Author: Eric Buechler

Retirees now can act to change their normal IRA payouts and avoid some income taxes, but they’ll have to be quick. 

The Internal Revenue Service this week reminded owners of IRAs and beneficiaries of other retirement plans about the Aug. 31 deadline for halting their scheduled payments from those plans.

Congress suspended the Required Minimum Distributions (RMD) from those plans only for the year 2020. The thought was to help them minimize taxes in these difficult financial times. That waiver was part of the coronavirus relief package called the CARES Act, which is short for Coronavirus Aid, Relief and Economic Security.

 Normally a worker or retiree is obliged to withdraw a certain amount of retirement savings – the RMDs — each year after reaching age 70½.  However, this year, the law allows them to leave those payments in their retirement accounts. If they already have drawn out their RMDs, they also can return them to the original accounts or roll them over into another tax-deferred retirement plan. the IRS said. Either way, the retirees will protect the money from federal income taxes. The deadline for taking action is Monday, Aug. 31.

It is important to note that this waiver doesn’t apply to Roth IRA accounts, which are not taxed when withdrawn and do not demand RMDs.

In another side note, the IRS said that the waiver also applies to workers/retirees who turned 70½ in 2019, but waited until 2020 to take their distributions.

Eric Buechler, who owns EricJohn Ltd., can guide retirees through the regular and the special cases involved in retirement distributions.

Well, you should sign, obviously!  So should any tax preparer you paid to fill out the return. But sometimes life gets in the way of that simple solution. 

What if you’re in a hospital bed? What if you’re out of the country on military duty?  What if your son or daughter is too young to sign? (Children can have income and taxes due before they can write, of course.)

Here are a few Internal Revenue Service guidelines passed along by seminar firm TaxSpeaker.

• Child’s return – Children can turn in their own tax returns and still qualify as dependents on the parent’s form. They generally should sign their own paper returns. If that’s not possible, a parent or guardian can sign with this notation: “By (parent’s signature), parent for minor child.” Filing electronically through a tax preparer makes it somewhat easier. The preparer typically uses a “practitioner PIN,” as IRS says, for security anyway. So, the preparer verifies the child’s identity as usual and makes the filing. Now, children also can submit returns using tax software. But the IRS has an important caution for first timers under age 16. If they never have filed a return, they cannot sign electronically with commercial software. They must file on paper or through a tax preparer.
• Spouse situations – The other spouse can sign for a taxpayer who is disabled, dealing with a medical emergency, or mentally incompetent. He/she can sign for the disabled spouse in the name space using the words: “By (signature), Husband (or wife).”  The IRS also wants a statement explicitly stating signing permission and the reason for it.
• Military in combat zone – Likewise, a spouse can sign for a taxpayer who cannot because of military service in a combat zone that is recognized by the IRS. See https://www.irs.gov/newsroom/combat-zones He or she also must attach a signed statement saying that service member is on duty in the zone.
• Deceased taxpayer – The personal representative (such as an estate executor) for the taxpayer must sign the return. If a joint return is involved, the surviving spouse also must sign.   If there is no personal representative appointed, the spouse may sign the joint return and note in the signature block: “Filing as surviving spouse.”

Signatures for business returns can be more complicated, of course. EricJohn Ltd. owner Eric Buechler, who is an enrolled agent recognized by the IRS, routinely verifies signing permissions in preparing returns. Feel free to contact him about signatures or other tax reporting questions.

Where can you expect to find a 50 percent return on some of your extra money? For some workers, the answer is:  Internal Revenue Service.   

If that prospect seems too good to be true, take a look at the Retirement Savings Contribution Credit, also known as the “Saver’s Credit,” financial seminar firm Taxspeaker suggested recently.  You can find that 50 cents on the dollar in your federal tax return, if you satisfy two basic qualifications:

·  Savings:  Make a contribution to either a personal or an employer-sponsored retirement plan. Just about any type qualifies including traditional and Roth IRAs, a 401(k) account, a 403(b), SEP, etc.  So does the specialized ABLE (Achieving a Better Life Experience) account. One caution:  Rollover contributions won’t work for this tax break.  

·  Income:  Report adjusted gross income of $39,000 or less for a married couple filing jointly or $19,500 for a single individual in 2020, the current tax year. (Those amounts were $38,500 for marrieds and $19,250 for 2019.)  

Taxpayers meeting both requirements can take a 50 percent tax credit on new retirement deposits as large as $4,000 for married couples or $2,000 for single individuals. Credits directly reduce taxes, so we’re talking about cutting a maximum $2,000 or $1,000, respectively, off the income tax bill.

The IRS also offers credits of 20 percent and 10 percent for bigger incomes, phasing out at $32,500 for singles and $65,000 for marrieds.

The tax break has been around for a number of years. Reduced earnings due to COVID-19 job losses, furloughs or pay cuts could make more workers eligible for it in 2020. For some more depth, see the IRS explanation at https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit

To plan for this year’s Saver’s Credit — or other tax matters — feel free to contact Eric Buechler of EricJohn Ltd., tax specialist and an enrolled agent recognized by the IRS.

Yes, the coronavirus extension expires on Wednesday.  Federal and state taxpayers have until the end of the day on July 15 to file their 2019 income tax returns and make payments.

As almost everyone knows, the Internal Revenue Service and the Minnesota Department of Revenue granted a 3-month reprieve from the normal April 15 deadline because of the coronavirus emergency.

So, on Wednesday, we’re back to the normal taxpaying procedures. Taxpayers who still cannot finish up their 2019 returns by then can file for an automatic extension on federal Form 4868. It postpones the date for filing the return to Oct. 15 but payments of any 2019 taxes are due on July 15.

People who pay estimated taxes throughout the year also must send in their first two payments for 2020 – normally due on April 15 and June 15 – to the federal government.  Minnesota did not extend its deadline for those quarterly estimated tax payments, so they were due as scheduled.

The IRS made a special point last week of asking taxpayers to file electronically because of limited staffing.  “Taxpayers who filed a paper tax return and expect a refund may experience a delay beyond the normal time frame of four to six weeks from the time they mailed the return,” the agency announced.  Electronic returns typically result in refunds within 21 days, the IRS said.

More information is available at IRS and Minnesota Department of Revenue Web sites. Both have COVID-19 pages. Here is Minnesota’s:  https://www.revenue.state.mn.us/our-response-covid-19

For a more detailed assessment of your own situation, feel free to contact tax specialist Eric Buechler, www.ericjohnltdcom .

You know that sinking feeling that you tossed something really important into the garbage?

Apparently that dreaded goof came true for some names on the U.S. Treasury Department’s mailing list. They threw away a plain, white envelope that looked like junk mail but actually contained a prepaid debit card for their federal Economic Impact Payment – part of coronavirus relief.  The card is worth at least $1,200 to each person.

In mid-May, Treasury moved to speed up delivery of some payments by issuing prepaid debit cards. Until then, the payments had been issued as electronic bank deposits and paper checks.  Eventually, Treasury will issue debit cards to about 4 million recipients. The Internal Revenue Service said.

The confusion came because a management firm hired by Treasury mailed the cards in white envelopes without any government identification. Instead, the envelopes came from “Money Network Cardholder Services,” the IRS confirmed.  The debit card inside, named the “Economic Impact Payment Card,” is a Visa card issued by Treasury’s financial agent called MetaBank, NA.

The payment was explained inside the envelopes, but some people didn’t get that far. They  figured the letters were just throwaways, media outlets such as  the Washington Post reported.

The IRS, which is in charge of distributing the stimulus payments, announced late in the month that people who lost or destroyed their debit card can request a replacement through MetaBank without paying a fee. Call 1-800-240-8100 for more information.

When their cards do arrive, people can use them like other debit cards to purchase items, to get cash from in-network ATM machines or to transfer the money to their personal banking accounts. There are no fees charged for use, the IRS said.

For advice about stimulus payments, feel free to contact Eric Buechler, who is an enrolled agent recognized by the IRS and owner of tax preparation firm EricJohn Ltd.

The federal government recently added $600 a week to unemployment insurance benefits now being drawn by millions of workers.  The extra cash was among three new benefits in the Coronavirus Aid, Relief and Economic Security Act (CARES), which took effect late in March.

Generous as that is, though, workers might want to set aside some money for income taxes. The fact is, Congress has not exempted those $600-a-week payments or the regular unemployment benefits from federal taxes.

With several types of pandemic payments underway, taxpayers might be baffled about tax impacts. For example, the well-publicized stimulus payments of up to $1,200 per person and $2,400 for married couples effectively come tax-free. A May 6 article from Forbes online (www.forbes.com) noted that the payments are reported on the federal tax return, but then are offset by a special credit.

Unemployment compensation – including the new $600 benefit – is treated differently. It simply is figured into gross income, making it taxable.

The extra $600 payments began immediately after the bill was signed, and they last through July 31.  In general, any workers who are receiving unemployment compensation should automatically receive the boost.

How might workers set aside some money to pay taxes? One common way is by having state governments withhold money from unemployment benefits when they are paid. Taxpayers also can pay estimated taxes each quarter to federal and state governments.

The National Employment Law Project published a fact sheet that goes into much more detail about unemployment insurance provisions in the CARES Act. See it at https://www.nelp.org/publication/unemployment-insurance-provisions-coronavirus-aid-relief-economic-security-cares-act/

Of course, Eric Buechler, tax specialist and owner of EricJohn Ltd., can provide more specific advice for your personal tax situation.

The Internal Revenue Service has promoted electronic filing for years, to the point where more than 90 percent of taxpayers are sending federal tax returns and other reports directly to its computers.  But there’s been one big exception. The only way for taxpayers to change an individual income tax return after filing it has been by sending a paper Form 1040-X through the mail.

Commissioner Charles Reddig now has announced that, after years of trying, the IRS has “overcome the unique challenges related to the 1040-X” and succeeded in moving it online. Beginning this summer, taxpayers will be able to amend returns and send them to the IRS by computer using an electronic 1040-X. Commercial tax software packages also have been updated with the virtual form.

The electronic option doubtless will be more convenient for many taxpayers. It’s also a big deal for the IRS, which receives about 3 million copies of Form 1040-X each year Those amended returns will arrive more quickly and minimize errors typically found on the past paper filings, the agency said.

The IRS hasn’t announced exactly when the 1040-X will go online yet.  When it does, taxpayers at first will be able to use it only to change 1040 and 1040-SR returns filed for 2019. In other words, you’ll still have to file a 1040-X on paper to revise 2018 or earlier returns.

The IRS assures that taxpayers will be able to track the status of their electronically filed 1040-Xs through “Where’s My Amended Return?” just as in the past. Of course, they also have the option to stick with the paper version, the IRS notes.

Are you wondering how – or if – you should amend a past tax return? Contact EricJohn Ltd. principal Eric Buechler. He is a tax preparation specialist and enrolled agent recognized by the IRS.

The federal government has found another way deep in the nooks and crannies of tax codes to help taxpayers in financial pain from the coronavirus epidemic.

The Internal Revenue Service now is allowing mid-year changes to “cafeteria plans,” such as health Flexible Spending Arrangements (FSA), so that workers who use them can deal with losses of income, unexpected bills and, perhaps, postponements of health care appointments.

 Typically, the employees must tell employers which cafeteria plans they wish to use and how much of their wages to place in them during a firm enrollment period each year. The money goes into the plan free of federal income tax, and the employee can claim it for their spending on health care, child  care or other items covered by the plans.

Because of financial burdens due to coronavirus, the IRS effectively has allowed employers to reopen enrollment periods for the plans. Consequently, employees will be able redo their choices of health FSAs and dependent care programs and retain the tax exemption for wages in them.

In addition, taxpayers can use any unspent money left in their plans from last year through Dec. 31, 2020. Normally, the deadline might be in March, depending on the plan.

Employees also now can claim expenses for telehealth services back to Jan. 1 of this year. Another new rule also allows people with health plans that have high deductibles to avoid that cost-sharing for any coronavirus-related expenses after Jan. 1, 2020.

Of course, workers will need to check into the changes with their employers, who actually offer the cafeteria plans.

For more guidance on approaches to cafeteria plans, feel free to contact Eric Buechler, founder and owner of   EricJohn Ltd., for guidance in your specific situation.

We’ve written recently about ways to tap a retirement account for extra money during the coronavirus emergency.  But what about the flip side – holding in tax-deferred money that was scheduled to be withdrawn from an IRA or 401(k)?

It winds up that Congress temporarily suspended the rule on Required Minimum Distributions (RMD) in its coronavirus relief law.  In short, retired workers can just omit the withdrawals they would have to take from their retirement accounts this year. It’s a one-time offer, good just for tax year 2020.

Normally, when workers reach age 72 – it was 70½ until recently — they must start taking money out of many types of retirement accounts.  A Required Minimum Distribution (or RMD) is set using a federal formula. It is subject to income taxes at that point, after growing without taxation inside the account.  (One major exception is the popular Roth IRA, which does not require RMDs.)

To see how RMDs might affect retirement, workers might want to discuss the prospects with a finance professional. Call Eric Buechler, owner of EricJohn Ltd. and an enrolled agent recognized by the IRS, for guidance about your specific tax circumstances or finances.

American workers under the age of 59½ generally haven’t been able to reach into their IRAs without paying stiff penalties. But the federal government temporarily has changed that in the throes of the coronavirus epidemic.

In March, the CARES Act (Coronavirus Aid, Relief and Economic Security Act) opened retirement plans to as much as $100,000 worth of penalty-free withdrawals for coronavirus victims. That gives workers and their families another lifeline from their own funds to endure the emergency, even if many would view it as a last resort. By the way, the temporary change also is available from some other retirement vehicles offered by employers, such as 401(k)and 403(b) plans.

Who’s eligible?  Just about anyone who has suffered financially because of the virus. Specifically,

• Anyone who has been diagnosed with COVID-19 or whose spouse or dependent has been diagnosed.
• Anyone whose finances were disrupted because of being quarantined, furloughed or laid off, or had hours reduced at a job because of the virus.
• Parents or guardians who could not work because of lack of child care during this time.
• Business owners who suffered financially because of closings or reduced hours of their enterprises due to COVID-19.

If they need to tap their IRAs/retirement plans, those workers now can withdraw as much as $100,000 without paying a required 10 percent penalty for an early distribution.

If the distribution is repaid to the IRA within 3 years, the Internal Revenue Service treats it as a rollover. That means no federal income tax will be due.

If it is not repaid, the emergency distribution will trigger normal federal income taxes. However, the IRS is allowing workers to stretch the taxes over a three-year period from tax year 2020 through 2022. Basically, they can report a third of the distribution as income each year.

Workers can take advantage of the special coronavirus rules through Dec. 30 this year, the IRS says. For more specifics, see  https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers .

Eric Buechler, founder of EricJohn Ltd. and an IRS-recognized enrolled agent, also can guide workers wanting to take advantage of this special coronavirus provision.