October 2015

Volume 3, Issue 22

Posted on 10/27/2015

In 2016, Some Tax Benefits Increase Slightly Due to Inflation Adjustments, Others Are Unchanged
For tax year 2016, the IRS announced annual inflation adjustments for many tax provision. The highlights of the changed and unchanged adjustments are listed below.
  • Pension plan limitations; 401(k) contribution limit remains unchanged at $18,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple's income is between $184,000 and $194,000, up from $183,000 and $193,000.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $184,000 to $194,000 for married couples filing jointly, up from $183,000 to $193,000. For singles and heads of household, the income phase-out range is $117,000 to $132,000, up from $116,000 to $131,000.
  • The AGI limit for the saver's credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $61,500 for married couples filing jointly, up from $61,000; $46,125 for heads of household, up from $45,750; and $30,750 for married individuals filing separately and for singles, up from $30,500.
  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan remains unchanged at $18,000.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan remains unchanged at $6,000.
  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for those who have modified adjusted gross incomes (AGI) within a certain range. For singles and heads of household who are covered by a workplace retirement plan, the income phase-out range remains unchanged at $61,000 to $71,000. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range remains unchanged at $98,000 to $118,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The AGI phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
For more information or to read this article in its entirety, click here

IRS Issues Proposed Regs That Would Implement Supreme Court's Same-Sex Marriage Decision
This document contains proposed regulations that reflect the holdings of Obergefell v. Hodges, 576 U.S. __, 135 S. Ct. 2584 (2015), Windsor v. United States, 570 U.S. __, 133 S. Ct. 2675 (2013), and Revenue Ruling 2013-17 (2013-38 IRB 201), that define terms in the Internal Revenue Code  describing the marital status of taxpayers. The proposed regulations primarily affect married couples, employers, sponsors and administrators of employee benefit plans, and executors. This document invites comments from the public regarding these proposed regulations. For more information, click here

Volume 3, Issue 21

Posted on 10/15/2015

IRS Releases Draft Form 1040
The IRS released on its website several draft tax forms and instructions for the 2015 tax year. Included in these drafts is Form 1040 and the related schedules.  For more information or to review the drafts, click here 

Social Security Representative Payees
More than eight million people, who get monthly Social Security or Supplemental Security Income (SSI) benefits, need help managing their money. In these cases a relative, friend, or other interested party can be appointed to serve as the "representative payee." The Social Security Administration (SSA) thoroughly investigates those who apply to be representative payees to protect the interests of Social Security beneficiaries, because a representative payee receives the beneficiary's payments and is given the authority to use them on the beneficiary's behalf.
Being an authorized representative, having power of attorney, or a joint bank account with the beneficiary is not the same as being a payee. These arrangements do not give legal authority to negotiate and manage a beneficiary's Social Security and/or SSI benefits. In order to be a payee, one must apply for and be appointed by Social Security.
A payee acts for the beneficiary. A payee is responsible for everything related to benefits that a capable beneficiary would do for himself or herself. Social Security encourage payees to go beyond just managing finances and be actively involved in the beneficiary's life. The following lists the required duties of a payee.
  • Determine the beneficiary's needs and use his or her payments to meet those needs;
  • Save any money left after meeting the beneficiary's current needs in an interest bearing account or savings bonds for the beneficiary's future needs;
  • Report any changes or events which could affect the beneficiary's eligibility for benefits or payment;
  • Keep records of all payments received and how they were spent and saved;
  • Provide benefit information to social service agencies or medical facilities that serve the beneficiary;
  • Help the beneficiary get medical treatment when needed;
  • Report to Social Security any changes that would affect performance or continuing as payee;
  • Complete written reports accounting for the payee's use of funds; and
  • Return to Social Security any payments to which the beneficiary is not entitled.
According to the Social Security website site, a checking account is better in some ways, because the payee will have cancelled checks or statements that show how they spent the funds. Consideration should be taken that some beneficiaries cannot keep balances high enough to avoid service charges. If bills must be paid through the mail, a checking account might still be cost effective because cashier's checks and money orders have charges associated with them, as well. The payee should set up an account that minimizes fees and enables them to keep clear records. Social Security encourage using interest-bearing accounts and the account must be titled so that it is clear the money in the account belongs to the beneficiary.
Social Security provides a booklet that includes basic information on how to be a representative payee and provides a list of frequently asked questions. For more information, click here
IRS Announces Key Milestone in FATCA Implementation; U.S. Begins Reciprocal Automatic Exchange of Tax Information under Intergovernmental Agreements
On October 2, the Internal Revenue Service announced the exchange of financial account information with certain foreign tax administrations, meeting a key Sept. 30 milestone related to FATCA, the Foreign Account Tax Compliance Act.

To achieve this, the IRS successfully and timely developed the information system infrastructure, procedures, data use and confidentiality safeguards to protect taxpayer data while facilitating reciprocal automatic exchange of tax information with certain foreign jurisdiction tax administrators as specified under the intergovernmental agreements (IGAs) implementing FATCA.

This information exchange is part of the IRS's overall efforts to implement FATCA, enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts or foreign entities. FATCA generally requires withholding agents to withhold on certain payments made to foreign financial institutions (FFIs) unless such FFIs agree to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. 

For more information, click here

Volume 3, Issue 20

Posted on 10/1/2015

OFAC Amends Cuban Assets Control Regulations
The Department of the Treasury's Office of Foreign Assets Control (OFAC) is amending the Cuban Assets Control Regulations to further implement elements of the policy announced by the President on December 17, 2014 to engage and empower the Cuban people. Among other things, these amendments further facilitate travel to Cuba for authorized purposes (including authorizing by general license the provision of carrier services by vessel), expand the telecommunications and Internet-based services general licenses, authorize certain persons subject to U.S. jurisdiction to establish a physical presence in Cuba, allow certain additional persons subject to U.S. jurisdiction to open and maintain bank accounts in Cuba to use for authorized purposes, allow certain additional financial transactions (including removing the limit on donative remittances to Cuba and unblocking certain previously blocked remittances and funds transfers), authorize all persons subject to U.S. jurisdiction to provide goods and services to Cuban national individuals located outside of Cuba, and allow a number of other activities related to, among other areas, legal services, imports of gifts sent to the United States, and educational activities. These amendments also implement certain technical and conforming changes. To read the amendment in its entirety, please click here 

The fines for violations can be substantial. Depending on the program, criminal penalties for willful violations can include fines ranging up to $20 million and imprisonment of up to 30 years. Civil penalties for violations of the Trading With the Enemy Act can range up to $65,000 for each violation. Civil penalties for violations of the International Emergency Economic Powers Act can range up to $250,000 or twice the amount of the underlying transaction for each violation. Civil penalties for violations of the Foreign Narcotics Kingpin Designation Act can range up to $1,075,000 for each violation.

OFAC continues to be a "hot" examination button.  Join Debbie Crawford on October 9th as she discusses a comprehensive approach to OFAC.  Learn how to write your policy, do your risk assessment, and set up monitoring on a day to day basis. Learn about emerging OFAC threats and how to address those issues internally through training and procedures.  This webinar is a must for all OFAC personnel.  For more information or to register, click here.

Currency Transaction Reports (CTR)
Financial institutions must electronically file a CTR for each transaction in currency (deposit, withdrawal, exchange or other payment or transfer) of more than $10,000 by, through, or to the institution. Certain types of currency transactions need not be reported, such as those involving "exempt persons," a group which can include retail or commercial account holders meeting specific criteria for exemption. New questions arise every day for the front line. Do we check 2a or 2b for a person who brings in over $10,000 and puts some in his/her personal account and into a business account? Join Christy Crawford on October 13 as she reviews the CTR Line-by-Line. Participants of this webinar will receive The Currency Transaction Handbook with examples in electronic format. For more information or to register, click here.   

IRA Required Minimum Distributions (RMDs)
Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 70 ½ years of age or, if later, the year in which he or she retires. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 70 ½, regardless of whether he or she is retired.

Retirement plan participants and IRA owners, including owners of SEP IRAs and SIMPLE IRAs, are responsible for taking the correct amount of RMDs on time every year from their accounts, and they face stiff penalties for failure to take RMDs.

When a retirement plan account owner or IRA owner dies before RMDs have begun, different RMD rules apply to the beneficiary of the account or IRA. Generally, the entire amount of the owner's benefit must be distributed to the beneficiary who is an individual either (1) within 5 years of the owner's death, or (2) over the life of the beneficiary starting no later than one year following the owner's death. 

What types of retirement plans require minimum distributions? The RMD rules apply to all employer sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs. The RMD rules also apply to Roth 401(k) accounts. However, the RMD rules do not apply to Roth IRAs while the owner is alive.

What happens if a person does not take a RMD by the required deadline? If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with his or her federal tax return for the year in which the full amount of the RMD was not taken. 

Want to learn more about IRA distributions? Join us on October 15th for our IRA Distributions webinar. All registrants of this webinar will receive an electronic copy of the IRA Handbook. For more information or to register, click here

Do you have a question or topic that you would like to see addressed in our monthly newsletter? If so, email us and let us know. Send questions and/or topic suggestions to info@bankersecampus.com.