April 18 was this year’s deadline for most people to file their federal tax
return and pay any tax they owe. If taxpayers are due a refund, there is no
penalty if they file a late tax return.
Taxpayers who owe tax, and failed to file and pay on time, will most likely
owe interest and penalties on the tax they pay late. To keep interest and
penalties to a minimum, taxpayers should file their tax return and pay any tax
owed as soon as possible.
Here are some facts that taxpayers should know:
- Two penalties may apply. One penalty is for
filing late and one is for paying late. They can add up fast. Interest
accrues on top of penalties
- Penalty for late filing. If taxpayers file their
2016 tax return more than 60 days after the due date or extended due date,
the minimum penalty is $205 or, if they owe less than $205, 100 percent of
the unpaid tax. Otherwise, the penalty can be as much as 5 percent of
their unpaid taxes each month up to a maximum of 25 percent.
- Penalty for late
payment.
The penalty is generally 0.5 percent of taxpayers’ unpaid taxes per month.
It can build up to as much as 25 percent of their unpaid taxes.
- Combined penalty per
month.
If both the late filing and late payment penalties apply, the maximum
amount charged for the two penalties is 5 percent per month.
- Taxpayers should file
even if they can’t pay. Filing and paying as soon as possible will keep
interest and penalties to a minimum. If a taxpayer
can’t pay in full, getting a loan or paying by debit or credit card may be
less expensive than owing the IRS.
- Payment options. Taxpayers should
explore their payment options at IRS.gov/payments.
For individuals, IRS
Direct Pay is a fast and free way to pay directly from a checking or
savings account. The IRS will work with taxpayers to help them resolve
their tax debt. Most people can set up a payment plan using the Online
Payment Agreement tool on IRS.gov.
- Late payment penalty may
not apply.
If taxpayers requested an extension of time to file their income tax
return by the tax due date and paid at least 90 percent of the taxes they
owe, they may not face a failure-to-pay penalty. However, they must pay
the remaining balance by the extended due date. Taxpayers will owe
interest on any taxes they pay after the April 18 due date.
- No penalty if reasonable
cause.
Taxpayers will not have to pay a failure-to-file or failure-to-pay penalty
if they can show reasonable cause for not filing or paying on time.
Taxpayers should keep a copy of their tax return. Beginning in 2017,
taxpayers using a software product for the first time may need their Adjusted
Gross Income (AGI) amount from their prior-year tax return to verify their
identity.
Source: Internal Revenue Service
contact@officetaxservices.com
(858)247-1680
Taxpayers often have questions about Individual Retirement Arrangements, or IRAs.
Common questions include: When can a person contribute, how does an IRA impact
taxes, and what are other common rules.
The IRS offers the following tax tips on IRAs:
- Age
Rules. Taxpayers must be under age 70½ at the end of the tax year
to contribute to a traditional IRA. There is no age limit to contribute to
a Roth IRA.
- Compensation
Rules. A taxpayer must have taxable compensation to contribute to
an IRA. This includes income from wages and salaries and net
self-employment income. It also includes tips, commissions, bonuses and
alimony. If a taxpayer is married and files a joint tax return, only one
spouse needs to have compensation in most cases.
- When
to Contribute. Taxpayers may contribute to an IRA at any time
during the year. To count for 2016, a person must contribute by the due
date of their tax return. This does not include extensions. This means
most people must contribute by April 18, 2017. Taxpayers who contribute
between Jan. 1 and April 18 need to advise the plan sponsor of year they
wish to apply the contribution (2016 or 2017).
- Contribution
Limits. Generally, the
most a taxpayer can contribute to their IRA for 2016 is the smaller of
either their taxable compensation for the year or $5,500. If the taxpayer
is 50 or older at the end of 2016, the maximum amount they may contribute
increases to $6,500. If a person contributes more than these limits, an
additional tax will apply. The additional tax is six percent of the excess
amount contributed that is in their account at the end of the year.
- Taxability
Rules. Normally taxpayers don’t pay income tax on funds in a
traditional IRA until they start taking distributions from it. Qualified
distributions from a Roth IRA are tax-free.
- Deductibility
Rules. Taxpayers may be able to deduct some or all of their contributions to their traditional IRA.
- Saver’s
Credit. A taxpayer who contributes to an IRA may also qualify for
the Saver’s
Credit. It can reduce a person’s taxes up to $2,000 if they file a
joint return.
- Rollovers
of Retirement Plan and IRA Distributions. When taxpayers roll
over a retirement plan distribution, they generally don’t pay tax on
it until they withdraw it from the new plan. If they don’t roll over their
distribution, it will be taxable (other than qualified Roth distributions
and any amounts already taxed). The payment may also be subject to
additional tax unless the taxpayer is eligible for one of the exceptions
to the 10% additional tax on early distributions.
- myRA.
If a taxpayer’s employer does not offer a retirement plan, they may want
to consider a myRA.
This is a retirement savings plan offered by the U.S. Department of the
Treasury. It's safe and affordable. Taxpayer’s may also direct deposit
their entire refund or a portion of it into an existing myRA.
Taxpayers should keep a copy of their tax return. Beginning
in 2017, taxpayers using a software product for the first time may need their
Adjusted Gross Income (AGI) amount from their prior-year tax return to verify
their identity.
Source: Internal Revenue Service
contact@officetaxservices.com
(858)247-1680
The Internal Revenue Service reminded taxpayers who turned age 70½ during 2016 that, in most cases, they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Saturday, April 1, 2017.
The April 1 deadline applies to owners of traditional (including SEP and SIMPLE) IRAs but not Roth IRAs. It also typically 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. A taxpayer who turned 70½ in 2016 (born after June 30, 1945 and before July 1, 1946) and receives the first required distribution (for 2016) on April 1, 2017, for example, must still receive the second RMD by Dec. 31, 2017.
Affected taxpayers who turned 70½ during 2016 must figure the RMD for the first year using the life expectancy as of their birthday in 2016 and their account balance on Dec. 31, 2015. 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 2016 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. Employees who are still working usually 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 in Publication 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 2017. 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 2017 RMD, this amount would be on the 2016 Form 5498 that is normally issued in January 2017.
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 age 70½ or older, the maximum annual exclusion for QCDs is $100,000. For details, see the QCD discussion in Publication 590-B.
A 50 percent tax normally applies to any required amounts not received by the April 1 deadline. Report this tax on Form 5329 Part IX. For details, see the instructions for Part IX of this form.
Source: Internal Revenue Service
contact@officetaxservices.com
(858)247-1680
