Early Retirement Plan Withdrawals and Your Taxes

Taking money out early from your retirement plan may trigger an additional tax. Here are
seven things from the IRS that you should know about early withdrawals from retirement
plans:

1. An early withdrawal normally means taking money from your plan before you reach age 59½.
2. If you made a withdrawal from a plan last year, you must report the amount you withdrew
   to the IRS. You may have to pay income tax as well as an additional 10 percent tax on the
   amount you withdrew.
3. The additional 10 percent tax does not apply to nontaxable withdrawals. Nontaxable
   withdrawals include withdrawals of your cost to participate in the plan. Your cost includes
   contributions that you paid tax on before you put them into the plan.
4. A rollover is a type of nontaxable withdrawal. Generally, a rollover is a distribution to
   you of cash or other assets from one retirement plan that you contribute to another
   retirement plan. You usually have 60 days to complete a rollover to make it tax-free.
5. There are many exceptions to the additional 10 percent tax. Some of the exceptions for
   retirement plans are different from the rules for IRAs.
6. If you make an early withdrawal, you may need to file Form 5329, Additional Taxes on
   Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with your federal tax
   return.
7. The rules for retirement plans can be complex. The fast, safe and free way to prepare and
   e-file your tax return is to use IRS Free File. Free File offers brand-name software or
   online fillable forms for free. Free File software will pick the right tax forms, do the
   math and help you get the tax benefits you’re due. No matter how you prepare your taxes,
   you should always file electronically with IRS e-file. More than 80 percent of taxpayers
   e-file for faster refunds or for easier electronic payment options.

For additional information, please contact our tax professionals at 248 952 0200.

Ten Facts about Capital Gains and Losses

When you sell a ’capital asset,’ the sale usually results in a capital gain or loss. A ‘capital asset’ includes most property you own and use for personal or investment purposes. Here are 10 facts from the IRS on capital gains and losses:

1. Capital assets include property such as your home or car. They also include investment property such as stocks and bonds.
2. A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.
3. You must include all capital gains in your income. Beginning in 2013, you may be subject to the Net Investment Income Tax. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates, and trusts that have income above statutory threshold amounts. For details see IRS.gov/aca.
4. You can deduct capital losses on the sale of investment property. You can’t deduct losses on the sale of personal-use property.
5. Capital gains and losses are either long-term or short-term, depending on how long you held the property. If you held the property for more than one year, your gain or loss is long-term. If you held it one year or less, the gain or loss is short-term.
6. If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a ‘net capital gain.’
7. The tax rates that apply to net capital gains will usually depend on your income. Although the maximum net capital gain tax rate rose from 15 to 20 percent in 2013, a 0 or 15 percent rate continues to apply to most taxpayers. A 25 or 28 percent tax rate can also apply to special types of net capital gains.
8. If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.
9. If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year’s tax return. You will treat those losses as if they happened that year.
10. You often need to file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses with your return.

Report Name Change Before Your File Taxes

 

Did you change your name last year? Did your dependent have a name change? If the answer to either question is yes, be sure to notify the Social Security Administration before you file your tax return with the IRS.

This is important because the name on your tax return must match SSA records. If they don’t, you’re likely to get a letter from the IRS about the mismatch. And if you expect a refund, this may delay when you’ll get it.

Be sure to contact SSA if:

• You got married or divorced and you changed your name.
• A dependent you claim had a name change. For example, this would apply if you adopted a child and that child’s last name changed.

File Form SS-5, Application for a Social Security Card, with the SSA to let them know about a name change. You can get the form on SSA.gov by calling 800-772-1213 or at an SSA office.

You can file Form SS-5 at an SSA office or by mail. Your new card will have the same SSN as before but will show your new name.

 

Is This Your Situation — Overpaid Sales and Use Taxes?

There are several situations that may cause overpayments of sales and use taxes. For example, in many states, field auditors have become more aggressive about assessing taxes, penalties and interest — which, in turn, has caused retailers and suppliers to be aggressive about 

charging sales tax to avoid audit deficiencies.

In some cases, sales tax may be charged even when a sale is exempt. Or the tax may have been inappropriately charged because no exemption claim was made or an invalid exemption certificate was submitted. Either way, the purchaser ends up paying tax that was not legally due.

To make matters worse, many organizations operate across state lines, which multiplies their tax compliance responsibilities. Your company may have internal compliance controls, but they may not be able to keep up with the changing landscape due employee turnover, expansion, or other factors.

To remedy these shortcomings, your company could benefit from a “reverse sales and use tax audit.” Don’t confuse this with the audits performed by state revenue auditors looking to see if sales or use taxes were underpaid. In a “reverse audit,” a tax professional looks to identify and recover tax overpayments.

 

Contact our firm for information about conducting a “reverse audit.” We can take a comprehensive look at your organization’s activities and transactions. We look for refund opportunities, identify weaknesses in your sales and use tax compliance system, and offer recommendations on how to improve it.

New Employee Spot Light: April Colvin

April K. Colvin, CPA recently joined Gordon Advisors, P.C. as a tax manager.

What is your favorite part of Tax Season?

The camaraderie with my co-workers

What made you choose Accounting as a career?

Since an accounting degree is so versatile, I thought it would offer a variety of career opportunities.

Tell us something unique or interesting about yourself that most people would be surprised to know? 

I was charged by an elephant while on safari in Botswana.

Favorite quote.

“Let no one ever come to you without leaving better and happier. Be the living expression of God’s kindness: kindness in your face, kindness in your eyes, kindness in your smile.”
― Mother Teresa

When you aren’t in the office, you would be doing what…?

Spending time with my loved ones.

Passions/Hobbies? 

Traveling to new places, golf, target shooting and yoga.

Favorite local restaurant?

The Meeting House in Rochester

Favorite place in Michigan? 

Sleeping Bear Dunes

Favorite place outside of Michigan?

Maui, Hawaii

Best part of working at Gordon Advisors so far? 

The people!  The employees and partners alike have been so welcoming, open and kind.  In a hectic business environment, that is a stellar trait for a firm to have.