New Retirement Rules and You.

Take Advantage of New Retirement Rules

Take Advantage of New Retirement Rules image

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 (IRAs inherited before 2020 can still be withdrawn over a person’s lifetime.)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 Retirement savings that need to be reported as taxable income when withdrawn can now be left alone to grow for an additional 18 months before distributions are mandatory and your taxable income increases.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.

2019 tax deductions

Four Tax Moves To Make Before 2019 Ends.

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.

Government Shutdown’s Impact on Filings and Refunds.

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 your documents you send in, proof of mailing receipt, and make notes for future reference.  Our office has been largely unsuccessful in attempts to speak with a live person at the IRS since the shutdown.  We have been unsuccessful in attempts to fax documents to the IRS during the shutdown, receiving a kickback on all faxes sent since the shutdown began.  When the shutdown does end, expect even longer call times and difficulty getting in person appointments with the IRS as their schedule will be heavy for a few months following the shutdown.
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. 

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 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 issuance of tax refunds.  We have received mixed signals on the impact the shutdown could have on your tax refund.  In prior shutdowns tax refunds have been delayed.  However, the current administration has committed to the public that refunds will not be delayed.  As of 1/15/2019 60% of the IRS workforce had been re-called to their positions to ensure that during the shutdown refunds could still be issued.  We urge our clients that are concerned about receiving their refunds to take time to make sure they have collected all of their tax documents, submit them to our office and file for a refund using direct deposit for the 2019 filing season.  Properly collecting tax documents will ensure that the IRS does not hold up your refund.  In addition, clients will need to review and monitor their checking account to ensure that a correct refund was deposited after submission.  Although no delay is expected in issuing refunds we could see an influx of early submission of tax returns from US taxpayers in general, which could overload the already limited number of IRS staff currently working.  
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.

2018 Tax Changes: Tax Cuts and Jobs Act’s impact.

As we approach the end of the year, we hope that 2018 has been a successful year for you, your business, and your family.  We want to share with you a number of important tax items and changes as the end of the year approaches.  Since September, our staff has been meeting with clients to plan for the end of the year, working with many of our small business owners to ensure they are on track for our 2018 tax plan and begin putting into place a 2019 tax plan.  We still have some time in the next few weeks to meet and go over your tax needs.  If you cannot make it in before the end of the year, we can meet with you in 2019 to address any questions you may have.

In this blog, we will highlight the impact of the Tax Cuts and Job Act, passed in late 2017.

Impact of Tax Cuts and Jobs Act for Individuals:

  • The biggest change for almost every taxpayer is the new tax rates.  The new tax rates include the following percentages, 10%, 12%, 22%, 24%, 32%, 35%, and 37%.  If you are a married couple with taxable income between $77,000 to $165,000 you fall in the 22% tax range, married couples making more than $165,000 but less than $315,000 will fall in the 24% tax range.  For a full breakdown of the tax brackets please visit our website and view our December 24, 2017 entry regarding the tax update.
  • The Alternative Minimum Tax (AMT) has been adjusted to impact fewer taxpayers.  This is a relief for taxpayers who had previously been impacted by AMT.
  • The standard deduction was almost doubled from $12,000 to $24,000.  This change along with the limitation of State and Local Income Taxes (explained below in item 7) could result in fewer taxpayers that itemize their deductions for 2018.
  • Dependent and personal exemptions were removed.  In replace of this lost deduction is the increased child tax credit discussed below.
  • A majority of the changes for individuals are temporary and set to revert back in 2026 unless extended by Congress.

Other impactful changes for our clients will include:

  1.  The child tax credit has been increased from $1000 to $2000 per child.  The credit was expanded to higher-income taxpayers, phasing out at $400,000 for joint filers and $200,000 for single filers.  There is also a $500 credit for dependent adult children or elderly parents.  The increased credit and increased phase-out limits will help offset the loss of the personal exemptions.
  2. Personal casualty losses have been removed from the tax code.
  3. Unreimbursed employee business expenses have been removed from the tax code.  This means that miles not reimbursed by an employer cannot be deducted on your personal return.
  4. Tax preparation fees for individuals are no longer deductible.
  5. Legal fees, job search expenses, safe deposit box fees, moving expenses, and investment expenses all have been removed from the tax code.
  6. Interest on Second Mortgages or Home Equity Lines of Credit (HELOCS) can only be deducted when used to buy, improve or build a home.  No longer can the interest be deducted if you are pulling money out to pay for college, car, or other non-home related expenses.
  7. State and Local Income taxes, including property and real estate taxes, are limited to $10,000 annually.
  8. Alimony payments made after 2018 are no longer taxable or tax- deductible.
  9. There is no longer a penalty for not having insurance after 2018.
  10. You can now use 529 accounts for elementary or secondary education.  Up to $10,000 per year can be withdrawn.
  11. The annual gift tax exemption remains at $15,000 per person per individual receiving the gift.
  12. Kiddie tax law has changed significantly.  Minor children with unearned income will pay higher taxes.  Contact our office to learn more.

Business Owners Tax Changes:

  • The corporate tax rate for Corporations, taxed as a C Corp, (not flow through entities) is a flat 21%.  
  • One of the changes for a majority of our business owners is the 20% deduction of qualified business income.  This deduction is available for most taxpayers who make under $315,000 in combined taxable income and available for those that make over this amount if they are not in a specified service business.  If you have an LLC, S Corporation, Partnership or sole proprietorship and need help navigating this change in the tax code please contact our at (314) 720-8686 office today to schedule a tax planning session.
  • Entertainment expenses such as sporting event tickets are no longer tax-deductible as entertainment-related expenditures.

Year End Notes:

  • Remember if you operate a trade or business and have paid vendors more than $600 for services, rents, or prizes that vendor should receive a 1099 form.  Please contact our office if you would like assistance in preparing your 1099 Forms.
  • 4th Quarter Estimated tax payments are due January 15, 2019.  Contact our office today for help with your final 2018 tax payment.
  • Invites for our online electronic portal called Intuit Link, supported by ProConnect Intuit will be coming out by the first of the year.  If you do not receive your invite by January 5, 2019, please contact our office and we can resend the invite.
  • In 2019, K&R Certified Public Accountants will be uploading all completed tax returns into the Intuit Link portal so that our clients have year-round access to their finished tax returns. We’re making access easy for all of our Missouri business and individual clients.

Have a great Holiday and Happy New Year. 
We look forward to working with you in 2019.