We want to wish our community, neighbors, family, friends and employees a safe, fun, and patriotic Fourth of July celebration.
K&R Certified Public Accountants wants to take this opportunity to recognize the sacrifice of all our brave men and women in uniform. We are free due to the sacrifices of those that came before us. Thank you to all those that are currently protecting America. Enjoy the holiday and remember those that have paid the ultimate sacrifice.
Take Advantage of New Retirement Rules
With the passage of the SECURE Act in late 2019, many tax law changes impact retirement plans. Here are some of the major changes and new ideas to help you take advantage of them.
Inherited retirement accounts require more planning
Gone are the days of passing your retirement account to a grandchild and having the grandchild withdraw the funds over their longer lifetime. Sometimes these “stretch” rules can result in having 30-plus years to withdraw funds. Stretch rules provided a benefit versus having to pay the tax on a lump-sum distribution of the entire account due to progressive tax rates. Beginning in 2020, the MAXIMUM allowed distribution time frame is limited to 10 years for newly-inherited IRAs. (IRAs inherited before 2020 can still be withdrawn over a person’s lifetime.)
Taking advantage. Estate planning just got a lot more important. First, know that the limited stretch rules DO NOT apply to:
- Surviving spouses.
- Minor children, up to age 18 (majority is 19 in 2 states) – but not grandchildren.
- Disabled individuals – using IRS rules.
- Chronically ill individuals.
- Individuals not more than 10 years younger than the IRA owner (generally, siblings around the same age).
Second, by properly structuring the beneficiaries on each account you can help provide planning flexibility for your heirs.
Third, if you receive inherited funds, know that you often have a number of distribution options available to you. They include a lump-sum distribution, a five-year distribution rule, rollover options, and this new ten-year rule. It will require tax planning and knowledge of inherited account rules.
More time before you MUST take money out
You now have until age 72 before you are required to take minimum distributions from qualified retirement accounts. This is an increase from the complicated age 70 1/2 rule. Retirement savings that need to be reported as taxable income when withdrawn can now be left alone to grow for an additional 18 months before distributions are mandatory and your taxable income increases.
Taking advantage: Now that the age is a simple number, it should help clear up confusion around when you need to start taking money out of your accounts. But more importantly if you are age 70 1/2, you have an extra year and a half to minimize the tax bite on your distributions. By efficiently planning your withdrawal amounts before age 72 you can often reduce the tax on these funds when withdrawn. So review the minimum distribution requirements of your IRAs, 401(k)s and your other retirement savings accounts and develop a plan to take advantage of this new rule.
Time for a new job?
You can now contribute to a traditional IRA at any age! While you have always been able to contribute to a Roth IRA at any age, 70½ was the cut-off for making contributions to a traditional IRA. The only condition to this rule is you must have earned income (wages or self-employment income).
If you are over age 50 you and your spouse can each contribute $7,000 to a traditional or Roth IRA ($6,000 for those under age 50 plus a $1,000 catch up provision).
Taking advantage: Consider getting a part-time job or do some consulting so you can earn up to $7,000 each year to contribute to your IRA. You can decide if you wish to contribute to either a Roth IRA or a traditional IRA depending on your situation.
Other changes worth noting
In addition to the above changes, there are also new rules that:
- Allow qualified part-time workers to participate in their employer’s 401(k) retirement savings plans. (Mention to your CEO there is a tax credit for this.)
- Allow new parents to fund up to $5,000 of the cost a birth or adoption out of retirement plan funds without early withdrawal penalties.
- Allow employers to automatically pull more of an employee’s pay and put it into the employee’s retirement account.
If you would like to discuss how these changes may apply to you or someone you know please call.
Despite past, present and future changes to the tax rules, some year-end tax-planning advice remains unwavering. Here are a few time-tested strategies to consider:
- Maximize retirement plan contributions. You’ve heard this advice many times because it’s one of the best strategies for saving tax dollars, especially when wages are your primary source of income. The maximum contribution to a 401(k) for 2019 is $19,000. You can increase that by an additional $6,000 if you’re 50 or older. For SIMPLE plans, the maximum 2019 contribution is $13,000, and the catch-up amount is $3,000. Can’t manage the entire amount? Try to contribute enough to take full advantage of any matching contributions offered by your employer.
- Time itemized deductions. Amounts you pay for medical fees, property taxes and mortgage interest are deductible in the year you pay them. However, some expenses must exceed a percentage of your adjusted gross income (AGI) before you receive any tax benefit. For example, out-of-pocket medical costs have to be greater than 10 percent of your AGI for 2019. Have less than you need to itemize? Consider accelerating or postponing expenses when possible to shift the deductions into the current or future year, depending on which year gives you the bigger tax break.
- Make the most of charitable donations. Payroll contribution programs and checks written and mailed to your chosen charity before year-end can get you a tax deduction, as can credit card charges made by Dec. 31. Donating appreciated stock owned for more than one year is a charitable tax-saver that gives you an itemized deduction for the fair market value of the stock while letting you avoid the capital gains tax generated by a sale. Keep in mind that you have to itemize to claim charitable contributions, and you must have written documentation of your donation.
- Take your required minimum distribution. If you’re required to take distributions from your retirement plan, do so by Dec. 31, 2019 or you face a 50 percent penalty. If you just turned 70½ this year, you could wait until April 1, 2020, to take the first distribution.
Give us a call to discuss these tax tips and other ways you can save.
How could the government shutdown impact my tax filing?
As we sit here today on January 21, 2019, the government shutdown is now approaching its 30th day. Politics aside, government workers, contractors that work on government contracts, and millions of others who service or transact business with these families have been impacted, and for that reason, we all wish that this would come to a quick resolution.
Despite the government shutdown, and a majority of IRS offices either closed or understaffed, tax season and tax filing deadlines move forward. We hope this brief update will help you navigate the potential impact the shutdown may have on you.
First, if you are currently attempting to resolve a dispute with the IRS please take note of the following: If you are trying to communicate with the IRS to clear up a tax notice received by the IRS through submission of additional documents or phone call/fax correspondence; our office suggests that any payment or documentation being mailed to the IRS be sent through certified mail with tracking. Packages often get misplaced or lost when sending to the IRS during normal working conditions, and the likelihood that this will occur in a government shutdown is much greater. As always, keep copies of
Preparing for this year’s tax deadline: Continue to collect and gather your year-end tax documents, such as W2s, 1099s, 1098s, K1s, etc. The deadline for companies to submit tax documents to employees and investors has not changed. You should still receive all your tax-related documents as you have in years past. If you are missing a tax document contact the employer, bank or issuing company that had previously sent it and confirm they issued that document this year. The IRS does have an online tool to access tax transcripts if you need a history of a prior year’s tax returns. www.irs.gov/individuals/get-trascript
It is our understanding that the IRS is accepting submission of tax returns, and as stated previously no filing deadlines have been adjusted as a result of the shutdown. So keep getting your tax documents loaded into our Intuit Link portal link.intuit.com so that our staff can prepare your return in a timely manner.
The final impact that a majority of taxpayers are concerned about is the
If you have additional questions regarding the shutdown and its impact on your tax return, please contact our office.
As always, we look forward to working with all our clients this tax season.