firewalls and other computer system security protocols to help ensure they’re operating in a safe and protected environment.
  • Look for neatness in general. A cluttered desk is not a good sign, and could lead to your personal information being mixed up in someone else’s file!

Protecting Americans from Tax Hikes Act of 2015

After much deliberation, Congress passed the Protecting Americans from Tax Hikes (PATH) Act on December 18, 2015, which includes many permanent extensions taxpayers are very happy about.  Sandy Furuya, Senior Accounting Manager at [Wamhoff Accounting Services], reviews the highlights.

Child tax credit

  • The child tax credit of $1000 was made permanent. This was previously set to expire in 2017.
  • This credit is available for each “qualifying child” in the household.

American opportunity tax credit

  • The credit of up to $2500 for four years of post-secondary education was made permanent.
  • Phase outs begin at $80,000 for Single taxpayers and $160,000 for Married taxpayers. This is very important for college families.

Elementary and secondary school teacher deductions

  • The maximum $250 deduction for certain expenses of elementary and secondary school teachers was made permanent.
  • Starting in 2016, the expenses will also include professional development expenses.

State and local sales tax deduction is back

  • Taxpayers may continue to claim an itemized deduction for either the payments to state and local governments, or payments for state sales tax.
  • The sales tax deduction is beneficial to taxpayers who do not pay state and local taxes such as retired individuals who are on a fixed level of income.
  • It is also beneficial for those taxpayers residing in states who do not have a state income tax.

Tax-free individual retirement plan distributions for charitable purposes

  • The PATH act also extended tax-free distributions from individual retirement plans for charitable purposes.
  • If a taxpayer is at least 70-1/2 years of age, they can exclude from gross income qualified charitable distributions from IRAs.
  • This exclusion may not exceed $100,000 per taxpayer in any tax year.

Ways to Reduce Your 2016 Taxes

It’s never too early to start thinking about ways to reduce your 2016 tax liability.  Planning early in the year is a must!

  1. Contribute to your retirement plan until it hurts! Depending upon what type of employer sponsored plan you have you can you have the opportunity to contribute a large amount to the plan:

401k       $18,000 plus catch up for age 50 or over $6,000

Simple  $12.500 plus catch up for age 50 or over $3,000

The employer may provide a matching contribution.  At least contribute the % that the employer matches; this is “free” money to you!

Also please realize the amount of money contributed to your retirement plan is pre-tax; thus saving you on average 25% Federal and depending on what State you reside in 3.5%-6%.  (The tax savings is based on the average tax bracket of 25% Federal)

If your employer does not offer a retirement plan consider an IRA contribution.  $5,500 (catch up $1,000) contribution will still provide tax savings)

Please remember these contributions are tax deferred; not tax free.  You will be paying tax when you withdrawal the money at retirement.  But the expectation is you will be in a lower tax bracket at retirement.

  1. Consider an employer flexible spending plan. These plans are great if you have any out of pocket health expenses or dependent care expenses.  The plans are pre-tax; thus saving you Social security, Medicare, Federal, and State taxes.  But keep in mind with these plans you are required to use the funds within the period of time or lose the funds.
  2.  Consider increasing your non-cash charitable contributions. Instead of dropping those clothes, household items, and toys at the “box” on the corner, consider a charity that provides a charity receipt.  Realize you will need to do the legwork and provide a list of what was donated, a value, and date it was donated.  But isn’t tax savings worth that extra work?
  3.  Harvest your losses-as the year-end comes to a close ensure your financial advisor is looking at your portfolio and harvesting any losses against the gains that have occurred in the portfolio. This should be reviewed every year.

These are just a few tips to help reduce your taxes as you move forward for 2016!

Accounting and tax services are provided by Wamhoff Accounting Services, Inc. and is independent of VSR Financial Services, Inc.

Until next time!

Announced late Tuesday night (December 15), congressional leaders unveiled a widespread deal on tax extenders, making some tax law provisions permanent and temporarily extending others. After a congressional vote, the new law has been enacted.

Titled “The Protecting Americans from Tax Hikes Act of 2015” (aka PATH), the Act renews and makes permanent dozen of important tax provisions that bring relief to individuals and create incentives for job creators. It also temporarily extends other provisions.

The most positive aspect of this legislation is that many of the perennially expiring provisions are made permanent. This bill takes some of the guesswork out of the equation. It means businesses can now plan effectively. Tax planners would gain more certainty because the bill would make permanent many important tax provisions. They can operate with the certainty that, if they create and follow their tax plan, the can achieve the anticipated tax result. This certainly advances the premise that tax incentives actually work to incentivize businesses to spend, rather than simply result in providing tax benefits to businesses that guess right.

Put simply, more permanence in the tax code will be a good thing and this bill will provide the kin of permanence individuals need to manage their financial assets and businesses need to grown their businesses.

On our short list  of 5 key provisions affecting businesses that would be made permanent are:

  1. the Section 179 expensing
  2. the Section 1202 Small Business Stock Capital Gains Exclusion
  3. the Research & development Tax Credit
  4. the tax break for mass transit and parking benefits
  5. the rule reducing to five years (rather than 10 years) the period for which a S corporation must hold its assets following conversion from a C corporation to avoid the tax on built-in gains.

(NOTE: While temporarily extending bonus depreciation, the legislation phases it out. The Work Opportunity Tax Credit, which gives businesses a tax incentive to hire the disabled, welfare recipients and economically challenged individuals, would be renewed for five years.)

On our list of 5 key provisions affecting individuals that would be made permanent are:

  1. the enhanced American Opportunity Tax Credit
  2. the enhanced Child Tax Credit
  3. qualified charitable distributions from IRAs
  4. the above-the-line deduction for teachers who buy school supplies
  5. the option to claim as an itemized deduction state and local general sales taxes in lieu of a deduction for state and local income taxes

BUSINESS HIGHLIGHTS

Code Section 179 Expensing

Section 179 expensing, which determines the amount of an investment a small business is allowed to write off entirely in the first year rather than being depreciated over multiple years, would be made permanent and its level would be increased. This providion permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014; and sets a new threshold $500,000 for small business expensing and $2 million phase-out, from the current amounts of $25,000 and $200,000, respectively.

Bonus Depreciation

A separate provision that allows 50 percent of the cost of improvements to be written off under “bonus deprecation” would be extended for five years, and would be expanded to cover stores and restaurants that are owned rather than just those that are leased.

Retailers and Restaurants

The bill would make permanent a provision that allows retailers to depreciate remodeling and other improvements to their stores over 15 years rather than the previous standard of 39 years. THe provision, which also applies to restaurants, is important because retailers typically remodel every five to seven years. In addition to helping keep stores attractive to customers and profitable, the remodeling work creates tens of thousands on construction jobs each year.

Research and Development Tax Credit

The Act permanently extends the research & development tax credit and, for the first time, allows for eligible small businesses to claim the credit against the alternative minimum tax liability.

Affordable Care Act

The bill would also delay some of the taxes associated with the Affordable Care Act.