Here’s what people should know about taking early withdrawals from retirement plans

Taxpayers may need to take money out of their individual retirement account or retirement plan early. However, this can trigger an additional tax on top of other income tax they may owe. Here are a few key things for taxpayers to know:

  • Early Withdrawals. An early withdrawal normally is taking cash out of a retirement plan before the taxpayer is 59½ years old.
     
  • Additional Tax. The IRS charges a 10 percent penalty on early withdrawals from most qualified retirement plans. There are some exceptions to this rule.
  • Nontaxable Withdrawals. The additional tax does not apply to nontaxable withdrawals. These include withdrawals of contributions that taxpayers paid tax on before they put them into the retirement plan.
  • Rollovers are a nontaxable withdrawal. A rollover happens when taxpayers take cash or other assets from one retirement plan and put the money in another plan within 60 days. A rollover can also happen when they direct their plan administrator to make the payment directly to another retirement plan or to an IRA.
  • Form 5329. Taxpayers who took an early withdrawal last year may have to file Form 5329 with their federal tax return. 
  • Use IRS e-file. Early withdrawal rules can be complex. IRS e-file is the easiest and most accurate way to file a tax return. The tax software will pick the right tax forms, do the math, and help find tax benefits.

More information:
IRA FAQs – Distributions
Do I Meet an Exception to the Additional Tax on Early Distributions from IRAs or Retirement Plans?
Publication 590-B, Distributions from Individual Retirement Arrangements
Publication 575, Pension and Annuity Income

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Tax reform brought significant changes to itemized deductions


Tax law changes in the Tax Cuts and Jobs Act affect almost everyone who itemized deductions on tax returns they filed in previous years..  One of these changes is that TCJA nearly doubled the standard deduction for most taxpayers. This means that many individuals may find it more beneficial to take the standard deduction. However, taxpayers may still consider itemizing if their total deductions exceed the standard deduction amounts.

Here are some highlights taxpayers need to know if they plan to itemize deductions:

Medical and dental expenses
Taxpayers can deduct the part of their medical and dental expenses that’s more than 7.5 percent of their adjusted gross income.

State and local taxes
The law limits the deduction of state and local income, sales, and property taxes to a combined, total deduction of $10,000. The amount is $5,000 for married taxpayers filing separate returns. Taxpayers cannot deduct any state and local taxes paid above this amount.

Miscellaneous deductions
The new law suspends the deduction for job-related expenses or other miscellaneous itemized deductions that exceed 2 percent of adjusted gross income. This includes unreimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel.

Home equity loan interest
Taxpayers can no longer deduct interest paid on most home equity loans unless they used the loan proceeds to buy, build or substantially improve their main home or second home.

Here’s a quick overview of tax reform changes and where taxpayers can find more info


Major tax law changes affect every taxpayer filing a 2018 tax return this year. To help taxpayers understand these changes, the IRS created several resources that are available on IRS.gov.

Here’s a quick overview of key changes with a link to more information on IRS.gov:

Tax rates lowered.  Starting in 2018, tax rates are lower for most income brackets. The seven rates range from 10 percent to 37 percent.

Standard deduction nearly doubled. For 2018, the basic standard deduction is $12,000 for singles, $18,000 for heads of household and $24,000 for married couples filing a joint tax return. Higher amounts apply to people who are blind or at least age 65. Along with other changes, this means that more than half of those who itemized their deductions in tax year 2017 may instead take the higher standard deduction on their 2018 tax return.

  • Check out this resource: Publication 501, Dependents, Standard Deduction and Filing Information

Various deductions limited or discontinued. New limits apply to mortgage interest. Additionally, taxpayers can no longer deduct miscellaneous itemized deductions for job-related costs and certain other expenses. The law also limits the state and local tax deduction to $10,000, $5,000 if married and filing a separate tax return.

Child Tax Credit doubled, and more people qualify. The maximum credit is now $2,000 for each qualifying child under age 17. The income limit for getting the full credit increased to $400,000 for joint filers and $200,000 for other taxpayers.

New credit for other dependents. Taxpayers can claim a $500 credit for each dependent who doesn’t qualify for the Child Tax Credit. This includes older children and qualifying relatives, such as a parent.

Personal and dependency exemptions suspended. This means that taxpayers filing a tax return can no longer claim an exemption for themselves, a spouse and dependents. A=��z�A�

Tax Time Guide: Contribute to an IRA by April 15 to claim it on 2018 tax returns


WASHINGTON —The Internal Revenue Service reminded taxpayers today that it’s not too late to contribute to an Individual Retirement Arrangement (IRA) and still claim it on a 2018 tax return. Anyone with a traditional IRA may be eligible for a tax credit or deduction on their 2018 tax return if they make contributions by April 15, 2019.

This news release is part of a series called the Tax Time Guide, a resource to help taxpayers file an accurate tax return. Additional help is available in Publication 17, Your Federal Income Tax, and the tax reform information page.

An IRA is designed to enable employees and the self-employed to save for retirement. Most taxpayers who work are eligible to start a traditional or Roth IRA or add money to an existing account.

Contributions to a traditional IRA are usually tax deductible, and distributions are generally taxable. To count for a 2018 tax return, contributions must be made by April 15, 2019 (April 17, 2019 for residents of Maine and Massachusetts). Taxpayers can file their return claiming a traditional IRA contribution before the contribution is actually made. The contribution must then be made by the April due date of the return. While contributions to a Roth IRA are not tax deductible, qualified distributions are tax-free. In addition, low- and moderate-income taxpayers making these contributions may also qualify for the Saver’s Credit.

Generally, eligible taxpayers can contribute up to $5,500 to an IRA for 2018. For someone who was 50 years of age or older at the end of 2018, the limit is increased to $6,500.

Qualified contributions to one or more traditional IRAs are deductible up to the contribution limit or 100 percent of the taxpayer’s compensation, whichever is less.

For 2018, if a taxpayer is covered by a workplace retirement plan, the deduction for contributions to a traditional IRA is generally reduced depending on the taxpayer’s modified adjusted gross income:

Single or head of household filers with income of $63,000 or less can take a full deduction up to the amount of their contribution limit. For incomes more than $63,000 but less than $73,000, there is a partial deduction and if $73,000 or more there is no deduction.

Filers that are married filing jointly or a qualifying widow(er) with $101,000 or less of income, a full deduction up to the amount of the contribution limit is permitted. Filers with more than $101,000 but less than $121,000 can claim a partial deduction and if their income is at least $121,000, no deduction is available.

For joint filers, where the spouse making the IRA contribution is not covered by a workplace plan, but their spouse is covered, a full deduction is available if their modified AGI is $189,000 or less. There’s a partial deduction if their income is between $189,000 and $199,000 and no deduction if their income is $199,000 or more.

Filers who are married filing separately and have an income of less than $10,000 can claim a partial deduction. Iftheir income is at least $10,000, there is no deduction.

Worksheets are available in the Form 1040 Instructions or in Publication 590-A, Contributions to Individual Retirement Arrangements. The deduction is claimed on Form 1040, Schedule 1. Nondeductible contributions to a traditional IRA are reported on Form 8606.

Even though contributions to Roth IRAs are not tax deductible, the maximum permitted amount of these contributions begins to phase out for taxpayers whose modified adjusted gross income is above a certain level:

  • For filers who are married filing jointly or qualifying widow(er), that level is $189,000.
  • For those who file as single, head of household, or married filing separately and did not live with their spouse at any time during the year, that level is $120,000.
  • For filers who are married filing separately and lived with their spouse at any time during the year, any amount of modified AGI reduces their contribution limit.

The Saver’s Credit, also known as the Retirement Savings Contributions Credit, is often available to IRA contributors whose adjusted gross income falls below certain levels. In addition, beginning in 2018, designated beneficiaries may be eligible for a credit for contributions to their Achieving a Better Life Experience (ABLE) account. For 2018, the income limits are:

  • $31,500; single and married filing separate
  • $47,500; head of household
  • $63,000; married filing jointly

Taxpayers should use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the Saver’s Credit, and its instructions have details on figuring the credit correctly.

Taxpayers can find answers to questions, forms and instructions and easy-to-use tools online at IRS.gov. They can use these resources to get help when it’s needed, at home, at work or on the go. ��0��u9

Taxpayers must report health care coverage on 2018 tax return


As taxpayers are completing their 2018 tax returns this year, they must complete the lines related to health care.

For tax year 2018, the IRS will not consider a return complete and accurate if individuals do not do one of the following on their return:

  • Report full-year health coverage
  • Claim a coverage exemption
  • Report and make a shared responsibility payment for everyone on the tax return

The law continues to require taxpayers who do not qualify for an exemption to maintain health care coverage in 2018 or make a shared responsibility payment when they file their tax return. 

Most taxpayers have qualifying health coverage or a coverage exemption for all 12 months in the year and will check the box on the front of their tax return. Taxpayers who can check the box don’t have to file Form 8965, Health Coverage Exemptions, to claim any coverage exemptions. This includes the coverage exemption for household income below the filing threshold.

Taxpayers who did not have coverage for the entire year and therefore can’t check the box generally must report a shared responsibility payment when they file. They will report this payment for each month that anyone listed on the tax return didn’t have qualifying health care coverage or a coverage exemption.

Taxpayers can determine if they are eligible for a coverage exemption or are responsible for the individual shared responsibility payment by using the Interactive Tax Assistant on IRS.gov.

In addition, taxpayers may be eligible for the premium tax credit if they purchased health coverage through the Health Insurance Marketplace. Anyone who needs health coverage can visit HealthCare.gov to learn about health insurance options that are available for them and their family.

Under the Tax Cuts and Jobs Act, the shared responsibility payment is reduced to zero for tax year 2019 and all subsequent years. See Publication 5307, Tax Reform Basics for Individuals and Families, for information about the shared responsibility payment for tax year 2019. 

Taxpayers can visit IRS.gov/aca for more information about the Affordable Care Act and filing a 2018 tax return.

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