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 31^st.  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 15^th deadline.

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

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.

It is never too early to begin preparing for the tax filing season. Individuals should be aware of any chances to their tax situation and make changes immediately. Otherwise it could cause major tax consequences.

1. Have there been any major life events such as marriage, divorce, or the birth of a child? These are all changes that will affect your tax situation and should alert you to make changes to your Federal and State Form W-4s as soon as possible with your employer.
2. Do you have a child starting college? Besides this being a major event in the family; the person who claims the student may be eligible to claim education credits. Adjusting the federal withholdings for the future tax years would increase the take home pay each pay period vs. a large refund at tax time. T His makes sense since you may be assisting with that education bill.
3. Maybe you or your spouse is going back to college? Depending on the circumstances, there may be tax credits available as well for you.
4. Consider preparing a tax projection if your income has substantially changed from the prior year. THis can avoid surprises during tax time and also provide you with opportunities to do some tax planning and decrease you income tax liability.
5. If you are planning on increasing your charitable contribution or moving soon, plan for those itemized deductions. An increase in charitable contributions can decrease your tax liability. If your move involves a new home, the increase in the mortgage interest will also decrease your tax liability. Likewise if you plan on decreasing these items; your tax liability will increase.

For more information about these items or any questions about the next tax filing season, please contact our staff at Wamhoff Accounting Services. We are ready to assist you.