Tax

Small businesses that have failed to timely file certain required retirement plan returns have until Tuesday, June 2 to take advantage of a special IRS penalty relief program.

Launched June 2, 2014, the one-year temporary pilot program is designed to help small businesses with retirement plans that may have been unaware of the reporting requirements that apply to these plans. Normally, plan administrators and sponsors of these plans who fail to file required annual returns, usually Form 5500-EZ, can face stiff penalties–up to $15,000 per return.

By filing late returns by June 2, eligible filers can avoid these penalties. So far, about 6,000 delinquent returns have been filed under this program.

This program is generally open to certain small business (owner-spouse) plans and plans of business partnerships (together, “one-participant plans”) and certain foreign plans. Those who have already been assessed a penalty for late filings are not eligible for this program.

Applicants under the program may include multiple late returns in a single submission. There is no filing fee or other payment required.

For more information or details on how to participate in this pilot program, please call the office.

• By Leon Clinton
• May 25, 2015

If you gave money or property to someone as a gift, you may wonder about the federal gift tax. Many gifts are not subject to the gift tax. Here are seven tax tips about gifts and the gift tax.

1. Nontaxable Gifts. The general rule is that any gift is a taxable gift. However, there are exceptions to this rule. The following are not taxable gifts:

• Gifts that do not exceed the annual exclusion for the calendar year,
• Tuition or medical expenses you paid directly to a medical or educational institution for someone,
• Gifts to your spouse (for federal tax purposes, the term “spouse” includes individuals of the same sex who are lawfully married),
• Gifts to a political organization for its use, and
• Gifts to charities.

2. Annual Exclusion. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you give a gift to someone else, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion for the year. For 2015, the annual exclusion is $14,000 (same as 2014).

3. No Tax on Recipient. Generally, the person who receives your gift will not have to pay a federal gift tax. That person also does not pay income tax on the value of the gift received.

4. Gifts Not Deductible. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).

5. Forgiven and Certain Loans. The gift tax may also apply when you forgive a debt or make a loan that is interest-free or below the market interest rate.

6. Gift-Splitting. You and your spouse can give a gift up to $28,000 to a third party without making it a taxable gift. You can consider that one-half of the gift be given by you and one-half by your spouse.

7. Filing Requirement. You must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if any of the following apply:

• You gave gifts to at least one person (other than your spouse) that amount to more than the annual exclusion for the year.
• You and your spouse are splitting a gift. This is true even if half of the split gift is less than the annual exclusion.
• You gave someone (other than your spouse) a gift of a future interest that they can’t actually possess, enjoy, or from which they’ll receive income later.
• You gave your spouse an interest in property that will terminate due to a future event.

Questions about the gift tax? Don’t hesitate to call.

• By Leon Clinton
• May 23, 2015

April 15 is the annual deadline for most people to file their federal income tax return and pay any taxes they owe. If, for whatever reason, you missed the deadline you may be assessed penalties for both failing to file a tax return and for failing to pay taxes they owe by the deadline. Here are eight important facts every taxpayer should know about penalties for filing or paying late:

1. Two penalties may apply. A failure-to-file penalty may apply if you did not file by the tax filing deadline. A failure-to-pay penalty may apply if you did not pay all of the taxes you owe by the tax filing deadline.

2. File even if you can’t pay. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement to make payments. Call if you need help figuring out how to pay what you owe.

3. Penalty for late filing. The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.

4. Penalty for late payment. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of 1/2 of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.

5. Late payment penalty may not apply. If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.

6. Combined penalty per month. If both the 5 percent failure-to-file penalty and the 1/2 percent failure-to-pay penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent.

7. Minimum late filing penalty. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

8. No penalty if reasonable cause. You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time. Give us a call if you have any questions about what constitutes reasonable cause.

Special penalty relief may apply to taxpayers under certain conditions such as taxpayers affected by natural disasters. If you think this applies to you, don’t hesitate to contact the office for more information.

• By Leon Clinton
• May 20, 2015