News & Tech Tips

Retirement plans can provide relief to Hurricane Harvey victims

Kathleen Hargrove on August 31, 2017

The Internal Revenue Service (IRS) has announced that 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Harvey and members of their families. This is similar to relief provided last year to Louisiana flood victims and victims of Hurricane Matthew.

Participants in 401(k) plans, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, as well as state and local government employees with 457(b) deferred-compensation plans may be eligible to take advantage of these streamlined loan procedures and liberalized hardship distribution rules. Though IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures.

Retirement plans can provide this relief to employees and certain members of their families who live or work in disaster area localities affected by Hurricane Harvey and designated for individual assistance by the Federal Emergency Management Agency (FEMA). 

The IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. As a result, eligible retirement plan participants will be able to access their money more quickly with a minimum of red tape. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.

This broad-based relief means that a retirement plan can allow a victim of Hurricane Harvey to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter.

The IRS emphasized that the tax treatment of loans and distributions remains unchanged. Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less.  Under current law, hardship distributions are generally taxable and subject to a 10-percent early-withdrawal tax.

More information about other tax relief related to Hurricane Harvey can be found on the IRS disaster relief page. 

 

We hope this information has been helpful to you. If you have further questions about this announcement, please contact your Whalen & Company representative.

Review ATRA for Possible Tax-Saving Opportunities

bberry on May 15, 2013

It’s been about six months since Congress passed the American Taxpayer Relief Act (ATRA) of 2012. The legislation prevented many of the tax hikes that were scheduled to go into effect in 2013 and retained a number of tax breaks that were scheduled to expire. On the negative side, individual income tax rates rose with the top rate increasing from 35 percent to 39.6 percent.

While much focus was given to ATRA at the start of the year, it’s probably a good time to review some of the bill’s provisions and determine if there are still opportunities for you and your business:

  • Section 179 Expense Deduction – Section 179 Expense was increased to $500,000 for both 2012 and 2013 (2012 was previously scheduled to be $139,000, and 2013 was only $25,000)
  • Bonus Depreciation – Bonus Depreciation was extended through December 31, 2013. This will allow the business to depreciate 50 percent of the asset cost in 2013 for equipment, fixtures, furniture, signage and land improvements.
  • Luxury Auto Depreciation – $11,160 is now allowed for first-year depreciation for luxury autos placed in service in 2013.
  • Restaurant Improvements Depreciation – The 15-year write-off for “qualified restaurant” improvements was reinstated and extended through December 31, 2013.
  • WOTC – The Work Opportunity Tax Credit was extended through December 31, 2013.  The maximum credit is generally $6,000, but can be as high as $12,000, $14,000, or $24,000 for qualified veterans depending on service connected disability, amount of time unemployed and when the period of unemployment occurred.
  • Enhanced Deduction for Food-Inventory Donation – This deduction was reinstated and extended through December 31, 2013. The donation must be wholesome and be for the ill or needy. An owner/operator can get 150 percent of their basis in the donation as a charitable contribution.
  • Empowerment Zone – If your restaurant is located in a Federal Empowerment Zone, you can potentially qualify for a tax credit. The tax credit was extended through December 31, 2013.

If you have questions about any of these provisions or would like additional information, contact Patrick McClary, Director/Tax Department, or Bruce Berry, Director/Accounting Department.

Be prepared for the health care act’s “play or pay” provision

rlewis on May 7, 2013

wojciechowskiThe Patient Protection and Affordable Care Act of 2010’s shared responsibility provision, commonly referred to as “play or pay,” is scheduled to take effect Jan. 1, 2014. It doesn’t require employers to provide health care coverage, but it in some cases imposes penalties on larger employers that don’t offer coverage or that provide coverage that is “unaffordable” or that doesn’t provide “minimum value.”

A large employer is one with at least 50 full-time employees, or a combination of full-time and part-time employees that’s “equivalent” to at least 50 full-time employees. The nondeductible penalties generally are $2,000 per full-time employee.

Although the shared responsibility provisions don’t take effect until 2014, employers will use information about the workers they employ in 2013 to determine whether they’re subject to the provisions and face the potential for penalties in 2014. The rules are complex, so contact us today to learn how they may affect your business and what steps you can take to avoid, or at least minimize penalties.

Portability doesn’t preclude the need for marital transfers and trusts

lshuneson on April 24, 2013

Lisa Shuneson, CPA, PFS
Lisa Shuneson, CPA, PFS

Exemption portability, made permanent by the American Taxpayer Relief Act of 2012, provides significant estate planning flexibility to married couples if sufficient planning hasn’t been done before the first spouse’s death. How does it work? If one spouse dies and part (or all) of his or her estate tax exemption is unused at death, the estate can elect to permit the surviving spouse to use the deceased spouse’s remaining estate tax exemption.

But making lifetime asset transfers and setting up trusts can provide benefits that exemption portability doesn’t offer. For example, portability doesn’t protect future growth on assets from estate tax like applying the exemption to a credit shelter trust does. Also, the portability provision doesn’t apply to the GST tax exemption, and some states don’t recognize exemption portability.

Have questions about the best estate planning strategies for your situation? Contact us — we’d be pleased to help.

IRS provides penalty relief to certain late filers

mnarog on April 9, 2013

On March 20, the IRS issued guidance providing penalty relief to both individual and business taxpayers who file for an extension of their 2012 tax return and ultimately owe additional tax — but only if they meet certain criteria. First, the reason for filing for the extension must be that the taxpayer’s 2012 return involved forms whose publication was delayed because of the American Taxpayer Relief Act of 2012 (ATRA), signed into law Jan. 2. Here’s a sampling of the delayed forms:

  • Form 8839: Qualified Adoption Expenses
  • Form 8863: Education Credits
  • Form 3800: General Business Credit
  • Form 5884: Work Opportunity Credit
  • Form 6765: Credit for Increasing Research Activities
  • Form 8844: Empowerment Zone Employment Credit
  • Form 8874: New Markets Credit

In addition, the taxpayer must make a good faith effort when filing for the extension to properly estimate the tax liability. Then that estimated amount must be paid by the return’s original due date, and any additional tax owed must be paid by the return’s extended due date.

If you’re considering filing for an extension due to delayed IRS forms, please contact us to help ensure you’ll qualify for penalty relief.

Whalen CPAs
250 W. Old Wilson Bridge Rd., Suite 300
Worthington, OH 43085-2215
(614) 396-4200

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