Monthly Archives: June 2020

IRS Provides Additional 2020 RMD Rollover Relief

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Article Highlights:

CARES Act Waiver of RMDs
60-Day Rollover Period Extension
Further Rollover Relief
RMDs in General
Effect of Withholding on RMD Rollover
One IRA Rollover per 12 Months Rule

The CARES Act waived required minimum distributions (RMDs) from IRAs and employer plans such as 401(k)s for 2020. However, the CARES Act was not passed until March 27, 2020 and after many individuals had already taken their RMD for 2020. Some of these retirees would not have taken the distributions if they would have known about the waiver. That issue was originally alleviated when the federal government declared a coronavirus-related disaster that then enabled the IRS to extend numerous deadlines and due dates, including the rollover period for traditional IRAs and qualified employer plans such as 401(k)s. Accordingly, the IRS said that any 60-day rollover period that ended on or after April 1, 2020, and before July 15, 2020, was extended through July 15, 2020. This meant that distributions taken in January of 2020 weren’t covered by this extended rollover period. Normally, RMDs are not allowed to be rolled over, but because the CARES Act waives the requirement to take a 2020 distribution, these distributions are not treated as RMDs for 2020, but are considered distributions that are eligible to be rolled over. The IRS in Notice 2020-51 has now provided additional relief, including for those who took their RMD in January, by extending the normal 60-day rollover requirement and allowing individuals who took an RMD in 2020 to roll the RMD back into their IRA or retirement plan by no later than August 31, 2020. This means that if you took a distribution in 2020, you can roll it back (redeposit it) into the IRA or retirement plan and avoid being taxed on it in 2020, if you do so by August 31, 2020. RMDs are required distributions from qualified retirement plans and are commonly associated with traditional IRAs, but they also apply to 401(k)s and SEP IRAs. The tax code does not allow taxpayers to indefinitely keep funds in their qualified retirement plans. Eventually, these assets must be distributed, and taxes must be paid on those distributions. If a retirement plan owner takes no distributions, or if the distributions are not large enough, then he or she may have to pay a 50% penalty on the amount that is not distributed. The CARES Act RMD waiver applies to:

The 2020 RMD for taxpayers who turned 70½ before 2020.
The 2019 RMD for taxpayers who turned 70½ in 2019 and chose to defer their first distribution to 2020.
The 2020 RMD for taxpayers who turned 72 in 2020.
The RMDs for beneficiaries.

Be aware, however, that any part of the distribution from a traditional IRA or qualified retirement plan that you don’t roll over will be taxed. This means that if federal and/or state income tax was withheld from the distribution and you want to roll over the gross amount of the distribution so none of it is taxable in 2020, you will need to use funds other than those from the distribution in order to fully roll it over. Regrettably, the withholding can’t be refunded when you make the rollover. Instead, the withheld tax will be claimed as a credit on your 2020 return. In this case, your 2020 estimated tax installments and/or withholding on other income can be adjusted. The recent Notice also says that the IRS won’t treat recontributing an RMD to an IRA as a rollover for purposes of the rule that only one IRA rollover per 12-month period is permitted. Please call this office if you have any questions about RMDs and how rolling over an RMD you’ve already taken will impact your tax return.

Don’t Throw Away That Notice 1444

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Article Highlights:

Notice 1444
You May Qualify for Additional Credit on the 2020 Return
Tax Records

The IRS is mailing all recipients of Economic Impact Payments a Notice 1444 that provides information about the amount of their payment, how the payment was made and how to report any payment that wasn’t received. If you’ve already received your economic impact payment, you’ve probably already received this document too. This notice was issued from The White House and looks more like a letter than a traditional IRS notice, but the notice number is in the upper right of the heading, just below the date. For security reasons, the IRS mails this notice to each recipient’s last known address within 15 days after the payment goes out. Don’t discard this notice, as you may need it when your 2020 tax return is prepared. The economic impact payment is actually an advance payment of a refundable tax credit based upon your 2020 tax return. In order to get the money into people’s hands during the time of the greatest need, these payments generally were made based upon each individual’s 2019 return, or in some cases their 2018 return. However, your filing status, income and dependents may be different in 2020, and if the advance payment was less than what you are entitled to based upon the 2020 return, you will qualify for the difference as a refundable credit on your 2020 return.
Example: Don and Shirley, whose AGI is less than $150,000, are newlyweds with no children and filed a joint return in 2019. They receive an advance economic impact payment of $2,400. In 2020, they have a baby, and when their credit is determined on the 2020 return, it is $2,900 ($1,200 + $1,200 + $500). Since they only received $2,400 as an advance payment, they will be entitled to a $500 refundable credit on their 2020 return. The credit will first be used to reduce their tax, and then any excess credit will be refunded.
As you can see, it is important for you to keep Notice 1444 – Your Economic Impact Payment, with your tax records since it documents the payment you actually received. You should keep this notice filed with all your other important tax records, including W-2s from employers, 1099s from banks and other payers, other income documents and records to support tax deductions. If you have any questions regarding your economic impact payment, please call.

Posted in Tax

The July 15th Deadline Is Fast Approaching, and It Isn’t Just for the 2019 Individual Tax Return

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Article Highlights:

Extensions
Contributions to IRAs
Estimated Tax Payments for the First Two Quarters of 2020
Individual Refund Claims for the 2016 Tax Year
Foreign Account Reporting Requirements

Due to the COVID-19 emergency, the IRS provided taxpayers with an automatic three-month extension to July 15 to file their 2019 tax returns and pay the 2019 tax, among other tax actions normally due on April 15. So, with July 15th fast approaching, it is important to understand that the day is more than just the deadline for filing your 2019 tax return. It is also the deadline for other things tax. Here is a rundown.

1040 Extension – Those who are unable to file their 2019 individual 1040 tax return by the July 15th deadline need to file a Form 4868 extension, which will give them until October 15th to file the return. The tax liability shown on the extension should be paid with the extension form to avoid late payment penalties and interest. Penalties, interest, or additions to tax for failure to pay federal income taxes were disregarded during the April 15–to–July 15 extension-period window, but these will begin to accrue on July 16, 2020. CAUTION: While the Form 4868 extension is an extension for filing, it is not an extension for paying your tax liability. The Form 4868 instructions say (and tax courts have ruled) that for an extension to be valid, a taxpayer must properly estimate their tax liability, enter that tax liability on the form, and file the extension by the due date of the return, which is July 15th this year. The monthly penalty for not filing the 1040 tax return by the July 15th due date is 4½ percent of the tax due for late filing and ½ percent of the tax due for late payment. The maximum cumulative penalty rate is 25%; however, the ½ percent per month for late payment continues until the tax is paid. There is also a minimum penalty for 2019 returns not filed within 60 days of the return due date, including extensions. That penalty is the lesser of $435 or the amount due on the 2019 tax return. Importantly, if you do not owe or if you are getting a refund, there is no penalty because the penalties are based on a percentage of the tax due—if no tax is due, then no penalty is assessed. The IRS also charges interest on late payments and penalties. The rate is subject to quarterly adjustment and is currently at an annual rate of 5% of the amount owed, with interest accumulating daily.
Contributions to a Roth or Traditional IRA for the 2019 Tax Year – July 15th is the last day for making 2019 contributions to Roth or traditional IRAs. Form 4868 does not provide an extension for making IRA contributions.
Individual Estimated Tax Payments for the First Two Quarters of 2020 – Normally, the first installment of estimated taxes for a tax year is due on April 15th, and the second installment comes due on June 15th. For 2020, the IRS extended these due dates to July 15th, to coincide with the other COVID-19-related extensions. Taxpayers who fail to prepay the minimum (‘safe harbor’) amount may be subject to a penalty for underpayment of the estimated tax. This penalty is based on the interest on the underpayment, which is calculated using the short-term federal rate plus 3 percentage points. The penalty is computed on a quarter-by-quarter basis, so even people who have prepaid the correct overall amount for the year may be subject to the penalty if the amounts are not paid proportionally or in a timely way. However, for 2020, penalties for failure to pay federal income taxes during the April 15–to–July 15 period will be disregarded. Federal tax law does provide ways to avoid the underpayment penalty. For instance, if the underpayment is less than $1,000 (referred to as the de minimis amount), no penalty is assessed. In addition, two options exist for safe-harbor prepayments:
1. The first is based on the total tax on the current year’s return. There is no penalty when prepayments (including both withholding and estimated payments) equal or exceed 90% of the current year’s tax. 2. The second is based on the total tax amount (not including credits for prepayments) on the return for the preceding tax year. This is generally set at 100% of the prior year’s tax liability. However, taxpayers with adjusted gross income exceeding $150,000 (or $75,000 for married taxpayers filing separately) must pay 110% of the prior year’s tax liability to meet the safe-harbor test.

Individual Refund Claims for the 2016 Tax Year – The regular three-year statute of limitations for 2016 tax returns normally would have expired on April 15th of this year. However, due to the COVID-19 emergency, the statute of limitations was extended to July 15th. Thus, no refund will be granted for 2016 returns (original or amended) filed after July 15th. An exception is if a net operating loss is being carried to 2016; in this case, the usual three-year limitation for claiming a refund won’t apply as long as the statute is still open for the year when the net operating loss (NOL) occurred. However, taxpayers could risk missing out on the refundable Earned Income Tax Credit, the refundable American Opportunity Tax Credit for college tuition, and the refundable child credit for the 2016 tax year if they do not file before the statute of limitations ends. Caution: The statute does not apply to balances due for unfiled 2016 returns.
Foreign Account Reporting Requirements (FBAR) – For each United States person who has a financial interest in, signature, or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, that person must report that relationship to the U.S. government during each calendar year. This reporting requirement is commonly referred to as FBAR, and the due date is the same as that for individual 1040 returns. This report is submitted online to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), and the FBAR’s annual due date is April 15th. However, FinCEN grants an automatic extension to October 15th each year, so if you missed the April due date this year, you still have until October 15th to file the FBAR. Penalties for failing to file a FBAR are severe, and individuals should not overlook overseas family accounts on which they are named as account holders, or online foreign gambling accounts. If in doubt, call this office for further details.

If your income tax return is still pending because of missing information, please forward that information to this office as quickly as possible so that we can ensure your return meets the July 15th deadline. Keep in mind that the last week before the due date can be very hectic, and your returns may not be completed in time if you wait until the last minute. If you know that the missing information will not be available before the July 15th deadline, please let us know right away so that we can prepare an extension request (and 2020 estimated tax vouchers, if needed). If you have not yet completed your returns, please call this office right away so that we can schedule an appointment, estimate your taxes, and/or file an extension.

Posted in Tax

3 Ways to Receive Payments in QuickBooks Online

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If you made New Year’s resolutions this last January, you’ve probably had to revise them. No one knew what was coming when 2019 turned over to 2020. We hope that despite the turmoil and disruption of the last six months, you’ve managed to stay healthy and keep your small business running. It’s more important than ever to conscientiously record all of the money coming into your company and ensure that it gets deposited into your account(s). QuickBooks Online offers several ways to accomplish this. Whether you’re receiving payment on an invoice, documenting an instant sale, or selling on the road – the site provides tools to make certain that your receipt of the funds is entered in the correct place. Delayed Payments Do you send invoices for products and/or services? If so, there’s more than one way to record payments when they come in. You can, of course, just open the invoice and click Receive payment in the upper right corner. We find, though, that going to the All Sales screen gives us a chance to check the status of other pending transactions. Click Sales in the toolbar, then All Sales. If your list isn’t very long, you can just look for the invoice number. If not, you can use the Filter tool to find the original form. Click the down arrow next to Filter in the upper left to see your search options here (Status, Customer, etc.).
If you have a lengthy list of sales transactions, you can search for the one(s) you want in this drop-down window.
Once you’ve found the invoice, look down toward the end of that row. In the Action column, you’ll see Receive payment. (While you’re there, click the down arrow to familiarize yourself with the other options.) When the Receive Payment window opens, select the Payment method that applies. Leave the Deposit to field showing Undeposited Funds and look over the rest of the screen to make sure everything is accurate. Print it if you’d like and/or add an Attachment using the links at the bottom, then Save it.
Tip: Customers tend to pay invoices faster if you allow them to make payments online. If you’re not yet set up for this, we can help you.
Instant Payments Your business may collect payments at the time you provide a product or service. When this happens, you’ll want to supply your customers with a sales receipt instead of an invoice (this is also important for your own records). Click the +New button in the upper left and select Sales receipt under Customers to open a blank form. You’ll fill this out just like you would an invoice, by selecting the Customer first, then entering or selecting any data needed for the other fields. If you don’t anticipate needing all of the fields on your sales forms, you can remove some of them and even add your own. Ask us how this works.
If you’d like to add custom fields to your sales forms, you can do so in QuickBooks Online.
When you’ve completed all of the fields in your sales receipt, you can preview and print it. You can also save and email it to the customer. Going Mobile If you generate sales on the road, you can still create sales receipts for customers using the QuickBooks mobile app. Just click the plus (+) sign at the bottom of the screen and select Sales Receipt. The form is similar to the one you’d use on your desktop computer, though the layout is different, of course. Having a QuickBooks Payments account is especially helpful when you’re making mobile sales. You can even swipe your customers’ credit and debit cards if you order a card reader from Intuit. We can walk you through this process. You don’t ever want to record a payment incorrectly, of course, but it’s especially important right now to ensure that you’re accounting for every dollar that comes in. Please stay healthy and safe, and let us know if we can help in any way with your accounting and your use of QuickBooks Online.

What You Need to Know About the People First Initiative

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The global COVID-19 pandemic has presented significant challenges for American citizens from both the health and financial perspectives. Many individuals are looking for ways to reduce the financial impact of layoffs or furloughs they have experienced as a result of the shutdown in the economy. In an effort to relieve some of this burden, the Internal Revenue Service introduced the People First Initiative on March 25, 2020. The initiative outlines provisions for suspension of certain tax payments and reduction or suspension of IRS representative enforcement actions during this time.  The initiative is effective for the time period of April 1st, 2020 to July 15th, 2020 and covers a number of IRS processes. Installment Agreements An installment agreement is a payment plan set up with the Internal Revenue Service that allows you to pay your outstanding taxes over time. For taxpayers who currently have an installment agreement with the IRS, payments will be suspended on their accounts between April 1st, 2020 and July 15th, 2020. In addition, installment agreements will not be considered to be in default during this time. It is important to note that interest will continue to accrue during this time and all missed payments will be due once the extension period has expired. Offer in Compromise An offer in compromise is an agreement with the IRS that allows taxpayers experiencing financial hardship to settle their tax debts for less than the total amount owed. Depending on where a taxpayer is in the offer in compromise application process, there are several remedies available. If you currently have an offer in compromise agreement, you may opt to suspend your payments owed between April 1, 2020 and July 15th, 2020. Similarly to installment agreements, interest will continue to accrue and any payments missed during the relief period will become due at the end of the extension timeframe. If your application for an offer in compromise is still pending, you may have until July 15th in order to provide any additional requested information. The initiative also provides that applications for an offer in compromise may not be closed without the taxpayer’s permission during the covered period. For those with delinquent tax filings for the 2018 tax year, these late filings will not result in a defaulted offer in compromise agreement if the outstanding tax returns are filed prior to July 15th, 2020. Automated and Field Collection Activities Collection activities including liens and levies will be halted during the initiative period in most cases. It should be noted, however, that Internal Revenue Service representatives will continue to pursue actions related to high-income taxpayers as necessary. IRS Passport Certifications The IRS will suspend the submission of passport certifications to the State Department for seriously delinquent taxpayers. These certifications seek to prevent taxpayers with severely outstanding tax liabilities from renewing or receiving a new passport. IRS Collection Activity During the People First Initiative coverage period, the IRS will cease forwarding taxpayer accounts to third party collection agencies. IRS Audits The IRS is modifying its policies related to conducting audits in light of the current coronavirus pandemic. Where possible, IRS agents will conduct their audits remotely and any in-person meetings will be suspended during this time, although taxpayers are still encouraged to respond to outstanding requests to the extent possible. Some taxpayers may have received requests to verify their income information in order to confirm their qualification for the Earned Income credit. These individuals have until July 15th, 2020 to respond to this request. While provisions have been made to provide taxpayers with financial relief during the initiative period, the statute of limitations on the Internal Revenue Service will still apply. The IRS will take action to protect its interests should the expiration of the statute occur during this time. While the People First Initiative can offer much needed tax relief during an unprecedented time in our country, it is important to look closely at the details of the provisions and how they may apply to your circumstances. We can help you with understanding your current options. The July 15th deadline is quickly approaching, but it isn’t too late to take action. If you would like to learn more about the People First Initiative and how we can help sort out your IRS tax problems, please feel free to contact us for more information or to schedule an appointment.

Post-Pandemic Trends Shifting the Economy for Small Businesses Everywhere

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While it’s absolutely true that the ongoing COVID-19 pandemic has created significant challenges for small and large businesses alike, there are also some changes happening that can be viewed as less negative. Behaviors have changed during the Coronavirus outbreak, and some of these could end up being positive for small businesses in particular moving forward. In fact, there are a few core trends in particular that are nothing if not opportunities just waiting to be taken advantage of by a savvy entrepreneur that knows what he or she is doing. The Shift Towards Digital is Picking Up Speed With so many people spending more time indoors (even as lockdowns lift), it should come as no surprise that the shift towards digital business is picking up speed. Now, more than ever before, companies operating in the digital space are getting more and more successful – in large part because the options to do almost anything else were severely limited during stay-at-home phases and we’re still not back to pre-pandemic norms. This means that if you’re a small business owner, the barrier to actually get your organization off the ground has never been lower. You don’t need to worry about finding an ideal location and renting physical office space. Really, once you have your goods and/or services accounted for, all you need is a computer (or mobile device) and an Internet connection. Likewise, a lot of companies are enjoying success right now integrating e-commerce channels into their business that didn’t exist in the past. If you have a product that can be shipped (or even hand delivered), you can integrate a digital storefront into your existing website and allow people to place orders that way. Not only is it a great way to remain operational as COVID-19 drags on, but it’s also an opportunity to “future-proof” your operations in case mass shutdowns occur again in the future. The Flexibility of Location Independence Teleconferencing software like Skype and Zoom is certainly nothing new – the technology has existed in some form or another dating all the way back to the 1990s. But one thing that COVID-19 has ushered in is an era where businesses actually leverage this tech to create a whole new era of location independence in terms of HOW they offer their goods and services. One of the best examples of this is taking place in gyms across America as you read this. Fitness classes are regularly moving online so that people can still work out and stay healthy right from the comfort (and safety) of their own homes. Healthcare professionals are offering therapy and similar services over technologies like Teladoc and Apple’s FaceTime. You’re also even seeing a digital shift for professional services like this office holding online consultations and meetings – something that saves all parties a tremendous amount of time, effort and travel in exchange for a few quick mouse clicks and the use of a video camera for their computer. City Partnerships Give Businesses an Interesting Boost Another fascinating trend brought about in the wake of COVID-19 has to do with the unique business boosts taking place in cities across America. Case in point: restaurants. Even as states begin to open back up again, a lot of restaurants in particular are dealing with the fact that they’re only allowed to operate at 50% capacity (if that). Likewise, there are probably less-than-normal numbers of patrons who are enthusiastic right now about going into a physical restaurant to enjoy a “care-free night out on the town,” with virus fears and anxieties so high. So, what has happened? A lot of cities have partnered with restaurants to close streets for specific periods of time at night and on weekends so that those businesses can set up tables outdoors (yes ¬- some even in the middle of the street). Not only does this allow them to serve far more people than they could with their actual indoor option, but it’s a great way to promote social distancing and other safety measures while boosting small businesses as well. The Era of Remote Work is Upon Us Everyone knew that remote work had been getting more and more popular over the last several years, to the point where one recent study said that about 42% of the people who worked exclusively from home said that they’d been doing so for more than five years. The ongoing COVID-19 pandemic has certainly acted as an accelerant for this particular fire, however, and this is one factor that creates interesting implications for small businesses in particular moving forward. With so many Americans under strict stay-at-home orders at one point and with all non-essential businesses closed, more people were working remotely than ever before. Not only did employees realize that they actually enjoyed the freedom and flexibility that came with it, but their employers are also quickly realizing that most of them are just as productive at home – if not more so. Some of these employers have started to wonder if – even when things go “back to normal” – they should bother calling everyone back into the office again, or allow the remote work to continue. If employees are allowed to work from home a larger percentage of the time (or entirely, in some cases), small businesses can potentially save an enormous amount of money on utilities alone. They likely won’t need to invest in massive office spaces if far fewer people are actually using it, representing an additional cost savings and money that can be funneled into other areas of the business. Plus, some studies indicate that people are actually more productive when working from home – thus increasing not only the quality of the work being done but the revenue those employees are able to generate as well. The Future of Payments Last but not least we arrive at another trend that COVID-19 has highlighted over the last several months: the popularity of cashless and contactless payments. With the concern around germs changing hands, there’s no question that paying with cash is less popular in the time of coronavirus. Many businesses have even gone “cashless” – refusing to accept cash at all. “Contactless” payments take this one step further. Along with the various smartphone options (like Apple Pay and Google Pay), many debit and credit cards now include a contactless option where consumers simply wave or tap their card on the reader to pay. That’s it. No waiting for your card to register, no PIN, no signature – just a fast and seamless transaction. In an April Mastercard survey spanning 19 countries, 82% of respondents said they view contactless payments as “the cleaner way to pay.” The benefits of this for small businesses are as enormous as they are immediate. For starters, younger generations in particular actually prefer this to traditional payments – meaning that offering it as an option could be your ticket to attracting an entirely new audience. Likewise, research indicates that contactless transactions are far faster than their traditional counterparts – to the tune of 12.56 seconds on average compared to about 33.7 seconds for cash transactions and 26.7 seconds for conventional card transactions. So, not only are you giving people additional options in terms of how they pay for your goods and services, but you’re also creating an environment where you can execute more transactions in a faster, more secure way as well. It truly is a win-win situation, regardless of how you choose to look at it. In the end, it’s absolutely clear that the COVID-19 pandemic has changed the way we do business – likely for good. But for every struggle that the coronavirus brought with it, it’s also clear that it unlocked a world of new opportunities for businesses, too. That’s why, as more and more states are opening up and things are slowly returning “to normal,” a lot of small businesses are asking themselves how they can continue applying some of these new strategies for the long-term. Rather than return to the limitations of an era that has officially ended, they’re eager to embrace the opportunities that are now suddenly in front of them. The small business owners who are most successful through the COVID-19 crisis and beyond will likely be the ones who seize this chance to pivot and keep up with the changing demands of their customers.

Unique IRA Opportunities for 2020

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Article Highlights:

2020 Tax Saving Opportunities
Traditional IRA to Roth IRA Conversions
Paying the Conversions Tax
Required Minimum Distribution (RMD)
2020 RMD Waiver
Coordinating Distributions with 2020 Income

As bad as it has been financially for many individuals, 2020 does provide some unique tax opportunities for those who have traditional IRA accounts. These range from converting traditional IRAs to Roth IRAs, retirees making larger-than-normal IRA withdrawals and the decision whether to take advantage of the required minimum distribution suspension for 2020. Let’s look at these prospective tax strategies to see if they might apply to you. CONVERSION OF A TRADITIONAL IRA TO A ROTH IRA The first opportunity to explore is converting your traditional IRA account to a Roth IRA account. The reason you might want to do that is a Roth IRA provides tax-free accumulation and, once you reach retirement age, tax-free distributions. A traditional IRA provides tax deferral of earnings, and the distributions are taxable. Since distributions from a Roth IRA are not taxable but those from a traditional IRA would be, you generally pay tax on the amount converted (after all, the government isn’t going to allow both the tax deduction when contributing to a traditional IRA and tax-free withdrawal from the Roth on the converted amount). Thus, a conversion provides the most benefit in a year when your income is low, and as a result, you receive a lower tax rate. Timing is key, and 2020 may be a low-income year when you might find it appropriate to convert some portion of your traditional IRA to a Roth IRA.
Example: Suppose you are normally in the 32% tax bracket but find yourself in the 12% tax bracket for 2020 because of the COVID-19 pandemic. That means you can convert some portion of your traditional IRA to a Roth IRA at a tax cost of only 12% (or $120 per $1,000 converted) as opposed to $320 per $1,000 under normal circumstances.
When considering a conversion, one concern is where the money to pay the conversion tax comes from. Generally, it must come from separate funds. If it is taken from the IRA being converted, for individuals under age 59½, the funds withdrawn to pay the tax will also be subject to the 10% early distribution penalty in addition to being taxed. Conversions can be tricky, and once made, they cannot be undone. If you reside in a state with state income tax, the conversion may also be taxable by the state. If you are considering a conversion, it might be appropriate to call for an appointment so that this office can help you analyze your conversion options properly or develop a conversion plan that fits your particular circumstances. REQUIRED MINIMUM DISTRIBUTION SUSPENSION For 2020, the government has suspended the requirement for certain older* taxpayers to take required minimum distributions (RMDs) from their retirement plans and traditional IRAs. Just because the requirement to take RMDs has been suspended doesn’t mean you shouldn’t take a distribution in 2020. That decision should be based on two issues:
(1) Primarily, on your need to pay for living expenses, and (2) Secondly, sound tax planning.
Issue number one speaks for itself. However, there are times when your income is low compared to normal, and it may be beneficial tax-wise to take a distribution even if you are not required to. This may be true even if you aren’t of an age for the RMD to apply. In these situations, the amount of a distribution can be coordinated with your tax liability to provide a beneficial tax outcome. In some cases, the distribution could even be free from tax or at least subject to a tax substantially lower than in a normal year. Generally, this strategy is for individuals older than 59.5 and not subject to the 10% early withdrawal penalty. However, there are times when paying the 10% penalty may even be worth it for younger individuals when the tax saving is large enough. It is important to understand that we are talking about retirement funds; just because they can be gotten out of a traditional IRA or qualified plan for a low tax doesn’t mean they shouldn’t be set aside in a savings account for future retirement needs. These opportunities are easily overlooked, and it can be complicated to figure out the conversion or distribution amount to optimize the tax benefits. If you have questions or would like this firm to assist you in determining the strategy that best fits your needs, please give this office a call. *If not for the COVID-19 suspension, 2020 RMDs would be required by taxpayers who turned age 70½ prior to 2020 or reach age 72 in 2020.

July 2020 Individual Due Dates

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July 1 – Time for a Mid-Year Tax Check UpTime to review your 2020 year-to-date income and expenses to ensure estimated tax payments and withholding are adequate to avoid underpayment penalties or to determine if the estimated payments and/or withholding can be reduced because your income has declined as a result of the COVID-19 emergency.July 1 – Time to Call for Your Tax Appointment if You Haven’t Yet Filed Your 2019 Return
It is only 2 weeks until the July 15 due date for your 2019 individual income tax return that normally would have been due in April, but because of the COVID-19 emergency, was automatically extended by the IRS. If you have not made an appointment to have your taxes prepared, we encourage you to do so before it becomes too late. If you have already had your appointment but still have not gotten all of your tax information to this office, please contact us so that a 3-month extension can be prepared for you. If you will owe tax, payment needs to be made with the extension request.
July 10 – Report Tips to EmployerIf you are an employee who works for tips and received more than $20 in tips during June, you are required to report them to your employer on IRS Form 4070 no later than July 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year it is filed.July 15 – IRA Contributions for 2019 This is the last day to make IRA contributions for tax year 2019.July 15 – IndividualsIf you took advantage of the 3-month COVID-19 automatic extension provided by the IRS to file your income tax return for 2019, file Form 1040 or 1040-SR, or request an additional 3-month extension using Form 4868, and pay any tax due. July 15 – Taxpayers Living AbroadNormally, for a U.S. citizen or resident alien living and working (or on military duty) outside the United States and Puerto Rico, the filing due date for your 2019 income tax return and to pay any tax due would have been June 15. However, due to the COVID-19 emergency this due date was extended to July 15. If you are a U.S. citizen or resident alien living and working (or on military duty) outside the United States and Puerto Rico, July 15 is the filing due date for your 2019 income tax return and to pay any tax due. If your return has not been completed and you need additional time to file your return, file Form 4868 to obtain 3 additional months to file. Then, file Form 1040 or 1040-SR by October 15. However, if you are a participant in a combat zone, you may be able to further extend the filing deadline (see below).Caution: This is not an extension of time to pay your tax liability, only an extension to file the return. If you expect to owe, estimate how much and include your payment with the extension. If you owe taxes when you do file your extended tax return, you will be liable for both the late payment penalty and interest from the due date.Combat Zone- For military taxpayers in a combat zone/qualified hazardous duty area, the deadlines for taking actions with the IRS are extended. This also applies to service members involved in contingency operations, such as Operation Iraqi Freedom or Enduring Freedom. The extension is for 180 consecutive days after the later of:

The last day a military taxpayer was in a combat zone/qualified hazardous duty area or served in a qualifying contingency operation, or have qualifying service outside of the combat zone/qualified hazardous duty area (or the last day the area qualifies as a combat zone or qualified hazardous duty area), or
The last day of any continuous qualified hospitalization for injury from service in the combat zone/qualified hazardous duty area or contingency operation, or while performing qualifying service outside of the combat zone/qualified hazardous duty area.

In addition to the 180 days, the deadline is also extended by the number of days that were left for the individual to take an action with the IRS when they entered a combat zone/qualified hazardous duty area or began serving in a contingency operation.
It is not a good idea to delay filing your return because you owe taxes. The late filing penalty is 5% per month (maximum 25%) and can be a substantial penalty. It is generally better practice to file the return without payment and avoid the late filing penalty. We can also establish an installment agreement, which allows you to pay your taxes over a period of up to 72 months.
Please contact this office for assistance with an extension request or an installment agreement.July 15 – Estimated Tax Payments – Individuals
The first and second installments of 2020 individual estimated taxes (Form 1040-ES) are due. Normally, these payments would have been due April 15 and June 15, respectively, but because of the COVID-19 emergency, the IRS extended the due dates to July 15.
Our tax system is a ‘pay-as-you-earn’ system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the ‘pay-as-you-earn’ requirement. These include:

Payroll withholding for employees;
Pension withholding for retirees; and
Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.

When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis.
Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (the de minimis amount), no penalty is assessed. In addition, the law provides “safe harbor” prepayments. There are two safe harbors:

The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty.
The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%.

Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can’t avoid the penalty under this exception.
However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty.
This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call this office as soon as possible.
CAUTION: Some state de minimis amounts and safe harbor estimate rules are different than those for the Federal estimates. Please call this office for particular state safe harbor rules.

July 2020 Business Due Dates

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July 1 – Self-Employed Individuals with Pension Plans If you have a pension or profit-sharing plan, you may need to file a Form 5500 or 5500-EZ for calendar year 2019. Even though the forms do not need to be filed until July 31, you should contact this office now to see if you have a filing requirement, and if you do, allow time to prepare the return.July 15 – CorporationsIf you took advantage of the 3-month COVID-19 automatic extension provided by the IRS to file your corporate income tax return for 2019, file Form 1120 or 1120S, or request an additional 3-month extension using Form 7004, and pay any tax due. July 15 – Fiduciaries If you took advantage of the 3-month COVID-19 automatic extension provided by the IRS to file your trust or estate income tax return for 2019, file Form 1041, or request an additional 2-1/2-month extension using Form 7004, and pay any tax due. July 15 – Estimated Tax – CorporationsCorporate 2020 estimated tax payments that would normally have been due between April 1, 2020 and July 14, 2020 are payable on July 15, 2020.July 15 – Social Security, Medicare and Withheld Income TaxIf the monthly deposit rule applies, deposit the tax for payments in June 2020. However, you may be able to retain a portion of the deposit to fund the mandatory paid sick leave and family leave under the Families First Coronavirus Response Act or defer portions to 2021 and 2022 under the CARES Act. July 15 – Non-Payroll Withholding If the monthly deposit rule applies, deposit the tax for payments in June.July 31 –  Self-Employed Individuals with Pension Plans If you have a pension or profit-sharing plan, this is the final due date for filing Form 5500 or 5500-EZ for calendar year 2019.
July 31 – Social Security, Medicare and Withheld Income Tax File Form 941 for the second quarter of 2020. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until August 10 to file the return. See note below.
Note: Under the Cares Act, employers…

Are able to defer paying the employer’s 6.2% portion of the Social Security taxes through the end of 2020. The delay provisions apply to all employers regardless of the number of the employer’s employees.
Are able to retain enough of the federal income tax withholding of each employee who received mandatory COVID-19 sick and family leave payments and both the employer’s and employee’s share of social security tax deposits, as well as the employer’s share of Social Security and Medicare taxes with respect to all employees, to reimburse themselves for mandatory COVID-19 sick and family leave payments.
Are able to retain the employer’s 6.2% portion of the Social Security taxes (and equivalent RR retirement amounts) to reimburse themselves for keeping employees on payroll under the Employee Retention Credit.

July 31 – Certain Small Employers Deposit any undeposited tax if your tax liability is $2,500 or more for 2020 but less than $2,500 for the second quarter.July 31 – Federal Unemployment Tax Deposit the tax owed through June if more than $500.July 31 – All Employers If you maintain an employee benefit plan, such as a pension, profit-sharing, or stock bonus plan, file Form 5500 or 5500-EZ for calendar year 2019. If you use a fiscal year as your plan year, file the form by the last day of the seventh month after the plan year ends.

Did You Overlook Something on a Prior Tax Return?

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Article Highlights:

Repercussions of Incorrect Tax Returns
Filing Amended Returns
Statute of Limitations for Refunds
Potential of Audit

It is not uncommon to discover that an item of income was overlooked, a deduction was not claimed, or that an amended tax document was received after the tax return was already filed. Regardless of whether the oversight will result in more tax due or a refund, it should not be dismissed. Failing to report an item of income will most certainly generate an IRS inquiry, which typically happens a year or more after the original return was filed and after the interest and penalties have built up. On the other hand, if you have a refund coming, you certainly don’t want that to go by the wayside. The solution is to file an amended return as soon as the error or omission is discovered. Amended returns can also be used to claim overlooked credit, correct filing status or number of dependents, report an omitted investment transaction, include items from delayed or unexpected K-1s and corrected or late filed 1099s, and account for an overlooked deduction or anything else that should have been reported on the original return. If the overlooked item will result in a tax increase, penalties and interest can be mitigated by filing an amended return as soon as possible. Procrastination leads to further complication once the IRS determines something is missing, so it is best to take care of the issues right away. Generally, to claim a refund, an amended return must be filed within three years from the date the original return was filed or within two years from the date the tax was paid, whichever is later. If you are concerned that an amended return might trigger an audit, be advised that the fact that you amend a return does not, in itself, increase your chances of being selected for an audit. In fact, it might actually reduce your chances, especially if you are fixing something the IRS will find later anyway, such as through their program that matches the information forms (W-2s, 1099s, etc.) that they receive from employers and other payers with the income reported on your return. What concerns many taxpayers about amending returns is that an IRS employee must manually compare the amended return changes with the original. That is why the amended return must include a clear explanation and justification for the amendment and back-up documentation to support the changes, even if these were not required on an original return. If back-up documentation cannot be provided, the IRS may want to dig deeper. That is why it is so important to provide proof or back-up documents to justify the changes being made. Let’s say you forgot to claim a $2,000 church donation. In this scenario, you definitely want to include documentation, such as copies of the acknowledgment letter from the church and your canceled check, supporting the increased deduction. If any of the above applies to your situation, please give this office a call so we can prepare an amended tax return for you.

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