5 Things You Should know about Required Minimum Distributions (RMD) from Retirement Accounts10/29/2013 Required minimum distributions (RMDs) are amounts you are required to take from qualified retirement plans and IRAs in order to avoid a 50% penalty on insufficient annual distributions.
Here are 5 things to know: 1. If you turned 70 1/2 in 2013, for example, you must take your first RMDs before the end of this year unless you postpone it until April 1, 2014. However, postponement means taking two RMDs in 2014 and that can adversely impact taxation of Social Security benefits in 2013 and result in increased Medicare premiums for Parts B and D in 2015. 2. If you are still working, you can postpone your RMDs from company retirement plans until you retire; this rule does not apply to IRAs. 3. RMDs for IRAs can be taken from one or more accounts. Total up all IRAs and then decide from which one or more accounts to take the required distribution amount. This rule does not apply to qualified retirement plans; separate RMDs are required from each type of retirement plan. 4. No lifetime distributions are required from Roth IRAs for the owner, but beneficiaries usually must draw down the accounts over their lifetime (a special rule applies to spouses). 5. The penalty for insufficient withdrawals can be waived if you ask the IRS to do so. You must explain why you failed to take RMDs and show that you remedied the situation as soon as you discovered the insufficiency. Stanek Tax Services · 15701 State Road 50 Ste 204 · Clermont, FL 34711 Tel: (407) 434-1040 · Fax: (877) 386-1040 · e-Mail: jay@stanektax.com
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It’s the gift that keeps on giving. Remember the government shutdown that ended last week? It seems the effects of that little debacle are rippling through the American tax system.
The Internal Revenue Service says the shutdown – and the furlough of federal workers that it mandated – meant that the IRS lost valuable time it would have used to program and test its tax processing systems. So the official start of filing, which would have been Jan. 21, 2014, will now be pushed back one or two weeks. That means filing won’t start any earlier than Jan. 28, and could start as late as Feb. 4. Very Bad Timing. About 90 percent of IRS operations were closed during the shutdown – and some major work projects were shut down entirely, putting the IRS nearly three weeks behind its timetable for the start of the 2014 tax season. The agency had big plans to add additional refund fraud and identity theft detection to the tax system, so there are extra training, programming and testing demands on the system this year. Acting IRS Commissioner Danny Werfel says the delay simply gives the IRS the time it needs to get ready. “Readying our systems to handle the tax season is an intricate, detailed process, and we must take the time to get it right,” Werfel said. “The adjustment to the start of the filing season provides us the necessary time to program, test and validate our systems so that we can provide a smooth filing and refund process for the nation’s taxpayers. We want the public and tax professionals to know about the delay well in advance so they can prepare for a later start of the filing season.” Early Birds Get No Worm. Werfel says taxpayers who attempt to send in paper returns before the announced start date will not get quicker attention. No returns will be processed before that new start date. In fact, the IRS is still digging out from the mountain of paperwork it got during the shutdown. The agency had about a million items being processed before the government shutdown – and another 400,000 came in while workers were on furlough. For now the bottom line is to use IRS automated systems whenever possible if you need assistance. The human-powered help lines are going to be very busy as they dig out of the shutdown’s backlog. Werfel urges patience. And that may be the best advice of all. The shutdown of the federal government has left some tax delinquents defenseless against U.S. Internal Revenue Service asset seizures, tax professionals said on Wednesday.
Some IRS tax collectors who pursue individuals and businesses that are delinquent are working through the shutdown, but IRS staff who help these taxpayers defend themselves from collectors have been furloughed, lawyers said. "The IRS can levy, but we can't get the help to stop the levy," said Diana Leyden, a tax lawyer and director of the low-income taxpayer clinic at the University of Connecticut. "This is a real problem." Leyden said her group assists as many as 140 people a year in fighting IRS disputes. Asked about the situation, a U.S. Treasury Department spokeswoman referred questions to the IRS's shutdown-contingency plan, which says the agency is continuing activities "necessary for the protection of government property," including "seizure cases." She declined to comment further. An IRS spokeswoman said the agency's "shutdown plan is consistent with (its) legal requirements." Under tax law, the IRS can seize property from Americans who have not paid their taxes. Known as levies, such seizures can target bank account balances, real estate or other assets. With the shutdown two days old and continuing, other parts of the IRS are closed, including its customer-service phone lines and its staff of full-time taxpayer advocates. IRS walk-in taxpayer assistance centers are also closed. The U.S. Tax Court, which handles about 90 percent of challenges by taxpayers to the IRS, is also closed. Despite this, tax levies are still being mailed automatically and enforced by IRS agents who were not furloughed. IRS levies can often be halted before a seizure occurs, but only when help is available, lawyers said. In Little Rock, Arkansas, Alicia Mitchell said she has two clients who are losing about $150 a month from their Social Security checks because of IRS levies. "That's the really frustrating part about the shutdown," said Mitchell, director of the low-income taxpayer clinic at the University of Arkansas that serves up to 150 clients a year. "There's no access for people who are really suffering from levies," she said. Levies are different from tax liens. A lien is a claim used as security for a tax debt, while a levy actually takes the assets or property to satisfy the tax debt. The IRS has furloughed all Taxpayer Advocate Service staffers, according to the IRS' Sept. 30 shutdown plan. Created in 1996, this service offers free help to taxpayers facing problems with the IRS in all 50 states. The Taxpayer Advocate Service did not exist in its current form during the last government shutdown in 1995-1996. For the six-month period ending in March, the Taxpayer Advocate handled 4,261 levy cases, according to a June report. The Internal Revenue Service has temporarily stopped sending out tax refunds, and the Tax Court has suspended operations during the federal government shutdown, as lawmakers in Congress continue their battle over delaying or defunding “Obamacare” for a year.
“Tax refunds will not be issued until normal government operations resume,” said the IRS. The IRS emphasized, however, that the underlying tax law remains in effect, and all taxpayers should continue to meet their tax obligations as normal. “Individuals and businesses should keep filing their tax returns and making deposits with the IRS, as they are required to do so by law,” said the IRS. “The IRS will accept and process all tax returns with payments, but will be unable to issue refunds during this time. Taxpayers are urged to file electronically, because most of these returns will be processed automatically.” In addition, the IRS noted that no live telephone customer service assistance will be available. However, most automated toll-free telephone applications will remain in operation. IRS walk-in taxpayer assistance centers will be closed, though. While federal government offices are closed, people who have appointments with the IRS related to examinations and audits, as well as tax collection, appeals or Taxpayer Advocate cases should assume their meetings are canceled, the IRS noted. IRS personnel will reschedule the meetings at a later date once the government shutdown ends. In addition, IRS computer systems will continue to mail out automated notices to taxpayers, but IRS employees will not be sending any paper correspondence during the period when the federal government is shut down. The IRS provided some basic steps to follow during this period: • Continue to file and pay taxes as normal. Individuals who have requested an extension of time to file should file their returns by Oct. 15, 2013. • All other tax deadlines remain in effect, including those covering individuals, corporations, partnerships and employers. The regular payroll tax deadlines remain in effect as well. • Taxpayers can file their tax returns electronically or on paper—although the processing of paper returns will be delayed until full government operations resume. Payments accompanying paper tax returns will still be accepted as the IRS receives them. • Tax refunds will not be issued until normal government operations resume. • Tax software companies, tax practitioners and Free File will remain available to assist with taxes. A number of IRS services will remain available, but in a limited way. For taxpayers and preparers seeking assistance, only the automated applications on the regular (800) 829-1040 telephone line will remain open. 8/29/2013
Ruling Provides Certainty, Benefits and Protections Under Federal Tax Law for Same-Sex Married Couples WASHINGTON -- The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage. The ruling implements federal tax aspects of the June 26th Supreme Court decision invalidating a key provision of the 1996 Defense of Marriage Act. “Today’s ruling provides certainty and clear, coherent tax filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve,” said Secretary Jacob J. Lew. “This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.” Under the ruling, same sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit. Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory, or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law. Legally-married same-sex couples generally must file their 2013 federal income tax return using either the “married filing jointly” or “married filing separately” filing status. Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations. Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011, and 2012. Some taxpayers may have special circumstances (such as signing an agreement with the IRS to keep the statute of limitations open) that permit them to file refund claims for tax years 2009 and earlier. Additionally, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income. How to File a Claim for Refund Taxpayers who wish to file a refund claim for income taxes should use Form 1040X, Amended U.S. Individual Income Tax Return. Taxpayers who wish to file a refund claim for gift or estate taxes should file Form 843, Claim for Refund and Request for Abatement. For information on filing an amended return, go to Tax Topic 308, Amended Returns at http://www.irs.gov/taxtopics/tc308.html or the Instructions to Forms 1040X and 843. Information on where to file your amended returns is available in the instructions to the form. Future Guidance Treasury and the IRS intend to issue streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses. Treasury and IRS also intend to issue further guidance on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the effective date of this Revenue Ruling. New York Governor Andrew M. Cuomo announced a new initiative Monday to encourage individuals who owe significant back taxes to the state to pay their bills by suspending their New York State driver licenses when their past-due tax liability exceeds $10,000.
The crackdown is the result of legislation introduced as part of the executive budget and signed into law earlier this year.“Our message is simple: tax scofflaws who don’t abide by the same rules as everyone else are not entitled to the same privileges as everyone else,” Cuomo said in a statement. “These worst offenders are putting an unfair burden on the overwhelming majority of New Yorkers who are hardworking, law-abiding taxpayers. By enacting these additional consequences, we’re providing additional incentives for the state to receive the money it is owed and we’re keeping scofflaws off the very roads they refuse to pay their fair share to maintain.” The new initiative is estimated to increase collections in the Empire State by $26 million this fiscal year and as much as $6 million annually hereafter. “It’s in every taxpayer’s best interest to pay all tax bills in full,” said Commissioner of Taxation and Finance Thomas H. Mattox. ”If you can’t pay in full, our staff is available to help you arrange a payment plan that will satisfy your debt.” The New York State Department of Taxation and Finance will send the first round of 16,000 suspension notices to delinquent taxpayers, who have 60 days from the mailing date to arrange payment with the Department. If the taxpayer fails to do so, the Department of Motor Vehicles will send a second letter providing an additional 15 days to respond. If the taxpayer again fails to arrange payment, their license will be suspended until the debt is paid or a payment plan is established. A taxpayer who drives while the suspension is in effect is subject to arrest and penalties, Cuomo’s office noted. Those with a suspended license can, however, apply for a restricted license, which allows them to drive to work, and return directly home. In New York State, 96 percent of taxes are paid by businesses and individuals who voluntarily meet their tax responsibilities, Cuomo’s office noted. The remaining 4 percent is collected through the tax department's audit, collections and criminal investigations programs. Many great businesses have been built out of hobbies and other income producing activities. Often these businesses start very small, as what some call "lifestyle" businesses that eventually create a little income. Over time, the entrepreneur is able to transition from a few evenings and weekends to a
full-time business. So, is your "business" a hobby or is your "hobby" a business? You should know that the Internal Revenue Service is stepping up efforts to prevent taxpayers from deducting losses on activities that aren't genuine businesses run to make a profit. The problem is that it's not so easy to tell a budding business from a hobby. Officials say new research shows taxpayer errors in this area are costing the government billions of dollars a year in unpaid taxes. Thus, auditors are "on the lookout" for people trying to deduct losses from hobbies. To underscore the agency's concern, the IRS recently issued a fact sheet that is aimed at "making sure that taxpayers know and abide by the rules." How are you supposed to figure out whether your activity qualifies as a genuine for-profit business? That can be exceptionally tricky. The IRS says you should consider several factors. Does the time and effort put into the activity indicate you intend to make a profit? Do you and your advisers have the knowledge needed to carry on the activity as a successful business? Another factor is whether you have made a profit in the past. The IRS says it "presumes" an activity is indeed carried on for profit if you have made a profit during at least three of the past five tax years, including the current year. The rule is different -- at least two of the past seven years -- for activities that consist primarily of breeding, showing, training or racing horses. There are other things you can do. Obtain a business license. This can go a long way in convincing everyone of your serious intentions about making a profit. It’s generally quite inexpensive to obtain one, and in most places, it’s the law anyway. Also, go to the local print shop and have some stationary, business cards and invoices printed. Opening a separate bank account and keeping separate records are also good ways to show that you’re regularly spending time working in your business. The key is to be cautious and realistic on how you approach your business and make sure to keep very good records. Don't mix expenses and revenues that may create red flags. And keep good records, including a separate checking account for your fledgling business venture. Finally, make sure you take advantage of my tax expertise. Ask questions. Be proactive. It’ll keep you out of trouble. Whether you roll the dice, bet on the ponies, play cards or enjoy slot machines, you should know that as a casual gambler, your gambling winnings are fully taxable and must be reported on your income tax return. You can also deduct your gambling losses…but only up to the extent of your winnings.
The IRS alerted taxpayers and tax professionals about an interest calculation error on certain notices mailed the weeks of July 1 and July 8.
The IRS discovered errors in the CP2000 notices during a two-week period this July. The notices contained an incorrect calculation on the interest owed on proposed taxes from under reported income. The interest figures were lower than they should be. The IRS has corrected the issue for future mailings. Later this month, the IRS will be sending a special mailing to the recipients of the notices. Taxpayers should follow the directions on the letter, and they will be encouraged to either call a special toll-free number or write to the IRS to receive the corrected interest amount. A CP2000 notice shows proposed changes to income tax returns based on a comparison of the income, payments, credits and deductions reported on a tax return with information reported by employers, banks, businesses and other payers. The CP2000 also reflects any corrections made to an original tax return during processing.
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