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We are getting closer to the end of the year and I am sure for many of you, it can’t come fast enough. September is the month where we hopefully start feeling the cooler weather and the start of football. And even that is messed up this year as well.

Today I want to talk about various tax things that you need to be mindful of so that you do not get put into a tax mess, or at least not any messier than it already is.

IRA rollovers can be a rather sticky mess. A rollover is truly when you take the money out of one IRA account to another IRA account. This is where you receive the check from the distributing bank and you then take that check to the other bank to deposit it.  You must do this within 60 days to avoid being taxed on it. However, you are only allowed to do this once per year.   

This rule has come about due to a court case (Bobrow Vs. Commissioner, TC Memo, 2014-21) a couple lost, which the IRS won. Since then, the IRS says they are going to enforce this rule. This means that if you make multiple “rollovers” in one year, any rollover after the first one is taxable. Now, if you do trustee-to-trustee transfers (i.e. bank to bank transfer), you can do these all day long as long as the funds do not end up in your hands.  Be careful with this one as most financial advisors or banks are not familiar with this rule as one recently new client found out.

Second thing to be aware of is unemployment benefits. We have unfortunately had many people receive unemployment benefits this year. The important thing to know is that these benefits are taxable income. You will receive a Form 1099-G in the mail come January. Please be prepared for this as those weekly benefits can add up in a hurry to a large number. If possible, I suggest you either start taking federal withholding from those benefits, make an estimated tax payment to have something paid in or set aside money to pay your tax bill should you owe.  At the least this could significantly reduce your refund.  This could create a bloody mess if you are not properly prepared for this.   

Third thing to stay on top of is estimated tax payments or federal withholding.  If you are a W-2 employee, you need to make sure that your federal withholding is coming out at the right ratio. If you are in the 10 or 12% tax bracket, your federal withholding should be in the neighborhood of 8-12% of your gross taxable wages.  This also depends on if you have any eligible credits like the child tax credit, education credits or even the retirement savers credit.

If you are self-employed, whether you earn your monies through a pass-through entity or you are a sole-proprietor, you need to make estimated tax payments throughout the year to help keep the gotcha on your tax return to a smaller, manageable amount.

The best way to avoid these pitfalls is to work with a competent tax professional who can be there to answer your questions. At a minimum, you should pay them to do a tax projection or some tax planning to see what options you may have.

Worst case scenario is that you find yourself in what may seem like a pickle that seems impossible to get out of, but rest assured, this is stuff we deal with every day. Don’t fret or get stressed. Call our office and we can give you the peace of mind to know this is not the end of the world.

Dan Henn, CPA, is a local certified public accountant. His firm specializes in IRS audit and collections representation, real estate and medical taxation, year-round tax planning and tax preparation in Rockledge. Contact him at 321-684-7800 or at [email protected]

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