Q&A: Who Pays Taxes and Penalties on 529 Distributions and How?
Who will be responsible to pay for the taxes related to the distribution? Where do you report the taxable portion on your tax return?
The average tax article on the Internet makes broad generalized claims without citing any sources. That’s why we decided to write our take on IRS rules.
Here are clear discussions of what the actual Internal Revenue Code (IRC) or IRS rulings say with regards to various tax topics.
Who will be responsible to pay for the taxes related to the distribution? Where do you report the taxable portion on your tax return?
For domestic tasks like babysitting there are often two options: independent contractor or household employee. Taking the time to educate yourself on the difference may be worth your while.
This person has an IRA balance, but is about to empty it with a reverse Rollover. So the question is one of timing: can they do the IRA Rollover before the nondeductible contribution so that their cream and coffee never mix?
Luckily for the charitably-inclined individuals with nondeductible balances, QCDs are excluded from your Form 8606 taxable and nontaxable calculations.
The SECURE Act was merged into the 2020 budget bill which is now law.
Having a 401(k) plan with both pre- and post-tax balances is quite common, but mistakes are common as well.
Every school sets a budget or allowance for room and board, referred to as the cost of attendance. Are you allowed to reimburse yourself for the entire amount of Room and Board even if you did not spend that much?
The first step to answering this question is to check that the school you want to attend is an eligible educational institution.
The process of correcting cost basis problems, although time consuming, is worthwhile.
If a portion of your charitable gift is nondeductible, then no portion of the gift can be counted as a Qualified Charitable Distribution. But there is one accepted loophole for QCDs.
This June, the IRS came out with their final ruling on how charitable gifts to receive state tax credits will be handled. This is how the strategy works now.
Here is a simple list of the retirement account types and their differences.
“I will be turning 70 1/2 and wanted to start making contributions to charity from an IRA and taking the QCD at that time. Would this bill require me to wait two more tax years, until I am 72, to do this?”
On May 23, 2019, the House passed the Setting Every Community Up for Retirement Enhancement Act of 2019 with a vote of 417 Yeas and 3 Nays. It is on its way to the Senate.
I must say that homeschooling was by far my best education experience.
“If you claimed the standard deduction on your federal income tax return, you must also claim the standard deduction on your Virginia return.”
Be sure to remember to tell your tax preparer that you did a QCD.
There are many opportunities to pay your children. If that payment can be counted as earned income, then the child is eligible to fund their Roth IRA.
This person has no IRA balance, but is about to get one with an IRA Rollover. So the question is one of timing: can they do the IRA Rollover after the nondeductible contribution has already been converted so that their cream and coffee never mix?
You are allowed to deduct “up to 20 percent of their combined qualified real estate investment trust (REIT) dividends,” and this deduction is unlimited. So it begs the question: Is there a way I can deduct my normal real estate income?
It turns out there is still a way to do a QCD out of those assets, but it requires a bit of planning ahead.
To preserve the portability of a deceased spouse’s exemption, you must file an estate tax return after the death of the first spouse even if you otherwise did not have to do so. The due date of the estate tax return is nine months after the decedent’s date of death.
Federal AGIs between $75,000 and $99,000 of couples over age 65 begin to lose this age-based special treatment and lose the tax savings they had at lower income levels.
A closer look at the U.S. Code reveals a bit of uncertainty but a lot of promise.
Student loan forgiveness is normally taxable and reported to the IRS on a 1099-C, but there are big exceptions.
For a currency intended to make money simple and easy, IRS regulations make it a nightmare of compliance issues.
New proposed legislation cuts the benefit of donating to charity and receiving tax credits in return.
Although this 1040 looks smaller, it is not an upgrade for anyone except for the IRS.
There is unique tax planning involved though when an age 70 1/2 IRA owner was younger than the beneficiary.
Among its many changes, the Tax Cuts and Jobs Act created a new tax concept when it comes to managing the capital gains.
According to Internal Revenue Code, in order for an account to be a 529 account, the custodian must meet six requirements.
Sadly, the IRS is very clear about this; contributions must be cash.
Depending on your particular case and Social Security agent, you may get your surcharge waived, lowered, or upheld.
Luckily for Roth lovers like us, you don’t have to choose between Roth conversions or Roth contributions.
Under the Tax Cuts and Jobs Act, you are still allowed to make nondeductible contributions and still allowed to convert IRA assets to Roth IRA.
It is lazy of the IRS to put the burden of proving innocence on the taxpayer while punishing them as though they are guilty.
On January 18, 2018, the IRS updated their Frequently Asked Questions page to come into line with the new Tax Cuts and Jobs Act.
Seriously, open and fund your Roth IRA now. You’ll regret it later if you don’t get started now.
In 2015, Congress passed the PATCH Act that included a provision which allowed computer purchases to be a qualified education expense for 529 plans. But what of computer repairs?
The Tax Cuts and Jobs Act came out of conference, which means that the House and Senate bills have been reconciled into one piece of legislation.
While this may seem complex, don’t let it deter you from using a 529 account to the fullest extent possible.
It looks like something from this proposal will become law. Right now, the bill is in committee where the differences are being resolved.
One unsettled issue is the fate of Alternative Minimum Tax (AMT).
We’ve been waiting to see what our congressmen and women are going to decide for our 2018 tax law. As we’ve already entered the holiday season and can see the new year in sight, they are certainly cutting it close. … Read More
We will have to wait and see what tax law we have after Congress reconciles the bills and the final version is signed into law by the President.
We’ve been waiting to see what our congressmen and women are going to decide for our 2018 tax law. As we’ve already entered the holiday season and can see the new year in sight, they are certainly cutting it close. … Read More
With this proposed expansion, 529 accounts may become the most cost-efficient way to fund all education expenses.
It is an inconvenience during the holiday season to say the least, but Roth conversions are worth the effort.
Coverage is considered unaffordable if the lowest cost Bronze-level plan available to you through the Marketplace in 2017 is more than 8.16% of your household income.
How do you determine the value of your gift of stock? The IRS doesn’t like you to use rough estimates on your tax forms; they prefer a black and white number.