Month: March 2018

In most cases, taxpayers who turned 70 1/2 during 2017 must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Sunday, April 1, 2018.

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 December 31. In other words, a taxpayer who turned 70 1/2 in 2017 (born after June 30, 1946, and before July 1, 1947) and receives the first required distribution (for 2017) on April 1, 2018, for example, must still receive the second RMD by December 31, 2018.

Affected taxpayers who turned 70 1/2 during 2017 must figure the RMD for the first year using the life expectancy as of their birthday in 2017 and their account balance on December 31, 2016. The trustee reports the year-end account value to the IRA owner on Form 5498, IRA Contribution Information in Box 5. Worksheets and life expectancy tables for making this computation can be found in the appendices to Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

Most taxpayers use Table III (Uniform Lifetime) to figure their RMD. For a taxpayer who reached age 70 1/2 in 2017 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. 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.

Taxpayers are encouraged to begin planning now for any distributions required during 2018. 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 2018 RMD, this amount would be on the 2017 Form 5498 that is normally issued in January 2018.

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 70 1/2 or older, the maximum annual exclusion for QCDs is $100,000.

If you have any questions about QCDs or need more information about RMDs, don’t hesitate to contact the office today.

• By Leon Clinton
• March 16, 2018

Taxpayers should be aware of a new twist on an old scam involving erroneous tax refunds that are being deposited into their bank accounts. After stealing client data and filing fraudulent tax returns, these criminals use the taxpayers’ real bank accounts to deposit refunds, then use various tactics to reclaim the refund from the taxpayers. Here’s what you need to know.

Different Versions of the Scam

In one version of the scam, criminals posing as debt collection agency officials acting on behalf of the IRS contacted the taxpayers to say a refund was deposited in error, and they asked the taxpayers to forward the money to their collection agency.

In another version, the taxpayer who received the erroneous refund gets an automated call with a recorded voice saying he is from the IRS and threatens the taxpayer with criminal fraud charges, an arrest warrant and a “blacklisting” of their Social Security Number. The recorded voice gives the taxpayer a case number and a telephone number to call to return the refund.

What to do if your Tax Return is Rejected

Because this is a peak season for filing tax returns, taxpayers who file electronically may find that their tax return is rejected because a return bearing their Social Security number is already on file. If that’s the case, taxpayers should follow the steps outlined below. If you need additional information, please read the IRS publication, Taxpayer Guide to Identity Theft and contact the office if you have any questions.

If you are a victim of identity theft, the Federal Trade Commission recommends taking these steps:

• File a complaint with the FTC at identitytheft.gov.
• Contact one of the three major credit bureaus to place a ‘fraud alert’ on your credit records:
  • Equifax, www.Equifax.com, 800-525-6285
  • Experian, www.Experian.com, 888-397-3742
  • TransUnion, www.TransUnion.com, 800-680-7289
• Contact your financial institutions, and close any financial or credit accounts opened without your permission or tampered with by identity thieves.

If your SSN is compromised and you know or suspect you are a victim of tax-related identity theft, the IRS recommends these additional steps:

• Respond immediately to any IRS notice; call the number provided.
• Complete IRS Form 14039, Identity Theft Affidavit, if your e-filed return is rejected because of a duplicate filing under your SSN or you are instructed to do so. Use a fillable form at IRS.gov, print, then attach the form to your return and mail according to instructions.

If you previously contacted the IRS and did not have a resolution, don’t hesitate to contact the office. You may also call the IRS at 1-800-908-4490 if you need specialized assistance.

Taxpayers unable to file electronically should mail a paper tax return along with Form 14039, Identity Theft Affidavit, stating they were victims of a tax preparer data breach.

How to Return an Erroneous Refund to the IRS

Taxpayers who receive the refunds should call the office immediately, as well as review the steps outlined in Tax Topic Number 161, Returning an Erroneous Refund, which includes IRS mailing addresses should there be a need to return paper checks.

Note: By law, interest may accrue on erroneous refunds.

If the erroneous refund was a direct deposit:

1. Contact the Automated Clearing House (ACH) department of the bank/financial institution where the direct deposit was received and have them return the refund to the IRS.
2. Call the IRS toll-free at 800-829-1040 (individual) or 800-829-4933 (business) to explain why the direct deposit is being returned.
3. Contact the Automated Clearing House (ACH) department of the bank/financial institution where the direct deposit was received and have them return the refund to the IRS.
4. Call the IRS toll-free at 800-829-1040 (individual) or 800-829-4933 (business) to explain why the direct deposit is being returned.

If the erroneous refund was a paper check and hasn’t been cashed:

1. Write “Void” in the endorsement section on the back of the check.
2. Submit the check immediately to the appropriate IRS location. The location is based on the city (possibly abbreviated) on the bottom text line in front of the words “TAX REFUND” on your refund check. Please contact the office for assistance if you aren’t sure what the correct IRS location is.
3. Don’t staple, bend, or paper clip the check.
4. Include a note stating, “Return of erroneous refund check because (and give a brief explanation of the reason for returning the refund check).”

The erroneous refund was a paper check and you have cashed it:

• Submit a personal check, money order, etc., immediately to the appropriate IRS location listed below.
• If you no longer have access to a copy of the check, call the IRS toll-free at 800-829-1040 (individual) or 800-829-4933 (business) (see telephone and local assistance for hours of operation) and explain to the IRS assistor that you need information to repay a cashed refund check.
• Write on the check/money order: Payment of Erroneous Refund, the tax period for which the refund was issued, and your taxpayer identification number (social security number, employer identification number, or individual taxpayer identification number).
• Include a brief explanation of the reason for returning the refund.
• Repaying an erroneous refund in this manner may result in interest due to the IRS.

Help is just a phone call away!

If you receive a refund in error, you will need to follow established procedures for returning it to the agency as soon as possible. You should also notify your financial institution because there may be a need to close bank accounts. If you need assistance with this or any other tax matter, don’t hesitate to call.

• By Leon Clinton
• March 14, 2018

If you are living or working outside the United States, you generally must file and pay your tax in the same way as people living in the U.S. This includes people with dual citizenship.

In addition, U.S. taxpayers with foreign accounts exceeding certain thresholds may be required to file Form FinCen114, known as the “FBAR” as well as Form 8938, also referred to as “FATCA.”

Note: FBAR is not a tax form, but is due to the Treasury Department by April 17, 2018, and must be filed electronically through the BSA E-Filing System website. It may be extended to October 15.FATCA (Form 8938) is submitted on the tax due date (including extensions, if any,) of your income tax return.

Here’s what else you need to know about reporting foreign income:

1. Report Worldwide Income. By law, Americans living abroad, as well as many non-U.S. citizens, must file a U.S. income tax return and report any worldwide income. Some key tax benefits, such as the foreign earned income exclusion, are only available to those who file U.S. returns.

2. Report Foreign Accounts and Assets. Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.

3. File Required Tax Forms. In most cases, affected taxpayers need to file Schedule B, Interest and Ordinary Dividends, with their tax returns. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Some taxpayers may need to file additional forms with the Treasury Department such as Form 8938, Statement of Specified Foreign Financial Assets or FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”).

FBAR. Taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2017 (or in 2018 for next year’s filing returns) must file a Treasury Department FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”).

Form 8938. Generally, U.S. citizens, resident aliens, and certain nonresident aliens must report specified foreign financial assets on Form 8938, Statement of Specified Foreign Financial Assets if the aggregate value of those assets exceeds certain thresholds:

• If the total value is at or below $50,000 at the end of the tax year, there is no reporting requirement for the year, unless the total value was more than $75,000 at any time during the tax year
• Taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, regardless of the value of their specified foreign financial assets.

The threshold is higher for individuals who live outside the United States and thresholds are different for married and single taxpayers. In addition, penalties apply for failure to file accurately.

Please contact the office if you need additional information about thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted and what information must be provided.

Note: An individual may have to file both forms, and separate penalties may apply for failure to file each form.

4. Review the Foreign Earned Income Exclusion. Many Americans who live and work abroad qualify for the foreign earned income exclusion when they file their tax return. This means taxpayers who qualify will not pay taxes on up to $102,100 of their wages and other foreign earned income they received in 2017 ($101,300 in 2016). Please contact the office if you have any questions about foreign earned income exclusion.

5. Don’t Overlook Credits and Deductions. Taxpayers may be able to take either a credit or a deduction for income taxes paid to a foreign country. This benefit reduces the taxes these taxpayers pay in situations where both the U.S. and another country tax the same income. However, you cannot claim the additional child tax credit if you file Form 2555, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion.

6. Automatic Extension. U.S. citizens and resident aliens living abroad on April 17, 2018, qualified for an automatic two-month extension (until June 15) to file their 2017 federal income tax returns. The extension of time to file also applies to those serving in the military outside the U.S. Taxpayers must attach a statement to their returns explaining why they qualify for the extension.

7. Additional Extension of Time to File. U.S. citizens and resident aliens living abroad may be granted a filing extension of up to six months (October 15, 2018) by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Returnprior to the due date of the tax return (April 17, 2018). However, a taxpayer filing an extension must pay any tax due by the original date or be subject to late payment penalties and interest.

8. Get Tax Help. If you’re a taxpayer or resident alien living abroad that needs help with tax filing issues, IRS notices, and tax bills, or have questions about foreign earned income and offshore financial assets in a bank or brokerage account, don’t hesitate to call.

• By Leon Clinton
• March 12, 2018