Tag: Retirement

23 Jan 2022
Required Minimum Distributions (RMDs)
Estate Planning, IRS, Retirement Pearson & Co, PC 0 comment

REQUIRED MINIMUM DISTRIBUTIONS FOR 2022

REQUIRED MINIMUM DISTRIBUTIONS FOR 2022
Important Reminders for Retirees

Required Minimum Distributions (RMDs)

Required Minimum Distributions (RMDs) are a fact of life for those of us with an Individual Retirement Account (IRA) or participate in a 401K plan … here referred to as retirement accounts.

The SECURE Act signed into law December 2019, includes a significant change to the mandatory RMD age requirement. The RMD age has been advanced to age 72 from the previous limit of 70½. This revision reflects that Americans are living and working longer. Notably, since the original law was enacted, life expectancy has increased more than 2 percent (1.6 years) for all Americans and more than 8 percent for those over age 65.

So, beginning January 1, 2020, money from the above retirement accounts must start flowing to you in specific, minimum amounts no later than April 1, following the year you reach age 72.  Other than Roth IRAs, RMD withdrawals apply to all other individual retirement accounts … IRA, Simple IRA or SEP IRA as well as 401K plans.

Note: Roth IRAs are not subject to mandatory withdrawals until after the death of the owner.

The RMD changes prove to be a boon to most taxpayers who can afford to delay taking money out.

The distribution amount will change from year to year based on accepted IRS tables that model anticipated life expectancy. Since life expectancy estimates diminish with age, annual RMD will vary as well. It is calculated by dividing an account’s year-end value by the distribution period determined by the IRS.

The table shown below is the Uniform Lifetime Table, the most commonly used of three life-expectancy charts that help retirement account holders figure mandatory distributions. The other tables are for beneficiaries of retirement funds and account holders who have much younger spouses.

Required Minimum Distribution Table 2022

Let’s take a look at how the revised RMD age limit affects a taxpayer with a retirement account valued at $100,000. Under the old rules, that person would be required to take a minimum IRA withdrawal of $3,650 at age 70½. Divide the value of the retirement account by the distribution period to determine the RMD … $100,000 divided by 27.4 = $3,650.

So, in keeping with the above calculations, assume our retiree is age 72 with a retirement account valued at $100,000. Note the corresponding distribution period (25.6). Divide the value of the retirement account by the distribution period to determine the RMD … $100,000 divided by 25.6 = $3,906.

Delaying receipt of the RMD until age 72 reduced the taxpayer’s expected lifetime taxable income by over $7,000 … $3,650 – 3,906 = $256 X 27.4.

Note: Make sure you do this for all traditional IRAs or 401 K accounts you have in your name. Once you add up all of the RMDs for each of your accounts, you can withdraw that total amount from one or more of your retirement accounts. You don’t have to take your RMD from each account as long as the total you withdraw satisfies your RMD responsibility. Consider withdrawing from smaller balance accounts and close them out to simplify and consolidate your retirement accounts

Why is a Minimum Distribution Required?

The good news is that you enjoyed years of tax deductions and (hopefully) tax deferred growth in your retirement account. So, it’s your money … why can’t you decide how much and when to take it out … or just leave it sit? The answer is the tax-man will get his due.

You paid no taxes on your deductible retirement plan contributions. And you paid no taxes on any incremental growth on your investments during the years accumulating your nest egg. Therefore, the IRS wants its just due when you withdraw funds in your retirement. That said, chances are your post-retirement tax bracket is lower than during your prime earning years, so you’ll likely keep more money than if you had not initiated your retirement account.

Similarly, if you were permitted to leave all your money in your retirement account, it would eventually become eligible to be passed on as inheritance and not trigger a taxable event. Your RMD compels you to take out at least a minimum amount which is added to your gross income and potentially subject to tax.

3 Frequently Asked Questions

There are three questions that are commonly asked and may be on your mind as well. It’s likely you will have others that we’d like to help you with … just give us a call or drop an email … we’ll respond promptly.

Do you need to take your entire RMD all at one time?
No. Frequency of withdrawals is not an issue. The important thing is that, in the aggregate, all your withdrawals add up to your RMD in the year required.

Should you appoint a named beneficiary for each of your retirement accounts?
Yes. By so doing you will avoid your account balance(s) being included in your estate in the event of your death.

Are there consequences if I don’t withdraw my RMD as required?
Yes. You may be subject to a 50 percent excise tax on the amount not distributed.

Other Considerations

The foregoing is not meant as a comprehensive recount of the RMD requirements. There are other considerations that may apply in your specific circumstances. Some issues may include:

  • Inherited retirement accounts and RMD after account owner dies
  • RMD based on Joint Life & Last Survivor Expectancy Table if your spouse is more than 10 years younger than you and is sole beneficiary

If any of the foregoing seems unclear as to how it applies to your specific circumstances, please keep in mind that Pearson & Co will help. Give us a call or drop an email. We’ll respond immediately.

23 Jan 2022
Retirement Plan Contributions Limit Raised
IRS, News, Retirement Pearson & Co, PC 0 comment

RETIREMENT PLAN CONTRIBUTION LIMITS RAISED

RETIREMENT PLAN CONTRIBUTION LIMITS RAISED
IRS Announces Increases for 2022

Retirement Plan Contributions Limit Raised

Good news for participants in 401(k), 403(b) and most 457 plans and the federal government’s Thrift Savings Plan. If you participate in one or more of these plans, your tax year 2022 contribution limits will increase by an additional $1,000 … making annual deductible contributions capped at $20,500.

Limits on contributions to traditional and Roth IRAs remains unchanged at $6,000.

Note: There are conditions that must be met for contributions to traditional IRAs to be tax deductible.

If neither the taxpayer nor their spouse is covered by a retirement plan at work, their full contribution to a traditional IRA is deductible. If the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced or phased out until it is eliminated. The amount of the deduction depends on the taxpayer’s filing status and their income.

Traditional IRA income phase-out ranges for 2022 are:

  • $68,000 to $78,000 – Single taxpayers covered by a workplace retirement plan
  • $109,000 to $129,000 – Married couples filing jointly. This applies when the spouse making the IRA contribution is covered by a workplace retirement plan.
  • $204,000 to $214,000 – A taxpayer not covered by a workplace retirement plan married to someone who’s covered.
  • $0 to $10,000 – Married filing a separate return. This applies to taxpayers covered by a workplace retirement plan

Similarly, there are phase-out ranges of income in 2022 for Roth IRAs and Saver’s Credit participants.

Roth IRA contributions income phase-out ranges for 2022 are:

  • $129,000 to $144,000 – Single taxpayers and heads of household
  • $204,000 to $214,000 – Married, filing jointly
  • $0 to $10,000 – Married, filing separately

Saver’s Credit income phase-out ranges for 2022 are:

  • $41,000 to $68,000 – Married, filing jointly.
  • $30,750 to $51,000 – Head of household.
  • $20,500 to $34,000 – Singles and married individuals filing separately.

The agency also announced the possibility of cost‑of‑living adjustments that may affect pension plan and other retirement-related savings. No details have been released as of this writing.

Have Immediate Questions or Concerns?
Pearson & Co stands ready to help as needed.
A phone call or email is all it takes.

19 Jan 2021
tax Refund
Covid-19, News, Tax Credits, Tax Law Pearson & Co, PC 0 comment

WAIT … HURRY UP … WAIT

WAIT … HURRY UP … WAIT
The Tale of 2019 Tax Returns … Gridlock!

We all know the frustrations induced by unintended consequences … especially when it impacts our pocketbooks. Well that’s the backdrop to the current stress experienced by many taxpayers who continue to lament – “Where’s my refund?!”

Some recent history, causes for delays, and what the current remedial landscape looks like.

In response to the COVID-19 pandemic, the IRS granted deferments in tax deadlines as well as changes in penalties and interest for late-filers. These concessions were intended to reduce taxpayer stress … already strained by the pandemic. While there may be taxpayers who have benefited from the above moves, our phone and email communications are rife with frustration, confusion and sometimes a touch of panic.

By the IRS’s own admission … they are swamped!

In their words, We’re open and processing mail, tax returns, payments, refunds and correspondence. However, COVID-19 continues to cause delays in some of our services. Our service delays include:

  • Live phone support
  • Processing tax returns filed on paper
  • Answering mail from taxpayers
  • Reviewing tax returns, even for returns filed electronically

The problem stems, of course, from COVID-19. In the spring of 2020, most of the federal government along with many private companies initiated pandemic protocols. That means most IRS offices were closed and work usually handled at those facilities went undone.

IRS office closures did not deter delivery of tax returns by the USPS. However, the later-than-usual arrival of returns this year was not due to the Postal Service. Instead, the filing deadline was extended until July 15 due to the pandemic. Millions of folks waited until then to mail their forms.

Trailers were set up outside IRS workplaces as receptacles for taxpayer mail. IRS employees who returned to address the tax season were met with the proverbial “drinking from a fire hose” metaphor as they sorted through and processed existing mail while the daily deluge of correspondence continued unabated.

The amount of unopened tax mail at one point was nearly 13 million. The IRS said that as of last Thanksgiving, the backlog has been trimmed to 7.1 million unprocessed individual tax returns and 2.3 million unprocessed business returns.

The unfortunate and unintended consequences for taxpayers have been that the IRS continues to send payment demand notices to taxpayers whose correspondence and payments remain unopened … but who have already made the payments that the IRS deems to be due.

Here’s the experience suffered by one of our clients … who will remain anonymous, of course. This taxpayer electronically filed the 2019 tax return in April 2020 with money owed to the IRS. The payment was made well before the July 15th deadline. As of this writing, this compliant taxpayer’s check sits in a trailer while enduring notices that the amount due was not paid in a timely manner. The fear is the next step by the IRS will be to issue an “intent to levy” notice, even though the taxpayer was in compliance.

The IRS admits to being short on staff, many if not most agents remain furloughed. for opening the mail, plus dealing with the overwhelming volume of phone calls from taxpayers. Phone calls to the agency can leave the taxpayer on “hold” sometimes for hours. Important clarification requests go unanswered with the taxpayer left without knowing what to do next to remain in compliance.

The agency strongly urges against calling the IRS. “Due to high call volumes, the IRS suggests waiting to contact the agency about any unprocessed paper payments still pending,” said the IRS. “See www.irs.gov/payments for options to make payments other than by mail.”

In an attempt at fairness … not an excuse … the deferments in tax deadlines along with changes in penalties and interest for late-filers has put a tremendous strain on IRS resources. Procedures that have been in place and functioning are now either scrapped or subject to major revisions.

Couple that with the major pressures on IT to deliver software updates to accommodate the revised dates and details for taxpayer compliance. And then there is the human resource-based issues that require substantial re-training.

What’s a Taxpayer to Do?

The IRS initiated a short-term fix for taxpayer checks caught in the backlog of unopened mail. As detailed on the IRS webpage … pending check payments and payment notices will be posted as of the date received rather than the date when they are processed by the IRS. Note: To avoid penalties and interest, the IRS strongly advises taxpayers not to stop payment on their checks with their bank and ensure availability of funds, as the IRS will eventually get around to processing them.

If you filed electronically, you should be among those who https://www.irs.gov/advocate/local-taxpayer-advocate receive their refunds first, according to the IRS. You can check the status of your refund here.

If you’re still waiting for your federal return and suspect a problem, the IRS suggests you contact your local IRS and make an appointment for a face-to-face meeting. You can also contact your local tax advocate through the IRS’s website or call the IRS at 800-829-1040 Monday through Friday from 7 a.m. until 7 p.m.

If any of the foregoing seems unclear as to how it applies to your specific circumstances, please keep in mind that Pearson & Co. will help. Give us a call or drop an email. We’ll respond immediately

28 Oct 2020
News, Tax Law Pearson & Co, PC 0 comment

WHAT’S IN A NAME?

WHAT’S IN A NAME?
Lots … When It Comes to Working from Home Tax Breaks

WHAT’S IN A NAME?

Working from home (WFH) now has become a dominant reality for many American workers. You may be one of the approximately 45 million persons working from home full-time … or know a relative, friend or professional colleague who are among the 42 percent of the U.S. labor force doing so.

The WFH paradigm was triggered in response to the months-long health and economic challenges of COVID-19. Many experts, perhaps even most, agree that the WFH economy will prevail long after the coronavirus pandemic that spawned it is conquered.

Of course, this new phenomenon will produce both challenges and positive payoffs for WFH Americans. Work-life balance, finances and family issues will all be affected either positively or less-so in varying degrees.

In this article, we’ll focus on a frequent tax-related question asked by those working from home.

“What tax-breaks do I get for use of home floor space and added work-related expenses?”

The answer differs for those who the IRS deems to be an employee vs. an independent contractor. The former will not enjoy tax relief … while self-employed individuals may deduct certain business-related expenses. What follows is a rundown on how each worker classification may fare.

Who Does the IRS Consider to Be an Employee?

The simple answer is … if you receive a W-2 form for your work, you are an employee. Tax law revisions in 2018 prevents employees from deducting job-related expenses that are not reimbursed by their employer. And that is the case even when mandated by your employer to do so under current efforts to fight the spread of coronavirus.

When You Are Self-Employed/Independent Contractor

Self-employed workers, often referred to as independent contractors, may deduct allowable business-related costs. To do so requires that detailed records are maintained and itemized on your tax return.

You may qualify for one or more of the 10 deductions summarized below.

Note: Be sure to give us a call regarding how any of these or others may affect your unique circumstances.

Home Office

Your guiding principle to determine deductions for your home office is based on the percentage of space in your home exclusively devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home exclusively devoted to your business activities.

Note: Be precise. For example, if you only use one corner of your dining room table for business use … the total dining room floor space will not qualify.

You may then deduct the qualifying percentage for each of the following:

  • Rent or interest on your home mortgage
  • Utilities
  • Homeowners insurance
  • Property taxes

Additionally, the following will be considered as eligible deductions:

  • Office Supplies

Essential items to your business such as printer paper and ink cartridges, desk and filing cabinet likely will qualify as deductible.

  •  Equipment

Computer, printers and equipment uniquely essential for your business plus repairs are deductible. Likewise, the cost of a smartphone you use solely for business and related expenses qualify as write-offs.

  • Software

When used strictly for your business, any software you purchase or pay for monthly qualifies.

  • Travel Costs

Travel expenses you incur to visit a client or attend a conference are deductible. That may include mileage, airfare, lodging, parking and other travel-related costs paid by you.

  • Meals and Entertainment

Make sure that your costs are all directly related to business. Fifty percent of qualified expenses may then be deductible.

  • Training and Education

Professional education expenses necessary to run or grow your business will qualify.

  •  Marketing and Advertising

Expenses to attend trade-shows, printed promotional items, website expenses, business cards and other marketing and advertising costs are deductible.

  •  Professional Services

You will likely incur expenses for outside help or advice. Your CPA, attorney, IT contractor and others will all qualify as fee-for-service deductions

  • Health Insurance

If you meet the following criteria, you may deduct 100% of your health insurance premiums for yourself, your spouse and dependents:

  1. Your business is claiming a profit for the tax year, and
  2. you (and your spouse and dependents) were not eligible for coverage from an employer or under your spouse’s plan during the months you’re claiming.

.

Again, the above 10 items are meant only as a summary of deductions you may claim as a self-employed individual or independent contractor. There may be others that qualify, so it’s wise to keep track of expenses such as bank charges, shipping costs, post office box fees and reasonable costs for holiday gifts for your best clients.

Have Immediate Questions or Concerns?

Pearson & Co stand ready to help as needed. A phone call or email is all it takes.
We’ll respond promptly.

28 Oct 2020
Text, word Payroll is written on a folder lying on documents on an office desk with a laptop and a calculator. Business concept.
Business, IRS, News, Payroll Tax, Tax Law Pearson & Co, PC 0 comment

PAYROLL TAX DEFERRAL

PAYROLL TAX DEFERRAL
Boon for Employees? Burden for Employers?

payroll taxEarly last August, President Trump directed Treasury Secretary Steven Mnuchin to permit employers to temporarily suspend the collection of employees’ shares of Social Security payroll taxes … equal to 6.2 percent of the compensation of eligible employees. In response to the economic stress of COVID-19, the intent was to offer financial relief in the form of more take-home pay for employees for the period September 1, 2020 through December 31, 2020.

Eligible employees are those whose pretax wages or compensation during any biweekly pay period is less than $4,000. That means that an employee’s qualifying status could vary from one period to the next depending on earnings. Workers earning more than $104,000 annually are excluded from the payroll tax suspension.

During the four-month period, participating employers are to suspend withholding and not required to remit to the IRS the amount of Social Security payroll taxes that would have ordinarily been paid. Treasury Secretary Mnuchin has said he “can’t force” companies to participate, suggesting that the deferral would be voluntary, but that he hopes many companies will join in the effort.

It’s important to emphasize that this suspension of collecting and remitting Social Security payroll taxes is a payroll tax deferral … not tax forgiveness. President Trump’s order to delay the due date for payroll taxes for millions of workers includes the provision that the deferred taxes must be paid by April 30, 2021. That means eligible employees will enjoy fatter paychecks for the balance of this year … yet face the prospect of having to tighten their belts to comply with repayment in the first four months of next year.

In a nutshell, the tax is postponed for a specific period and then must be repaid.

The IRS follow-up guidance puts responsibility to pay the deferred taxes squarely on the backs of participating employers. Employers must collect and remit all the deferred payroll taxes between January 1 and April 30, 2021. This means withholding double the normal tax from employees’ pay checks during those four months … unless arrangements are made to collect the taxes due from the employee. Failure to do so results in interest and penalties that will accrue to the employer effective May 1, 2021.

Questions that immediately surface are: what if an employee refuses to agree to repayment … or leaves the company … or doesn’t earn enough to pay the back taxes? Without further clarification, it appears that the obligation to pay continues to be an employer obligation.

Employees of employers that choose to participate, may anticipate smaller paychecks next year when Social Security payroll taxes are withheld at twice the rate experienced before September 1, 2020. Alternatively, employees may be wise to set aside the extra funds received currently in a savings account to avoid high credit card debt or personal loans during the first four months of 2021.

Note 1: The President’s directive does not address Social Security tax deferral for self-employed individuals. Only employment-related taxes are included, not self-employment taxes.

Note 2: Unlike the voluntary provision for private employers, the Trump administration has refused to allow federal employees or members of the military to opt out. Additionally, employees remain liable for the deferred tax should they leave federal for civilian employment.

There are questions being raised by legislators, the American Institute of CPAs, U.S. Chamber of Commerce and others to clarify the benefits of this program to employers and employees. That said, as of this writing and in the absence of revisions by lawmakers, the above summary appears to be the facts.

If any of the foregoing seems unclear as to how it applies to your specific circumstances, please keep in mind that Pearson & Co. will help.
Give us a call or drop an email. We’ll respond immediately.
13 Aug 2020
Stimulus Package 2
Covid-19, News Pearson & Co, PC 0 comment

PANDEMIC STIMULUS PACKAGE 2

PANDEMIC STIMULUS PACKAGE 2
We Don’t Know What We Don’t Know!

stimulus

Nearly every American has been directly affected by the original $2.2- trillion stimulus package provided for earlier this year as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The financial relief terms and benefits expired and are awaiting further Congressional action.

CARES Act Financial Relief

Here’s a summary of the key provisions of the CARES Act that delivered significant economic assistance to many:

Individuals

  • One-time payment: of $1,200 per taxpayer plus $500 for each qualifying child
  • Unemployment Benefits: Unemployment insurance expanded if job loss is due to COVID-19. Once regular state benefits expire, eligible recipients may collect up to an additional 13 weeks of benefits plus an additional $600 per week which expired on July 31.
  • Evictions: Tenants in federally-backed housing granted 120 days of eviction relief to July 25, 2020.

    Note: This eviction moratorium does not relieve tenants the obligation to pay rent.

Businesses

  • The Paycheck Protection Program (“PPP”): Authorizes forgivable loans to small businesses to pay their employees during the COVID-19 crisis.

  Note: Provisions of the PPP were revised on June 5, 2020, by the Paycheck Protection Program Flexibility Act (PPPFA) in        response to complaints about the original bill. Click here for a review of the major provisions of the PPPFA.

  • Employee Retention Credit: Designed to encourage businesses to keep employees on their payroll.
  • Paid Sick Leave Credit & Family Leave Credit: Small and midsize employers can claim two new refundable payroll tax credits … paid sick leave credit and the paid family leave credit. Each fully reimburses eligible employers for the cost of providing COVID-19 related leave to their employees … and to make that repayment immediate.
  • Evictions: Financially strapped apartment landlords with government-backed mortgages can avoid foreclosure if they don’t evict tenants. The order applies to the Fannie Mae and Freddie Mac mortgage companies, which will extend mortgage forbearance to any landlord “negatively affected by the coronavirus national emergency,” according to the Federal Housing Finance Agency.

Congress Stalled … President Acts

Both Democrat and Republican lawmakers have proposed extensions to major provisions of the CARE Act. The Democrat proposal is embodied in a bill called HEROES. The Republican version is the HEALS Act.

However, after considerable negotiations, Congress adjourned having been unable to reach agreement on a bi-partisan compromise to reestablish much needed monetary aid to both individuals and businesses.

One day after coronavirus relief negotiations fell apart in Congress, President Donald Trump signed multiple executive actions intended to help people struggling financially due to the coronavirus pandemic. There are four major provisions of the executive order:

  •  Suspension of payroll taxes;
  •  Federal unemployment payments of $400 a week (a $200 cut from the previous $600)
  •  Deferrals on student loan payments through the end of the year
  •  Efforts to minimize evictions at federal housing.

Notably: The order does not include another round of stimulus payments.

Both Republicans and Democrats have indicated they are in favor of another round of stimulus payments. Since the decision on a second stimulus was excluded from Trump’s order, it would have to be stand-alone legislation passed by Congress or part of a broader-based compromise bill.

There will likely be delaying actions initiated to prevent President Trump’s executive orders to be implemented. That said, there is much discussion that the president’s executive action may motivate Democrat and Republican leaders to reconvene and agree on extensions to most, if not all, of the CARES Act provisions.

Summary

So, while we don’t know what we don’t know … this is an election year and taxpayers of every stripe are under significant financial stress. Our inclination is to anticipate Congressional resolution sooner rather than later.

If any of the foregoing seems unclear as to how it applies to your specific circumstances, please keep in mind that Pearson & Co. will help.
Give us a call or drop an email. We’ll respond immediately.
29 Jul 2020
News, Retirement Pearson & Co, PC 0 comment

SENIORS & RETIREES … ANOTHER FINANCIAL BREAK

SENIORS & RETIREES … ANOTHER FINANCIAL BREAK
No Need to Deplete Your Retirement Fund in 2020
And If You Have … At Your Option, Return Distributions to Your Account

Financial BreakEarlier this year, we reported that President Trump signed the SECURE Act into law raising the Required Minimum Distribution (RMD) age to 72 from 70½ . That proved to be a boon for taxpayers who can afford to delay IRA withdrawals. Delaying receipt of the RMD until age 72 significantly reduced taxable income for many taxpayers. Be sure to click here for the details

More Financial Relief for Seniors & Retirees

Now there is further financial relief triggered by The Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The Act provides for RMDs to be waived during 2020 for IRAs and retirement plans. That expansion of benefits includes beneficiaries with inherited accounts.

Participants in virtually all defined contribution retirement plans qualify, i.e.:

  • traditional IRAs
  • SEP IRAs
  • SIMPLE IRAs
  • 401(k) plans
  • 403(b) plans
  • 457(b) plans
  • profit sharing plans.

Note: The RMD suspension does not apply to qualified defined benefit plans.

Already Took Your RMD for 2020 … Good News!

At your option, you may return the distribution to your qualifying plan. Additionally, the suspension of the RMD rule for this year means your distribution is likely eligible for rollover to another IRA/qualified retirement plan as well as return to the original plan. The key is to repay the distribution to the distributing plan no later than Aug. 31, 2020, to avoid paying taxes on that distribution.

How Else May Seniors Benefit?

Why does skipping your RMD in 2020 matter? Like most people, you funded your IRAs and 401(k)s with tax-deferred dollars. Particularly if you are among the many Americans struggling in 2020 because of the pandemic, having more flexibility on distributions can be a financial bonus.

Additionally, both the equity and fixed income markets have been extremely volatile. You may win by giving your retirement portfolios another year to recover.

If any of the foregoing seems unclear as to how it applies to your specific circumstances, please keep in mind that Pearson & Co. will help.
Give us a call or drop an email. We’ll respond immediately.
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