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Kiplinger Tax Letter Excerpts

Posted by Predovich & Company

Delayed Tax Season

Although the government shutdown is over, the tax system continues to feel the effects. Taxpayer service is the big loser from all this.  IRS is delaying the start of the filing season by up to two as late as Feb. 4.  The agency had planned to start taking 2013 returns on Jan. 21, but the shutdown came during the testing process for the Service's tax return acceptance systems.  New procedures are being employed for 2013 returns to detect identity theft and help prevent refund fraud, a problem that has become much worse in recent years.  Since the debugging process was delayed, IRS decided to push back the opening date of the filing season.  In the coming weeks, the Service will speed up testing procedures in an attempt to shorten the delay.  In December, it will announce the official starting date. 

Refunds for early filers are going to be delayed due to the postponement.  The Service has been saying that in the 2013 filing season, it would not issue refunds as quickly as in past years because of the anti-identity-theft controls it’s implementing.  The delayed start will only serve to longer keep money out of the hands of the early filers.  If you expect a refund, get some of it right away by lowering your withholding for the rest of 2013.  File a new Form W-4 with your employer to claim more allowances.  That puts more money in your paycheck now.  

The April 15 return filing date will not be pushed back due to the late start.  IRS says that date is set by law.  That's the same reason that the Oct. 15 due date wasn't deferred for 2012 tax returns with valid extensions, even though IRS was closed.  

Additional funding lapses would play havoc with the filing season.  Currently, the agency is funded through Jan. 15, 2014, the due date for paying estimated taxes for the fourth quarter.  If congress can't agree on a government funding bill by then and another shutdown stretches into the filing season, processing of paper returns would be delayed and the Service wouldn't issue refunds on e-filed or paper returns.  Right now, we don't think there will be a repeat in 2014 of the federal shutdown.  

If you mailed correspondence to IRS during the shutdown, good luck.  The Service is swamped with inquiries.  While the agency was closed, taxpayers sent in 400,000 letters, on top of the 1 million items already being processed.  Those letters, many of them responses to bills for extra taxes due, sat unopened during the shutdown.  It will be a long time before IRS gets a handle on things.  Thus, it's likely that taxpayers who sent in documentation will keep getting notices from IRS.


Pay attention to the required distribution rules for traditional IRAs.  Individuals 70½ and over must take withdrawals by year-end or pay a penalty equal to 50% of the shortfall.  You start with your IRA balances as of Dec. 31 2012, and divide each one by the factor for your age, which you can find in IRS Pub. 590.  It also has a higher factor to use if you're more than 10 years older than your spouse.  The sum of these required withdrawal amounts can be taken from any IRA you pick (similar rules apply to retirement plan payouts, except that people owning 5% or less of the company who work past age 70½ can delay taking payouts until they retire.  Also, the minimum required distribution must be taken from each retirement plan).

If you turned 70½ this year, you can delay the distribution for 2013 to April 1, 2014.  This option doesn't apply for payouts in subsequent years and the withdrawal for 2013 must still be based on the total of your IRA balances as of Dec. 31, 2012.  Be careful if you decide to defer the distribution to 2014.  Doing so means that you will be taxed in 2014 on two payouts:  The one for 2013 that you deferred and the required withdrawal for 2014.  The doubling-up of payouts could push you into a higher tax bracket and also trigger the 3.8% Medicare surtax. 

Note the various deadlines to establish IRAs and retirement plans.  For 2013 deductions, regular IRAs must be established by April 15, 2014.  Payins are due by then as well.  A filing extension will not buy you additional time.  Nondeductible contributions to regular IRAs and Roth IRAs are also due by April 15.  Employer plans such as Keoghs must be established by Dec. 31 in order to deduct payins to them for 2013.  The self-employed who miss the deadline for 2013 can open a SEP by the due date for filing the 1040 plus any extension.  Keoghs and SEPs have the same payin cap:  20% of net self-employment earnings – the net profit shown on your Schedule C less one-half of your SECA tax liability. 

Source:  The Kiplinger Tax Letter 10/25/13 - Vol. 88, No. 22


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