From Neikirk, Mahoney & Smith, the Internal Revenue Service today reminded taxpayers born before July 1, 1945, that they generally must receive payments from their individual retirement arrangements (IRAs) and workplace retirement plans by Dec. 31.
Known as required minimum distributions (RMDs), these payments normally must be made by the end of 2015. But a special rule allows first-year recipients of these payments, those who reached age 70½ during 2015, to wait until as late as April 1, 2016 to receive their first RMDs. This means that those born after June 30, 1944 and before July 1, 1945 are eligible for this special rule. Though payments made to these taxpayers in early 2016 can be counted toward their 2015 RMD, they are still taxable in 2016.
This is the second in a series of weekly tax preparedness releases designed to help taxpayers begin planning to file their 2015 return.
The required distribution rules apply to owners of traditional, Simplified Employee Pension (SEP) and Savings Incentive Match Plans for Employees (SIMPLE) IRAs but not Roth IRAs while the original owner is alive. They also apply to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.
An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount on Form 5498 in Box 12b. For a 2015 RMD, this amount is on the 2014 Form 5498 normally issued to the owner during January 2015.
The special April 1 deadline only applies to the RMD for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, for example, a taxpayer who turned 70½ in 2014 (born after June 30, 1943 and before July 1, 1944) and received the first RMD (for 2014) on April 1, 2015 must still receive a second RMD (for 2015) by Dec. 31, 2015.
The RMD for 2015 is based on the taxpayer’s life expectancy on Dec. 31, 2015, and their account balance on Dec. 31, 2014. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Use the online worksheets on IRS.gov or find worksheets and life expectancy tables to make this computation in the Appendices to Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).
For most taxpayers, the RMD is based on Table III (Uniform Lifetime Table) in IRS Publication 590-B. So for a taxpayer who turned 72 in 2015, the required distribution would be based on a life expectancy of 25.6 years. A separate table, Table II, applies to a taxpayer whose spouse is more than 10 years younger and is the taxpayer’s only beneficiary.
Though the RMD rules are mandatory for all owners of traditional, SEP and SIMPLE IRAs and participants in workplace retirement plans, some people in workplace plans can wait longer to receive their RMDs. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulations in Publication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.
If you have any questions or concerns, contact Neikirk, Mahoney & Smith PLLC at 502-896-2999.
Friday, October 30, 2015
Monday, October 26, 2015
IRS, States, Industry Continue Progress to Protect Taxpayers from Identity Theft
From Neikirk, Mahoney & Smith, the Internal Revenue Service, state tax administrators and leaders of the tax industry announced today continued progress to expand and strengthen protections against identity theft refund fraud for the 2016 tax season.
The public-private sector partnership announced success in identifying and testing more than 20 new data elements on tax return submissions that will be shared with the IRS and the states to help detect and prevent identity-theft related filings. In addition, the software industry is putting in place enhanced identity requirements and validation procedures for their customers to protect accounts from identity thieves.
“This unprecedented partnership continues to put strong new safeguards in place for the 2016 tax season,” IRS Commissioner John Koskinen said. “We are breaking new ground in the battle against identity theft. Taxpayers will have more protection than ever when they file their tax returns.”
Known as the Security Summit, the unprecedented collaborative effort began in March and culminated in the development of several recommendations in June between the IRS, leaders of tax preparation and software firms, payroll and tax financial product processors and state tax administrators. Security Summit participants also identified additional topics for collaboration in the months ahead, and have continued to work together as a group to leverage their collective resources and efforts to protect taxpayers.
Koskinen and other leaders met in Washington, D.C., Tuesday to update the effort. To date, 34 state departments of revenue and 20 tax industry members have signed memorandums of understanding regarding roles, responsibilities and information sharing, with more expected to sign later.
As part of the Security Summit process, members from the IRS, states and industry are co-chairing and serving on several teams. The teams have focused on a number of areas including improved validation of the authenticity of taxpayers and information included on tax return submissions, increased information sharing to improve refund fraud detection and expand prevention, as well as more sophisticated threat assessment and strategy development to prevent risks and threats.
The industry and government groups identified numerous new data elements that can be shared at the time of filing with the IRS and states to help authenticate a taxpayer and detect identity theft refund fraud. There are more than 20 new data components that will help detect possible identity theft. The data will be submitted with the tax return transmission for the 2016 filing season, a step that will help detect and prevent refund fraud on both the federal and state level.
Another component will enhance identity validation for taxpayers using tax software. These stronger steps will protect taxpayer accounts by creating stronger verification of customers. This effort will include creation of security questions and device identity recognition at the time of log-on — both steps being used in the financial sector.
“We are taking new steps upfront to protect taxpayers at the time they file and beyond,” Koskinen said. “Thanks to the cooperative efforts taking place between the industry, the states and the IRS, we will have new tools in place this January to protect taxpayers during the 2016 filing season.”
In addition to the states and companies from the private sector, the summit team includes several groups including the Federation of Tax Administrators (FTA) representing the states, the Council for Electronic Revenue Communication Advancement (CERCA) and the American Coalition for Taxpayer Rights (ACTR). A wide variety of groups have also joined in supporting the summit effort, including Free File Inc., the National Association of Computerized Tax Processors, the Network Branded Prepaid Card Association and the Financial Services Roundtable.
If you have any questions or concerns, contact Neikirk, Mahoney & Smith PLLC at 502-896-2999.
The public-private sector partnership announced success in identifying and testing more than 20 new data elements on tax return submissions that will be shared with the IRS and the states to help detect and prevent identity-theft related filings. In addition, the software industry is putting in place enhanced identity requirements and validation procedures for their customers to protect accounts from identity thieves.
“This unprecedented partnership continues to put strong new safeguards in place for the 2016 tax season,” IRS Commissioner John Koskinen said. “We are breaking new ground in the battle against identity theft. Taxpayers will have more protection than ever when they file their tax returns.”
Known as the Security Summit, the unprecedented collaborative effort began in March and culminated in the development of several recommendations in June between the IRS, leaders of tax preparation and software firms, payroll and tax financial product processors and state tax administrators. Security Summit participants also identified additional topics for collaboration in the months ahead, and have continued to work together as a group to leverage their collective resources and efforts to protect taxpayers.
Koskinen and other leaders met in Washington, D.C., Tuesday to update the effort. To date, 34 state departments of revenue and 20 tax industry members have signed memorandums of understanding regarding roles, responsibilities and information sharing, with more expected to sign later.
As part of the Security Summit process, members from the IRS, states and industry are co-chairing and serving on several teams. The teams have focused on a number of areas including improved validation of the authenticity of taxpayers and information included on tax return submissions, increased information sharing to improve refund fraud detection and expand prevention, as well as more sophisticated threat assessment and strategy development to prevent risks and threats.
The industry and government groups identified numerous new data elements that can be shared at the time of filing with the IRS and states to help authenticate a taxpayer and detect identity theft refund fraud. There are more than 20 new data components that will help detect possible identity theft. The data will be submitted with the tax return transmission for the 2016 filing season, a step that will help detect and prevent refund fraud on both the federal and state level.
Another component will enhance identity validation for taxpayers using tax software. These stronger steps will protect taxpayer accounts by creating stronger verification of customers. This effort will include creation of security questions and device identity recognition at the time of log-on — both steps being used in the financial sector.
“We are taking new steps upfront to protect taxpayers at the time they file and beyond,” Koskinen said. “Thanks to the cooperative efforts taking place between the industry, the states and the IRS, we will have new tools in place this January to protect taxpayers during the 2016 filing season.”
In addition to the states and companies from the private sector, the summit team includes several groups including the Federation of Tax Administrators (FTA) representing the states, the Council for Electronic Revenue Communication Advancement (CERCA) and the American Coalition for Taxpayer Rights (ACTR). A wide variety of groups have also joined in supporting the summit effort, including Free File Inc., the National Association of Computerized Tax Processors, the Network Branded Prepaid Card Association and the Financial Services Roundtable.
If you have any questions or concerns, contact Neikirk, Mahoney & Smith PLLC at 502-896-2999.
Tuesday, September 29, 2015
How Your Income Affects Your Premium Tax Credit
shared by Neikirk, Mahoney & Smith, a CPA Firm
The Internal Revenue Service says you are allowed a premium tax credit only for health insurance coverage you purchase through the Marketplace for yourself or other members of your tax family. However, to be eligible for the premium tax credit, your household income must be at least 100, but no more than 400 percent of the federal poverty line for your family size. An individual who meets these income requirements must also meet other eligibility criteria.
The amount of the premium tax credit is based on a sliding scale, with greater credit amounts available to those with lower incomes. Based on the estimate from the Marketplace, you can choose to have all, some, or none of your estimated credit paid in advance directly to your insurance company on your behalf to lower what you pay out-of-pocket for your monthly premiums. These payments are called advance payments of the premium tax credit. If you do not get advance credit payments, you will be responsible for paying the full monthly premium.
If the advance credit payments are more than the allowed premium tax credit, you will have to repay some or all the excess. If your projected household income is close to the 400 percent upper limit, be sure to consider the amount of advance credit payments you choose to have paid on your behalf. You want to consider this carefully because if your household income on your tax return is 400 percent or more of the federal poverty line for your family size, you will have to repay all of the advance credit payments made on behalf of you and your family members.
For purposes of claiming the premium tax credit for 2014 for residents of the 48 contiguous states or Washington, D.C., the following table outlines household income that is at least 100 percent but no more than 400 percent of the federal poverty line:
Federal Poverty Line for 2014 Returns 100% of FPL 400% of FPL One Individual $11,490 up to $45,960 Family of two $15,510 up to $62,040 Family of four $23,550 up to $94,200
The Department of Health and Human Services provides guidelines for residents of the 48 contiguous states and Washington D.C., one for Alaska residents and one for Hawaii residents. For purposes of the premium tax credit, eligibility for a certain year is based on the most recently published set of poverty guidelines at the time of the first day of the annual open enrollment period for coverage for that year. As a result, the premium tax credit for 2014 is based on the guidelines published in 2013. The premium tax credit for coverage in 2015 is based on the 2014 guidelines.
For more information, you can spend hours digging through irs.gov or you can spend a half hour on the phone with one of the tax professionals at Neikirk, Mahoney & Smith at (502) 896-2999. |
Friday, September 11, 2015
Many Businesses Must File Their Tax Returns by Sept. 15
The Internal Revenue Service today reminded corporations and partnerships that took extensions to file their income tax returns by the Sept. 15 deadline, which applies to any business whose fiscal year is also the calendar year.
The IRS continues to see strong growth in corporations and partnerships shifting from paper returns to e-file. As of Aug. 30, more than 6 million corporations and partnerships have electronically filed their returns this year, representing a nearly 8 percent overall increase from the prior year.
Most large corporations and partnerships are already required to e-file. Corporations with $10 million or more in total assets are generally required to e-file Forms 1120 and 1120S. Partnerships with more than 100 partners as defined by their Schedules K-1 filings are also generally required to e-file their returns.
The use of e-file has also shown strong growth this year among businesses not required to use it.
Information on the benefits of e-file and details about the Modernized e-File (MeF) program are available at IRS.gov - or by calling Neikirk, Mahoney & Smith at 502-896-2999. The IRS expects to receive millions more e-filed returns by the deadline.
The IRS continues to see strong growth in corporations and partnerships shifting from paper returns to e-file. As of Aug. 30, more than 6 million corporations and partnerships have electronically filed their returns this year, representing a nearly 8 percent overall increase from the prior year.
Most large corporations and partnerships are already required to e-file. Corporations with $10 million or more in total assets are generally required to e-file Forms 1120 and 1120S. Partnerships with more than 100 partners as defined by their Schedules K-1 filings are also generally required to e-file their returns.
The use of e-file has also shown strong growth this year among businesses not required to use it.
Information on the benefits of e-file and details about the Modernized e-File (MeF) program are available at IRS.gov - or by calling Neikirk, Mahoney & Smith at 502-896-2999. The IRS expects to receive millions more e-filed returns by the deadline.
HIRE Act Update from Neikirk, Mahoney & Smith
Under the Hiring Incentives to Restore Employment (HIRE) Act, enacted March 18, 2010, two new tax benefits are available to employers who hire certain previously unemployed workers (“qualified employees”).
The first, referred to as the payroll tax exemption, provides employers with an exemption from the employer’s 6.2 percent share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.
In addition, for each qualified employee retained for at least 52 consecutive weeks, businesses will also be eligible for a general business tax credit, referred to as the new hire retention credit, of 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000.
If you have questions, contact Neikirk, Mahoney & Smith CPAs at 502-896-2999.
The first, referred to as the payroll tax exemption, provides employers with an exemption from the employer’s 6.2 percent share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.
In addition, for each qualified employee retained for at least 52 consecutive weeks, businesses will also be eligible for a general business tax credit, referred to as the new hire retention credit, of 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000.
If you have questions, contact Neikirk, Mahoney & Smith CPAs at 502-896-2999.
Monday, August 31, 2015
Filing an Amended Tax Return
From Neikirk, Mahoney & Smith CPAs, here are the Internal Revenue Services' Top 10 Tax Tips about Filing an Amended Tax Return
We all make mistakes so don’t panic if you made one on your tax return. You can file an amended return if you need to fix an error. You can also amend your tax return if you forgot to claim a tax credit or deduction. Men with big dogs won't show up at your door if you goof, but here are some tips to help you handle this sort of thing.
1. When to amend. You should amend your tax return if you need to correct your filing status, the number of dependents you claimed, or your total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return.
Note: If, as allowed by recent legislation, you plan to amend your tax year 2014 return to retroactively claim the Health Coverage Tax Credit, see IRS.Gov/HCTC first for more information.
2. When NOT to amend. In some cases, you don’t need to amend your tax return. The IRS usually corrects math errors when processing your original return. If you didn’t include a required form or schedule, the IRS will send you a notice via U.S. mail about the missing item.
3. Form 1040X. Use Form 1040X to amend a federal income tax return that you filed before. Make sure you check the box at the top of the form that shows which year you are amending. Since you can’t e-file an amended return, you’ll need to file your Form 1040X on paper and mail it to the IRS.
Form 1040X has three columns. Column A shows amounts from the original return. Column B shows the net increase or decrease for the amounts you are changing. Column C shows the corrected amounts. You should explain what you are changing and the reasons why on the back of the form.
4. More than one year. If you file an amended return for more than one year, use a separate 1040X for each tax year. Mail them in separate envelopes to the IRS. See "Where to File" in the instructions for Form 1040X for the address you should use.
5. Other forms or schedules. If your changes have to do with other tax forms or schedules, make sure you attach them to Form 1040X when you file the form. If you don’t, this will cause a delay in processing.
6. Amending to claim an additional refund. If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return. Amended returns take up to 16 weeks to process. You will receive any additional refund you are owed.
7. Amending to pay additional tax. If you’re filing an amended tax return because you owe more tax, you should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.
8. Corrected Forms 1095-A. If you or anyone on your return enrolled in qualifying health care coverage through the Health Insurance Marketplace, you should have received a Form 1095-A, Health Insurance Marketplace Statement. You may have also received a corrected Form 1095-A. If you filed your tax return based on the original Form 1095-A, you do not need to file an amended return based on a corrected Form 1095-A. This is true even if you would owe additional taxes based on the new information. However, you may choose to file an amended return.
In some cases, the information on the new Form 1095-A may lower the amount of taxes you owe or increase your refund. You may also want to file an amended return if:
You filed and incorrectly claimed a premium tax credit, or
You filed an income tax return and failed to file Form 8962, Premium Tax Credit, to reconcile your advance payments of the premium tax credit.
Before amending your return, if you received a letter regarding your premium tax credit or Form 8962 you should follow the instructions in the letter.
9. When to file. To claim a refund file Form 1040X no more than three years from the date you filed your original tax return. You can also file it no more than two years from the date you paid the tax, if that date is later than the three-year rule.
10. Track your return. You can track the status of your amended tax return three weeks after you file with “Where’s My Amended Return?” This tool is available on IRS.gov or by phone at 866-464-2050.
Still have questions? Contact Neikirk, Mahoney & Smith at (502) 896-2999.
We all make mistakes so don’t panic if you made one on your tax return. You can file an amended return if you need to fix an error. You can also amend your tax return if you forgot to claim a tax credit or deduction. Men with big dogs won't show up at your door if you goof, but here are some tips to help you handle this sort of thing.
1. When to amend. You should amend your tax return if you need to correct your filing status, the number of dependents you claimed, or your total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return.
Note: If, as allowed by recent legislation, you plan to amend your tax year 2014 return to retroactively claim the Health Coverage Tax Credit, see IRS.Gov/HCTC first for more information.
2. When NOT to amend. In some cases, you don’t need to amend your tax return. The IRS usually corrects math errors when processing your original return. If you didn’t include a required form or schedule, the IRS will send you a notice via U.S. mail about the missing item.
3. Form 1040X. Use Form 1040X to amend a federal income tax return that you filed before. Make sure you check the box at the top of the form that shows which year you are amending. Since you can’t e-file an amended return, you’ll need to file your Form 1040X on paper and mail it to the IRS.
Form 1040X has three columns. Column A shows amounts from the original return. Column B shows the net increase or decrease for the amounts you are changing. Column C shows the corrected amounts. You should explain what you are changing and the reasons why on the back of the form.
4. More than one year. If you file an amended return for more than one year, use a separate 1040X for each tax year. Mail them in separate envelopes to the IRS. See "Where to File" in the instructions for Form 1040X for the address you should use.
5. Other forms or schedules. If your changes have to do with other tax forms or schedules, make sure you attach them to Form 1040X when you file the form. If you don’t, this will cause a delay in processing.
6. Amending to claim an additional refund. If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return. Amended returns take up to 16 weeks to process. You will receive any additional refund you are owed.
7. Amending to pay additional tax. If you’re filing an amended tax return because you owe more tax, you should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.
8. Corrected Forms 1095-A. If you or anyone on your return enrolled in qualifying health care coverage through the Health Insurance Marketplace, you should have received a Form 1095-A, Health Insurance Marketplace Statement. You may have also received a corrected Form 1095-A. If you filed your tax return based on the original Form 1095-A, you do not need to file an amended return based on a corrected Form 1095-A. This is true even if you would owe additional taxes based on the new information. However, you may choose to file an amended return.
In some cases, the information on the new Form 1095-A may lower the amount of taxes you owe or increase your refund. You may also want to file an amended return if:
You filed and incorrectly claimed a premium tax credit, or
You filed an income tax return and failed to file Form 8962, Premium Tax Credit, to reconcile your advance payments of the premium tax credit.
Before amending your return, if you received a letter regarding your premium tax credit or Form 8962 you should follow the instructions in the letter.
9. When to file. To claim a refund file Form 1040X no more than three years from the date you filed your original tax return. You can also file it no more than two years from the date you paid the tax, if that date is later than the three-year rule.
10. Track your return. You can track the status of your amended tax return three weeks after you file with “Where’s My Amended Return?” This tool is available on IRS.gov or by phone at 866-464-2050.
Still have questions? Contact Neikirk, Mahoney & Smith at (502) 896-2999.
Friday, August 28, 2015
Freshly released income statistics
The Internal Revenue Service today announced the availability of Statistics of Income—2013, Individual Income Tax Returns Complete Report (Publication 1304). U.S. taxpayers filed almost 147.4 million individual income tax returns for tax year 2013, up 1.7 percent from 2012. The adjusted gross income less deficit reported on these returns fell $6.5 billion, which is a 0.1-percent decrease from the prior year.
The report is based on a sample drawn from the 147.4 million individual income tax returns filed for tax year 2013 and provides estimates on sources of income, adjusted gross income, exemptions, deductions, taxable income, income tax, modified income tax, tax credits, self-employment tax, and tax payments.
Classifications include tax status, size of adjusted gross income, marital status, age, and type of tax computation.
Other interesting stats include:
The report is based on a sample drawn from the 147.4 million individual income tax returns filed for tax year 2013 and provides estimates on sources of income, adjusted gross income, exemptions, deductions, taxable income, income tax, modified income tax, tax credits, self-employment tax, and tax payments.
Classifications include tax status, size of adjusted gross income, marital status, age, and type of tax computation.
Other interesting stats include:
- High-Income Tax Returns for 2012. For 2012, there were more than 5 million individual income tax returns with an income of $200,000 or more, accounting for almost 4 percent of all returns for the year. The total number of returns with incomes of $200,000 or more increased by almost 12 percent compared to the total number of returns at that income level for 2011.
- Foreign-Controlled Domestic Corporations, 2012. Although foreign-controlled domestic corporations made up just over one percent of all corporate Federal income tax returns filed for tax year 2012, they accounted for about 16 percent of all corporate receipts – $4.7 trillion and held more than 14 percent of corporate assets – about $12.3 trillion.
If you'd like to learn more about these or any other tax-related subjects, contact Neikirk, Mahoney & Smith at (502) 896-2999 or visit us online at http://nmscpas.com/
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