The first finish line is for those who have businesses structured as either a Partnership or S-corporations. Your finish line for the 2021 tax filing season is today, March 15th! The business is responsible for reporting all financial activity on Form 1065 or 1120S and attaching a Schedule K-1 for each business owner. These Schedule K-1s report each business owner’s share of the business’ taxable income so that the business owner can report it on their own personal tax returns.
If the business is not ready to file the return, an extension can be requested. This extension provides an additional 6 months to file the tax return. However, it is not an extension of time to pay taxes owed. Also, take caution on the state tax return, as there may be a balance due. In this case, an estimate of the balance due must be determined and paid when filing the extension.
Deadline to Withdraw from Retirement
. In 2019, required minimum distributions (RMDs) from a retirement account were changed from age 70 ½ to age 72. Then in 2020 because of COVID, distributions were not required to be taken from retirement accounts for anyone. Now for 2021, the RMD is required again.
An RMD is an IRS-mandated amount of money that you must withdraw from 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.
The first required minimum distribution begins in the year in which you turn age 72 (70 ½ if you reach 70 ½ before January 1, 2020). However, the first payment can be delayed until April 1 of 2020 if you turned 70½ in 2019. If you reach 70½ in 2020, you must take your first RMD by April 1 of the year after you reach the age of 72. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year.
Don’t miss your RMD deadline, because regardless of your account type, the IRS penalty may be severe—50% of the amount not taken on time. Ouch!
The amount of the RMD is determined by looking at the balance of all retirement accounts at the end of the previous year. For example, your 2022 RMD is calculated based on the balance in the account on 12/31/21. Then it is multiplied by a percentage that is based on a life expectancy factor and marital status. IRS publishes the parameters which can be found HERE.
If you do not need the money from the RMD, or if it is more advantageous to keep your adjusted gross income down, you can have all or part of the RMD distributed to a charitable organization. In which case, you can take the amount given to charity as a deduction right off the top of the retirement funds instead of itemizing to get the charitable contribution benefit. By taking the deduction off the top, you effectively reduce your bottom line, decreasing your adjusted gross income and thereby decreasing your taxable income.
Q & A
If you are approaching a finish line and have more questions than answers, let us help you finish the race successfully! Contact us at Saunders Tax & Accounting. Our finish line for each client is for you to experience a Less Taxing Life and More Prosperous Solutions.