Hi All, Here is this months Newletter for your information Mid-Year Tax Planning Checklist
All too often, taxpayers wait until after the close of the tax year to worry about their taxes, missing opportunities that could reduce their tax liability orhelp them financially. Fall is the perfect time for tax planning. The following are some events that can affect your tax return; you may need to take steps to mitigate their impact and thus avoid unpleasant surprises after it is too late to address them.
1. Did you get married, divorced, or become widowed?
2. Did you change jobs or has your spouse started working?
3. Did you have a substantial increase or decrease in income?
4. Did you have a substantial gain from the sale of stocks or bonds?
5. Did you buy or sell a rental?
6. Did you start, acquire, or sell a business?
7. Did you buy or sell a home?
8. Did you retire this year?
9. Are you on track to withdraw the required amount from your IRA (age 70.5 or older)?
10. Did you refinance your home or take out a second home mortgage this year?
11. Were you the beneficiary of an inheritance this year?
12. Did you have a child? Time to start a tax-advantaged savings plan
13. Are you taking advantage of tax-advantaged retirement savings?
14. Have you made any significant equipment purchases for your business?
15. Are your cash and non-cash charitable contributions adequately documented?
16 .Are you keeping up with your estimated tax payments or do they need adjusting?
17. Are you aware of and prepared for the new 3.8% surtax on net investment income
18. Did you make any unplanned withdrawals from an IRA orpension plan?
19. Have you stayed abreast of every new tax law change?
If you anticipate or have already encountered any of the above events, it may be appropriate to consult with this office, preferably before the event, and definitely before the end of the year.
Turning 70 1/2 This Year?
If you are turning 70 1/2 this year, you may face a number of special tax issues. Not addressing these issues properly could result in significant penalties and filing hassles.
Traditional IRA Contributions -You cannot make a traditional IRA contribution in the year you reach the age of 70 1/2 Contributions made in the year you turn 70 1/2 (and later years) are treated as excess contributions and are subject to a non deductible 6% excise tax penalty for every year in which the excess contribution remains in the account. The penalty, which cannot exceed the value of the IRA account, is calculated on the excess contributed and on any interest it may have earned.
You can avoid the penalty by removing the excess and the interest earned on the excess from the IRA prior to April 15 of the subsequent year and including the interest earned on the excess in your taxable income.
Even though you can no longer make contributions to a traditional IRA in the year you reach age 70 1/2 you can continue to make contributions to a Roth IRA,not to exceed the annual IRA contribution limits, provided you still have earned income, such as wages or self-employment income, at least equal to the amount of the contribution.
Required Minimum Distributions (RMD) - You must begin taking required minimum distributions fromyour qualified retirement plans and IRA accounts in the year you turn 70 1/2 The distribution for the year in which you turned 70 1/2 can be delayed to the subsequent year without penalty, if the distribution is made before April 1 ofthe subsequent year. That means in the subsequent year two distributions must be made, the delayed distribution and the distribution for that year.
Still Working Exception - If you participate in a qualified employer plan, generally you need to start taking required minimum distributions (RMDs) by April 1 of the year following the year you turn 70½. This is your required beginning date (RBD) for retirement distributions. However, if your plan includes the "still working exception,"your RBD is postponed to April 1 of the year following the year you retire.
Example: You reached age 70 1/2 in 2011, but chose to continue working and did not retire until June of 2013. Provided your employer’s plan includes the option, you can make the “still working election”and delay your RBD until no later than April 1, 2014.
Caution: This exception does not apply to an employee who owns more than 5% of the company.There is no "still working exception" for IRAs, Simple IRAs, or SEPIRAs.
Excess Accumulation Penalty -When you fail to take a RMD, you are subject to a draconian penalty called the excess accumulation penalty. This penalty is a 50% excise tax of the amount (RMD) that should have been distributed for the year.
Example: Your RMDfor the year is $35,000 but you only take $10,000. Your excess accumulation penalty for failing to take the full amount of the distribution for the year would be $12,500 (50% of $25,000).
The IRS will generally wave the penalty for non-willful failures to take your RMD, provided you have a valid excuse and the under-distribution is corrected.
As you can see, turning 70 1/2 can complicate your tax situation. If you need assistance with any of the issues discussed here, or need assistance computing your RMD for the year, please give this office a call
.
Franklin Katz, ATP, PA, PB
Frank's Tax & Business Service
315 E. King St.
Kings Mountain, NC28086
704-739-4039
E-Mail: [email protected])
Web: www.prep.1040.com/frankstax
IRS Circular 230 Notice: Unless expressly stated otherwise inthis
transmission, any tax advice contained herein, forwarded with or attached to this message was not and is not intended to be used, nor may it be relied upon or used, by any taxpayer for the purpose of (1) the avoidance of any tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any tax transaction or tax-related matters that may be addressed herein.
All too often, taxpayers wait until after the close of the tax year to worry about their taxes, missing opportunities that could reduce their tax liability orhelp them financially. Fall is the perfect time for tax planning. The following are some events that can affect your tax return; you may need to take steps to mitigate their impact and thus avoid unpleasant surprises after it is too late to address them.
1. Did you get married, divorced, or become widowed?
2. Did you change jobs or has your spouse started working?
3. Did you have a substantial increase or decrease in income?
4. Did you have a substantial gain from the sale of stocks or bonds?
5. Did you buy or sell a rental?
6. Did you start, acquire, or sell a business?
7. Did you buy or sell a home?
8. Did you retire this year?
9. Are you on track to withdraw the required amount from your IRA (age 70.5 or older)?
10. Did you refinance your home or take out a second home mortgage this year?
11. Were you the beneficiary of an inheritance this year?
12. Did you have a child? Time to start a tax-advantaged savings plan
13. Are you taking advantage of tax-advantaged retirement savings?
14. Have you made any significant equipment purchases for your business?
15. Are your cash and non-cash charitable contributions adequately documented?
16 .Are you keeping up with your estimated tax payments or do they need adjusting?
17. Are you aware of and prepared for the new 3.8% surtax on net investment income
18. Did you make any unplanned withdrawals from an IRA orpension plan?
19. Have you stayed abreast of every new tax law change?
If you anticipate or have already encountered any of the above events, it may be appropriate to consult with this office, preferably before the event, and definitely before the end of the year.
Turning 70 1/2 This Year?
If you are turning 70 1/2 this year, you may face a number of special tax issues. Not addressing these issues properly could result in significant penalties and filing hassles.
Traditional IRA Contributions -You cannot make a traditional IRA contribution in the year you reach the age of 70 1/2 Contributions made in the year you turn 70 1/2 (and later years) are treated as excess contributions and are subject to a non deductible 6% excise tax penalty for every year in which the excess contribution remains in the account. The penalty, which cannot exceed the value of the IRA account, is calculated on the excess contributed and on any interest it may have earned.
You can avoid the penalty by removing the excess and the interest earned on the excess from the IRA prior to April 15 of the subsequent year and including the interest earned on the excess in your taxable income.
Even though you can no longer make contributions to a traditional IRA in the year you reach age 70 1/2 you can continue to make contributions to a Roth IRA,not to exceed the annual IRA contribution limits, provided you still have earned income, such as wages or self-employment income, at least equal to the amount of the contribution.
Example: You reached age 70 1/2 in 2011, but chose to continue working and did not retire until June of 2013. Provided your employer’s plan includes the option, you can make the “still working election”and delay your RBD until no later than April 1, 2014.
Caution: This exception does not apply to an employee who owns more than 5% of the company.There is no "still working exception" for IRAs, Simple IRAs, or SEPIRAs.
Example: Your RMDfor the year is $35,000 but you only take $10,000. Your excess accumulation penalty for failing to take the full amount of the distribution for the year would be $12,500 (50% of $25,000).
The IRS will generally wave the penalty for non-willful failures to take your RMD, provided you have a valid excuse and the under-distribution is corrected.
As you can see, turning 70 1/2 can complicate your tax situation. If you need assistance with any of the issues discussed here, or need assistance computing your RMD for the year, please give this office a call
.
Franklin Katz, ATP, PA, PB
Frank's Tax & Business Service
315 E. King St.
Kings Mountain, NC28086
704-739-4039
E-Mail: [email protected])
Web: www.prep.1040.com/frankstax
IRS Circular 230 Notice: Unless expressly stated otherwise inthis
transmission, any tax advice contained herein, forwarded with or attached to this message was not and is not intended to be used, nor may it be relied upon or used, by any taxpayer for the purpose of (1) the avoidance of any tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any tax transaction or tax-related matters that may be addressed herein.