The South Bay Tax Report    

June 2014

 It's summer time here in Hermosa Beach!

How do we know?

Well, Hermosa Beach always kicks off the summer with the annual Hermosa Arts Fiesta.

 

 This is actually a picture of LAST year's Fiesta as Mike and Gary both forgot to take a picture of THIS year's Fiesta....

You can tell from the picture that Gary and Mike spend far more time on tax saving strategies than they do on understanding how to take good pictures. 

Thousands of dollars of smartphones, computer equipment, and tools to make sure we save you taxes but we can't remember to take a good Fiesta picture!

Some of you may be new to the South Bay Tax Report - welcome, it's our monthly effort to reach out and make you aware of things going on in the wild and wonderful world of personal income taxes.

Some of you may want to reach out and shake us as you've seen enough of the South Bay Tax Report;

remember, you can always unsubscribe down below.

Our lip quivers, and our hearts are broken if you do so, but we understand - really..... 

So, we use questions we often hear (or, in Mike's case, THINK we hear) and here are those we've seen this month.

I just turned 50 - I'm too young to get senior discounts and so old that they don't ask for my ID 

at the local surf bar. 

Is there anything good about turning 50?

No! 

However, once you turn 50, you can make "catch-up" contributions to retirement accounts such as 401(k)s, IRAs and SEP-IRAs. This year, people age 50 and over can put as much as $23,000 of their pre-tax pay in a 401(k) or 403(b) plan, $5,500 more than those who still need an ID check to drink a beer.

They can also contribute a total of $6,500 to traditional or Roth IRAs, $1,000 more than those youngsters who kick sand in our faces on the beach.

See - there IS an advantage to being 50!

I  just turned 59 1/2 - I still don't get senior discounts.

Is there anything good about turning 59 1/2?

No!

However, there is a small bit of good news as you can take distributions PENALTY-FREE from most types of retirement accounts. You also become exempt from the usual rule that requires money converted from a traditional IRA to a Roth IRA to stay in place for five tax years or else be subject to a penalty.

I just turned 70 1/2.

Trust me, 70 1/2 is not the new 50.

It's STILL 70 1/2.

I do get senior discounts, 

but is there anything else good about turning 70 1/2?

No!

Note, however, that in between visiting movie theaters and restaurants using that nifty senior discount, you must take your required minimum distribution ("RMD") from your IRA, SEP, and other (non-Roth) retirement plans.

The RMD is based on what you had in the plan at December 31st of last year divided by your life expectancy - that's not how long you think you are going to last after spending too much time celebrating your birthday but rather your life expectancy based on IRS tables. 

Let us know if you need more information on this - 

quite important - milestone.

I had a question for the IRS.

I called and waited for 45 minutes before I hung up.

Do they actually answer calls?

The IRS Taxpayer Advocate just released a report finding that the IRS only answered 61% of the calls it received from taxpayers during the 2013 fiscal year. That means your call - and about 20 million of your friends and neighbors - 

just didn't get through.

Taxpayers who received help had to wait a long time for it. 

The Taxpayer Advocates said callers who got through were on hold for an average of 18 minutes before talking to a (warm and friendly?) customer service (?) agent.

That level of - and we use this term loosely - service is a sharp drop from a decade ago. 

In the 2004 year, the IRS answered 9 in 10 calls and the average wait time was less than three minutes.

Okay - we admit it; the following is not a new question, we ran the same question last month but it's VERY important so we're  running it one more time!!! 

Wow - you sound like you know what 

you are talking about.

Is there anything else new? 

We've often written about the Internal Revenue Service and US Treasury rules regarding foreign bank accounts. 

Those of you with those foreign bank accounts likely know that you previously had to file the so-easy-to-remember Form TD F 90-22.1 with the US Treasury by June 30th of each year. 

This form detailed those foreign bank accounts you owned or had signature authority over.

Well, the Treasury has trashed those 90-22.1 forms and replaced them with the new (but not necessarily improved) 

FIN CEN 114.

(We actually don't remember FIN CEN 1 thru 113 

but that's not important).

The FIN CEN 114 is due June 30th and you MUST file this electronically so consider visiting the website

 http://bsaefiling.fincen.treas.gov/main.html 

to get started.

And to demonstrate how serious the US Treasury takes this, 

note that you are filing on the

Financial Crimes Enforcement Network website!

I got a divorce. I paid spousal support and child support.

I paid for the attorney, my ex-spouse's attorney, the court cost, and I even paid for the accountant to tell me how much I wouldn't have after the settlement.

Is anything deductible?

Divorce is certainly miserable, and the IRS certainly enjoys making a bad thing worse, so they've decided to devote more scrutiny to taxpayer claims about spousal support 

(or alimony).

Under the tax code, spousal support is deductible by the payer and taxable income to the recipient.

By contrast, payments for child support and property settlements aren't deductible - although they aren't considered income either. 

Oddly, divorced couples don't agree about alimony.

 The IRS Taxpayer Inspector General for Tax Administration (wow, what a title, we'd love to see that business card!) issued a report - naturally - identifying a large tax gap between what spouses deduct as alimony PAID and what other spouse report as alimony RECEIVED.

The report analyzed 570,000 returns and found that deductions exceeded income by more than $2.3 billion.

As a result, the IRS is considering steps that it might take to improve compliance which might include more - gasp - personal audits, more correspondence audits, more computer matching programs, or requirements for payers to issue 1099s.

In other words, it would be wise to make sure you and your ex-spouse agree how payments are to be handled before the IRS steps in to offer a helping hand.

Since I got a divorce, I couldn't pay the taxes I owe to the IRS and California Franchise Tax Board.

Am I headed to jail?

Both the IRS and CA FTB understand that you may need time to pay what you owe.

The IRS has started an online installment agreement application process. You can access the application at IRS.gov.

If you owe less than $50,000 and you are current with all filings, the IRS website will - magically - walk you thru the application process to establish an installment payment agreement.

Remember - the IRS will allow you to pay in installments, but they've not turned into your Uncle Buddy who lets you pay back that loan whenever you want.

There is a fee of $120 to establish the agreement, AND

penalties and interest still apply for the duration of time that you have not completely paid your outstanding tax obligation.

The California Franchise Tax Board also has installment agreements, but since they usually stand behind the IRS in the collection process, they are usually a bit more snarly to work with.

The fee for the agreement is $34.

Payments will be automatically deducted from your bank account, and additional interest and penalties continue to accrue while you make your scheduled payments.

You can visit their website, 

Franchise Tax Board 

and search for "Installment Agreement," or you can 

call them at 800 689 4776.

Waiting times can be as much as 30 minutes so bring a book, a snack, or find a good television program during the wait.

We prefer those programs where the tax accountants come in and save society from utter destruction.

I think everyone has re-financed but me!

There are so many loans, so many choices, 

and I don't know what to do. 

Can you help?

We here at Wayland & Vukadinovich are always trying to save you money AND, once in awhile, we stumble across some interesting website that can help.

Consider visiting Loantech's

"My Loan Cost Calculator" at

Loan Calculator

It provides the opportunity to compare loans, those with and without points, those with fixed and variable rates, those with various loan periods - it's free and a great tool.

Enjoy the remainder of the spring AND the soon-to-be summer.