Accounting & Tax News

 

Publication 17
Tax-filing information and tips on what income to report and how to report it, figuring capital gains and losses, claiming dependents, choosing the standard deduction versus itemizing deductions and using IRAs to save for retirement


Roth versus Traditional IRA’s

While both types of IRA’s (Individual Retirement Accounts) can be beneficial, each type has very unique qualities.  First off, the Roth IRA is contributed on an “after tax” (non-deductible) basis, whereas the Traditional IRA is contributed on a “pre-tax” (deductible) basis.  So while the contributor to a Traditional IRA is allowed a deduction for contributions made, upon withdrawal the account holder must pay regular income taxes on distributions, whereas the contributor in the Roth IRA account does not pay income taxes on future distributions, as long as the account holder has held the account for at least 5 years and has reached retirement age (59 ½ years old).  Furthermore, while both types of IRA’s are intended to be held until retirement age, the holder of a Traditional IRA must begin withdrawing funds, under the RMD (required minimum distribution) rules, at age 70 ½, whereas the holder of the Roth IRA isn’t required to distribute their funds, and in fact upon the holder’s death the Roth IRA funds can readily transfer to beneficiaries without any specific distribution requirements.  As a general rule, Roth IRA’s are the preferred type of IRA accounts, especially the longer the time in which the account is allowed to grow.  However if the taxpayer desires to have a tax deduction upon contribution, then the Traditional IRA, even though taxable upon distribution, may be preferable.  Please contact us if you’d like to discuss IRA’s, as well as which type of account would be best for your particular circumstances.

Posted May 21, 2015/wittenbergcpa.com

Five Things to Know if You Need More Time to File Your Taxes

The April 15 tax deadline is coming up. If you need more time to file your taxes, you can get an automatic six month extension from the IRS. Here are five things to know about filing an extension: Use IRS Free File to file an extension. You can use IRS Free File to e-file your extension request for free. Free File is only available through IRS.gov. You must e-file the request by midnight on April 15. Don’t forget to come back to Free File to e-file your taxes for free. You can access the program at any time through Oct. 15.

  1. Use Form 4868. You can also request an extension by filling out Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. You must mail this form to the IRS by April 15. Form 4868 is available on IRS.gov/forms at any time.
  2. More time to file is not more time to pay. An extension to file will give you until Oct. 15 to file your taxes. It does not give you more time to pay your taxes. You still must estimate and pay what you owe by April 15 to avoid a late filing penalty. You will be charged interest on any tax that you do not pay on time. You may also owe a penalty if you pay your tax late.
  3.   Use IRS Direct Pay.  The safe, fast and easy way to pay your tax is with IRS Direct Pay. Visit IRS.gov/directpay to use this free and secure way to pay from your checking or savings account. You also have other electronic payment options. The IRS will automatically process your extension when you pay electronically. You can pay online or by phone.
  4. IRS helps if you can’t pay all you owe.  If you can’t pay all the tax you owe, the IRS offers you payment options. In most cases, you can apply for an installment agreement with the Online Payment Agreement tool on IRS.gov. You may also file Form 9465, Installment Agreement Request. If you can’t make payments because of a financial hardship, the IRS will work with you.

IRS Lists Ways to Avoid Common Errors

The tax filing deadline is less than two weeks away, and the Internal Revenue Service has already received 90 million individual tax returns – roughly three out of five returns expected to be received in 2015.

For the millions of taxpayers who will file in the next two weeks, the IRS offers the following reminders:

File electronically. Filing electronically, whether through e-file or IRS Free File, vastly reduces tax return errors, as the tax software does the calculations, flags common errors and prompts taxpayers for missing information. And best of all, there is a free option for everyone.

Mail a paper return to the right address. Paper filers should check IRS.gov or their form instructions for the appropriate address where to file to avoid processing delays.

Take a close look at the tax tables. When figuring tax using the tax tables, taxpayers should be sure to use the correct column for the filing status claimed.

Fill in all requested information clearly. When entering information on the tax return, including Social Security numbers, take the time to be sure it is correct and easy to read. Also, check only one filing status and the appropriate exemption boxes.

Review all figures. While software catches and prevents many errors on e-file returns, math errors remain common on paper returns.

Get the right routing and account numbers. Requesting direct deposit of a federal refund into one, two or even three accounts is convenient and allows the taxpayer access to his or her money faster. Make sure the financial institution routing and account numbers entered on the return are accurate. Incorrect numbers can cause a refund to be delayed or deposited into the wrong account.

Sign and date the return. If filing a joint return, both spouses must sign and date the return. E-filers can sign using a self-selected personal identification number (PIN).

Attach all required forms. Paper filers need to attach W-2s and other forms that reflect tax withholding, to the front of their returns. If requesting a payment agreement with the IRS, also attach Form 9465 to the front of the return. Attach all other necessary schedules and forms in the sequence number order shown in the upper right-hand corner.

Keep a copy of the return. Once ready to be filed, taxpayers should make a copy of their signed return and all schedules for their records.

Request a Filing Extension. For taxpayers who cannot meet the April 15 deadline, requesting a filing extension is easy and will prevent late filing penalties. Either use Free File (link again) or Form 4868. But keep in mind that while an extension grants additional time to file, tax payments are still due April 15.

Owe tax? If so, a number of e-payment options are available. Or send a check or money order payable to the “United States Treasury.”

Taxpayers may find additional help and resources on IRS.gov, including the IRS Services Guide.

IRS News Release - April 3, 2015

Tax Season News - For 2014

Tax scams take many different forms, so being aware of recent trends will help you to avoid them. The most common recent scams are phone calls and emails from thieves who pretend to be from the IRS. They use the IRS name, logo and/or a fake website to try to gain access to your account and steal your money. They may also try to steal your identity, so here are several tips from the IRS to help you avoid being a victim of these tax scams:

The IRS will never:

  • Initiate contact with you by phone, email, text or social media to ask you for your personal or financial information.
  • Demand immediate payment. The IRS will not call about taxes you owe without first mailing you a notice, detailing the taxes, and related interest and penalty, if relevant.
  • Require that you pay your taxes a certain way – the IRS allows several different payment options, which the taxpayer can select from.

Be wary if you get a phone call from someone who claims to be from the IRS and demands that you pay immediately. Here are some steps you can take to stop these scams, if you know that you don’t owe taxes:

  • Contact the Treasury Inspector General for Tax Administration. Use TIGTA’s “IRS Impersonation Scam Reporting"” web page to report the incident.
  • Report the incident to the Federal Trade Commission. Use the “FTC Complaint Assistant ” on FTC.gov. Please add “IRS Telephone Scam” to the comments of your report.

If you get a ‘phishing’ email, the IRS offers this advice:

  • Don’t reply to the message, under any circumstances.
  • Don’t give out your personal or financial information, under any circumstances.
  • Forward the email to the IRS at This email address is being protected from spambots. You need JavaScript enabled to view it.. Then delete it.
  • Don’t open any attachments or click on any links. They may have malicious code that will infect your computer.

If you are an existing client, please contact us if you’ve been contacted by someone, whether by phone or email, who you suspect was attempting to defraud you, or steal your identity.  These are very serious issues, so we want to know what happened, and also know that we are here to help and support you through the process.

Posted Mar. 16, 2015/wittenbergcpa.com