Repayment of RMD Distributions Related to Covid-19
If you received a retirement distribution due to coronavirus-related early distribution in 2020 on account of hardship, you may choose to repay any portion of it within three years of receiving the distribution. Repayments reduce amounts subject to income and are not subject to any contribution limits.
If you made as payment before the due date of your 2020 return, the repayment reduces the amount included in income on your 2020 return. Alternatively, a repayment after filing your 2020 tax return, and the repayment is spread over 3 years, reduces the amount included in income on your 2021 return. You may need to file an amended 2020 return to reduce your income over the three-year period. Contact your financial planning professional to discuss if this applies to you.
2022 Required Minimum Distributions (RMD’s) & Life Expectancy Table
There is a major change in RMD’s for tax year 2022; most notably the new Life Expectancy Table. For individuals receiving RMD’s, your minimum distribution will change, and it will be a smaller percentage. Congress is realizing that Americans are living longer (even with COVID?), and therefore need to make certain we have ample retirement (but not from Social Security) to live on. Please discuss this with your Financial Planning professional.
In addition to updated life expectancy tables, they have also raised the age to begin taking RMD’s to age 72, instead of 70 ½ like was the case before 2020. If you reach 72 in 2021, you must take your RMD by April 1st of the year after you turn 72. In general, the year after you turn 72, you could be required to take two RMD’s (one by April 1st of that year, and a second one by December 31st of the same year to apply towards the following year); then take the normal by the December 31st deadline each year after that. If you don’t want to pay tax for both in the same year, you are permitted to take a distribution the year of your 72nd birthday instead of waiting until April of the following year.
Feel free to use this link from the IRS to see the new life expectancy table and a simple calculator to determine your current and future distribution amounts.
(Remember, if you are the beneficiary of an IRA, this rule applies to you, but using the age of the deceased beneficiate, and our age is younger.)
Virtual Currency
As much as we wanted to bury our heads in the sand and act like this trend was a flash in the pan, we have realized it is here to stay. So has the IRS, and they are catching on quickly! Both Ryan and Don have taken classes on this topic so we can keep up with our clients and their tax responsibilities. If you have questions, or more importantly, if you hold any cryptocurrency, please make us aware of this during discussions with us and when delivering/sending in your information. You will need to report all transactions. We will ask you for them.
Child Tax & Dependent Care Credit
If this applies to you, you probably have already seen the payments deposited into your account each month on the 15th. The government has made a one-time increase to the child tax credit to $3,000 per child (up from $2,000), or $3,600 for children 5 and under. Where do those payments come into play? The purpose was to get money into the taxpayers’ hands “immediately”. Therefore, they have been depositing $250-300 per child each month as an advanced credit, with the rest of the credit being paid out when the tax return is filed.
There are a few instances where this may affect some taxpayers in a different way. If your income has changed over the previous year, you may not receive the second half of the credit figured on your tax return. If a taxpayer had a child during the 2021 calendar year, you wouldn’t receive advanced payments for this child. Therefore, you would receive the full credit on your tax return. If there is a situation with alternating years’ custody between divorced parents, this becomes more complicated and probably requires special handling.
The IRS was instructed to create an online portal to give taxpayers an opportunity to update information including:
- Add/Change bank account information
- Unenroll from these advanced payments (receive full amount on tax return)
- Update your modified gross income
They were also instructed to give taxpayers an option to add/change dependent information, to add the new child and amend shared custody situations. Unfortunately, the IRS hasn’t completed this and will not by the end of the year. Use this link to check your payment status and history, as well as access the options mentioned above.
Threatening IRS Letters & Processing Delays
IRS Letters and Processing Delays
In the past year, many of our clients have received letters and notices from the IRS. Many of these letters are a bill for tax due, even if the client has paid it. A few have even been letters referencing previous tax years as far back as 2018! Some of these notices even border on a threatening tone. Most of these letters are autogenerated by computers. So, if the human element is delayed, the computers keep spitting out letters. Just like the wait times are extended at restaurants, the IRS is struggling also.
Part of our fee, as a paid preparer for our clients, includes responding to any IRS inquiries that may come to the client. If an amended return is required, we charge a very reasonable fee for an amended return. Always remember, if you ever receive any correspondence from the IRS, contact us immediately.