Monthly Archives: September 2015

Are You Withholding Enough?

by Cody Taylor

Have you ever gotten to the end of the year, filed your taxes and then been surprised by what you owe?  One of the factors that can contribute to your surprise is not withholding enough taxes from your paycheck.  If you are a W-2 wage earner (your employer takes taxes out of your paycheck) and your income profile isn’t very complicated you may be able to use the IRS Withholding Calculator to figure out the correct withholding level for you.

The IRS gives some tips for using the program:wallet - not used

  • Have your most recent pay stubs handy
  • Have your most recent income tax return handy
  • Estimate values if necessary, remembering that the results can only be as accurate as the input you provide.

To Change Your Withholding:

  • Use your results from this calculator to help you complete a new Form W-4, Employee’s Withholding Allowance Certificate
  • Submit the completed Form to your employer

Even if you’ve always gotten a refund there may be reason to look into your withholding amount or whether you may need to make an end of year estimated payment to cover any tax liability if your situation has recently changed.  Some scenarios include an increase in nonwage income (Interest, dividends, capital gains (ex. stocks), alimony or self-employment income), a change in marital status, you moved to a new state, gained or lost a dependent or maybe you simply had a change of income level recently.  Nonwage income does not usually have taxes withheld so an increase from one year to the next can surprise people at tax time if they aren’t prepared for it.

Withholding information is especially important when you or your spouse is self-employed.  The IRS Withholding Calculator is not recommended when your income profile contains alternative minimum tax, self-employment tax, or if you receive pass-through income in the form of a K-1(s).  These more complicated situations may require an end of year tax projection to ensure your tax liabilities are covered.

If the IRS Withholding Calculator is not right for your situation and you need some additional assistance with end of year tax planning please contact our office for additional information.

Cody ([email protected]) is a staff in our tax department.  He focuses on various closely-held family companies, and trusts.

FASB Delays Effective Date for Revenue Recognition Standard

by Rebecca Lunn

On May 28, 2014, Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. However, due to response from stakeholders, the FASB has delayed the effective date by one year. New effective dates are as follows:

  • Public business entities, certain not-for-profit entities, and certain employee benefit plans would apply ASU 2014-09 for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that year. Early application permitted only as of years beginning after December 15, 2016, including interim reporting periods within that year.
  • For all other entities, the ASU is effective beginning after December 15, 2018, and interim reporting periods within years beginning after December 15, 2019. Early application permitted as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period; or an annual reporting period beginning after December 15, 2016.

For additional details on ASU 2014-09, please see the earlier blog post written by Lee Byrd.  You can also contact our office with any questions.

 

Year-end filing of 1099-MISC

by Russell Barker

You might think 1099-MISC filing is a year-end job and does not need attention before that.  That couldn’t be farther from the truth.  You should always gather W-9 forms from applicable vendors whom you have paid year round.  A W-9 form is an IRS form in which the vendor provides name, address and tax identification number.  This number can either be a social security number or Taxpayor Identification Number (“TIN”). year-end-review-300x225

Generally, a 1099-MISC should be filed if the vendor is unincorporated AND amounts paid are:

  • at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest
  • at least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate
  • any fishing boat proceeds
  • gross proceeds of $600, or more paid to an attorney during the year, or
  • withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.

The reason to start gathering this information is because at year end, you may not have contact with a vendor or cannot reach them.

What are the ramifications if you do not get this information and you should have?  The expense that you are trying to claim may not be valid and you might not have a credit on your books for the expense.  In some cases, this can cause an increase to your net income and more taxes you will have to pay at year end.

The old saying of an ounce of prevention is worth a pound of cure.  By obtaining and filing all W-9 forms, you will avoid a lot of unnecessary stress at year end. Langdon & Company LLP has a team of accounting service professional who are available to help with any of your Form 1099 questions.  Please contact our office for more information.

Russel Barker ([email protected]) is a Quickbooks ProAdvisor in our Accounting Services Department.  He works primarily with physician’s practices and other small businesses.

Rollover of Retirement Plan and IRA Distributions – 60 day rule

by Jessica DuPree

When taking early distribution from a retirement plan or IRA, it is important to remember the 60 day rule for the distribution to be considered “rolled over”.  To rollover a retirement plan means depositing the amount distributed from one retirement plan and placing these funds into another retirement plan or IRA.

Why roll over?jessica's blog

When you roll over a retirement plan distribution, you generally don’t pay tax on it until you withdraw it from the new plan. By rolling over, you’re saving for your future and your money continues to grow tax-deferred.

If you don’t roll over your early distributions, then this income is taxable (other than qualified Roth distributions and any amounts already taxed) and will also be subject to additional tax unless you’re eligible for one of the exceptions to the 10% additional tax on early distributions. See IRS website for more information on exceptions for early distribution additional tax.

How do I complete a rollover?

  1. Direct rollover – If you’re getting a distribution from a retirement plan, you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA. Contact your plan administrator for instructions. The administrator may issue your distribution in the form of a check made payable to your new account. No taxes will be withheld from your transfer amount.
  1. Trustee-to-trustee transfer – If you’re getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a retirement plan. No taxes will be withheld from your transfer amount.
  2. 60-day rollover – If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it in an IRA or a retirement plan within 60 days. Taxes will be withheld from a distribution from a retirement plan, so you’ll have to use other funds to roll over the full amount of the distribution.

When should I roll over?

You have 60 days from the date you received the distributions from the retirement plan or IRA to roll it over to another plan. It is up to the IRS to waive the 60 day roll over requirement based on the situation if it is a circumstance beyond the taxpayer’s control. This is decision is at the IRS’s will and should not be heavily relied on.

IRA one-rollover-per-year rule 

Beginning after January 1, 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own.

The one-per year limit does NOT apply to:

  • rollovers from traditional IRAs to Roth IRAs (conversions)
  • trustee-to-trustee transfers to another IRA
  • IRA-to-plan rollovers
  • plan-to-IRA rollovers
  • plan-to-plan rollovers

Once this rule took effect, the tax consequences are:

  • You must include in gross income any previously untaxed amounts distributed from an IRA if you made an IRA-to-IRA rollover (other than a rollover from a traditional IRA to a Roth IRA) in the preceding 12 months, and
  • You may be subject to the 10% early withdrawal tax on the amount you include in gross income.

Is my retirement plan required to accept rollover contributions?

Your retirement plan is not required to accept rollover contributions. Check with your new plan administrator to find out if they are allowed and, if so, what type of contributions are accepted.   You can roll your money into almost any type of retirement plan or IRA.  Click this link to access the Rollover Chart located on the IRS website for more information.

Contact Langdon & Company LLP for more information about retirement plans and other ways to be prepared for retirement.

Jessica ([email protected]) is an intern in our tax practice.  She works on various projects from individuals to corporate clients.