I don’t know about ya’ll but I could go for a giant margarita or some Dos Equis! Thank goodness for Cinco De Mayo! I love May. The sun is shining, tax season is over, and summer is right around the corner. I can’t wait! Here is a little information 20-20 hopes you will find useful. Please let us know if we can answer any questions or help you in any way. We are just an email or call away. You can reach us at firstname.lastname@example.org or call us at 205-434-1272 in Central Alabama and 256- 384-9272 in North Alabama.
Do you need your receipt? – Find Out How Your Tax Dollars are Spent
For most of us 2015 taxes are behind us. Some of us are happy with getting a big refund, some are angry we still owed more, and some of us are just proud we broke even. But either way, we all paid our fair share, that’s for sure. So where did it all go? That is a question that we should be wondering and we certainly have a right to know! Did you know that in 2011, the White House actually launched a taxpayer receipt website that allows us to see how our hard earned tax dollars are spent. With a little input from you it will spit out a personalized “receipt” for your taxes. As of right now it has not been updated for 2015 and is still showing 2014 data. (Lets cut them some slack, the tax season just ended and it is the government we are talking about here). This is still useful and we will let you know once 2015 data is available. You can generate your own taxpayer receipt at https://www.whitehouse.gov/21stcenturygov/tools/tax-receipt.
What do I do with that old 401k?
One of the most important questions you face when changing jobs is what to do with the money in your 401(k). Making the wrong move could cost you a lot of money in taxes and penalties and even more in opportunity cost.
Now that you’re leaving, what should you do? The worst thing you can do is to withdraw the money and put it in your bank account and leave it there. If you decide to have your distribution paid to you, the plan administrator will withhold 20 percent of your total for federal income taxes, so if you had $100,000 in your account and you wanted to cash it out, you’re already down to $80,000. Furthermore, if you’re younger than 59 1/2, you’ll face a 10 percent penalty for early withdrawal come tax time. Now you’re down another 10 percent from the original amount of $100,000 to $70,000. Also, because distributions are taxed as ordinary income, at the end of the year, you’ll have to pay the difference between your tax bracket and the 20 percent already taken out. For example, if you’re in the 33 percent tax bracket, you’ll still owe 13 percent, or $13,000. This lowers the amount of your cash distribution to $57,000. And this doesn’t even include state and local taxes. Between taxes and penalties, you could end up with little over half of what you saved. So what should you do?
One option is to roll over your 401(k) into the new plan by using a direct transfer. With the direct transfer, you never receive a check, and you avoid all of the taxes and penalties mentioned above, and your savings will continue to grow tax-deferred until you retire. Your previous employer should be able to provide you with all the paperwork necessary to do this.
However, if you have your former employer make the distribution check out to you, the Internal Revenue Service considers this a cash distribution. The check you receive will have 20 percent taken out automatically from your vested amount for federal income tax. But don’t panic. You have 60 days to roll over the lump sum (including the 20 percent) to your new employer’s plan or into a rollover individual retirement account (IRA). Then you won’t owe the additional taxes or the 10 percent early withdrawal penalty.
You can also simply leave your money where it currently is. If your vested account balance in your 401(k) is more than $5,000, you can usually leave it with your former employer’s retirement plan. Your lump sum will keep growing tax-deferred until you retire
Once you turn 59 1/2, you can begin withdrawals from your 401(k) plan or IRA without penalty and your withdrawals are taxed as ordinary income. You don’t have to start taking withdrawals from your 401(k) unless you retire after age 70 1/2. With an IRA you must begin a schedule of taxable withdrawals based on your life expectancy when you reach 70 1/2, whether you’re working or not.
Don’t hesitate to call if you have any questions about IRA rollovers.
Tax Due Dates for May 2016
Monday, May 2nd
Employers – File form 941 for the first quarter and deposit FUTA tax owed through the first quarter if over $500.00.
Tuesday, May 10th
Employees who work for tips – If you received $20 or more in tips during February, report them to your employer. You can use Form 4070.
Monday, May 16th
Employers – If the monthly deposit rule applies, deposit the tax for payments in April.
Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in April.
Friday, May 20th
Alabama Businesses – All state Sales and Use taxes are due.