Author: Leon Clinton

Deferred Tax on Gains From Forced Sales of Livestock

Farmers and ranchers who were forced to sell livestock due to drought may get extra time to replace the livestock and defer tax on any gains from the forced sales. Here are some facts about this to help farmers understand how the deferral works and if they are eligible.

1. The one-year extension gives eligible farmers and ranchers until the end of the tax year after the first drought-free year to replace the sold livestock.

2. The farmer or rancher must be in an applicable region. An applicable region is a county-designated as eligible for federal assistance, as well as counties contiguous to that county.

3. The farmer’s county, parish, city or district included in the applicable region must be listed as suffering exceptional, extreme or severe drought conditions by the National Drought Mitigation Center. All or part of 32 states, plus Guam, the U.S. Virgin Islands and the Commonwealths of Puerto Rico and the Northern Mariana Islands, are listed.

4. The relief applies to farmers who were affected by drought that happened between September 1, 2018, and August 31, 2019.

5. This relief generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, or poultry are not eligible.

6. To qualify, the sales must be solely due to drought, flooding or other severe weather causing the region to be designated as eligible for federal assistance.

7. Farmers generally must replace the livestock within a four-year period, instead of the usual two-year period. As a result, qualified farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of this tax year, Dec. 31, 2019, in most cases, now have until the end of their next tax year. Furthermore, because the normal drought sale replacement period is four years, this extension immediately impacts drought sales that occurred during 2015. But because of previous drought-related extensions affecting some of these areas, the replacement periods for some drought sales before 2015 are also affected.

For additional details or more information on reporting drought sales and other farm-related tax issues, please call the office.

• By Leon Clinton
• December 26, 2019

Employer Benefits of Using the EFTPS

Small business owners who are also employers should remember that the Electronic Federal Tax Payment System (EFTPS) has features that make it easier to meet their tax obligations – whether they prepare and submit payroll taxes themselves or hire an outside payroll service provider to do it on their behalf.

Background

Many employers outsource some or all of their payroll and related tax duties such as tax withholding, reporting and making tax deposits to third-party payroll service providers. Third-party payroll service providers can help assure filing deadlines and deposit requirements are met and streamline business operations. Most payroll service providers administer payroll and employment taxes on behalf of an employer, where the employer provides the funds initially to the third party. They also report, collect and deposit employment taxes with state and federal authorities.

Treasury regulations require that employment tax deposits be made electronically and it is the employer’s responsibility to ensure their third-party payer uses the Electronic Federal Tax Payment System (EFTPS).

Benefits of EFTPS

EFTPS is secure, accurate, easy to use and provides immediate confirmation for each transaction and anyone can use it. The service is offered free of charge from the U.S. Department of Treasury and enables employers to make and verify federal tax payments electronically 24 hours a day, seven days a week through the internet or by phone.

Employers who use payroll service providers can also verify that payments are made by using EFTPS online. To enroll online go to EFTPS.gov. You can also call EFTPS Customer Service at 800-555-4477 to request an enrollment form.

Employers should not change their address of record to that of the payroll service provider as it may limit the employer’s ability to be informed of tax matters.

EFTPS Employer Inquiry PIN

Third parties making tax payments on behalf of an employer will generally enroll their clients in the EFTPS under their account. This allows them to make deposits using the employer’s Employer Identification Number (EIN).

When third parties do this, it may generate an EFTPS Inquiry PIN for the employer. Once activated, this PIN allows employers to monitor and ensure the third party is making all required tax payments. Employers who have not been issued Inquiry PINs and who do not have their own EFTPS enrollment should register on the EFTPS system to get their own PIN and use this PIN to periodically verify payments. A red flag should go up the first time a service provider misses or makes a late payment.

Missed Payments and Changing Third-Party Payroll Service Providers

Employers enrolled in EFTPS can make up any missed tax payments and keep making tax payments if they change payroll service providers in the future. They can also update their information to receive email notifications about their account’s activities. Access to this feature requires a PIN and password for the system.

Once they opt-in for email notifications, they’ll receive notifications about payments they submit including those made by their payroll service provider. Email notification messages show when payments are scheduled, canceled, or returned, as well as reminders of scheduled payments.

Employers who believe that a bill or notice received is a result of a problem with their payroll service provider should contact the IRS as soon as possible by calling or writing to the IRS office that sent the bill, calling 800-829-4933 or making an appointment to visit a local IRS office.

Fraudulent Activities

If an employer suspects their payroll service provider of improper or fraudulent activities involving the deposit of their federal taxes or the filing of their returns, they can file a complaint with the Return Preparer Office using Form 14157, Complaint: Tax Return Preparer. A check-box on Form 14157 allows the employer to select “Payroll Service Provider” as the subject of the complaint. Once received, Form 14157 complaints will receive expedited handling and investigation.

Questions?

For more information about IRS notices, bills, and payment options, please call the office and speak to a tax and accounting professional today.

• By Leon Clinton
• December 24, 2019

Take Retirement Plan Distributions by December 31

Taxpayers born before July 1, 1949, generally must receive payments from their individual retirement arrangements (IRAs) and workplace retirement plans by December 31.

Known as required minimum distributions (RMDs), typically these distributions must be made by the end of the tax year. The required distribution rules apply to owners of traditional, Simplified Employee Pension (SEP) and Savings Incentive Match Plans for Employees (SIMPLE) IRAs but not Roth IRAs while the original owner is alive. They also apply to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.

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 on Form 5498 in Box 12b. For a 2019 RMD, this amount is shown on the 2018 Form 5498, IRA Contribution Information, which is normally issued to the owner during January 2019.

A special rule allows first-year recipients of these payments, those who reached age 70 1/2 during 2019, to wait until as late as April 1, 2020, to receive their first RMDs. What this means is that taxpayers born after June 30, 1948, and before July 1, 1949, are eligible. The advantage of this special rule is that although payments made to these taxpayers in early 2020 (up to April 1, 2020) and can be counted toward their 2019 RMD, they are taxable in 2020.

The special April 1 deadline only applies to the RMD for the first year, however. For all subsequent years, the RMD must be made by December 31. For example, a taxpayer who turned 70 1/2 in 2018 (born after June 30, 1947, and before July 1, 1948) and received the first RMD (for 2018) on April 1, 2019, must still receive a second RMD (for 2019) by December 31, 2019.

The RMD for 2019 is based on the taxpayer’s life expectancy on December 31, 2019, and their account balance on December 31, 2018. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. For most taxpayers, the RMD is based on Table III (Uniform Lifetime Table) in IRS Publication 590-B. For example, for a taxpayer who turned 72 in 2019, the required distribution would be based on a life expectancy of 25.6 years. A separate table, Table II, applies to a taxpayer whose spouse is more than ten years younger and is the taxpayer’s only beneficiary. If you need assistance with this, don’t hesitate to call.

Though the RMD rules are mandatory for all owners of traditional, SEP and SIMPLE IRAs and participants in workplace retirement plans, some people in workplace plans can wait longer to receive their RMDs. Usually, if their plan allows it, employees who are still working can wait until April 1 of the year after they retire to start receiving these distributions. There may, however, be a tax on excess accumulations. 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.

If you have any questions about RMDs, please don’t hesitate to call.

• By Leon Clinton
• December 21, 2019