Author: Leon Clinton

The IRS is offering tax relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance. Currently, this only includes parts of North Carolina, but taxpayers in additional localities (and states) may be added to the disaster area later and will automatically receive the same filing and payment relief. Taxpayers may call the office or visit the disaster relief page on the IRS website to check the current list of eligible localities.

The tax relief postpones various tax filing and payment deadlines that occurred starting on September 7, 2018, in North Carolina. Businesses and individual taxpayers affected by Hurricane Florence in North Carolina and elsewhere have until January 31, 2019, to file certain individual and business tax returns and make certain tax payments that were originally due during this period. These tax payments include quarterly estimated income tax payments due on September 17, 2018, and the quarterly payroll and excise tax returns that are normally due on September 30, 2018.

Taxpayers who had a valid extension to file their 2017 return due to run out on October 15, 2018, will also have more time to file. Businesses with extensions also qualify for the additional time including those who were expected to file calendar-year partnerships (i.e., those whose 2017 extensions run out on September 17, 2018). Penalties on payroll and excise tax deposits due on or after September 7, 2018, and before September 24, 2018, will also be abated as long as the deposits are made by September. 24, 2018.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

Tax relief is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments by FEMA. If you have any questions or need assistance, don’t hesitate to call.

• By Leon Clinton
• October 21, 2018

Many people find themselves in situations where they need to withdraw money from their retirement plan earlier than planned. Doing so, however, can trigger an additional tax on top of any income tax taxpayers may have to pay. Here are five things taxpayers should know about early withdrawals from retirement plans:

1. Early Withdrawal.

An early withdrawal normally is taking cash out of a retirement plan before the taxpayer is 59 1/2 years old.

2. Paying Additional Tax.

If a taxpayer took an early withdrawal from a plan last year, they must report it to the IRS. They may have to pay income tax on the amount taken out. If it was an early withdrawal, they might have to pay an additional 10 percent tax.

3. Nontaxable Withdrawals.

The additional 10 percent tax does not apply to nontaxable withdrawals. These include withdrawals of contributions that taxpayers paid tax on before they put them into the plan. A rollover is a form of nontaxable withdrawal. A rollover occurs when people take cash or other assets from one plan and put the money in another plan. They normally have 60 days to complete a rollover to make it tax-free.

4. Exceptions.

There are many exceptions to the additional 10 percent tax. Some of the rules for retirement plans are different from the rules for IRAs.

5. Form 5329.

If someone took an early withdrawal last year, they may have to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return.

Please call if you have any questions about early withdrawals or filing Form 5329.

• By Leon Clinton
• October 19, 2018

If you’re thinking of starting a nonprofit organization, there are a few things you should know before you get started. First, is understanding how nonprofits work under state and federal law. For example, two things you should understand is that state law governs nonprofit status. Nonprofit status is determined by an organization’s articles of incorporation or trust documents while federal law governs tax-exempt status (i.e., exemption from federal income tax). Whether you’re starting a charity, a social organization, or an association here are the steps you need to take before you can apply for tax-exempt status.

1. Determine the type of organization.

Before a charitable organization can apply for tax-exempt status, it must determine whether it is a trust, corporation or association. Here is how each one is generally defined:

• A trust is defined as a relationship in which one person holds title to property, subject to an obligation to keep or use the property for the benefit of another. It is formed under state law.
• A corporation is formed under state law by the filing of articles of incorporation with the state. The state must generally date-stamp the articles before they are effective.
• An association is a group of persons banded together for a specific purpose. To qualify under section 501(a) of the Code, the association must have a written document, such as articles of association, showing its creation. At least two persons must sign the document, which must be dated. The definition of an association can vary under state law.

2. Gather organization documents.

Each application for exemption – except Form 1023-EZ – must be accompanied by an exact copy of the organization’s organizing document, which is generally one of the following:

• Articles of incorporation for a corporation
• Articles of organization for a limited liability company
• Articles of association or constitution for an association
• Trust agreement or declaration of trust for a trust

Organizations that do not have an organizing document will not qualify for exempt status. If the organization’s name has been legally changed by an amendment to its organizing documents, they should also attach an exact copy of that amendment to the application. State law generally determines whether an organization is properly created and establishes the requirements for organizing documents.

3. Understand state registration requirements

Next, you will need to take a look at your state’s registration requirements for nonprofits. State government websites have useful information for tax-exempt organizations such as tax information, registration requirements for charities, and information for employers.

4. Obtain Employer ID numbers.

Finally, once your organization is legally formed you will need to obtain employer id numbers (EINs) for your new organization. Organizations can apply for an EIN online, by fax, or by mail using Form SS-4, Application for Employer I.D. Number. International applicants may apply by phone.

Third parties can also receive an EIN on a client’s behalf by completing the Third Party Designee section. Don’t forget to have the client sign the form to avoid having to file a Form 2848, Power of Attorney, or Form 8821, Tax Information Authorization.

One final thing to note, is that nearly all organizations are subject to automatic revocation of their tax-exempt status if they fail to file a required return or notice for three consecutive years. Once an organization applies for an EIN, the IRS presumes the organization is legally formed and the clock starts running on this three-year period.

Questions about starting a nonprofit? Help is just a phone call away.

• By Leon Clinton
• October 16, 2018