#COVID-19 UPDTD SBA Economic Injury Disaster Loans (EIDL)

Posted on March 30, 2020 by Carol

Updated 04/14/2020 for SBA clarification

Our whole nation is a declared disaster area. Structures are still standing and the power is on. But the financial fallout is everywhere. An SBA Economic Injury Disaster Loan could provide the necessary working capital to help your business survive until normal operations resume after this pandemic. Substantial economic injury means your business is unable to meet obligations and unable to pay ordinary and necessary operating expenses.

SBA Economic Injury Disaster Loans (EIDL)

Loan amounts are determined by actual economic injury and the financial needs of the business. Repayment terms are determined by your ability to repay the loan.

Managed by: U.S. Small Business Administration

Application period: Open

Eligibility: Fewer than 500 employees; Coops; All nonprofits; AND sole proprietors and independent contractors. Also, ESOPs with fewer than 500 employees, religious organizations, tribal businesses.

Amount: Up to $2 million. This is a loan; it is NOT a grant.
Terms: Up to 3.75% interest for up to 30 years. The first month’s payments are deferred for a full year.

Loan Fees – NONE. Guarantee fees – NONE. Prepayment fees – NONE.
The SBA can approve EIDLs based solely on credit score – not repayment ability.
Tax returns are not required. A prior bankruptcy is not necessarily a disqualifier.
No requirement to disclose that you are unable to obtain credit elsewhere. This means other loans and lines of credit are not necessarily a disqualifier.

STREAMLINED APPLICATION PROCESS         https://covid19relief.sba.gov/#/

We recommend you apply online for the EIDL in order to be eligible for a LOAN ADVANCE. The loan advance will not have to be paid back IF used for paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue loss.  There is 10 Billion $ in the pot – This is a first come, first serve opportunity. To ensure that the greatest number of applicants can receive assistance, the amount of loan advances will be determined by number of pre-disaster employees – as of 01/31/2020. The loan advance will provide $1,000 per employee up to a maximum of $10,000.

Yes, you can still apply for the Paycheck Protection Program in addition to the EIDL. We will have more on this soon.

 CHECK ON EIDL STATUS

To check the status of your EIDL loan application You Need The Application Number from when you applied. Unfortunately, there is no “online check your loan status”.  You have to call or email the SBA Customer Service Center:  By Phone: 1-800-659-2955 (TTY/TDD: 1-800-877-8339);  By Email: [email protected]

We also recommend simultaneously applying for the Florida Small Business Emergency Bridge Loan. Also, make sure your banker discusses other loan options and avenues to quick cash to fund current operations.

We are here to guide you through this process and anything else to help you get through COVID-19. Email [email protected]. Please put COVID-19 in the subject line. Or call us at 727-327-1999.  In addition to the monthly newsletter and weekly blog we will be sending COVID-19 updates through “Email Updates”.

Follow McAtee & Associates on your preferred social media for additional COVID-19 updates. We are on Facebook, Twitter, LinkedIn, and Google+.

Stay safe. Stay strong!

COVID-19 Disclaimer. Laws and regulations have quickly changed and will continue to change in order to mitigate the economic damage caused by the Coronavirus Crisis. New laws and regulations are being passed quicker than the legislative process has taken in the past. Guidance, clarifications, and interpretations are constantly evolving. Deadlines and due dates are being extended and re-extended. New relief and programs are constantly rising up. This is occurring on all levels:  Federal, State, and Local. Please keep all this in mind. We are committed to giving you the best answer possible based on what we know at the time your question is asked.

 

Posted in Covid-19, General Interest | Tagged , , | Comments Off on #COVID-19 UPDTD SBA Economic Injury Disaster Loans (EIDL)

Keeping Track…of expenses. The first of a two-part series.

Posted on March 18, 2020 by Carol

There are so many things we keep track of on a daily basis: bank balances, dogs, kids, and how much gas is in the tank.  But if you’re a business owner, you’re also tracking expenses. There’s two ways to dress up an expense: in every day work clothes which is accounting and in the court date outfit which is the IRS.  Since accounting comes before tax, that will be this week and the IRS will be next week.  Keep in mind there is a difference between profit and taxable income.

REINFORCING THE BASICS.

What is an expense? According to the big boy of accounting, US GAAP (United States Generally Accepted Accounting Principles) expenses are outflows of assets (cash) or incurred liabilities (accounts payable, accrued expenses) in connection with producing product or providing services in order to generate revenue.  Expenses provide a benefit, either in the future or in the here and now.  In simpler terms, spending money to make money.

To get a good read on profit it is important to match expenses with revenues (matching principle) by recording them in the same period and employing the arts of accrual and deferral when necessary.  In accordance with US GAAP there are three ways expenses and revenues are properly matched: association of cause and effect (we go together); systematic and rational allocation (spreading it out); and, immediate recognition (now).

THE WHEN OF AN EXPENSE.

We go together presumes a direct association by being able to trace a specific expense to a specific sale and then recording both at the same time.  Sales commissions, royalties, transportation expenses.  If you are a restaurant and cater an event, the purchases can be tied to that specific sale.  If you are a landscaper, the sod, bushes, and your time planting can be tied to a specific sale.

A lot of expenses cannot be traced to a specific sale/revenue.  Some of these untraceable expenses are the ones that are expected to last a while and as such are spread out over time.  GAAP calls for these expenses to be allocated to the accounting period benefited in a systematic and rational manner.  This is depreciation, amortization, and allocation of prepaid expenses.  Ovens and lawn mowers are depreciated over time.  Insurance policies when prepaid are allocated over months.

When an expense is neither traceable nor lasts awhile, it is a now (period cost) cost and is expensed immediately.  Examples of costs that might be now are utilities, routine maintenance costs, and salaries and wages.  If you advertise this week take out only during social distancing, that is a now cost so is filling up the lawnmower to cut the grass which was once sod.

THE WHERE OF AN EXPENSE.

Everyone has their type and so do expenses.  Expenses can be cost of goods sold (COGS), operating, or other.  COGS relate directly to making a product.  If you are a restaurant, food and beverage purchases and cook and server wages are COGS.  If you are a landscaper, the bushes and sod and wages paid to plant are COGS, so is gas for the lawnmower.  COGS can be purchases, labor, materials and supplies and overhead. Overhead is operating expenses that you can trace to the product.  For example, the portion of the electric bill for the factory floor as opposed to the portion for the office area or the insurance for the delivery truck as opposed to the shareholder’s auto.  As you can see utilities and insurance are COGS or operating depending on where traced.  Interest expense, no matter on what; fines and penalties; and, taxes are other expenses.

EXPENSE TRACKING

Expense tracking is routine and unenjoyable which has lent itself it to automation using artificial intelligence and technological processes.  If you are still stuck behind a computer data entering every invoice and payment, we suggest you get up and look around.  Look at your phone and look up towards the cloud.

Mobile apps are tracking and storing receipts, tracking mileage and even depositing reimbursements into accounts.  Mobile apps are reconciling corporate cards, generating expense reports and integrating with ERP packages (such as SAP, Oracle, NetSuite, Microsoft Dynamics/Navision) and of course QuickBooks.

In summary, if you get the when and the where of an expense right, you will have good data for gross profit, operating profit, and net income.  Good data goes a long way toward making good management decisions.

WHAT ELSE SHOULD I KNOW?

In no specific order and without any recommendation, here are a few expense tracking apps: Zoho, Expensify, Rydoo, Shoeboxed, and QuickBooks.  We will say; however, as an AICPA member, the only AICPA recommended solution is Expensify.

Not everything tracked is deductible.  Come back next week for our blog about deductibility of expenses.

What is said to be the first expense tracking app?  Hint: it made QuickBooks possible.

 

Shameless Plug.  We can help keep the suit in the closet.

[email protected] OR   727-327-1999.

We’ll be back next week.  In the meantime, be sure to check us out on Facebook and Twitter for whatever it is we’ll be posting.

McAtee and Associates’ Disclaimer:

Our blog is intended for educational and awareness purposes.  The general information provided about taxes, accounting, and business-related topics is by no means intended to provide or constitute professional advice.  Reading our blog does not create a Client/CPA relationship between you and us.  The blog, including all contents posted by the author(s) as well as comments posted by visitors, should not be used as a substitute for professional advice or as a substitute for communicating with a competent, human professional.

Our blog posts are written using current information and current or proposed rules and regulations.  Information becomes old and outdated. Rules and regulations are frequently changed, added, amended, and/or left to expire.  This is extremely true with most things tax and to a lesser and slower extent, most things accounting.  We usually do not go back and update posted blogs.  Always check with your CPA or accountant regarding not only rules and regulations but available options and how it all applies to your fact pattern and you

Posted in Accounting, General Interest | Tagged , | Comments Off on Keeping Track…of expenses. The first of a two-part series.

Timely Mailed = Timely Filed…Or Does It?

Posted on March 11, 2020 by Carol

Last week we introduced the Mailbox Rule. This week we tell a tale of how serious it is when “timely mailed = timely filed” meets “he said-she said”.

This is a story, sad but true. Many years ago in 2005, a couple named the Baldwins, paid their taxes to the IRS. In 2007, their movie production business lost $2.5M which they opted to carry back to 2005. To get the 2005 refund, they had to amend the 2005 return and file it by October 15th, 2011. In classic he said-she said, the Baldwins said we mailed it in June 2011 and the IRS said we never got it.

The IRS said no refund for you. And the Baldwins displeased, said, well we will see you in court. And they did, after all there was $167,663 at stake. Armed with corroborated, circumstantial evidence in the form of employee testimony that the return was mailed on June 21, 2011 at a post office in Hartford, CT – off they went to district court (Central District of CA) on the premise of the common law mailbox rule. The IRS came armed with the rules they put in place in 2011. In August 2015 it was on. Taxpayer -1; IRS – 0.

The IRS doesn’t like to lose and presumably displeased, they appealed. Which brings us to Circuit Court (the 9th Circuit). In January 2019 it was on. And as we declared last week, district and circuit court decisions can be all over the place. The 9th, in the past had ruled against the IRS in similar cases, meaning there was (judicial) precedent. For a couple of reasons beyond this scope, the 9th determined that the circumstantial evidence was no good because the 2011 Treasury Regulations said it wasn’t. Bubble burst, parade rained on – Taxpayer – 1; IRS -1.

What happened? “Chevron Deference” happened. What is Chevron Deference? It is an administrative law principle that compels federal courts to defer (bow down) to a federal agency’s interpretation of an ambiguous or unclear statute that Congress delegated to the agency to administer. Not federal law, not common law, not constitutional law – administrative law.

The 9th time-travelled to the 1984 Supreme Court Case that established the two-step legal test for whether a government agency’s interpretation of a statute that it administers should prevail in disputes. Simply put, when agencies interpret statutes that they administer, and when those statutes are ambiguous, courts are required to defer to the agencies’ interpretations as long as they’re reasonable. Reasonable meaning being grounded in fact or law and not arbitrary. At the end of the day, the agency, in our case, the IRS is now the lawmaker because the court did not interpret the statute but bowed to the IRS’ rules.

And worse – after Chevron, Brand X happened. Brand X was a 2005 Supreme Court decision in which the court decided that cable internet providers were information services and not telecommunications services. The agency was the FCC and the statute dated back to 1934. Blahblahblah. But what it did was force Chevron Deference despite judicial precedent. So, if an agency makes a new rule after a court has previously ruled or there is a history of consistent rulings, the court must still bow down to the agency rule by overruling its own precedent. And at the end of the day, the agency, in our case, the IRS is now the court because not only can it continue to make rules (Treasury Regulations) it can jump over judicial precedent.

Ask yourselves, how is it now possible to get a fair shake?

The Baldwins didn’t like losing and were righteously displeased and said well, we will see you in court. And they did – SCOTUS. They asked the Supreme Court of the United States to reconsider their 2005 Brand X decision authored by Clarence Thomas. And September 2019 it was on and tied at 1 -1.

February 24, 2020. Other current judges have criticized Chevron in the past, yet Justice Thomas flew solo on the side of the Baldwins. (Remember he wrote the Brand X decision.) SCOTUS, in an 8-1 decision said nope we’re not going to reconsider. The crux of his dissent is that the Chevron Doctrine gives unconstitutional power to federal agencies and the Brand X decision takes away constitutional power from the judiciary. He quoted Justice Robert Jackson in a 1950 ruling, “It is never too late to surrender former views to a better considered position.”

Well now, Justice Clarence Thomas is probably displeased right alongside the Baldwins. A judge clapping back at his own ruling is rare indeed and the Baldwins are out $167,663 + many years of statutory interest + the $25,000 in awarded legal fees. Taxpayer -1; IRS -2.

WRAPPING IT UP.

Granted we are not lawyers, but the thing to do seems to be to go after the Chevron Doctrine. And Brand X will follow.

For the foreseeable future there will be situations that result in paper filing. We recommend document, document, document. If it isn’t documented, it didn’t happen. File by registered or certified mail or use an IRS designated private delivery service IRS Approved Private Delivery Services . Keep a copy of the envelope to prove the address, the contents mailed, and the postmarked green card or receipt. Additionally, obtain delivery confirmation by following the tracking number online. Scan and upload the packet for posterity.

WHAT ELSE DO I NEED TO KNOW?

The Howard and Karen Baldwin produced this Oscar nominated movie –

[email protected] OR 727-327-1999.

We’ll be back next week. In the mean-time be sure to like us on Facebook and follow us on Twitter.

McAtee and Associates’ Disclaimer:
Our blog is intended for educational and awareness purposes. The general information provided about taxes, accounting, and business-related topics is by no means intended to provide or constitute professional advice. Reading our blog does not create a Client/CPA relationship between you and us. The blog, including all contents posted by the author(s) as well as comments posted by visitors, should not be used as a substitute for professional advice or as a substitute for communicating with a competent, human professional.

Our blog posts are written using current information and current or proposed rules and regulations. Information becomes old and outdated. Rules and regulations are frequently changed, added, amended, and/or left to expire. This is extremely true with most things tax and to a lesser and slower extent, most things accounting. We usually do not go back and update posted blogs. Always check with your CPA or accountant regarding not only rules and regulations but available options and how it all applies to your fact pattern and you.

Posted in Court Cases, General Interest, IRS, Supreme Court, Tax Court, Taxes | Comments Off on Timely Mailed = Timely Filed…Or Does It?

The Mailbox Rule

Posted on March 4, 2020 by Carol

Taxpayers mail all sorts of things other than tax returns. There are other information returns, petitions, and payments, all of which are crucially important to arrive at the IRS on time. Taxpayers use USPS, DHL, FedEx and UPS. Taxpayers drop things off at the post office or the FedEx or UPS Store. They might even drop it in the USPS, FedEx or UPS mailboxes. They might even have someone else run this very important errand. And then there’s the postage meters in the back office, like Pitney Bowes, that are totally controlled by the user. And there is also internet postage like Stamps.com. Timely mailed equals timely filed, or not?

THE HISTORY!

A very long time ago, in the tax years preceding 1954, tax returns and other IRS documents were considered timely filed if and only if they were physically delivered to the IRS by the due date. This was considered harsh by some courts who in response began applying the more lenient common law mailbox rule that was used in contract law. If you ever took contract law, you may remember this as an acceptance to an offer is effective when it is mailed and not physically received by the offeror.

What is the common law mailbox rule? If you say you had the right address and enough postage, the intended recipient got it. Senders could also provide testimony, affidavits, or some other circumstantial evidence as proof of timely mailing. Proving timely mailing creates a presumption of timely filing. The resulting presumption which is rebuttable forces the burden of proof onto the intended recipient. In our case, the IRS now having to prove they didn’t receive it. Intuitively, it would be kind of challenging to prove you didn’t get something.

THE STATUTE.

Congress noticed and in 1954 gave the IRS Internal Revenue Code Section 7502, Timely mailing treated as timely filing and paying. Congress basically said the common law mailbox rule was crazy and created the statutory mailbox rule legislating that USPS postmarks determine timely filing (and include any date recorded by any designated delivery service). As long as the USPS postmark is on or before the due date, you have timely mailed, timely filed, and/or timely paid, regardless of when physically delivered to the IRS – the presumption of delivery. Code section 7502 also says there is a presumption of delivery from you to the IRS when you send by registered or certified mail. The date of registration is the postmark date for registered mail and the date on the receipt is the postmark date for certified mail.

But what if the IRS says, we didn’t get your return (or petition, or payment)? How do you prove the postmark? How do you prove you stood in line 34 minutes at the post office on the due date and watched the government employee smack the red postmark on the envelope with your important IRS stuff in it? How do you prove the Post Office smacked the red postmark on the envelope with important IRS stuff in it that you dropped in the mailbox the week before the due date? You can’t and you don’t; therefore, you have no rebuttable presumption. 7502 does not address if the common law mailbox rule applies in these scenarios. So, over the years, the decisions of district and circuit courts have been all over the place as to whether the law embraced or kicked to the curb (supplements or supplants) the mailbox rule.

The IRS decided to fix this by enacting regulations which were finalized nearly a decade ago, in 2011. Regulations are a federal agency’s or department’s interpretations of the law when the law is either silent, vague or ambiguous. Basically, making up rules as they go along. The Treasury Regulations (IRS rules) kicked the common law mailbox rule to the curb. There was to be no more presumption of delivery. There was to be no circumstantial evidence like affidavits and counting days. Taxpayers ever since have had to demonstrate direct proof of delivery to the IRS. Simply, put the rules are unforgiving and as harsh as when we started pre-1954.

In practice, the statute requires a USPS postmark and the subsequent regulations assume there is a postmark. It is the postmark that triggers both the statute and the subsequent regulations. The gap between the two is when there is no postmark – and thus the common law mailbox rule lives on.

AND TODAY.

A January 2020 Tax Court ruling stemming from a 2017 case in which the taxpayers’ attorney dropped a tax court petition in a mailbox four days before the due date. Tax Court got the petition some three weeks after the due date. The envelope looked well-traveled but lacked a USPS postmark. The IRS jumped quickly: no postmark – no statutory mailbox rule – no timely filing – no jurisdiction. The Tax Court judge in the case allowed an affidavit from the attorney, counted Monday the 17th the same as Friday the 14th, and threw in judicial recognition of a holiday (July 4). After all that, Tax Court concluded that it was more likely than not that the petition was mailed when the attorney said he mailed it. Taxpayer – 1. IRS – 0.

WRAPPING IT UP.

For the foreseeable future there will be situations that result in paper filing. We recommend document, document, document. If it isn’t documented, it didn’t happen. File by registered or certified mail or use an IRS designated private delivery service IRS Approved Private Delivery Services . Keep a copy of the envelope to prove the address, the contents mailed, and the postmarked green card or receipt. Additionally, obtain delivery confirmation by following the tracking number online. Scan and upload the packet for posterity.

If e-filing a tax return, ensure Form 9325, Acknowledgement and General Information for Taxpayers Who File Returns Electronically, has a box or two checked. If you pay a preparer, be sure to get the completed 9325 from them.

WHAT ELSE DO I NEED TO KNOW?

The first postal meter to be commercially produced and distributed was invented by Arthur Pitney and was approved by the USPS on November 16, 1920. And then it literally took an act of Congress to allow the printing of postage directly on the mail.

Never assume an envelope will be postmarked the day you “mail” it.

Shameless Plug. Entrust McAtee & Associates with your IRS dealings: returns, petitions, and payments.

[email protected] OR 727-327-1999.

We’ll be back next week. In the mean-time be sure to like us on Facebook and follow us on Twitter.

McAtee and Associates’ Disclaimer:
Our blog is intended for educational and awareness purposes. The general information provided about taxes, accounting, and business-related topics is by no means intended to provide or constitute professional advice. Reading our blog does not create a Client/CPA relationship between you and us. The blog, including all contents posted by the author(s) as well as comments posted by visitors, should not be used as a substitute for professional advice or as a substitute for communicating with a competent, human professional.

Our blog posts are written using current information and current or proposed rules and regulations. Information becomes old and outdated. Rules and regulations are frequently changed, added, amended, and/or left to expire. This is extremely true with most things tax and to a lesser and slower extent, most things accounting. We usually do not go back and update posted blogs. Always check with your CPA or accountant regarding not only rules and regulations but available options and how it all applies to your fact pattern and you.

Posted in General Interest, IRS | Comments Off on The Mailbox Rule

2020 Legislative Changes to Efiling

Posted on February 26, 2020 by Carol

On July 1, 2019, President Trump signed into law the Taxpayer First Act of 2019 (TFA), designed to improve the IRS’ interactions with us taxpayers by enacting changes to the IRS’s organizational structure, customer service, enforcement procedures, management of information technology, and use of electronic systems.

REINFORCING THE BASICS!

How does it work?

First, this is how filing by paper works. When you mail your completed tax return to the IRS, machines do the initial sorting, envelope opening, and even the setting aside of returns that include payments by check. Returns then move on to employees, who sort the returns based upon their type: individual, corporate, etc. The returns are then batched into groups and sent to data transcribers, who manually enter the information into the IRS computer system. Once the data is in the system, a program checks the return for errors, such as math errors. If none are found, the return is processed, and the IRS issues you either a refund or a balance due notice. If a mistake or two is found, the IRS may fix it for you and send you correspondence explaining it all.

Next, e-filing works by eliminating the data transcribers and allowing for cross referencing with other e-filed information from employers, banks, mortgage companies and the like. In between your tax program/preparer and the IRS computer system is the Electronic Return Originator (ERO), an authorized IRS e-file Provider who originates the electronic submission of the return to the IRS. An ERO can be the software developer or the tax preparer themselves.

Why does the IRS like e-filing so much? It saves time and money, for example less data transcribers and less occupancy costs such as office space and toilet paper. In theory, the benefit of increased digital information that also allows for cross referencing improves compliance and brings in more enforcement revenue. Still relevant and ICYMI, Voluntary Compliance My (fill in the blank)!

The IRS also likes when businesses e-file information returns. They like it because it gives them a heads up knowing how much income people should be reporting, in other words, a method of combating underreporting.

Why do taxpayers like e-filing so much?

Data transcribers make mistakes too. Mistakes, that if you catch them will be a giant pain in the …. to resolve.

No paper, no ink. No postage, no trip to the post office. And within about 24 hours you get proof of receipt and start of processing by the IRS via a confirmation! Or proof of rejection.

And what some like best: faster refunds, much faster refunds especially if you instruct to direct deposit.

And what others like best: it can be free. The IRS’ Free File offers options for taxpayers with adjusted gross incomes (AGI) of $69,000 or less and taxpayers with AGI over $69,000. Can I e-file for free? Keep in mind, while the IRS may have many software partners, it doesn’t recommend or endorse any of them.

Be sure to look for this standard language: “IRS Free File Program delivered by company name/product name.” If you are not eligible for any of your choices be sure to follow the link that is supposed to take you back to the IRS Free File page.

WHAT’S NEW Courtesy of the Taxpayer First Act (TFA) of 2019.

Tax-Exempt Organizations Now Have to E-file.

Tax exempt organizations now have to e-file all returns within the 990 series, Return of Organization Exempt from Income Tax, and Form 8872, Political Organization Report of Contributions and Expenditures. Prior to this, only those tax-exempt organizations with assets of $10 million or more filing at least 250 returns during a calendar year had to e-file. This is effective for tax years starting after July 1, 2019. There is the usual grace period (IRS term – transitional relief) for the not the kings of the jungle. In this instance, the requirement is extended out two years. Organizations with annual gross receipts of less than $200,000 and less than $500,00 in gross assets are required to e-file tax years starting August 1, 2021 and after.

Congress is also requiring the IRS to provide the public with these returns in a machine readable and text searchable format.

More Businesses Will Have to E-file.

Taxpayers filing a certain number of information returns must file electronically. Think 1099s. The TFA reduces this threshold from 250 in 2020 to 100 in 2021, and to 10 in 2022. For partnerships, the threshold is 150 in 2019, 100 in 2020, and 50 in 2021. This does not affect the existing requirement for partnerships with more than 100 partners to file an electronic income tax return.

WHAT ELSE DO I NEED TO KNOW?

In addition to the above reasons to embrace e-filing: better protection of your confidential information and easier access to it should you ever need it in the future.

Last year, the IRS had received 155.8 million tax returns for the 2018 tax year of which 138.2 million were e-filed. Of e-filed returns, tax professionals prepared 80.6 million of them and 57.6 million were self-prepared.

[email protected] OR   727-327-1999.

We’ll be back next week. In the meantime be sure to like us on Facebook and follow us on Twitter.

McAtee and Associates’ Disclaimer:

Our blog is intended for educational and awareness purposes.  The general information provided about taxes, accounting, and business-related topics is by no means intended to provide or constitute professional advice.  Reading our blog does not create a Client/CPA relationship between you and us.  The blog, including all contents posted by the author(s) as well as comments posted by visitors, should not be used as a substitute for professional advice or as a substitute for communicating with a competent, human professional.

Our blog posts are written using current information and current or proposed rules and regulations.  Information becomes old and outdated. Rules and regulations are frequently changed, added, amended, and/or left to expire.  This is extremely true with most things tax and to a lesser and slower extent, most things accounting.  We usually do not go back and update posted blogs.  Always check with your CPA or accountant regarding not only rules and regulations but available options and how it all applies to your fact pattern and you.

 

Posted in Business Taxes, Individual Taxes, IRS, Taxes | Comments Off on 2020 Legislative Changes to Efiling

We Are, After All, IRS Customers

Posted on February 19, 2020 by Carol

The IRS as usual is patting its own back on how great they did customer service-wise during the 2019 tax season. The National Taxpayer Advocate (NTA) recently released its Annual Report to Congress and as is every year the reviews are mixed but today’s blog is to introduce the IRS’ customer service platforms, should you need customer service.

REINFORCING THE BASICS.

What is customer service? It is taking care of taxpayers’ needs by providing professional and helpful high-quality assistance before during and after the taxpayer’s requirements are met. Those requirements being taxpayers self-report their income annually and submit income tax payments.

What is an assistor? An IRS customer service rep.

CUSTOMER SERVICE.

During the 2018 tax year the IRS had 73,519 full-time employees (FTEs) about a 4% decrease from the 2017 tax year total of 76,832. There are less revenue agents and officers, less tax examiners and technicians, less special agents, less attorneys, and less appeals officers. But there are a couple of hundred more customer service reps. Depending on which side of tax return honesty you fall on determines whether this is good news, bad news, or just no news to you. Last year the IRS processed 250.3 million tax returns, of which more than 155 million were 1040s. Now think of each return as a customer.

This is such a fun fact. In 2019, corporate America spent 1,286 training dollars per learner, the IRS – $616.

IRS Notices/Correspondence. You can write an old-fashioned letter (paper correspondence) and snail mail it to the IRS. Most of these letters are in response to IRS requests for information, giving the IRS even more information, or disagreeing with them about something (taxpayer dispute). IRS assistors answer these letters which also include procedural questions, amended returns, and duplicate filings. The goal is to answer each letter within 45 days. Day 46, if unanswered, your correspondence becomes “overage”. The IRS received 6.9 million pieces of correspondence in FY 2019.

The NTA, (in short IRS watchdog for taxpayers), reports the IRS had a corresponding 52.3% overage, up over 15% from the previous year. That is 3,608,700 pieces of unanswered mail. Holy heck, where do they put it all?

Online Services. The IRS Website

You can do a number of things online. View your account, get your tax record/transcript, make a payment, make a payment plan, check your refund status, check on an amended return, and get tax forms and instructions.

Last year there were 264 million inquiries to “Where’s My Refund?” and 208,000 of those inquiries were made from mobile devices. Spotting the trend, the IRS is continuing its IRS2Go mobile app; its users increased 17% in 2019.

There is a ton of information on the website and we do mean a ton. The “Frequently Asked Questions and Answers Search” and “The Interactive Tax Assistant Search” are great tools to find answers to questions and navigate through topics and categories:          

Frequently Asked Questions 

Interactive Tax Assistant

Tax Cuts and Jobs Act (TCJA) or Public Law 11597. Of course, the IRS has been worried about the broad scope and complexity of the law and all there is to mess up by us and them and which includes extensive changes to tax forms, publications, and computer systems. Work on implementation is ongoing.   Information and help in filing your returns can be found here: TCJA Help.

Telephone Service. Phone operators will assist callers year-round with obtaining account information and answering basic tax law questions. The telephone service also has recorded tax information and a bunch of automated services. You can call them up and find out the status of your refund, how much you owe, and a bunch of other stuff.

If you ever wondered why the IRS isn’t answering your call; you are not the only one. In 2019, the IRS received 99.3 million calls. This is a decrease from what had been a yearly average of 107 million. And get this, answered 28.6% of them. On the Consolidated Automated Collection System line, assistors answered about 31 percent of calls, and the average wait time was about 38 minutes. Calls from taxpayers calling the Installment Agreement/Balance Due line to make payment arrangements because they could not pay in full, were answered about 26% of the time, and wait times averaged about 45 minutes.

Currently, their website says 15-minute wait time during tax season and 27-minutes the rest of the year. We all know that’s fake news because we all know someone who has said they were on hold for 45 minutes or an hour, or even longer. To amuse yourself while on hold we recommend streaming impeachment speeches or even old episodes of American Horror Story because well, isn’t that what dealing with the IRS is.

This is super important to know: The IRS will NEVER, NEVER, NEVER call you up on the phone out of the blue. And they will NEVER, NEVER, NEVER text you.  NEVER, EVER!

If you are calling about your own account make sure you have all this stuff ready: Social Security Number or Individual Taxpayer Identification Number; birthdate, filing status, last year’s tax return, the return you are calling about, and any notices the IRS sent you. It would really suck to have to call back.

Business   800-829-4933

Disaster or Combat Zone Special Hotline      866-562-5227

Individual                                                         800-829-1040 (Cute!)

Refund Hotline                                                800-825-1954

TTY/TTD    800-829-4059

Visits to Taxpayer Assistance Centers (TACs) (The Last Resort). Fortunately, nearly every tax challenge we have can be resolved either by correspondence, online or by telephone. If all else fails and you have to go in person, use this cool IRS tool to find out where to go, office hours, and to schedule an appointment. For an added bonus, the local telephone number is provided too.     Taxpayer Assistance Center Office Locator.

In FY 2019 2.3 million taxpayers visited a total of 324 TACs. Visits are appointment only but don’t be discouraged. 57% of the time your calls to schedule an appointment were answered.

WHAT ELSE SHOULD I KNOW?

  • The IRS is required to pay interest on amended return refunds if not processed within 45 days.
  • Telephone service wait times tend to be higher on Monday and Tuesday, during President’s Day weekend, and of course, right around the April filing deadline.
  • The training amount of $616 includes focuses on customer service AND empathy!
  • Our client service is so much better than the IRS’ customer service. So. Call Carol First!

[email protected] OR   727-327-1999.

We’ll be back next week. In the meantime, be sure to check us out on Facebook and Twitter.

McAtee and Associates’ Disclaimer:

Our blog is intended for educational and awareness purposes.  The general information provided about taxes, accounting, and business-related topics is by no means intended to provide or constitute professional advice.  Reading our blog does not create a Client/CPA relationship between you and us.  The blog, including all contents posted by the author(s) as well as comments posted by visitors, should not be used as a substitute for professional advice or as a substitute for communicating with a competent, human professional.

Our blog posts are written using current information and current or proposed rules and regulations.  Information becomes old and outdated. Rules and regulations are frequently changed, added, amended, and/or left to expire.  This is extremely true with most things tax and to a lesser and slower extent, most things accounting.  We usually do not go back and update posted blogs.  Always check with your CPA or accountant regarding not only rules and regulations but available options and how it all applies to your fact pattern and you.

 

Posted in General Interest, IRS | Comments Off on We Are, After All, IRS Customers

Series. Part 4 of 4. 2020 Legislative Changes to Retirement Plans.

Posted on February 12, 2020 by Carol

This is the last of our four-part series: 2020 Legislative Changes to Retirement Plans. Just about two months ago, on December 20, 2019 President Trump signed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) approved by the Senate the day before and previously passed by the House in July 2019. It has been said this is the biggest bill hitting retirement planning since the Pension Protection Act of 2006. There’s really nothing new in it but it has created six substantial changes.

REINFORCING THE BASICS!

Like most legislation the goals of which are to expand, improve, and simplify, the primary goals of the SECURE Act are to expand retirement savings, improve plan administration, simplify existing rules, and preserve retirement income.

1. New Penalty-free Withdrawals for New Parents with New Kids. A couple of weeks back, Individual Retirement Accounts in 2020,  listed exceptions to early withdrawal of IRA funds. The Secure Act adds one: $5,000 tax free withdrawal for a new kid, whether by birth or adoption. This is $5,000 per kid and per parent (if both parents have an IRA) withdrawn within one year of birth. Five grand will buy a lot of diapers and wine.

2. Eligibility for Part-time Workers. Part-time Just Became Even More Part-time. This is good for employees 18 and older. It is easier to be eligible now as the required number of hours worked has decreased from 1,000 to 500. An employee must have worked at least 500 hours for the previous three consecutive years and be age 21 at the end of those three years. The count to 500 starts in 2021 making age 24 the first year of eligibility under the legislative change.

3. Eliminated Age Limitations on Contributing to IRAs. Betty White can be eligible again! You can contribute even after you are older than dirt as long as you still have a job. Betty White’s new job should be Hip Hop Squares. She is hilarious and of course was on the squares that started it all – Hollywood.

This is really good for the AARP crowd because people are working longer and this will have a positive impact on retirement savings. Even better, you only have to work as little as 500 hours a year or about 9 hours and 40 minutes a week. (see #2 above). This change now matches IRAs with 401 (K)s and Roths. Keep in mind there are still the other factors such as income, filing status, and eligible compensation.

4. Eligible Compensation Expanded. Some PhD and grad student income to include stipends and fellowships now count as eligible compensation (earned income) for IRA contribution purposes. Home health care workers who get paid with “difficulty of care” payments very deservedly catch a break. Because difficulty of care payments are not taxable, they are not eligible compensation. Difficulty of care payments remain nontaxable but are now considered eligible compensation for IRA and other plan contributions.

5. Increased Minimum Distribution Age. If you weren’t 70.5 by December 31,2019 you now don’t have to take RMDs from Traditional IRAs, 403(b)s, 457(b)s, and any defined contribution plan until age 72. This is pretty good because your earnings can grow a little bit more and you save taxes on 18 months of required minimum distributions.

6. Inherited IRAs. Bye-bye “Stretch” Provisions. This is some bad news for inheriting sizable IRAs. And for inheriting while you are in your peak earning years. The old stretch is the new shrink! In the past, a non-spouse beneficiary of an IRA or defined contribution plan like a 401(k) could stretch out RMDs from the plan over their own life expectancy. The strategy was to pass IRAs to younger Family members because the RMD would be lower, leaving more funds in the account to continue growing.

However, starting on Jan. 1, 2020, there are no more RMDs for an inherited Traditional or Roth IRA and a beneficiary (with exceptions) other than a spouse will have only 10 years, and not forever, after the year of death to empty the entire retirement account.
“Except for’ beneficiaries from the 10-year shrink provisions are: surviving spouses; minor children up until the age of majority; individuals within 10 years of age of the deceased; and, those who are chronically ill or disabled. You are also exempt if you are a current beneficiary already taking RMDs on January 1, 2020.

This is bad news for quite a few very big reasons. The shorter timeline will increase annual distribution amounts thereby possibly increasing tax liability in any or all of those 10 tax years. A range of breaks and benefits, not just from the IRS, could be adversely affected. It obliterates compound tax deferral. And it creates an immediate need for some sort of alternative tax strategy.

Potential Tax Strategies for The New Shrink.  As usual the first go to strategy for consideration is Roth Conversions. Typically, inherited Roth IRAs are subject to RMDs but without any taxable events. The TCJA’s lower tax rates still make it super sensible to convert before retiring or dying. Converting can help maximize overall wealth, lower taxes, and save your heirs from the pitfalls of the new shrink.

Qualified Charitable Contributions will remain an effective and generous way to reduce RMDs and overall account balance as will the $15,000 annual gift exclusion. Non-spouses are still without the option of a “rollover” so a specifically planned trustee to trustee transfer may help.

An inherited IRA will no longer provide lifetime income for a beneficiary. If this is the intent, one possible alternative could be a charitable remainder trust.

WRAPPING IT UP.

Who makes out the best? The Government! The SECURE Act alone is estimated to reap $1,570,000,000 a year for the next 10 years. To put that in a weekly amount – $30,192,307.69.

WHAT ELSE DO I NEED TO KNOW?

• We strongly advise you to consult with your financial and estate planning advisors and attorneys. Secure your retirement plans now.
• Review beneficiary designations. Secure your retirement plans now.
• Review trusts that are beneficiaries of an IRA or 401K. Secure your retirement plans now.
• The SECURE Act requires 401(k) plan administrators to provide annual “lifetime income disclosure statements” to plan participants. These statements will show how much money you could get each month if your total 401(k) account balance were used to purchase an annuity. Secure your retirement plans now.

[email protected] OR 727-327-1999.

This is the last of our four-part series, but we’ll blog about something else next week. In the meantime be sure to check us out on Facebook and Twitter; for whatever it is we’ll be posting.

McAtee and Associates’ Disclaimer:

Our blog is intended for educational and awareness purposes. The general information provided about taxes, accounting, and business-related topics is by no means intended to provide or constitute professional advice. Reading our blog does not create a Client/CPA relationship between you and us. The blog, including all contents posted by the author(s) as well as comments posted by visitors, should not be used as a substitute for professional advice or as a substitute for communicating with a competent, human professional.

Our blog posts are written using current information and current or proposed rules and regulations. Information becomes old and outdated. Rules and regulations are frequently changed, added, amended, and/or left to expire. This is extremely true with most things tax and to a lesser and slower extent, most things accounting. We usually do not go back and update posted blogs. Always check with your CPA or accountant regarding not only rules and regulations but available options and how it all applies to your fact pattern and you.

Posted in Retirement Planning, Tax Planning | Comments Off on Series. Part 4 of 4. 2020 Legislative Changes to Retirement Plans.

Self-employed Plans – SEP IRAs and SIMPLE

Posted on February 5, 2020 by Carol

Series. Part 3 of 4. Self-employed Plans: SEP IRA and SIMPLE.

We have talked about retirement vehicles: Traditional & Roth IRAs. Last week we talked about a garage they can be parked in: Employer-provided retirement plans. In this second to last part of four we talk about another garage: Self-employed plans. In self-employed plans, self-employed people (sole proprietorships and partnerships), small business owners, independent contractors and gig workers park their vehicles: SEP IRAs, and SIMPLE. We hope that you set it up and max it out.

REINFORCING THE BASICS

What is a SEP IRA? Simplified Employee Pension. SEPs are traditional IRAs for self-employed or small business owners who set up individual accounts for themselves and their employees. Contributions are tax-deductible and grow tax-deferred until distributed. There are a couple of simple criteria for plan participation: a defined minimum compensation for the last two years; worked for the company any three of the last five years, and must be 21-years old.

What is a SIMPLE? Savings Incentive Match Plan for Employees. This vehicle is for small businesses with 100 employees at most and offering no other retirement savings vehicle. For employees to be eligible there must have been past and expected annual compensation of $5,000.

SEPs and SIMPLEs are in addition to Traditional and Roth IRAs.

HOW LONG HAVE THESE BEEN AROUND?

The SEP debuted in 1978. Remember, the 401K first appeared that year too. Disco was the rage and Elton John had no Billboard hits that year.

The SIMPLE’s first public appearance was 1997. Millennials were growing up. Elton John had the number one Billboard hit that year and the Spice Girls ruled the world.

HOW MUCH CAN BE CONTRIBUTED IN 2020?

SEP IRA. SEPs are not salary-deferred and there is no catch-up, meaning employees contribute $0 through work. Only the employer contributes, making this a profit-sharing plan. This contribution is the lesser of up to 25% of each employee’s salary or $57,000. But keep in mind an employee may be able to make traditional contributions in 2020 of $7,000/$8,000 on their own to the SEP or open up their own IRA in addition to the SEP established on their behalf by their employer. If you are self-employed total contributions are limited to $57,000 in 2020 and is calculated on net income.

Now, if you have a 401K and a SEP from your employer OR an employer 401K and a self-employed SEP Call Carol First!

SIMPLE. The employee 2020 max it out amount is $13,500 plus the catch-up amount of $3,000.  Like the SEP, if you want to save even more for retirement you can also open a separate Traditional or Roth IRA so set it up and max it out.

IS THERE AN INCOME LIMIT FOR CONTRIBUTING?

 SEP IRAs. Employers can contribute 25% of employee compensation and 20% of self-employed net income up to a 2020 maximum of $57,000. Minimum compensation is $600 and maximum is $285,000 in 2020. We’ll be sure to let you know the 2019 amounts.

SIMPLE IRAs. The income limit is $285,000 in 2018 and we’ll be sure to update you with the 2019 amount.

HOW MUCH OF MY 2020 CONTRIBUTION IS TAX DEDUCTIBLE?

SEP IRAs.   Remember employees cannot contribute to a SEP through salary deferral or pretax contributions.

SIMPLE IRAs. Employee contributions are salary reductions and therefore considered pre-tax and not technically tax-deductible.

HOW MUCH IS THAT MATCHING AMOUNT IN 2020?

SEP IRAs. No matching amount.

SIMPLE IRAs. The employer typically must match the salary reduction $ for $ up to 3% of entire calendar-year compensation, not limited by annual compensation of $285,000 in 2020 OR make non-elective contributions of 2% of employee compensation up to the annual compensation. These non-elective contributions MUST be given to ALL eligible employees whether they contribute or not.

CAN I CONTRIBUTE AFTER I RETIRE?

SEP IRAs. No. But as long as an employee is an eligible participant by meeting the criteria, the employer must keep contributing, even after 70 ½ and while the employee is taking RMDs starting at age 72 (upped from 70 1/2).

Simple IRAs. No.

WHEN CAN I GET MY MONEY?

SEPs & SIMPLEs. After age 59 ½: If you were hoping to hang onto it and leave it untouched for a while, you can. Until you are 72. This is a change from 70 ½ which is the topic of next week’s blog. SEP AND SIMPLE IRAs are subject to RMD, the government makes you start taking your money out annually as a Required Minimum Distribution (RMD). You can take out more than the RMD but not less. And if you don’t take out the minimum, the punishment can be pretty hefty as that RMD amount not withdrawn is taxed at a whopping 50%. You have to take it out but you don’t have to spend it, you can put in into a Roth IRA or even a bank certificate of deposit. RMDs come into play with ALL pre-tax retirement accounts.

Just like being responsible for the accuracy of your tax returns, you are responsible for the accuracy of the RMD. There are folks who will help you though, namely the IRA custodian or plan administrator.

WHAT IF I NEED SOME CASH BEFORE I’M 59 1/2?

If you only need a few bucks for a month or two you can take it out of any of these plans but you MUST put it back in 60 days. And be sure to tell whomever to not withhold taxes or else that check could be 20% light. But if you have no intent to pay it back then the answer to this is mostly the same as last week too.

Sure, you can withdraw from the SEP & SIMPLE IRAs. Remember the withdrawn amount will increase your income and possibly put you in a higher tax bracket AND THEN there is the punishment. There are times when you can take your money out without being punished (the 10% penalty).

These are times of:

  • Paying for health insurance premiums when unemployed for at least 12 consecutive weeks;
  • Paying for medical expenses which total more than 10% of your adjusted gross income;
  • Paying for college for yourself, your spouse, your kids, and even your grandkids;
  • Disability as defined by the IRS and backed up by a doctor’s verification;
  • Inheriting an IRA from your spouse and even folks you aren’t or were never married to;
  • Buying, building, or rebuilding a house for the first time for yourself, your spouse, both sets of parents and grandparents and all the kids and grandkids BUT only up to $10,000;
  • Serving your Country (Reserve and National Guard) for more than 179 days;
  • Withdrawing on a specific schedule (SEPP – Substantially Equal Periodic Payments); and,
  • Levying by the IRS themselves.

If you think you qualify for an exception Call Carol First!

WHAT OTHER THINGS SHOULD I KNOW ABOUT SELF-EMPLOYED PLANS?

 There are time frames and deadlines in which these retirement accounts must be established. So, Call Carol First!

  • When compared to “qualified” employer-provided plans, qualified meaning complex and complicated, these plans are easier and cheaper to set up.
  • SEPs and SIMPLES can be rolled over from and to between pretty much everything except for Roths.
  • With SIMPLEs there is no employed-on December 31st rule meaning employer contributes as long as employee is eligible whether they quit or kick the bucket.
  • Also, with SIMPLEs if you withdraw before age 59 1/2 and within the first two years of the SIMPLE, the penalty is not 10% BUT 25%.

 There are exceptions to most rules and more than one way to cook an egg so if you are considering establishing a self-employed plan for yourself and/or employees, contributing or withdrawing funds, changing your contribution strategy, rolling over or transferring, converting or recharacterizing existing retirement accounts, or have recently inherited an IRA it is super important to reach out to McAtee and Associates for answers and guidance. Call Carol First!

[email protected] OR   727-327-1999.

Be sure to check back here next week for the last part of our series, 2020 Legislative Changes for Retirement Saving. In the meantime like us on Facebook and follow us on Twitter.  And remember to set it up and max it out.

McAtee and Associates’ Disclaimer:

Our blog is intended for educational and awareness purposes.  The general information provided about taxes, accounting, and business-related topics is by no means intended to provide or constitute professional advice.  Reading our blog does not create a Client/CPA relationship between you and us.  The blog, including all contents posted by the author(s) as well as comments posted by visitors, should not be used as a substitute for professional advice or as a substitute for communicating with a competent, human professional.

Our blog posts are written using current information and current or proposed rules and regulations.  Information becomes old and outdated. Rules and regulations are frequently changed, added, amended, and/or left to expire.  This is extremely true with most things tax and to a lesser and slower extent, most things accounting.  We do not go back and update posted blogs.  Always check with your CPA or accountant regarding not only rules and regulations but available options and how it all applies to your fact pattern and you.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Posted in General Interest, Individual Taxes, Retirement Planning, Taxes | Comments Off on Self-employed Plans – SEP IRAs and SIMPLE

Employer-provided Plans: 401Ks, 403Bs, and 457Bs.

Posted on January 31, 2020 by Carol

Series. Part 2 of 4. Employer-provided Plans: 401Ks, 403Bs, and 457Bs.

In this series of four, we are talking about various tax advantageous retirement and savings vehicles and their maximum contribution amounts. We hope that you check on your progress towards maxing it out.

Last week we talked about the vehicles: Traditional & Roth IRAs. This week we continue with garages they can be parked in: Employer-provided retirement plans: The 401K, 403B, and 457B. An employer-provided plan is the big parking garage that you and all your co-workers park your cars in.

REINFORCING THE BASICS!

What is a 401K? A 401K is a retirement plan offered by private employers. Some employers might even pitch in towards your golden years as well by matching, basically giving you some money that you can spend decades from now. Putting money in IS ALWAYS tax deductible. Taking money out IS ALWAYS taxable as ordinary income and unless you have an IRS approved good excuse there is a whopping punishment if you take it out before you are 59 ½ years old. Remember from last week the whopping punishment is a 10% penalty blasted onto your tax return.

What is a 403B? A 403B is a 401K for public schools, not for profit hospitals, charities, (mostly the ones you would donate to) and clergy that work for themselves.

457Bs are 401Ks for state and local government workers. That would be the DMV employee who took that not so attractive picture of you and the police officer you hope didn’t clock you on the way to work this morning.

HOW LONG HAVE THESE BEEN AROUND?

The 401K’s first public appearance was way back in 1978 when disco was popular and the initial max it out employee contribution was $45,475.

The 403B’s first public appearance was way, way back in 1957 when Elvis Presley was All Shook Up and the initial max it out contribution was who can remember?

Let’s just say the 457B has been around for a minute.

Congress invented the catchup contribution for people over 50 back in 2001. In practice, when you get a snail mail postcard promising you a free tote bag when you sign up for AARP, you will know you can now play catch up in your retirement accounts if you so desire.

HOW MUCH CAN I CONTRIBUTE IN 2020?

For 401Ks, 403Bs, and 457Bs, the employee max it out amount is the lower of your salary X the maximum percentage limit OR $ amount as spelled out in the employer plan OR $19,500 and add $6,500 if you’re over age 50 and want to catch-up. This is the tax deductible, pre-tax, tax-free contribution amount. The employer max it out is $37,500 for a total of $57,000.

If employer-offered, these plans also have an after-tax contribution feature that allows for up to $57,000 in contributions and works like this: $57,000 – $19,500 – Employer contributions = can be contributed by you after-tax.

IS THERE AN INCOME LIMIT FOR CONTRIBUTING?

It depends if your 401K, 403B, or 457B is Traditional or Roth. There is no limit if it’s Traditional. Roth IRA contributions are limited by Modified Adjusted Gross Income (MAGI). If you are single, head of household or married filing separately: you can max it out if MAGI is less than $124,000; contribute some if between $124,000 and $139,000; and, NO contributions at all if MAGI is more than $139,000. For married folks those amounts are: $196,000 and $206,000.

HOW MUCH OF MY 2020 CONTRIBUTION IS TAX DEDUCTIBLE?

Traditional 401Ks, 403Bs, and 457Bs are the same as Traditional IRAs and we blogged that last week: Series. Part 1 of 4. Individual Retirement Accounts: Traditional & Roth.

Roth 401K, 403B, and 457B contributions are never tax deductible.

HOW MUCH IS THAT MATCHING AMOUNT IN 2020?

For 401Ks, 403Bs, and 457Bs, most employers will generally match 3% to 6% of what you contribute with a max it out amount of $37,500.

CAN I CONTRIBUTE AFTER I RETIRE?

You are no longer working for this employer, so…no. But if you have a Traditional IRA you can contribute for as long as you want, as the 70 ½ has been legislated away. And if you have a Roth IRA you can contribute no matter how old you become, so max it out.

WHEN CAN I GET MY MONEY?

Short answer is 59 ½. If this next part sounds familiar, it is because you read it last week. Proceed to next section.

After age 59 ½: Traditional AND Roth. If you were hoping to hang onto it and leave it untouched for a while you can. Until you are 72, then if you have Traditional IRAs the government makes you start taking your money out annually as a Required Minimum Distribution (RMD). You can take out more than the RMD but not less. And if you don’t take out the minimum, the punishment can be HUUUGE!, as that RMD amount not withdrawn is taxed at a whopping 50%. Take it out and spend it or not spend it, or put it in a Roth IRA. Take it out it even if it means sacrificing more earnings. Just Do It.

Just like being responsible for the accuracy of your tax returns, you are responsible for the accuracy of the RMD. There are folks who will help you though, namely the IRA custodian or plan administrator.

There is no RMD with a Roth IRA. You are not forced to start withdrawing, not at 72, not at 82, not even at 92, not even after you die because there is no RMD for your beneficiary either.

WHAT IF I NEED SOME CASH BEFORE I’M 59 1/2?

The answer to this is the same as last week too – You can skip this part.

Sure, you can withdraw from the Traditional IRA. Remember the withdrawn amount will increase your income and possibly put you in a higher tax bracket AND THEN there is the punishment. There are times when you can take your money out of Traditional IRAs without being punished.

These are times of:

→Paying for health insurance premiums when unemployed for at least 12 consecutive weeks;
→Paying for medical expenses which total more than 10% of your adjusted gross income;
 →Paying for college for yourself, your spouse, your kids, and even your grandkids;
 →Disability as defined by the IRS and backed up by a doctor’s verification;
 →Inheriting an IRA from your spouse and even folks you aren’t or were never married to;
 →Buying, building, or rebuilding a house for the first time for yourself, your spouse, both sets of parents and grandparents and all the kids and grandkids;
 →Serving your Country (Reserve and National Guard) for more than 179 days;
 →Withdrawing on a specific schedule (SEPP – Substantially Equal Periodic Payments);
 →And, there’s the time the IRS personally snatches unpaid taxes.

There are two kinds of money in Roth IRAs. 1. Principal – The money you put in/contributions and 2. Earnings – Interest, dividends, capital gains, and the like. Remember withdrawals are tax-free but if the money taken out is earnings, a 10% penalty will be blasted on your tax return.

WHAT OTHER THINGS SHOULD I KNOW ABOUT EMPLOYER-PROVIDED PLANS?

 →If your employer offers a 401K/403B and a 457B plan you can contribute to both.
 →Some 457Bs offer a turbo catch-up three years before retirement age, turbo being twice the annual pre-tax contribution limit. In 2020 the turbo amount is $39,000.
 →Even if you have a 401K at work, if you can swing it, start an IRA. Potentially tax deductible and potentially better return than interest earned on a savings account.

There are exceptions to most rules and more than one way to cook an egg. So, if you are considering contributing or withdrawing funds, changing your contribution strategy, rolling over or transferring, converting or recharacterizing existing retirement accounts, or recently inherited an IRA it is super important to reach out to McAtee and Associates for answers and guidance. #CallCarolFirst!

[email protected] OR 727-327-1999.

Check back here next week for part three of our four-part series: self-employed retirement plans and be sure to check us out on and ; for whatever it is we’ll be posting. And remember to max it out.

McAtee and Associates’ Disclaimer:
Our blog is intended for educational and awareness purposes. The general information provided about taxes, accounting, and business-related topics is by no means intended to provide or constitute professional advice. Reading our blog does not create a Client/CPA relationship between you and us. The blog, including all contents posted by the author(s) as well as comments posted by visitors, should not be used as a substitute for professional advice or as a substitute for communicating with a competent, human professional.

Our blog posts are written using current information and current or proposed rules and regulations. Information becomes old and outdated. Rules and regulations are frequently changed, added, amended, and/or left to expire. This is extremely true with most things tax and to a lesser and slower extent, most things accounting. We do not go back and update posted blogs. Always check with your CPA or accountant regarding not only rules and regulations but available options and how it all applies to your fact pattern and you.

Posted in Business Taxes, Individual Taxes, Retirement Planning, Tax Planning, Taxes | Comments Off on Employer-provided Plans: 401Ks, 403Bs, and 457Bs.

Individual Retirement Accounts: Traditional & Roth

Posted on January 22, 2020 by Carol

In this series of four, we will look at various tax advantageous retirement and savings vehicles and their maximum contribution amounts for 2020. We hope that you check on your progress towards maxing it out.

Let’s start with the well-known retirement plans that many folks contribute to on their own – self-funded Individual Retirement Accounts: Traditional and Roth. Congress established these “tax breaks” to encourage us to save for our retirement. These are the vehicles you go out and purchase and drive on your own.

REINFORCING THE BASICS!

What is a Traditional IRA? Putting money in IS ALWAYS tax deductible. Taking money out IS ALWAYS taxable as ordinary income and sometimes there is a whopping punishment if you take it out before you are 59 ½ years old. A whopping punishment is an IRS “early withdrawal penalty” and it is 10% of the amount you take out while being too young (premature distribution).

What is a Roth IRA? Putting money in IS NEVER tax deductible. Taking that money out IS NEVER taxable but sometimes there is that whopping punishment if you take it out before you are 59 ½ years old.

HOW LONG HAVE THESE BEEN AROUND?

The Traditional IRA’s first public appearance was way, way back in 1975 and the initial maxing it out contribution was $1,500.

The Roth IRA’s first public appearance was way back in 1997 and the initial maxing it out
contribution was $2,000.

HOW MUCH CAN I CONTRIBUTE IN 2020?

For both Traditional and Roth IRAs, the maxing it out amount is $6,000 and add a $1,000 if you’re over age 50 and want to catch-up. There is no change from 2019.
If you haven’t maxed out by New Year’s Eve 2019 and you intend to contribute before Tax Deadline Day 2020, you have an opportunity to opt for the contribution going into 2019 or 2020.

IS THERE AN INCOME LIMIT FOR CONTRIBUTING TO AN IRA?

Not for Traditional IRAs.

But Roth IRA contributions are limited by Modified Adjusted Gross Income (MAGI). If you are not married yet,) for better or for worse, head of household or married filing separately: you can max it out if MAGI, (not MAGA!), is less than $124,000; contribute some if between $124,000 and $139,000; and, NO contributions at all if MAGI is more than $139,000. For married folks filing jointly and Qualifying Widow/er those amounts are: $196,000 and $206,000.

HOW MUCH OF MY 2020 CONTRIBUTION IS TAX DEDUCTIBLE?

For Traditional IRAs how much of the contribution being deductible is limited by how much you make and if you have a retirement plan through your employer.

If you are single, head of household or married filing separately and have a plan through work: the whole contribution is tax deductible if MAGI is less than $65,000; partly deductible between $65,000 and $75,000; and, not at all tax deductible if you make over $75,000; at which point you should consider contributing to a Roth IRA. For married folks filing jointly and Qualifying Widow/er those amounts are: $104,000 and $124,000.

If your spouse has a plan through work and you don’t, the amounts are a little bit higher: $196,000 and $206,000.

If you are self-funding an IRA on your own then the entire contribution up to maxing it out
is fully deductible.

Roth IRA contributions are never tax deductible and the account grows tax-free as well.

CAN I CONTRIBUTE AFTER I RETIRE?

It used to be no more contributing to your Traditional IRA after you turn 70 ½ even if you still haul yourself off to work instead of sleeping in or doing fun stuff. Starting in 2020, there is no more age cap on contributing to your Traditional IRA.

Contributions to Roth IRAs are not stopped when you turn 72. So, you can max it out.
no matter how old you are.

WHEN CAN I GET MY MONEY?

After age 59 ½: Traditional AND Roth. If you were hoping to hang onto it and leave it untouched for a while, you can. Until you are 72, then if you have Traditional IRAs government makes you start taking your money out annually as a Required Minimum Distribution (RMD). This age limit increased in December 2019. Look for our blog February 10, 2020 where we talk about the SECURE ACT. You can take out more than the RMD but not less. And if you don’t take out the minimum, the punishment can be HUUUGE!, as that RMD amount not withdrawn is taxed at a whopping 50%. Take it out and spend it or not spend it, or put it in a Roth IRA. Take it out even if it means sacrificing more earnings. Just Do It.

Just like being responsible for the accuracy of your tax returns, you are responsible for the accuracy of the RMD. There are folks who will help you though, namely the IRA custodian or plan administrator – The Mechanics.

There is no RMD with a Roth IRA. You are not forced to start withdrawing, not at 72, not at 82, not at 92, not even after you die because there is no RMD for your beneficiary either.

WHAT IF I NEED SOME CASH BEFORE I’M 59 1/2?

Sure, you can withdraw from the Traditional IRA. Remember the withdrawn amount will increase your income and possibly put you in a higher tax bracket AND THEN there is the punishment. There are times when you can take your money out of Traditional IRAs without being punished.

These are times of:

 ⇒ Paying for health insurance premiums when unemployed for at least 12 consecutive weeks;
 ⇒ Paying for medical expenses which total more than 10% of your adjusted gross income;
 ⇒ Paying for college for yourself, your spouse, your kids, and even your grandkids;
 ⇒ Permanent disability as defined by the IRS and backed up by a doctor’s verification;
 ⇒ Inheriting an IRA from your spouse and even folks you aren’t or were never married to;
 ⇒ Buying, building, or rebuilding a house for the first time for yourself, your spouse, both sets of parents and grandparents and all the kids and grandkids;
 ⇒ Serving your Country (Reserve and National Guard) for more than 179 days;
 ⇒ Withdrawing on a specific schedule (SEPP – Substantially Equal Periodic Payments);
 ⇒ And, there’s the time the IRS personally snatches unpaid taxes.

There are two kinds of money in Roth IRAs. 1. Principal – The money you put in/contributions and 2. Earnings – Interest, dividends, capital gains, and the like. Remember withdrawals are tax-free but if the money taken out is earnings, a 10% penalty will be blasted on your tax return.

WHAT OTHER THINGS SHOULD I KNOW ABOUT INDIVIDUAL RETIREMENT ACCOUNTS?

 ⇒ First, that they are individual and not joint. A married couple can’t open one together. And neither can your running club or drinking buddies.
 ⇒ If you are contributing to both a Traditional IRA AND a Roth IRA, the total amount of money you can contribute to both accounts can’t exceed the annual limit or earned income (money you make), whichever is the lesser.
 ⇒ If you do exceed it, with an ineligible contribution, the IRS might punish you with a 6% excessive-contribution penalty.
 You can never borrow and pay back money from any IRA. This is an absolute no-no. A no-no is an IRS “prohibited transaction”.

WRAPPING IT UP.

A Traditional IRA is the retirement vehicle to drive for those who: prefer immediate tax deductions lowering the out of pocket cost for the contribution or believe their tax bracket will be lower in those golden, retirement years.

A Roth IRA is the retirement vehicle to drive for those who: can afford to contribute the full $6,000/$7,000 without lowering the out of pocket cost or believe their tax bracket will be higher in those golden, retirement years.

There are exceptions to most rules and more than one way to cook an egg. So, if you are considering contributing or withdrawing funds, changing your contribution strategy, rolling over or transferring, converting or recharacterizing existing retirement accounts, or have recently inherited an IRA, it is super important to reach out to Carol McAtee and Associates for answers and guidance.  Call Carol First!

[email protected] OR 727-327-1999.

Be sure to check back here next week for the second of our four-part series, Employer-provided Plans and check us out on and Facebook and Twitter for whatever it is we’ll be posting.  And remember to max it out.

McAtee and Associates’ Disclaimer:

Our blog is intended for educational and awareness purposes. The general information provided about taxes, accounting, and business-related topics is by no means intended to provide or constitute professional advice. Reading our blog does not create a Client/CPA relationship between you and us. The blog, including all contents posted by the author(s) as well as comments posted by visitors, should not be used as a substitute for professional advice or as a substitute for communicating with a competent, human professional.

Our blog posts are written using current information and current or proposed rules and regulations. Information becomes old and outdated. Rules and regulations are frequently changed, added, amended, and/or left to expire. This is extremely true with most things tax and to a lesser and slower extent, most things accounting. We do not go back and update posted blogs. Always check with your CPA or accountant regarding not only rules and regulations but available options and how it all applies to your fact pattern and you.

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