Author: Leon Clinton

Retirement Contributions Limits Announced for 2020

Cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for 2020 are as follows:

401(k), 403(b), 457 plans, and Thrift Savings Plan. Contribution limits for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increase from $19,000 to $19,500. The catch-up contribution limit for employees aged 50 and over increases from $6,000 to $6,500.

SIMPLE retirement accounts. Contribution limits for SIMPLE retirement accounts for self-employed persons increase in 2020 as well – from $13,000 to $13,500.

Traditional IRAs. The limit on annual contributions to an IRA remains at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions; however, if during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. If a retirement plan at work covers neither the taxpayer nor their spouse, the phase-out amounts of the deduction do not apply.

The phase-out ranges for 2020 are as follows:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000, up from $64,000 to $74,000.
• For married couples filing jointly, where a workplace retirement plan covers the spouse making the IRA contribution, the phase-out range is $104,000 to $124,000, up from $103,000 to $123,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $196,000 and $206,000, up from $193,000 and $203,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Roth IRAs. The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Saver’s Credit. The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.

If you have any questions about retirement plan contributions, don’t hesitate to call.

• By Leon Clinton
• December 26, 2019

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