Employers must comply with numerous requirements, including paperwork and notices, when hiring new employees. In addition to required new hire paperwork, documentation is recommended to help administer payroll, benefits, and other HR responsibilities. This article addresses some key forms to keep in mind.
When Congress established tax-favored retirement plans, they allowed taxpayers to take a tax deduction for the amount of their allowable contribution to the plans. But they also included a requirement for a portion of the funds to be distributed each year and be subject to income tax. Such a distribution is referred to as a minimum required distribution (RMD).
There have been some recent tax law changes that have led to some confusion among taxpayers subject to the RMD requirement. Prior to 2020, the required starting age for RMDs was 70½. Thanks to the Secure Act passed by Congress in late December 2019, the age at which distributions have to begin was increased to age 72 starting in 2020.
RMDs Resume in 2021 – Since the suspension was for one year only, the RMD requirement resumes for 2021. Of course, the resumption applies to those that attained the age of 70½ in years before 2021, those who turned 72 in 2020 and those who turn 72 in 2021. Still Working Exception – If you participate in a qualified employer plan, generally you need to start taking RMDs by April 1 of the year following the year you turn 72. This is your required beginning date (RBD) for retirement distributions. However, if your plan includes the “still working exception,” your RMD is postponed to April 1 of the year following the year you retire. This delayed-until-retirement distribution provision does NOT apply to IRAs, so even though someone age 72 or older with an IRA is still working, and perhaps still contributing to the IRA, they are required to take a minimum distribution from the IRA each year.
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Before the COVID-19 pandemic, the IRS was getting refunds out swiftly and responded to calls and correspondence in a reasonable amount of time. However, COVID-19 brought about a perfect storm of delays, initially caused by employees having to stay home because lockdowns prevented processing centers from operating and workers from going to their offices. And in most instances, IRS employees could not work from home because of the secure nature of their tasks and the IRS’s computer system.
Having a clean accounting start from the beginning really pays for itself. Read tips on why you should bring on the right accounting team at the beginning.
Though it’s natural for management to focus on its profit-making areas, the importance of a sound accounting foundation to support the operation cannot be overemphasized. The more diligent and meticulous your accounting team is, the more easily the rest of the organization can function and grow. If the system you currently have in place is relying on charts of accounts that are sloppily maintained and leading to delays or penalties regarding tax liabilities, that’s where your initial attention needs to be placed. Focus on the chart of accounts first, no matter how tempting it is to worry about the fees and penalties that you’ll be liable for in the meantime.
The IRS has long been a bogeyman for the American public, and there’s good reason for that. They have the unique ability to do what few other creditors can: taking your home and selling it out from under you. Still, despite its remarkable powers, fear has created mythologies around the agency. People both overestimate and underestimate the IRS’ abilities.
Unfortunately, not being well versed in IRS procedures makes dealing with them that much more frustrating and fear-inducing, and there are very few taxpayers who are up to the task. Between the complexities involved in all aspects of tax audits and the overwhelming stress and emotions that arise when confronted by the agency, even highly capable people find themselves feeling defenseless and intimidated. It is this specific combination that leads to simple acceptance of what the IRS says and being afraid to push back and protect themselves. As wrong as it may seem, this reaction is exactly what the IRS counts on to keep people compliant with tax law. According to a former Commissioner of Internal Revenue, the agency relies on this fear to ensure that people report their income honestly and file and pay their taxes correctly and on time.
There is a real need for people to either educate themselves about the audit process or to seek professional help from someone familiar with the IRS. Ignorance is not an excuse in the face of an audit, and mistakes can lead to additional taxes, penalties, and even seizure of your property if you do not have other assets with which to pay.
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More and more individuals who thought their child-rearing days were over are now raising their grandchildren. It is estimated that 6.5 million children in the United States currently live with at least one grandparent, accounting for approximately 9% of all children nationally and more than half of those not living with their parents.
Another study found that the number of grandchildren living with their grandparents has increased 50% over the past ten years. Grandparents in this challenging situation should be aware that a variety of tax breaks may be available to ease the financial burden of becoming primary caregivers for grandchildren.
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All too often, taxpayers wait until after the close of the tax year to worry about their taxes and miss opportunities that could reduce their tax liability or financially assist them. Mid-year is the perfect time for tax planning. The following are some events that can affect your tax return; you may need to take steps to mitigate their impact and avoid unpleasant surprises after it is too late to address them. Here are some events that can trigger tax consequences.
The U.S. Treasury recently released the Biden administration’s 2022 Fiscal Year Budget, that includes a general explanation of the administration’s 2022 revenue proposals. The publication is commonly referred to as the “Green Book” and outlines the Biden administration’s tax proposals. Keep in mind these are proposals and will have to be passed by Congress.
One of the proposals included in the Green Book is to increase the long-term capital gain rates which currently, as illustrated in the table below, range from zero to 20%. Long term means the investment was held for a minimum of a year and a day.
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Most weddings planned for 2020 were delayed because of COVID, causing a big upswing in the number of weddings in 2021. Although tax issues are the furthest thing from their minds during this big life-changing event, newlyweds should know how tying the knot can affect their tax situation. There are actions they need to take to avoid problems and unfortunate tax surprises. If you are newly married, here’s a checklist of “to do’s” to help you:
Like many small business owners, you probably find yourself very busy in the wake of the COVID slowdown and are getting back up to speed. But don’t forget about your future.
There are a number of retirement plans available, including Keogh plans and 401(k)s. However, a simplified employee pension plan (SEP) may be your best option.
The reason a SEP is “simplified” is that its retirement contributions are deposited into a traditional IRA account under the control of the SEP participant, thus eliminating most of the employer’s administrative duties. That is why these plans are sometimes referred to as SEP-IRAs. SEPs function much like Keogh retirement plans, and they allow tax-deductible contributions for both employees and self-employed individuals. For an employee, the maximum contribution for 2021 is the lesser of 25% of that employee’s compensation or $58,000. These contributions are excluded from the employees’ wages and are not subject to withholding for income tax or FICA. A self-employed person can contribute 25% of his or her compensation after deducting the employer’s contribution, which boils down to the smaller of 20% of the business’ net profit or $58,000. Each year, the employer can specify a compensation amount between zero and 25% (not exceeding the maximums for the year).
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