Time to Calculate your 2018 Tax Liability

Saturday, December 22nd, 2018

Congress overhauled the tax rates and brackets for the 2018 tax year (and beyond), when it passed the Tax Cuts and Jobs Act (the Act) at the end of 2017. The new law reduces taxes for millions of taxpayers by lowering income tax rates across the board. In addition, the Act nearly doubles the standard deduction for all filers. As a result of these changes, the IRS updated the income tax withholding tables for 2018 to help most workers ensure that they are not having too much or too little withholding taken out of their pay. How much you will benefit from the Act will depend on a lot of factors, ranging from the size of your family and how much you earn to where you live. Since the full impact of the Act will not be felt until next spring, when you file your 2018 tax return, now is the time to estimate your tax liability to avoid any surprises.

You can estimate your tax liability by using the Withholding Calculator, which the IRS revised in response to the new law and can be found on The IRS encourages taxpayers to use the calculator to adjust their withholding in response to the new law or changes in their personal circumstances in 2018.

The Calculator helps you identify your tax withholding to ensure the right amount of tax is withheld from your paycheck. You can protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year. At the same time, with the average refund topping $2,800, you may prefer to have less tax withheld up front and receive more in your paychecks.

If you are an employee, the Withholding Calculator helps you determine whether you need to give your employer a new Form W-4, Employee’s Withholding Allowance Certificate. You can use your results from the Calculator to help fill out the form and adjust your income tax withholding. If you receive pension income, you can use the results from the calculator to complete a Form W-4P and give it to your payer.

The Calculator will ask you to estimate values of your 2018 income, the number of children you will claim for the Child Tax Credit and Earned Income Tax Credit, and other items that will affect your 2018 taxes. The IRS suggests that you follow these steps:

  • Gather your most recent pay stubs.
  • Have your most recent income tax return handy; a copy of your completed Form 1040 will help you estimate your 2018 income and other characteristics and speed the process.
  • Keep in mind that the Calculator’s results will only be as accurate as the information you provide. If your circumstances change during the year, come back to this Calculator to make sure that your withholding is still correct.

The Withholding Calculator does not ask you to provide sensitive personally-identifiable information like your name, Social Security number, address or bank account numbers. Also, the IRS does not save or record the information you enter on the Calculator.

It is important to remember the Withholding Calculator works for most, but not all, taxpayers. People with more complex tax situations should use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes taxpayers who owe self-employment tax, alternative minimum tax, the tax on unearned income of dependents or certain other taxes, people with long-term capital gains or qualified dividends, and taxpayers who have taxable social security benefits. The calculator will not determine the taxable portion of your social security benefits, but if you estimate the taxable amount (e.g., using the worksheet in the Form 1040 instructions), you can enter that into the Calculator as other nonwage income so that the calculator can take it into account.

If you have questions, contact Anderson & Jahde, PC.

This entry was posted on Saturday, December 22nd, 2018 at 7:37 pm and is filed under Articles.

IRS Debt and Passport Denial or Revocation

Friday, November 30th, 2018

Taxpayers with more than $50,000 of unpaid federal tax liabilities may find they cannot travel internationally, unless they are working with the IRS to resolve their tax liabilities.  In December 2015, Internal Revenue Code § 7345 was enacted, authorizing the IRS to notify the State Department of taxpayers with “seriously delinquent tax debt,” which is:

  1. A legally enforceable federal tax liability of an individual;
  2. which has been assessed;
  3. is greater than $50,000; and
  4. for which a Notice of Federal Tax Lien has been filed or a levy is made.

The State Department may deny, revoke, or limit a taxpayer’s passport if the taxpayer has seriously delinquent tax debt.  Although the statute was enacted in 2015, the IRS did not start sending notifications to the State Department until February 2018.  If the IRS erroneously notifies the State Department that a taxpayer has a seriously delinquent tax debt, the taxpayer can file a lawsuit in the United States Tax Court or in a United States District Court.

If the IRS correctly notifies the State Department of a taxpayer’s seriously delinquent tax debt, it will issue Notice CP508 to the taxpayer, informing the taxpayer the State Department may restrict their passport, including denying applications for a passport or a passport renewal.  If the State Department places any restrictions on a taxpayer’s passport, it will notify the taxpayer in writing.

Taxpayers who want to reverse restrictions on their passport can do so by paying their tax liabilities in full, agreeing to pay the IRS through an Installment Agreement or Offer in Compromise, or if a request for Innocent Spouse Relief is made.  A taxpayer cannot pay the balance below $50,000 to reverse the passport restriction.

If you have international travel plans, and have received Notice CP508 from the IRS, or believe you have “seriously delinquent tax debt,” you are encouraged to resolve your unpaid liabilities as soon as possible.  Otherwise, you risk having to cancel your travel plans and potentially forego the money spent on airlines tickets, hotels, etc. if you later find out your passport has been restricted.

If you have questions, contact Anderson & Jahde for competent, professional tax help.




This entry was posted on Friday, November 30th, 2018 at 4:30 pm and is filed under Articles.

The New Age For Online Retailers

Monday, October 29th, 2018

On June 21, 2018, the United States Supreme Court issued its Opinion in South Dakota v. Wayfair, Inc., overturning decades-old precedent requiring a retailer to have an actual “physical presence” within a state before that state can require the retailer to charge, collect, and remit its sales tax. With such a drastic change in the legal landscape, many wonder how the Supreme Court’s decision may affect their businesses.

Colorado (as we expect many others to do) has acted quickly to capitalize on the Court’s about-face.  The Colorado Department of Revenue recently announced new rules, taking effect December 1, 2018, turning Colorado into a “destination-based” taxing jurisdiction—meaning, all sales will be sourced (and, therefore, taxed) based on the delivery address of the customer.

This change affects all businesses, although perhaps in different ways.  If your business is located in Colorado, and you are fulfilling an order to a customer in Colorado, you must charge, collect, and remit the tax that would apply if the sale was completed in the jurisdiction where the goods are being delivered.  For instance, if a business located in Grand Junction fulfills an order to a customer in the Denver metro area, the Grand Junction business now must charge, collect, report, and remit sales tax for: (1) Colorado (2.9%); (2) RTD (1%); (3) Scientific and Cultural Facilities District (1.1%); and (4) any “state-collected” county and/or municipal taxes (based on the county and municipality of delivery).  This is a change from the old rule, where the business was only required to charge the tax for the jurisdictions the retailer and purchaser had in common (in the above example, only Colorado state taxes).

How the new rule will affect sales into “home-rule jurisdictions” (like Denver, Aurora, Colorado Springs, etc.) remains an open question.  But a cautious business that routinely ships products throughout the state may be best served by obtaining a sales tax license in all home-rule jurisdictions in the state, and collect and remit all home-rule jurisdiction sales taxes based on the address to which the goods are delivered.

If your business regularly ships products to customers in another state, the new rule will affect how those transactions are taxed, as well.  Under the new rule, all such sales are sourced to the delivery address—so, Colorado sales tax would not apply to deliveries outside of the state.  Instead (and in light of Wayfair), Colorado businesses must take special care in determining whether, and under what circumstances, the customer’s state has a requirement for out-of-state retailers to collect and remit its sales tax on purchases into the state.  In effect, the Wayfair decision now makes it possible that businesses with nationwide sales will be required to register in, and collect, and remit sales taxes to, all 50 states—regardless of whether they have any stores, employees, or property in the state.

Finally, if your business is outside Colorado, but routinely ships products to customers in Colorado, Colorado is clearly holding you accountable for collecting and remitting Colorado sales tax (including all applicable “state-collected” taxes) on those purchases.  Again, whether and under what circumstances this rule would apply to a home-rule jurisdiction’s taxes remains to be seen.

Both the Supreme Court’s decision in Wayfair, and Colorado’s new rule to benefit therefrom, significantly increases both the risk and administrative burden in complying with our state’s (as well as others’) tax collection obligations. Determining what taxes you may need to collect on any transaction requires a careful review of each jurisdiction’s statutes and ordinances (state, special districts, county, and city).

This entry was posted on Monday, October 29th, 2018 at 1:20 pm and is filed under Articles.

I have an Estate Plan—What do My Successor Trustees or Personal Representatives Actually Do?

Monday, September 17th, 2018

The Successor Trustee

If you have completed your estate plan using a living trust, you likely have named successor trustees of your trust.   A trustee is a person or trust company you select and name in your trust.  With a living trust that you create, you are the Grantor of the trust and you are generally the first trustee in charge of your own assets held in your trust.  As the Grantor, you can make changes to your trust, including moving assets to and from the trust, changing its beneficiaries and changing successor trustees.

The Successor Trustee During Incapacity

A successor trustee is needed if you experience incapacity, either short-term or long-term, and again when you pass away.  During your incapacity, your successor trustee manages the trust assets, takes care of your needs and the needs of anyone else who is dependent upon you for support.  If you are no longer able to manage your financial affairs, because of cognitive impairment or another injury, your successor trustee will step in and handle the trust for you.  A successor trustee is a fiduciary for you over the trust and its property, and a successor trustee cannot make changes to your trust.  A fiduciary is legally required to act in your best interest when serving as a successor trustee.

The Successor Trustee After Your Death

Upon your death, the successor trustee will follow your trust instructions and distribute the assets held in the trust to your named beneficiaries the way you have chosen.  When assets are held in a living trust correctly, you may avoid probate when you pass away.  Your successor trustee will close down the trust without the burden of probate.  This means that court supervision is typically not required to settle your trust at your death.

The Personal Representative

If you have completed your estate plan using a Last Will & Testament, you have named a personal representative (executor) to settle your probate estate after you pass away.

A personal representative is also a fiduciary, and although named by you in your Last Will & Testament, must be appointed by the court in the probate process.  A probate petition must be filed with the court for your personal representative to be appointed.  The appointment authorizes your personal representative to gather the estate’s assets, sell assets, pay creditors and open an estate bank account.

Depending on the state law, a personal representative may work under an unsupervised probate or with court supervision.  The personal representative is ultimately responsible for distributing the estate assets to your heirs in accordance with the terms of the Last Will & Testament.  If there is no Last Will & Testament, then your personal representative will distribute your assets in accordance with state laws.  Your personal representative distributes estate assets only after debts, taxes and administration expenses are paid.

This entry was posted on Monday, September 17th, 2018 at 1:14 pm and is filed under Articles.

IRS Updates the Tax Withholding Tables

Wednesday, August 1st, 2018

Congress recently changed the tax rates and brackets for 2018 and beyond, when it passed the Tax Cuts and Jobs Act (the “Act”). The rate changes, however, were not as radical as some had initially proposed. Instead, the major changes affecting many taxpayers stem from other provisions of the Act, such as nearly doubling the standard deduction to $12,000 for single filers, $18,000 for head-of-household filers and $24,000 for married couples who file jointly. In any case, the Act was the most sweeping rewrite of the tax code since 1986.

The full impact of the Act will not be felt until next spring, when you file your 2018 tax return. Most Americans will enjoy a tax cut, at least for the next eight years (the provisions of the Act expire after 2025), but the benefits of the law will depend on a lot of factors, ranging from the size of your family and how much you earn to where you live.

The new law reduces taxes for millions of taxpayers by lowering income tax rates across the board. For example, if your top 2017 tax rate was 25%, it falls to 22% in 2018, and a chunk of your income that used to be taxed at 15% will now be taxed at a new 12% rate. As a result of the lower tax rates, the IRS has updated the income tax withholding tables for 2018 reflecting the changes made by the tax reform legislation.

The updated withholding information, announced last January in IRS Notice 1036, shows the new rates for employers to use during 2018. Employers should be using the 2018 withholding tables by now, and most employees probably have already seen increases in their paychecks. The new withholding tables are designed to work with the Forms W-4 that workers have already filed with their employers to claim withholding allowances. This eliminates any burden on taxpayers and employers, as employees do not have to do anything at this time. The new tables reflect the increase in the standard deduction, repeal of personal exemptions, changes in available itemized deductions, increases in the child tax credit, and changes in tax rates and brackets.

The revisions are also aimed at avoiding over-and under-withholding of tax as much as possible. To help people determine their proper withholding, the IRS revised the withholding calculator on as well. Taxpayers are encouraged to use the calculator to adjust their withholding in response to the new law or changes in their personal circumstances in 2018.

For 2019, the IRS anticipates making further changes involving withholding. The IRS will work with the business and payroll community to encourage workers to file new Forms W-4 next year and to share information on changes in the new tax law that impact withholding.

This entry was posted on Wednesday, August 1st, 2018 at 4:56 pm and is filed under Articles.

Extending the Filing Date of Your Income Tax Return When You Are in an IRS Installment Agreement.

Monday, June 18th, 2018

When a taxpayer agrees to pay the IRS through a monthly Installment Agreement, the terms of the agreement require that the taxpayer (1) timely file all required federal tax returns and (2) timely pay all federal tax obligations for the entire duration of the Installment Agreement.  This is known as being “in compliance.”  If a taxpayer is not in compliance with all required filing and payment obligations, the IRS can (and will) terminate the Installment Agreement.

This sounds simple, but many taxpayers do not understand that extending the filing deadline of their income tax returns (personal or business) can ultimately lead to a default of the terms of their Installment Agreement.  This is because extending the filing deadline of an income tax return does not extend the payment deadline.

The filing and payment deadline for an individual income tax return is April 15 each year.  A taxpayer can properly extend the filing deadline to October 15 of that year, but the payment deadline is not extended.  That means the entire tax due needs to be paid on April 15, even if the tax return is not filed.  That requires the taxpayer to know what his or her income tax liability is on April 15 so any balance due can be full paid.  This basically requires the taxpayer to know what the completed return will be as of April 15, to ensure that no tax will be due when the return is timely filed within the extended deadline of October 15.

For example, Tom is currently paying the IRS in an Installment Agreement.  In 2016, he worked as an employee for half the year (earning wages) and for the other half of the year he worked as an independent contractor (having been issued Forms 1099).  For various reasons, Tom and his return preparer could not complete his 2016 Individual Income Tax return for filing by April 18, 2017 (the filing deadline that year).   Tom timely filed an extension to file his return in October 2017.

Tom knew he had withholding paid in to the IRS that year from his wages, but he never made any estimated tax payments in relation to the Forms 1099 he was issued as an independent contractor.[1]  When Tom filed his 2016 return on October 15, 2017, he had a balance due of $10,000 on his return, because he had not paid in enough taxes during the year.  Thus, this was a default, and the IRS terminated his Installment Agreement.

Although taxpayers in Installment Agreements can extend the filing deadline of their income tax returns, there are risks in doing so.  If the taxpayer is due a refund, or no balance is due when the income tax return is filed within the extended deadline, then the taxpayer is in compliance and within the terms of the Installment Agreement.

If you owe the IRS money, contact Anderson & Jahde for competent, professional tax help.

[1] Taxpayers are required to pay taxes to the IRS during the year, either through withholding or estimated tax payments.  Failing to make required estimated tax payments can also cause a default of the Installment Agreement.

This entry was posted on Monday, June 18th, 2018 at 7:25 pm and is filed under Articles.

Getting Relief From the IRS as an Innocent Spouse

Friday, May 4th, 2018

A common problem we see is where the IRS is pursuing one spouse for taxes attributable to his or her spouse, or ex-spouse. These are particularly difficult in divorce situations since not only are many divorces sufficiently traumatic in and of themselves but adding the IRS to the mix makes it explosive.

It is possible, under the right circumstances, for the innocent spouse to be relieved of IRS tax liabilities. First, relief is only available for income taxes; employment taxes are not included. Second, the IRS may only pursue one spouse’s taxes from the other spouse if they filed a joint income tax return because the liability is “joint and several,” meaning the IRS may pursue either spouse or both; if you filed returns on the basis of married filing separately, you are only responsible for your own taxes. Third, by and large, the IRS and the courts disregard the allocation of tax liability the parties may have agreed to in their divorce proceedings. Fourth, while this article is directed to federal taxes, you should always follow up with the state to make sure that whatever relief you get from the IRS, you also get from your state.

Who can elect? Either or both parties to a joint return may challenge the joint and several liability that the IRS is seeking to impose. To the extent you are successful, you will only be liable for the portion of the tax that is attributable to your income and deductions, and not your spouse or ex-spouse.

When during the process may relief be sought? The law is quite generous in allowing one seeking innocent spouse relief to request it at any time after the beginning of an IRS examination through and including at a much later date when the IRS is trying to collect the tax.

How do I make the election? A spouse requesting relief must complete IRS Form 8857 and send it to the IRS office on the Form’s instructions. Completing the form correctly and persuasively is absolutely critical to potentially getting relief. It is essential that you retain an attorney to assist you with this.

To what extent will my (ex)-spouse be informed? As a matter of due process, the IRS is obligated to notify your spouse, or ex-spouse, about your request for relief and obtain his or her position on the assertions you make. If you have been the subject of abuse, there are special procedures to protect you. If you were forced to sign the joint return and would not have done so but for the abuse, it is possible to argue that you did not intend to file a joint return, in which case you may not be liable for your spouse’s tax even in the first place.

What relief is available with respect to additional taxes the IRS believes is due? There are two bases for getting relief with respect to additional taxes resulting from an examination of the filed return. The easiest is with respect to divorced individuals. If you are now divorced or have been separated and not living together for the last 12 months, all you need to do is prove the amount of tax attributable to your income and deductions versus the amount attributable to your spouse. If you and your spouse are still together, getting relief is much harder and requires showing that you are both innocent of the mistakes on the return and that you did not significantly benefit from the tax savings.

What relief is available with respect to the balance owed on a filed tax return? This situation is also a difficult one and requires getting the IRS to be fair and apply equitable principles for relief. In essence, you must prove that you did not significantly benefit from the tax savings and that you had no reason to believe that your spouse would not pay the taxes shown on the return.

Because of the complexities of seeking innocent spouse relief, you should retain an attorney experienced in dealing with innocent spouse relief.

This entry was posted on Friday, May 4th, 2018 at 11:16 am and is filed under Articles.

IRS to End Offshore Voluntary Disclosure Program

Tuesday, March 20th, 2018

On March 13, 2018, Acting IRS Commissioner David Kautter announced September 28, 2018 will be the end of the IRS’s popular Offshore Voluntary Disclosure Program (OVDP), saying “Taxpayers have had several years to come into compliance with U.S. tax laws under this program . . . .  All along, we have been clear that we would close the program at the appropriate time, and we have reached that point.”

Originally offered in 2009, the OVDP allowed Taxpayers with previously undisclosed and untaxed foreign assets and income to come back into compliance with their U.S. Tax obligations and avoid criminal prosecution by filing amended tax returns and all necessary disclosures (FBARs, 5471s, 8938s, 3520s, etc.), and paying a set (and reduced) penalty.  Over the years, more than 45,000 Taxpayers have used the OVDP to report their previously undisclosed foreign assets, and the IRS has collected over $11.1 billion in back taxes, penalties and interest.

Since the OVDP’s inception, the Denver tax attorneys at Anderson & Jahde have assisted dozens of clients in coming back into compliance with their foreign asset disclosures and income reporting requirements through the OVDP (and related programs).  While the IRS will continue to accept disclosures through the Streamlined Filing Compliance Procedures if the Taxpayer can certify their prior failures were not “willful,” many Taxpayers do not neatly fit into this category.  For them, the elimination of the OVDP (open even to those who willfully failed to disclose foreign assets and income) severely limits the options available, and increases the risks of potential criminal prosecution and substantially larger fines and penalties.

If you have undisclosed foreign assets or foreign income call the attorneys at Anderson & Jahde to discuss which option is best suited to your situation before this valuable program ends.

This entry was posted on Tuesday, March 20th, 2018 at 11:13 am and is filed under Articles.

Should I Be Doing Any Special Year-End Tax Planning In Light of the Proposed Tax Legislation?

Wednesday, December 20th, 2017

Year-end tax planning with clients has been a staple in CPA practices for nearly as long as the tax code has been in effect.  With all the discussion of the proposed tax bills, in all their iterations and negotiations, and the seemingly endless crystal ball commentary on their effects, many have questioned whether they should be doing anything special this year, anticipating a significant change in current law.

Two significant disclaimers: first, tax planning is by its very nature highly personal and individualized, and never conducive to generalization.   For this reason, nothing in this article is meant or should be taken as general advice on actions any person should take immediately or over any given timeframe—it is merely meant to raise issues you may want to discuss with your tax advisor.  Any actions you take with the hope of receiving a particular tax benefit should only be done after careful discussion with a qualified tax advisor who has full knowledge of your individual circumstances.

Second, as of the posting of this article, nobody can tell you what the “Tax Overhaul,” if any, will actually look like after it has gone through the sausage-making process.  The House and Senate have each passed different bills, which are now being negotiated between the two.  Some top-level details of a claimed deal have been released, but as with most things, the “devil is in the details.”  And if the last six months have been any indication, what starts out as a sure thing often fails when the details come to light.  For that reason, nothing you have heard is a done deal, and you need to understand that even the best thought-out strategy may end up being moot in the end.

With that said, below you will find a non-exclusive list of issues you may want to discuss with your personal tax advisor, should you so choose:

  • Paying deductible expenses before year-end. To the extent tax planning has any axiomatic principles, one is to accelerate (pay sooner rather than later) any deductible expenses. Both bills have proposed changes to many personal itemized deductions (state and local income and property taxes, out of pocket medical expenses, mortgage interest, employee related business expenses, alimony, interest on student loans, teacher expenses, etc.).  But even under current law, most (if not all) of these deductions are subject to exceptions and limitations that vary based on your specific situation, and few (if any) result in a dollar-for-dollar tax savings.  Nevertheless, this is one area you may want to discuss in more detail with your advisors.
  • Defer income. The corollary to the above is that advisors will generally tell you to defer receipt of income whenever possible. Depending on your circumstances, this advice may be even more relevant this year.  Both bills propose a significant reduction in the corporate tax rate, as well as changes to the individual rate structure (and whether and to whom any potential benefit will accrue is still highly debated).  Therefore, to the extent that you might be entitled to a year-end bonus or other payments that can be delayed by a month or two, especially if it is business income, doing so may (but by no means is there a guarantee) be beneficial. There are, however, specific rules relating to the timing of income recognition (for instance, for cash basis taxpayers the date you receive a check, not when you deposit it, controls when you must recognize the income).  So again, a detailed conversation with your advisor not only about whether you should employ this strategy, but also how to employ it, is crucial.


  • Like kind exchanges. There have been discussions surrounding the Congressional negotiations that the like kind exchanges with respect to personal property, such as airplanes, vehicles, and equipment may be eliminated. Consequently, if you have been considering using the current like kind exchange rules to replace any item of personal property, you should discuss with your advisor potential timing issues before acting.
  • Carefully examine your estate plans. There are differences between the two bills presently being negotiated, ranging from complete repeal of the Estate tax, to an increased exemption. Therefore, if you are considering making a substantial gift (or dying), it may be advisable to hold off on doing so until the details of the any legislation (and actual passage thereof) come into clearer focus.
  • Alternative minimum tax. Under both proposed bills, the alternative minimum tax (AMT) will be eliminated. To the extent that you have items that give rise to alternative minimum taxable income, it may be advisable to wait until next year.
  • Business income & deductions. This is a mixed bag, although the proposed changes appear more advantageous than not. Under both bills, the corporate tax rates will be decreasing dramatically from a high of 35% to 20 or 21%. Likewise, it appears that pass through business owners may be given a tax break, as well. The changes in rates (to the extent they come to fruition) may create a stronger argument in favor of deferring income as much as possible.

Again, none of the above is absolute or written in stone at this stage, nor can the benefits of one strategy or another be determined without a careful examination of your individual facts and circumstances by a competent tax advisor.  So, be wary of anyone offering you advice on a “sure-fire” strategy without at least knowing all your individual details.

If you want to discuss your circumstances in more detail, call the attorneys at Anderson & Jahde, P.C. to set up an appointment.

This entry was posted on Wednesday, December 20th, 2017 at 11:19 am and is filed under Articles.

Mandatory Retirement Account Distributions

Sunday, December 10th, 2017

You faithfully make your annual contributions to your IRA or 401(k) accounts.  You’ve been doing this for years, maybe decades.  Can you keep your retirement funds in your account indefinitely?  Of course not.  You generally have to start taking withdrawals from your IRA, Simple IRA, SEP IRA, or other retirement plan account when you reach age 70 ½.  The following is an overview of the requirements.

The IRS requires all traditional IRA owners to withdraw at least a minimum amount from their IRAs.  The amount is referred to as a Required Minimum Distribution (RMD).  Your RMD will be included in your taxable income except for any part that was previously taxed (e.g. non-deductible IRA contributions).  Your first RMD must occur by April 1 following the year in which you reach age 70 ½.  Each year thereafter, the deadline for taking your RMD is December 31.  Thus, the first year following the year you reach age 70 ½ you will generally have two required distribution dates:  an April 1 withdrawal (for the year you turn 70 ½), and an additional withdrawal by December 31 (for the year following the year you turn 70 ½).  To avoid having both of these amounts included in your income for the same tax year, you can make your first withdrawal by December 31 of the year you turn 70 1/2 instead of waiting until April 1 of the following year.

If you miss a withdrawal or take out less than the required amount, the IRS may impose a 50% excise penalty tax on the shortfall.  For example, if your RMD for the year is calculated to be $10,000 and you do not take any distribution as required, the IRS may assess a penalty of $5,000 in addition to the requirement to withdraw the correct amount and pay any income tax due.

Roth IRAs are an exception.  They do not require mandatory withdrawals until after the death of the owner.  Also, a withdrawal from a Roth IRA cannot be used to satisfy your RMD requirement.  Another exception may apply if you work beyond age 70 ½.  You may be able to defer mandatory distributions from your current employer’s 401(k), 403(b), or other defined contribution plan, until April 1 of the year after which you retire.  Alternatively, your employer’s plan may require you to begin receiving distributions by April 1 of the year after you reach age 70 ½, even if you have not retired.  Also, if you own 5% or more of the business sponsoring the plan, then you must begin receiving distributions by April 1 of the year after the calendar year in which you reach age 70 ½.

To calculate your RMD for any year, you take the account balance of your IRA as of the end of the immediately preceding calendar year and divide by your life expectancy multiple provided in IRS Publication 590.  The life expectancy multiple is determined by your age and your spouse’s age, if applicable.  If you have more than one IRA, the minimum distribution regulations generally require you to calculate an RMD amount separately for each IRA.  You may add together the RMD amounts for all of your IRAs and withdraw the amount from any one or more of your IRAs.  However, if you have other types of retirement plans, such as a 401(k), you will need to take the RMD from each plan.  You cannot aggregate across various types of retirement plans.

RMDs continue after the account owner dies.  For the year of the account owner’s death, use the RMD the account owner would have received.  For the year following the owner’s death, the RMD will depend on the identity of the designated beneficiary.

A designated spouse has several options with respect to the account.  Spouses can treat an IRA as their own; base RMDs on their own current age; base RMDs on the decedent’s age at death, reducing the distribution period by one each year; or withdraw the entire account balance by the end of the 5th year following the account owner’s death, if the account owner died before the required beginning date.  With the latter option, a surviving spouse can wait until the owner would have turned 70 ½ to begin receiving RMDs.

Other designated beneficiaries can withdraw the entire account balance by the end of the 5th year following the account owner’s death, if the account owner died before the required beginning date, or calculate RMDs using the distribution period from the Single Life Table found in Appendix B of Publication 590-B.  RMD calculations from the Table will depend on whether the account owner died before or after the RMDs began.

These are some of the considerations to keep in mind as you approach age 70 ½ (or if you already are there), and have to start taking withdrawals from your traditional IRA or other retirement plan account.  As is often the case, understanding the requirements and tax consequences involved with required minimum distributions can be confusing.

At Anderson & Jahde, PC, we can help you navigate these waters and avoid penalties.  If you need help call Tom Hodel (303-782-0015) at Anderson & Jahde, PC.

This entry was posted on Sunday, December 10th, 2017 at 7:43 pm and is filed under Articles.