Tax

The Tax Cuts and Jobs Act made changes to the tax law, including increasing the standard deduction, removing personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions and changing the tax rates and brackets. As such, a new version of Form W-4, Employee’s Withholding Allowance Certificate, was released on February 28.

Taxpayers with less complex tax situations–single, married couples with only one job, or those who have no dependents, and who have not claimed itemized deductions, adjustments to income or tax credits–might not need to make any changes to their withholding or revise their Forms W-4.

Taxpayers with more complicated financial situations, however, might need to revise their W-4. Among the groups who should check their withholding are:

• Two-income families.
• People with two or more jobs at the same time or who only work for part of the year.
• People with children who claim credits such as the Child Tax Credit.
• People who itemized deductions in 2017.
• People with high incomes and more complex tax returns.

To determine whether changes to withholding should be made for 2018, taxpayers should first check the updated IRS Withholding Calculator to make sure they have the right amount of tax taken out of their paychecks. If a taxpayer needs to fill out a new Form W-4, they should do so and then submit the new Form W-4 to their employer.

The withholding changes do not affect 2017 tax returns due this April. However, having a completed 2017 tax return can help taxpayers work with the Withholding Calculator to determine their proper withholding for 2018 and avoid issues when they file next year.

If you have any questions about the amount you should be withholding on Form W-4, please call.

• By Leon Clinton
• March 19, 2018

In most cases, taxpayers who turned 70 1/2 during 2017 must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Sunday, April 1, 2018.

The April 1 deadline applies to owners of traditional (including SEP and SIMPLE) IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.

The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by December 31. In other words, a taxpayer who turned 70 1/2 in 2017 (born after June 30, 1946, and before July 1, 1947) and receives the first required distribution (for 2017) on April 1, 2018, for example, must still receive the second RMD by December 31, 2018.

Affected taxpayers who turned 70 1/2 during 2017 must figure the RMD for the first year using the life expectancy as of their birthday in 2017 and their account balance on December 31, 2016. The trustee reports the year-end account value to the IRA owner on Form 5498, IRA Contribution Information in Box 5. Worksheets and life expectancy tables for making this computation can be found in the appendices to Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

Most taxpayers use Table III (Uniform Lifetime) to figure their RMD. For a taxpayer who reached age 70 1/2 in 2017 and turned 71 before the end of the year, for example, the first required distribution would be based on a distribution period of 26.5 years. A separate table, Table II, applies to a taxpayer married to a spouse who is more than 10 years younger and is the taxpayer’s only beneficiary. Both tables can be found in the appendices to Publication 590-B.

Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

Taxpayers are encouraged to begin planning now for any distributions required during 2018. An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount in Box 12b on Form 5498. For a 2018 RMD, this amount would be on the 2017 Form 5498 that is normally issued in January 2018.

IRA owners can use a qualified charitable distribution (QCD) paid directly from an IRA to an eligible charity to meet part or all of their RMD obligation. Available only to IRA owners 70 1/2 or older, the maximum annual exclusion for QCDs is $100,000.

If you have any questions about QCDs or need more information about RMDs, don’t hesitate to contact the office today.

• By Leon Clinton
• March 16, 2018

Taxpayers should be aware of a new twist on an old scam involving erroneous tax refunds that are being deposited into their bank accounts. After stealing client data and filing fraudulent tax returns, these criminals use the taxpayers’ real bank accounts to deposit refunds, then use various tactics to reclaim the refund from the taxpayers. Here’s what you need to know.

Different Versions of the Scam

In one version of the scam, criminals posing as debt collection agency officials acting on behalf of the IRS contacted the taxpayers to say a refund was deposited in error, and they asked the taxpayers to forward the money to their collection agency.

In another version, the taxpayer who received the erroneous refund gets an automated call with a recorded voice saying he is from the IRS and threatens the taxpayer with criminal fraud charges, an arrest warrant and a “blacklisting” of their Social Security Number. The recorded voice gives the taxpayer a case number and a telephone number to call to return the refund.

What to do if your Tax Return is Rejected

Because this is a peak season for filing tax returns, taxpayers who file electronically may find that their tax return is rejected because a return bearing their Social Security number is already on file. If that’s the case, taxpayers should follow the steps outlined below. If you need additional information, please read the IRS publication, Taxpayer Guide to Identity Theft and contact the office if you have any questions.

If you are a victim of identity theft, the Federal Trade Commission recommends taking these steps:

• File a complaint with the FTC at identitytheft.gov.
• Contact one of the three major credit bureaus to place a ‘fraud alert’ on your credit records:
  • Equifax, www.Equifax.com, 800-525-6285
  • Experian, www.Experian.com, 888-397-3742
  • TransUnion, www.TransUnion.com, 800-680-7289
• Contact your financial institutions, and close any financial or credit accounts opened without your permission or tampered with by identity thieves.

If your SSN is compromised and you know or suspect you are a victim of tax-related identity theft, the IRS recommends these additional steps:

• Respond immediately to any IRS notice; call the number provided.
• Complete IRS Form 14039, Identity Theft Affidavit, if your e-filed return is rejected because of a duplicate filing under your SSN or you are instructed to do so. Use a fillable form at IRS.gov, print, then attach the form to your return and mail according to instructions.

If you previously contacted the IRS and did not have a resolution, don’t hesitate to contact the office. You may also call the IRS at 1-800-908-4490 if you need specialized assistance.

Taxpayers unable to file electronically should mail a paper tax return along with Form 14039, Identity Theft Affidavit, stating they were victims of a tax preparer data breach.

How to Return an Erroneous Refund to the IRS

Taxpayers who receive the refunds should call the office immediately, as well as review the steps outlined in Tax Topic Number 161, Returning an Erroneous Refund, which includes IRS mailing addresses should there be a need to return paper checks.

Note: By law, interest may accrue on erroneous refunds.

If the erroneous refund was a direct deposit:

1. Contact the Automated Clearing House (ACH) department of the bank/financial institution where the direct deposit was received and have them return the refund to the IRS.
2. Call the IRS toll-free at 800-829-1040 (individual) or 800-829-4933 (business) to explain why the direct deposit is being returned.
3. Contact the Automated Clearing House (ACH) department of the bank/financial institution where the direct deposit was received and have them return the refund to the IRS.
4. Call the IRS toll-free at 800-829-1040 (individual) or 800-829-4933 (business) to explain why the direct deposit is being returned.

If the erroneous refund was a paper check and hasn’t been cashed:

1. Write “Void” in the endorsement section on the back of the check.
2. Submit the check immediately to the appropriate IRS location. The location is based on the city (possibly abbreviated) on the bottom text line in front of the words “TAX REFUND” on your refund check. Please contact the office for assistance if you aren’t sure what the correct IRS location is.
3. Don’t staple, bend, or paper clip the check.
4. Include a note stating, “Return of erroneous refund check because (and give a brief explanation of the reason for returning the refund check).”

The erroneous refund was a paper check and you have cashed it:

• Submit a personal check, money order, etc., immediately to the appropriate IRS location listed below.
• If you no longer have access to a copy of the check, call the IRS toll-free at 800-829-1040 (individual) or 800-829-4933 (business) (see telephone and local assistance for hours of operation) and explain to the IRS assistor that you need information to repay a cashed refund check.
• Write on the check/money order: Payment of Erroneous Refund, the tax period for which the refund was issued, and your taxpayer identification number (social security number, employer identification number, or individual taxpayer identification number).
• Include a brief explanation of the reason for returning the refund.
• Repaying an erroneous refund in this manner may result in interest due to the IRS.

Help is just a phone call away!

If you receive a refund in error, you will need to follow established procedures for returning it to the agency as soon as possible. You should also notify your financial institution because there may be a need to close bank accounts. If you need assistance with this or any other tax matter, don’t hesitate to call.

• By Leon Clinton
• March 14, 2018