Tax Tips

What is This Tax Form Arriving in May?

What is this tax form arriving in May? You just gathered all your forms two months ago and now a new one arrives after the deadline. What gives? Do you have to call your accountant again? Hold the calls. You may remember reporting to your accountant (or TurboTax) that you made some contributions to a Health Savings Account (HSA) or Individual Retirement Account (IRA). Perhaps you made them last year, or perhaps you made them before this year's deadline and had them count for last year. Or, you took money out of these accounts, or are getting ready to start your required minimum distributions (RMDs). These are reasons why you are receiving Form 5498. What's Form 5498 for? One purpose of the Form 5498 is for the financial institution that holds your account (called a “custodian”) to verify to the IRS that you did indeed make the contribution that you claim you did on your tax return. Since everyone usually has until the tax filing deadline to make contributions, the IRS gives custodians until May 31 to send Form 5498 to account holders. 2. Another is to verify distributions. If you are over the age for required minimum distributions (RMDs), Form 5498 also tells the IRS what your RMD will be for the current year. The RMD is determined by the account balance on December 31 of the previous year. What you need to do: Check that what's reported on the form matches up with what actually happened and also with what you actually reported on your return. Check Form 5498 For Errors Seriously, make sure it’s correct. Mistakes are common. In 2018, my husband and I both received erroneous 5498’s for our Health Savings Accounts (HSAs). Mine showed $0 contributions for 2017 and his showed 2 years’ worth. What the....? So we called the bank, got the records straight, and had them send corrected 5498s to the IRS. Why go to the trouble? If your 5498 contribution or distribution differs from what you reported on your 1040, at some point it could get noticed. One fantastic sunny day after skipping down to your mailbox, you may find inside a skinny white envelope with “Internal Revenue Service” in the return address. Fantastic day ruined. More than likely, all the letter will say is, “Hey, we noticed your 5498 doesn’t match your 1040. Whassup?” But still. It will be in IRS-Speak and look and sound and feel serious, with a deadline for giving them an answer. Save yourself the trouble of having to answer (or pay your accountant to answer for you) and do a quick check now. It only takes a few minutes. Does your contribution amount for last year look correct? Did you take any HSA or IRA distributions, and if so, do those look correct? (If not, make sure the distributions say $0.) Does the reported year-end account balance look accurate? Is your SSN correct? How about your name, including your middle initial? If anything looks amiss, contact…

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What is this IRS Form 5498 Arriving in May?

What is this IRS Form 5498 arriving in May? You just gathered all your forms two months ago and now a new one arrives after the deadline. What gives? Do you have to call your accountant again? Hold the calls. You may remember reporting to your accountant (or TurboTax) that you made some contributions to a Health Savings Account (HSA) or Individual Retirement Account (IRA). Perhaps you made them last year, or perhaps you made them before this year's deadline and had them count for last year. Or, you took money out of these accounts, or are getting ready to start your required minimum distributions (RMDs). These are reasons why you are receiving the form. What's Form 5498 for? One purpose of the Form 5498 is for the financial institution that holds your account (called a “custodian”) to verify to the IRS that you did indeed make the contribution that you claim you did on your tax return. Since everyone usually has until the tax filing deadline to make contributions, the IRS gives custodians until May 31 to send Form 5498 to account holders. Another is to verify distributions. If you are over the age for required minimum distributions (RMDs), Form 5498 also tells the IRS what your RMD will be for the current year. The RMD is determined by the account balance on the final day of the previous year (December 31, 2023 for 2024). What you need to do with the form is check that what's reported on the form matches up with what actually happened and also with what you actually reported on your return. Check Form 5498 For Errors Seriously, make sure it’s correct. Mistakes are common. In 2018, my husband and I both received erroneous 5498’s for our Health Savings Accounts (HSAs). Mine showed $0 contributions for 2017 and his showed 2 years’ worth. What the....? So we called the bank, got the records straight, and had them send corrected 5498s to the IRS. Why go to the trouble? If your 5498 contribution or distribution differs from what you reported on your 1040, at some point it could get noticed. One fantastic sunny day after skipping down to your mailbox, you may find inside a skinny white envelope with “Internal Revenue Service” in the return address. Fantastic day ruined. More than likely, all the letter will say is, “Hey, we noticed your 5498 doesn’t match your 1040. Whassup?” But still. It will be in IRS-Speak and look and sound and feel serious, with a deadline for giving them an answer. Save yourself the trouble of having to answer (or pay your accountant to answer for you) and do a quick check now. It only takes a few minutes. Does your contribution amount for last year look correct? Did you take any HSA or IRA distributions, and if so, do those look correct? (If not, make sure the distributions say $0.) Does the reported year-end account balance look accurate? Is your SSN correct? How about your…

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Why is an IRS Form 5498 Arriving in May?

Why is an IRS Form 5498 arriving in May? You just gathered all your forms two months ago and now a new one arrives after the deadline. What gives? Do you have to call your accountant again? Hold the calls. You may remember reporting to your accountant (or TurboTax) that you made some contributions to an HSA or IRA. Perhaps you made them last year, or perhaps you made them before the April 2024 deadline and had them count for 2023. Or, you took money out of these accounts, or are getting ready to start your required minimum distributions (RMDs). These are reasons why you are receiving the form. What's Form 5498 for? One purpose of the Form 5498 is for the financial institution that holds your account (called a “custodian”) to verify to the IRS that you did indeed make the contribution that you claim you did on your tax return. Since everyone usually has until the tax filing deadline to make contributions, the IRS gives custodians until May 31 to send Form 5498 to account holders. Another is to verify distributions. If you are over the age for required minimum distributions (RMDs), Form 5498 also tells the IRS what your RMD will be for the current year. The RMD is determined by the account balance on the final day of the previous year (December 31, 2023 for 2024). What you need to do with the form is check that what's reported on the form matches up with what actually happened and also with what you actually reported on your return. Check Form 5498 For Errors Seriously, make sure it’s correct. Mistakes are common. In 2018, my husband and I both received erroneous 5498’s for our Health Savings Accounts (HSAs). Mine showed $0 contributions for 2017 and his showed 2 years’ worth. What the....? So we called the bank, got the records straight, and had them send corrected 5498s to the IRS. Why go to the trouble? If your 5498 contribution or distribution differs from what you reported on your 1040, at some point it could get noticed. One fantastic sunny day after skipping down to your mailbox, you may find inside a skinny white envelope with “Internal Revenue Service” in the return address. Fantastic day ruined. More than likely, all the letter will say is, “Hey, we noticed your 5498 doesn’t match your 1040. Whassup?” But still. It will be in IRS-Speak and look and sound and feel serious, with a deadline for giving them an answer. Save yourself the trouble of having to answer (or pay your accountant to answer for you) and do a quick check now. It only takes a few minutes. Does your contribution amount for 2023 look correct? Did you take any 2023 HSA or IRA distributions, and if so, do those look correct? (If not, make sure the distributions say $0.) Does the reported year-end account balance look accurate? Is your SSN correct? How about your name, including your middle initial? If…

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Roth: To Convert Or Not To Convert

Roth: to convert or not to convert. Converting to a Roth IRA might be worth consideration if you have been saving for retirement in a traditional IRA (TIRA) As you may know, when it's time to take the money out of your TIRA, you will owe tax on the amount you withdraw (called a "distribution"). So when you think of the balance in your TIRAs, give that number a haircut of 10% - 40% (using current tax rates) that will be sent to Uncle Sam. Further, when you reach age 73 or 75 (depending on your birth year) whether you need money or not, you will be required to take an IRS-calculated required minimum distribution (RMD). The RMD income can push you into the next tax bracket or, more commonly, into a higher bracket for Medicare premium surcharges. Surcharges mean you could pay up to several hundred dollars more per month for Medicare. Finally, if you are married and leave TIRAs to your spouse, he or she must eventually take RMDs. When they start filing as single the year after you die, there is a greater likelihood the RMD will push them into the higher income tax or Medicare surcharge brackets. Review of Roth Advantages Roth's have several advantages over traditional retirement accounts (TRAs). 1) When you think of the balance in a Roth IRA, there is no tax haircut. Money in a Roth grows tax-free forever. That's a bigger balance to spend on world cruises, grandchildren, or a Winnebago. 2) Your heirs will have to withdraw the Roth money if you don't, but they won't owe tax then, either. 3) Roths have no RMDs. So that might save you from Medicare surcharges and other additional taxes such as the Net Investment Income tax (NIIT). 4) If you are married and die before your spouse, your spouse will not have to take RMDs from them. 5) If you have a trust, it may be much more beneficial to leave a Roth to the trust than a TIRA. Ask your CPA or tax attorney about this one. What's the Catch with Roths? What's the catch? The amount of TIRA that you convert to a Roth gets taxed in the year you make the conversion. If you convert $100,000 this year, that's $100,000 added to your income. So if you are still working, and you convert some or all of your retirement money to a Roth, you will be paying tax on the converted amount at today's tax rates, hoping/betting that the growth in the Roth will make the extra tax bite today worthwhile later. For the hope/bet to have the best chance to work, a few things help: - You expect to be in a the same or higher tax bracket after you quit working. Otherwise you could wait and pay less tax on the conversion at a lower tax bracket later. - You don't expect to need the money in the Roth for many years. To reap the biggest benefit,…

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5 Myths about 401(K) Rollovers: What’s the Rush?

5 myths about 401(K) rollovers: Should 401Ks (or 403bs, 457s, or TSPs) always be rolled over? Often, soon-to-be retirees are led to believe their impending retirement forces a deadline or urgency to “do something” about their retirement plan account.  Several understandable myths surround the mystery of what actually happens to your money when leaving your employer. Below are five of them. Myth 1: When you separate from your employer, you must take your retirement plan account (401K/403B/457/TSP) with you. Actually very few employer plans require employees to leave the plan upon retirement. You have a choice to leave the account right where it is.  This includes if you are widowed and your spouse was the employee. More than likely, you can stay with the retirement plan if you want to. The rules for your employer can be verified by checking with your human resources department, or obtaining a copy of your plan’s complete document, usually available at your account’s website. Myth 2: When you separate from your employer, it’s always best to take your retirement plan account with you. Some people might not have the greatest level of fondness for their employer and want to sever ties with anything having to do with the company. While understandable, it’s important to separate facts from feelings about your money.  Due to tighter ERISA and Department of Labor regulations, it’s very unwise for employers to have their employees’ retirement plan limited to only high-fee, high-risk, or self-serving fund options. Chances are that what’s available there is worth taking a more in-depth look. On the question of where you are best served with your retirement funds, here is where you will get a wide range of answers. You can ask friends, family, the internet, co-workers, and even ChatGPT and go in circles. Whether rolling over your retirement plan account is in your best interest depends on a few different factors. Keep reading to myths 3, 4, and 5 to find out more. Myth 3: Retirement plan accounts have no impact on the ability to do a Roth conversion. False. This particularly applies to people who have IRAs outside of their employer retirement plan. If you are considering converting part of an IRA you already own outside of a retirement plan to a Roth, the amount you can convert is subject to an arcane concept called the “pro-rata rule.”  In general, under this rule, the amount you can convert is subject to a ratio that includes all IRAs, but does not include monies in employer retirement plans. Therefore, if you roll over your retirement plan before doing a Roth conversion, you will likely limit the amount of outside IRAs you can convert. For many people retiring in their 60s and delaying Social Security, Roth conversion opportunities abound. It might very well make sense to wait to roll over at least until age 70 so that you can leave the Roth conversion option more open. Conversely, if all of your retirement money is in the employer…

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What Does Qualify for Florida’s Back to School Sales Tax Holiday?

What does qualify for Florida's Back to School Sales Tax Holiday this year? The sales-tax-free dates run from Monday, July 24 to Sunday, August 6. The list of items you can save on is long; more than simple pencils and paper. Before you think you know what qualifies, though, check twice. Here is the general description of items that qualify:- "clothing, footwear, and accessories selling for $100 or less";- "certain school supplies selling for $50 or less";- "and the first $1500 of personal computers and computer-related accessories." Read The Fine Print Before shopping, you may want to know what actually counts, and what doesn't, under the three general categories. You can find all the details in Tax Information Publication #23A01-06, issued 6/15/23: https://floridarevenue.com/taxes/tips/Documents/TIP_23A01-06.pdf Following are a few examples. What counts as "clothing"? Lingerie - yes. Athletic pads - no. "School supplies"? Backpacks - yes. Briefcases - no. "Computers"? Tablet - yes. Smartphone - no. How about payment terms? Layaway - yes. Rain checks and gift cards - no. All of the above probably make some sense. Yet, other qualifiers/non-starters might make shoppers scratch their heads: Kindle- Yes. Books- No.Hunting vests - Yep. Life jackets - Nope.Snow ski suits - Yeah. Scuba suits - Nah.Youth bicycle helmet - Uh-huh. Youth motorcycle helmet - Uh-uh.Rain poncho - Check. Umbrella - Not.Garden gloves - You got it. Athletic gloves - Not a chance.Receiving blankets - Yep. Crib blankets - Nope.Notebook paper - For sure. Computer paper - Not.Scotch tape - Si si. Masking tape - No no.Computer batteries - Yes. All other batteries - No.Blank CD - Ok. Recorded CD - Not ok.All-in-one printer - Yep. Copy machine - Nope. Fax machine - Nope.Docking station - Yes. Surge protector - No.Monitor - You're in. Television - Sorry.Bowling shoes, purchased - Strike. Bowling shoes, rented - Gutter ball.Lab coat - Of course. Hard hat - Are you kidding?Book bag - Yep. Computer bag - Nope.Cleats - Score. Skates - Robbed.Hat - Oui. Wig - No.Karate gi - Ha! Shin guards - Ouch! And really,Bowties - Yes. Masks - No. How Did They Derive This List? A sales tax holiday is a nice way to give families a break and provide economic stimulus. One wonders, though, how these qualifying decisions were made. "Let's make it necessities only." Clearly that wasn't it. "Only things Florida schools can use." Snow suits rule that one out. Got any ideas? Leave them in the comments below. Nevertheless, make your list, save up until July 24 and go to town to save 6% - 7%. Or maybe don't go to town. Maybe work your list from your favorite special shopping chair or couch and wait for the boxes to show up. And leave something nice for the delivery driver, like, I don't know, a lab coat. Or a sales-tax-free snow suit.

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2023 Summer Freedom From Sales Tax Items

2023 Summer freedom from sales tax items: This annual sales tax holiday began during the pandemic in 2020 as a week-long holiday surrounding July 4. Live concert tickets, camping supplies, paddle boards, kayaks, binoculars, grills, and bicycles are some of the larger ticket items included in the holiday. Of note also - annual or season passes for museums, theater series, ballet, and state parks. Pool supplies and parts were added in 2022. And in 2023 - children's athletic equipment under $100 and toys under $75. The sales tax holiday for 2023 was extended from the week of July 4 to the entire summer. Sales tax exemptions run from May 29 - September 4, 2023. The complete list for events, tickets and supplies is here: https://floridarevenue.com/taxes/tips/Documents/TIP_23A01-03.pdf Enjoy saving 6% - 7% this summer!

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Florida’s Sales Tax Holidays

Florida's sales tax holidays. Florida sales tax runs anywhere from 6% to 8%, depending upon the county where you are making the purchase. Several years ago the Florida legislature started sales tax "holidays," beginning with the back-to-school season. Flush with a budget surplus again this year, the legislature passed several more holidays which begin in May. Some of them last a week, while others last up to 2 years. For a major purchase you might be considering, it pays to know the timetables. Disaster Preparedness: June 1 - 14 and August 24 - September 6 There has been an annual sales tax holiday for disaster preparedness for a few years now. If you are in or near Florida, and getting low on batteries, bungee cords, coolers, tarps, portable generator(s?), or several other items listed in the link below, you can save the sales tax by waiting until the week of the holiday to stock up. The second sales tax holiday in late August occurs right before the busiest part of hurricane season. Of note, the holiday includes all kinds of pet provisions - pet food, pet kennels, pet beds, leashes, and even pet waste disposal bags. Also new last yaer, consumable household goods like paper goods, soap, hand sanitizer, and trash bags. Here is the link to the list of exempted disaster preparedness items: https://floridarevenue.com/taxes/tips/Documents/TIP_24A01-04.pdf Big Deal - Home Hardening Disaster Preparedness: July 1, 2022 - June 30, 2024 This one is a bigger deal and can save major bucks. Impact-resistant windows, doors, and garage doors will be fully exempt from sales tax through the end of June. So if you are planning a major home improvement, talk to your contractor about placing the order. On a $5,000 order, in a 7% sales tax county, that's a $350 savings. Unlike most of the other holidays, this exemption also applies to commercial orders. More detail on home hardening exemptions here: https://floridarevenue.com/taxes/tips/Documents/TIP_22A01-07.pdf Fun Events, Outdoor Supplies and Annual Passes: The whole month of July This sales tax holiday began during the pandemic. Event tickets, camping supplies, paddle boards, kayaks, binoculars, grills, and bicycles are some of the larger ticket items included in the holiday. Of note also - annual or season passes for museums, theater series, ballet, and state parks. The complete list for events and supplies during "Freedom Month" is here: https://floridarevenue.com/FreedomMonth/Documents/2024/FM%20poster%2011x17.pdf Back-to-School: July 29 - August 11 The list of back-to-school items has a few surprises in it. Items you would assume are included are not, and others you assume are not, are. (Example: snowsuits included, swimsuits not). More information on the strange list of exemptions here: What Does Qualify for Florida’s Back to School Sales Tax Holiday? Also, see the back-to-school flyer (complete list not available yet as of publication): https://floridarevenue.com/backtoschool/Documents/2024/BTS_poster11x17.pdf Labor Day/Tool Time Tax Savings: September 1- September 7 Larger-ticket items on the "Tool Time" holiday include power tools under $300, power tool batteries, toolboxes, and work boots. It also includes shop lights, plumbing tools, and duffle bags.…

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What’s that IRS Form 5498 arriving in May?

What's that IRS Form 5498 arriving in May? You might receive a Form 5498 if you have a Health Savings Account, a Roth IRA, or other IRA.  Now, you might have just filed after compiling all your forms and statements, but now your financial institution sends another form? Hello, isn’t that a little late? Do you have to call your accountant or financial planner, again? Hold the calls. You may remember reporting to your accountant (or TurboTax) that you made some contributions to an HSA or IRA. Perhaps you made them last year, or perhaps you made them before the April 18 deadline and had them count for 2022. Or, you took money out of these accounts or are getting ready to start your required minimum distributions (RMDs). These are reasons why you are receiving the form. What's Form 5498 for? One purpose of the Form 5498 is for the financial institution that holds your account (called a “custodian”) to verify to the IRS that you did indeed make the contribution that you claim you did on your tax return. Since everyone usually has until the tax filing deadline to make contributions, the IRS gives custodians until May 31 to send Form 5498 to account holders. Another is to verify distributions. If you are over the age for required minimum distributions (RMDs), Form 5498 also tells the IRS what your RMD will be for the current year. The RMD is determined by the account balance on the final day of the previous year (December 31, 2022 for 2023). So all you need to do with it is check that it matches up with what actually happened and what you actually reported on your return. Check Form 5498 For Errors Before you file the 5498 away, make sure it’s correct. Mistakes are common. In 2018, my husband and I both received erroneous 5498’s for our Health Savings Accounts (HSAs). Mine showed $0 contributions for 2017 and his showed 2 years’ worth. What the....? So we called the bank, got the records straight, and had them send corrected 5498s to the IRS. Why go to the trouble? If your 5498 contribution or distribution differs from what you reported on your 1040, at some point it could get noticed. One fantastic sunny day in the future as you skip to your mailbox, you may find inside a skinny white envelope with “Internal Revenue Service” in the return address. Fantastic day ruined. More than likely, all the letter will say, essentially, is, “Hey, we noticed your 5498 doesn’t match your 1040. What gives?” But still. It will be in IRS-Speak and look and sound and feel serious, with a deadline for giving them an answer. Save yourself the trouble of having to answer (or pay your accountant to answer for you) and do a quick check now. It only takes a few minutes. Does your contribution amount for 2022 look correct? Did you take any 2022 HSA or IRA distributions, and if so, do…

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