Tax Tip For Retirees- Many Retirees Face April 1 Deadline to Take Required Retirement Plan Distributions

IR-2016-48, March 28, 2016

WASHINGTON — The Internal Revenue Service today reminded taxpayers who turned 70½ during 2015 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Friday, April 1, 2016.

The April 1 deadline applies to owners of traditional (including SEP and SIMPLE) IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.

The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, a taxpayer who turned 70½ in 2015 (born after June 30, 1944 and before July 1, 1945) and receives the first required distribution (for 2015) on April 1, 2016, for example, must still receive the second RMD by Dec. 31, 2016.

Affected taxpayers who turned 70½ during 2015 must figure the RMD for the first year using the life expectancy as of their birthday in 2015 and their account balance on Dec. 31, 2014. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the appendices to Publication 590-B.

Most taxpayers use Table III  (Uniform Lifetime) to figure their RMD. For a taxpayer who reached age 70½ in 2015 and turned 71 before the end of the year, for example, the first required distribution would be based on a distribution period of 26.5 years. A separate table, Table II, applies to a taxpayer married to a spouse who is more than 10 years younger and is the taxpayer’s only beneficiary. Both tables can be found in the appendices to Publication 590-B.

Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulation  inPublication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

The IRS encourages taxpayers to begin planning now for any distributions required during 2016. An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount in Box 12b on Form 5498. For a 2016 RMD, this amount would be on the 2015 Form 5498 that is normally issued in January 2016.

IRA owners can use a qualified charitable distribution (QCD) paid directly from an IRA to an eligible charity to meet part or all of their RMD obligation. Available only to IRA owners 70½ or older, the maximum annual exclusion for QCDs is $100,000. For details, see the QCD discussion in Publication 590-B.

More information on RMDs, including answers to frequently asked questions, can be found on IRS.gov.

Can’t Pay Taxes On Time? Here Are Five Tips

Another IRS tax tip- hope it is helpful!

The IRS urges you to file on time even if you can’t pay what you owe. This saves you from potentially paying a penalty for a late filed return.

Here is what to do if you can’t pay all your taxes by the due date.

1. File on time and pay as much as you can. You can pay online, by phone, or by check or money order. Visit IRS.gov for electronic payment options.

2. Get a loan or use a credit card to pay your tax. The interest and fees charged by a bank or credit card company may be less than IRS interest and penalties. For credit card options, see IRS.gov.

3. Use the Online Payment Agreement tool.  You don’t need to wait for IRS to send you a bill before you ask for a payment plan. The best way is to use the Online Payment Agreement tool on IRS.gov. You can also fileForm 9465, Installment Agreement Request, with your tax return. You can even set up a direct debit agreement. With this type of payment plan, you won’t have to write a check and mail it on time each month.

4. Don’t ignore a tax bill.  If you get a bill, don’t ignore it.  The IRS may take collection action if you ignore the bill. Contact the IRS right away to talk about your options. If you are suffering financial hardship, the IRS will work with you.

5. File to reconcile Advance Payments of the Premium Tax Credit.  You must file a tax return and submit Form 8962 to reconcile advance payments of the premium tax credit with the actual premium tax credit to which you are entitled. You will need Form 1095-A from the Marketplace to complete Form 8962. Failure to reconcile your advance payments of the premium tax credit on Form 8962 may make you ineligible to receive future advance payments.

Remember to file on time. Pay as much as you can by the tax deadline and pay the rest as soon as you can. Find out more about the IRS collection process on IRS.gov. Also check out IRSVideos.gov/OweTaxes.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Bartering Produces Taxable Income and Reporting Requirements

A lot of small businesses barter their services so many of you might find this useful! Here are some tips from the IRS

Bartering is the trading of one product or service for another. Often there is no exchange of cash. Some businesses barter to get products or services they need. For example, a gardener might trade landscape work with a plumber for plumbing work.

If you barter, you should know that the value of products or services from bartering is normally taxable income. This is true even if you are not in business.

A few facts about bartering:

  • Bartering income. Both parties must report the fair market value of the product or service they get as income on their tax return.
  • Barter exchanges. A barter exchange is an organized marketplace where members barter products or services. Some operate out of an office and others over the Internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. Exchanges must give a copy of the form to its members who barter each year. They must also file a copy with the IRS.
  • Trade Dollars. Exchanges trade barter or trade dollars as their unit of exchange in most cases. Barter and trade dollars are the same as U.S. currency for tax purposes. If you earn trade and barter dollars, you must report the amount you earn on your tax return.
  • Tax implications. Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.
  • Reporting rules. How you report bartering on a tax return varies. If you are in a trade or business, you normally report it on Form 1040,Schedule C, Profit or Loss from Business.

Go to the Bartering Tax Center on IRS.gov for more information.

Free webcast from the IRS about the Affordable Care Act

Free webcast about Affordable Care Act: Information Reporting by Providers of Minimum Essential Coverage (MEC) (§6055)

When: March 29, 2016; 2 p.m. (Eastern)

How: Register for this event. You will use the same link to attend the event.

Learn about:

  • Information Reporting for Issuers Overview
  • Minimum Essential Coverage (MEC)
  • Reporting Requirements
  • Forms
  • Resources

3 Things You Mustn’t Do When Buying A Franchise

By FranchiseKing, Guest Blogger for the SBA

Published: March 15, 2016Updated: March 15, 2016

Sometimes I feel that I fall short in my quest to save you from potentially experiencing financial pain with regards to franchise ownership.

I’ve been writing a monthly article about franchising here for almost 6 years. I provide tips and advice based on my real-life experiences in franchising. I’ve been in franchise management, I’ve owned a franchise, and I’ve sold franchises. I know what works and I know what doesn’t. My main goal here and in my franchise consulting practice, is to provide helpful information. Information you can use to lower your financial risk (if you decide to become a franchise owner) while increasing your chances of success. Am I succeeding? I hope so.

3 Franchise Tips From A Different Angle

Sometimes, it pays to look at things from a different angle.

So, instead of offering tips on what you need to do when buying a franchise, I’m going to share 3 tips on what you mustn’t do when buying a franchise. I think you’ll find them to be helpful.

1. You mustn’t dismiss the impact of your potential decision on your family

Your immediate family is going to be impacted (big-time) if you decide to buy and run a franchise business. This is serious stuff; you need to treat it as such. Here’s how:

Schedule a formal meeting with your immediate family members.

During this meeting, share the reasons why you’re thinking of going this route. Tell them that you’re going to learn all you can about franchising. Be honest about the financial risk associated with going into business. Ask them about their concerns. If they’re frightened about your idea, be empathetic. Ask them what you can do to alleviate their fears. Do whatever it takes to get them in your court.

2. You mustn’t be cheap

You may be about to invest $150,000 (or more) in a franchise business. It’s a lot of money. A few hundred dollars here and there (in comparison) is not. Don’t be afraid to spend your money on…

A. A Business Plan for Your Franchise

If you’re planning on getting a small business loan for your franchise business, the way to up your chances of getting it approved is by submitting a detailed business plan with your loan application. Check out this video series on business plan creation.

If you’re knowledgeable about business plan writing, you may be able to put your business plan together yourself, for free. If you’re not, consider purchasing business planning software to help you put together a customized business plan.

B. Professionals

You should hire an accountant (preferable a CPA) who’s familiar with things like small business payroll, and small business taxation. A CPA can also help you setup the correct business entity for your specific situation.

You should also hire an attorney who’s familiar with franchising.

Today’s franchise attorney’s stay up on all the latest franchise laws, which is reason enough to hire one. In addition, a franchise attorney will need to go through all the documents you’ll be receiving from the franchisor-including the actual franchise contract.

3. You mustn’t skip the chance to visit headquarters

If the franchisor invites you to franchise headquarters for a day, book the trip. However, you should only book the trip if you’re getting real close to making a yes or no decision. Otherwise, it’s a waste of your time and theirs.

Spending a day at headquarters is your chance to meet face-to-face with the people you’ll be sending royalty checks to every month for the length of your franchise contract. Take advantage of your alone time with the CEO of the franchise by asking good questions. Try to spend a little time with each department. You’ll be able to see first-hand how they operate, and if you feel they’ll do a good job supporting your franchise business.

I hope you found this approach…my tips on a few of the things you mustn‘t do when buying a franchise, useful.

Check Out this Chart to Discover How the Health Care Law Affects You

Another IRS Tax Tip- this one on how the health care law affect you.

The Affordable Care Act includes the individual shared responsibility provision and the premium tax credit. This chart explains how the health care law may affect you and your tax return.

 IF YOU… THEN YOU…
Are a U.S. citizen or a non-U.S. citizens living in the United States Must have qualifying health care coverage, qualify for a health coverage exemption, or make a payment when you file your income tax return
 

Had coverage or an employer offered coverage to you in the previous year

 

Will receive one or more of the following forms;

This information will help you complete your tax return.

Had health coverage through an employer or under a government program (such as Medicare, Medicaid and coverage for veterans) for the entire year Just have to check the full-year coverage box on your Form 1040 series return and do not have to read any further
Did not have coverage for any month of the year Should check the instructions toForm 8965, Health Coverage Exemptions, to see if you are eligible for an exemption
Were eligible for an exemption from coverage for a month Must claim the exemption or report an exemption already obtained from the Marketplace by completing Form 8965, Health Coverage Exemptions, and submitting it with your tax return
Did not have coverage and were not eligible for an exemption from coverage for any month of the year Are responsible for making an individual shared responsibilitypayment when you file your return
Are responsible for making an individual shared responsibility payment Will report it on your tax return and make the payment with your income taxes
 Need qualifying health care coverage for the current year Visit HealthCare.gov to find out about the dates of open  and special enrollment periods for purchasing  qualified health coverage.
Enroll in health insurance through the Marketplace for yourself or someone else on your tax return.  Might be eligible for the premium tax credit

 

Received the benefit of more advance payments of the premium tax credit than the amount of credit for which you qualify. Will repay the amount in excess of the credit you are allowed subject to a repayment cap.
Did not enroll in health insurance from the Marketplace for yourself or anyone else on your tax return  Cannot claim the premium tax credit

 

Are eligible for the premium tax credit Can choose when you enroll in coverage to get premium assistance sent to your insurer to lower your monthly payments or get all the benefit of the credit when you claim it on your tax return
Choose to get premium assistance when you enroll in Marketplace coverage. Will have payments sent on your behalf to your insurance provider. These payments are called advance payments of thepremium tax credit
Get the benefit of advance payments of the premium tax credit and experience a significant life change, such as a change in income or marital status Report these changes in circumstances to the Marketplacewhen they happen
Get the benefit of advance payments of the premium tax credit Will report the payments on your tax return and reconcile the amount of the payments with the amount of credit for which you are eligible

Tax Time Guide: Updated Tax Guide Helps People with Their 2015 Taxes

Because everyone needs help with their taxes…another IRS tax tip

Taxpayers can get the most out of various tax benefits and get useful tips on preparing their 2015 federal income tax returns by consulting a free comprehensive tax guide available on IRS.gov.

Publication 17, Your Federal Income Tax, features details on taking advantage of a wide range of tax-saving opportunities, such as the American Opportunity Tax Credit for parents and college students, the Child Tax Credit and Earned Income Tax Credit for low- and moderate-income workers. It also features a rundown on tax changes for 2015 including information on revised tax rates, limits on various tax benefits for some taxpayers and reporting requirements of the Affordable Care Act. This useful 286-page guide also provides thousands of interactive links to help taxpayers quickly get answers to their questions.

This is the second in a series of 10 tips called the Tax Time Guide. These tips are designed to help taxpayers navigate common tax issues as this year’s April 18 deadline approaches.

Publication 17 has been published annually by the IRS since the 1940s and has been available on the IRS web site since 1996. As in prior years, this publication is packed with basic tax-filing information and tips on what income to report and how to report it, figuring capital gains and losses, claiming dependents, choosing the standard deduction versus itemizing deductions, and using IRAs to save for retirement.