Be educated about your retirement distributions

Occasionally, I get clients who are completely shocked when I give them their tax liability when they have received distributions from their retirement plan. As a general rule, if you are getting money out of a retirement plan, then the IRS wants their share. The IRS released the following information regarding distributions from retirement plans. If you would like to discuss further, please do not hesitate to contact me.

Lisa

Issue Number:    IRS Tax Tip 2012-34

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Early Distribution from Retirement Plans May Have a Tax Impact

Taxpayers may sometimes find themselves in situations when they need to withdraw money from their retirement plan early. What they may not realize is that that transaction may mean a tax impact when they file their return.

Here are 10 facts from the IRS about the tax implications of an early distribution from your retirement plan.

1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.

2. Early distributions are usually subject to an additional 10 percent tax.

3. Early distributions must also be reported to the IRS.

4. Distributions you roll over to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.

5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.

6. If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.

7. If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions is not taxed.

8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.

9. There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home (up to $10,000), for certain medical or educational expenses, or if you are totally and permanently disabled.

10. For more information about early distributions from retirement plans, the additional 10 percent tax and all the exceptions, see IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
Links:

• Publication 575, Pensions and Annuities (PDF 227K)
• Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)  
• Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts   (PDF 72K)

Form 5329 Instructions (PDF 40K)

Taxable or Non-Taxable Income?

The IRS released its Tax Tip 2012-25 today regarding the determination if income is taxable or non-taxable. This is a great place to start if you have any of these items. However, please contact me if you have anything unusual so we can be 100% sure that the tax treatment is correct.

Lisa

Issue Number:    IRS Tax Tip 2012-25

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Taxable or Non-Taxable Income? 

Although most income you receive is taxable and must be reported on your federal income tax return, there are some instances when income may not be taxable.

The IRS offers the following list of items that do not have to be included as taxable income:

• Adoption expense reimbursements for qualifying expenses
• Child support payments
• Gifts, bequests and inheritances
• Workers’ compensation benefits (some exceptions may apply; see Publication 525, Taxable and Nontaxable Income)
• Meals and lodging for the convenience of your employer
• Compensatory damages awarded for physical injury or physical sickness
• Welfare benefits
• Cash rebates from a dealer or manufacturer

Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your taxable income are:

• Life insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are generally not taxable unless the policy was turned over to you for a price.
• Scholarship or fellowship grant If you are a candidate for a degree, you can exclude from income amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify for the exclusion.
• Non-cash income Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

All other items—including income such as wages, salaries, tips and unemployment compensation — are fully taxable and must be included in your income unless it is specifically excluded by law.

These examples are not all-inclusive. For more information, see Publication 525, Taxable and Nontaxable Income, which can be obtained at the IRS.gov website or by calling the IRS at 800-TAX-FORM (800-829-3676).
Link:  IRS Publication 525, Taxable and Nontaxable Income

 

How important is your name to the IRS?

Life change is a part of life and if the change involves a new last name then there are steps that need to be taken in order to prevent any delays when the IRS processes your tax return. You should notify the Social Security Administration promptly after legally changing your name in order for their records to be updated and match the IRS records. The IRS issued Tax Tip 2012-23 as noted below. Please give me a call if you would like to discuss further.

Lisa

 

Five Tips for Recently Married or Divorced Taxpayers with a Name Change

If you changed your name after a recent marriage or divorce, the IRS reminds you to take the necessary steps to ensure the name on your tax return matches the name registered with the Social Security Administration. A mismatch between the name shown on your tax return and the SSA records can cause problems in the processing of your return and may even delay your refund.

Here are five tips from the IRS for recently married or divorced taxpayers who have a name change.

1. f you took your spouse’s last name — or if you hyphenated your last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can’t match the new name with their Social Security number.

2. If you recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.

I3. nforming the SSA of a name change is easy. Simply file a Form SS-5, Application for a Social Security Card, at your local SSA office or by mail and provide a recently issued document as proof of your legal name change.

4. Form SS-5 is available on SSA’s website at http://www.socialsecurity.gov/, by calling 800-772-1213 or at local offices. Your new card will have the same number as your previous card, but will show your new name.

5. If you adopted your spouse’s children after getting married and their names changed, you’ll need to update their names with SSA too. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. Form W-7A is available on the IRS.gov website or by calling 800-TAX-FORM (800-829-3676).
Link:

Form W-7A  Application for Taxpayer Identification Number for Pending U.S. Adoptions (ATIN)

You Tube Videos:

Changed Your Name after Marriage or Divorce? English | ASL

 

Tennessee Lawful Employment Act

If you operate a business in Tennessee, you need to be aware of the new law that went into effect on 1.1.12 and is staggered over the year based upon the # of employees that you have. Here is the latest information from the Tennessee Department of Labor and Workforce Development. Please let me know if you would like to discuss further.

Lisa

Frequently Asked Questions

The Tennessee Lawful Employment Act (TLEA) took effect January 1, 2012, and requires employers to obtain lawful resident/employment verification information.   The amendment is Public Chapter No. 436 and can be viewed at http://www.tn.gov/sos/acts/107/pub/pc0436.pdf

Signed into law by Governor Bill Haslam on June 7, 2011, the TLEA  requires all employers in Tennessee to demonstrate that they are hiring and maintaining a legal workforce either by:

Enrolling and verifying the employment eligibility of all newly hired employees through the E-Verify program, or

Requesting all newly hired employees and “non-employees” to provide one of the following identity and employment authorization documents:  

• A valid Tennessee driver’s license or photo identification
• A valid driver’s license or photo identification from another state where the license requirements are at least as strict as those in Tennessee
• A birth certificate issued by a U.S. state, jurisdiction or territory
• A U.S. government issued certified birth certificate
• A valid, unexpired U.S. passport
• A U.S. certificate of birth abroad
• A certificate of citizenship
• A certificate of naturalization
• A U.S. citizen identification card
• A lawful permanent resident card
• Other proof of employee’s immigration status and authorization to work in the United States

A “non-employee” is an individual, other than an employee, who is paid directly by the employer in exchange for the individual’s labor or services.  If your place of business contracts services from an outside entity that operates as an LLC or Corporation then no action is required to verify that company’s employees.  If your place of business contracts services from an individual, then your company must request the non-employee to provide one of the above referenced documents.

Federal law still requires all employers to complete an I-9 form for all new hires (including U.S. citizens) within three (3) business days of hire. The information obtained for the I-9 form can be, but is not required to be, verified through the E-Verify program once obtained by the employer.

For employers without internet access, the new law will allow such employers to enter into an agreement with the Tennessee Department of Labor & Workforce Development (TDLWD) and permit this agency to enroll the employer in the E-Verify program and conduct employment verification checks of new hires.  To view this agreement, Request for E-Verify Service, please click here.  The employer will also be required to enter into a Memorandum of Understanding (MOU) between the employer, TDLWD, and the Department of Homeland Security.  Please click here to view this MOU.

Under the Act, the employment verification provisions referenced above will be phased in as follows:

All state and local government agencies must enroll and participate in E-Verify or request and maintain  one of the above listed identity/employment authorization documents from a newly hired employee no later than January 1, 2012 

All private employers with 500 or more employees must enroll and participate in E-Verify or request and maintain  one of the above listed identity/employment authorization documents from a newly hired employee or non-employee no later than January 1, 2012

All private employers with 200 to 499 employees must enroll and participate in E-Verify or request and maintain  one of the above listed identity/employment authorization document from a newly hired employee or non-employee no later than July 1, 2012

All private employers with 6 to 199 employees must register and utilize E-Verify or request and maintain  one of the above listed identity/employment authorization document from a newly hired employee or non-employee no later than July 1, 2013

In determining the number of employees the employer must count all employees whether employed in Tennessee or outside of Tennessee.

Any lawful resident of Tennessee or any employee of a federal agency may file a complaint alleging a violation of the employment verification provisions of the Act.  If there is satisfactory evidence of a violation, the Commissioner of the Tennessee Department of Labor and Workforce Development will conduct an investigation.

Please contact the Labor Standards Division toll-free at 1-855-TNEBILL (1-855-863-2455) or 615-741-2247 for more information, or you may direct inquiries regarding the Tennessee Lawful Employment Act to cathy.pardue@tn.gov.

 

 

Why I Oppose Proposed Amendments to the TN Accountancy Law

I have had several weeks to digest the proposed changes to the Tennessee Accountancy Law. The tone in my past blogs and Tweets probably gave a hint that I am not too happy with the proposed amendments included in SB 2249/HB2387. Before I go further I will state that I am a current member of the Tennessee State Board of Accountancy. This blog represents my beliefs and opinions and not the Boards. I cannot speak on behalf of the Board outside a formal meeting. Had to get that on the record.

I believe there are three areas in the proposed legislation that would have a detrimental impact on the accounting profession in Tennessee. They are as follows:

1. Changing the way board members are appointed.

2. Changing the way the executive director is hired/appointed and approval of their compensation.

3.  Reconstituting the board and changing the terms of service.

This blog will focus on item #1 above. I will blog about the other two items in separate blogs.

The current law regarding the appointment of board members is found in T.C.A. Section 62-1-104 (State board of accountancy-Creation-Membership-term). The proposed change will delete this section entirely and have an entirely new section as proposed in SB 2249/HB2387.

The one I want to focus on is how board members are appointed. The current law states (T.C.A. Section 62-1-104, (8))  ”Certified public accountants shall be appointed to the board by the governor from a list of qualified certified public accountants submitted by the Tennessee Society of Certified Public Accountants.” The proposed change in item #7 in  HB2387 under this section of the Code is as follows: “Certified Public Accountants may be appointed to the board by the governor from a list of qualified certified public accountants that shall be submitted by the Tennessee Society of Certified Public Accountants.”

What that means is that the governor may appoint board members based upon who he knows instead of having a list of qualified CPAs from the TSCPA. Politics should NOT come into play in the appointment of the Tennessee Accountancy board members. A board member should be someone who has the profession in mind first as a board member and not any political motives.

Being a member of this board has been a true honor and the best way for me to give back to our profession. I was initially appointed by Governor Bredesen back in 2006. I do not know Governor Bredesen personally. I have never met him and did not even know anyone that knew him that knew me on a professional level. I was recommended by the TSCPA. I would like to think that my work ethic, integrity, dedication to the profession and my relationship with my peers provided a basis for my recommendation to the Governor. If the Governor at that time was able to choose any CPA I doubt I would be on this board today. No, in fact, I know I would proably not be on the Board. The reason is that I spend a lot of time working and I do not have a connection to the governor. However, my experience was able to speak for itself.

So if you are a licensed TN CPA I strongly encourage you to contact your legislator and even Governor Haslam to let them know that you oppose this change to the law. Politics need to stay out of the appointment process. The mission of the Board of Accountantcy is to protect the public and remaining independent if fundamental in doing this.

If you want to discuss further with me please do not hesitate to contact me.

Lisa

More Transparency for Exempt Organizations

I got an update from a colleague today regarding the ability to check the status of an exempt organization on the IRS website effective 1.20.12. As a sole practitioner, I am so thankful for colleagues that share resources. So I wanted to thank Dennis Greeno, CPA for letting me know about this. With the busyness of the last two weeks I most likely skipped over this in my IRS updates.

I have included the information from the IRS website below. This is a great resource before you make a donation to a nonprofit to make sure they are a qualified nonprofit. Also, it is probably a good idea to check the site if you serve on the Board of Directors of a nonprofit or even an employee.

The direct link to the information is www.irs.gov/charities/article/0,,id=249767,00.html

As always, contact me if you would like to discuss further.

Lisa

Exempt Organization Select Check

Exempt Organizations Select Check is an on-line search tool that allows users to select an exempt organization and check certain information about its federal tax status and filings. It consolidates three former search sites into one, providing expanded search capability and a more efficient way to search for organizations that: Are eligible to receive tax-deductible charitable contributions (Publication 78 data), Have had their tax-exempt status automatically revoked because they have not filed Form 990 series returns or notices annually as required for three consecutive years (Auto-Revocation List),or Have filed a Form 990-N annual electronic notice (e-Postcard). Exempt Organizations Select Check data is generally updated on the third Monday of each month for automatically revoked organizations and organizations eligible to receive deductible contributions, and weekly for Form 990-N (e-Postcard) filings. In addition to searching for a particular organization, users may download a complete list of each of the three types of organizations through Exempt Organizations Select Check.

 

Got tip income?

There a some misconceptions out there that tip income is not taxable. Here is information from the IRS regarding tips. If you have any specific questions, please do not hesitate to contact me.

Lisa

Issue Number:    IRS Tax Tip 2012-14

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Four Tax Tips Regarding Tip Income

If your pay from work involves compensation through tips, then the IRS would like you to be aware of a few facts about tip income. Here are four key points to keep in mind:

1. Tips are taxable Tips are subject to federal income, Social Security and Medicare taxes.  The value of non-cash tips, such as tickets, passes or other items of value, is also considered income and subject to tax.

2. Include tips on your tax return You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.

3. Report tips to your employer If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.

4. Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tip income.

For more information see IRS Publication 531, Reporting Tip Income, and Publication 1244 which are available at www.irs.gov. Both can be ordered by calling 800-TAX-FORM (800-829-3676).