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LOUISIANA

Benefits of a Roth 401(k)

A Roth IRA can be a great vehicle for retirement savings.  Taxpayers make after-tax (non-deductible) contributions to a Roth IRA.  Contributions accumulate along with earnings in the Roth IRA and can be withdrawn TAX FREE once the taxpayer reaches 59 ½ years old.  Contributing to a Roth IRA forgoes a current tax deduction for tax-free withdrawal of contributions and related earnings in retirement (after 59 ½ years old).

A drawback of Roth IRAs is the potential for taxpayers being excluded from making contributions as their income grows.  Taxpayers cannot contribute to a Roth IRA once their adjusted gross income reaches $133,000 (single filer) or $194,000 (married filer).

Taxpayers that participate in 401(k) plans at work or are self employed can avoid the Roth IRA contribution adjusted gross income phase outs ($133,000/single, $194,000 married) described above by making Roth contributions within a 401(k) plan.  Most 401(k) plans allow for employee Roth contributions and these contributions are NOT subject to the adjusted gross income limitations described above for taxpayers contributing to Roth IRAs.  Further sweetening the Roth 401(k) deal is ability to make larger employee contributions to a 401(k) than to a Roth IRA.  Roth IRA contributions are limited to $5,500 ($6,500 if 50 years or older) while Roth 401(k) contributions are limited to $18,000 ($24,000 if 50 years or older).

Consider this example:

  • Married couple in their 30s with an adjusted gross income of $320,000
  • Roth IRA contributions allowed = ZERO
    • Contributions allowed are “phased out” when adjusted gross income reaches $194,000 for a married couple
  • Roth 401(k) contributions allowed = $36,000 ($18,000 each)

A Roth 401(k) makes PERFECT sense for a high-income, young taxpayer.  Why?  Consider a taxpayer that would normally be excluded from making Roth IRA contributions because their adjusted gross income exceeds the phase out thresholds.  Not only can that taxpayer contribute to a Roth 401(k), he can contribute over three times the amount ($18,000 vs. $5,500) that could be contributed to a Roth IRA.

The reason being “young” is a big factor in this example is the time horizon for earnings growth.  Roth IRAs are popular to young taxpayers because of the length of time earnings grow that will ultimately be distributed tax free assuming distributions after 59 ½ years old.

A Roth 401(k) option is available even if you’re self-employed.  Consult your financial adviser about setting up a “Solo K” plan that allows for employee Roth contributions.

For taxpayers that fit the right criteria (high income, young), Roth 401(k) contributions make a TON of sense.

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New Due Dates for 2016 Tax Returns

 

Are you ready for the new due dates for 2016 tax returns due in 2017?  Recently enacted legislation has changed some due dates in order to facilitate a more logical flow of information, allowing taxpayers and preparers more ability to timely prepare and file returns.

Individual tax return (Form 1040) due date of April 15th and extended due date of October 15th did not change!  These dates are said to be “cut in stone”!  See below regarding FinCen Form 114, if applicable.

Partnership and LLC return (Form 1065) due dates have moved up a month…they are now due on March 15th.  If an extension is filed, the due date will be September 15th.

S Corporation return (Form 1120S) due dates remain the same…they are due on March 15th.  If an extension is filed, the due date will be September 15th.

Trust returns (Form 1041) original due date remains the same (April 15th); however, the extended due date is now September 30th.

Corporation return (Form 1120) due dates have been pushed back a month to April 15th for calendar-year returns. If an extension is filed, returns are due Sept. 15th until 2026, see note below.  For fiscal year companies, in most cases, returns will be due on the 15th day of the fourth month after the year-end.

Note:  Calendar­year C corporations can get extensions until Sept. 15 until tax years beginning after 2025, when the extended due date will be Oct. 15. June 30 fiscal­ year­end C corporations (returns due Sept. 15) can get extensions to April 15 until tax years beginning after 2025; after 2025, June 30 fiscal­year­end C corporations will have an Oct. 15 due date and can get extensions until April 15.

FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) due date has changed from June to April 15th.  An extension can be filed now to grant additional time (until October 15th).

State Returns –  Many states are likely to follow the above federal due date changes but may need to enact legislation in order to make those changes.  Louisiana has not made those changes yet…stay tuned.

Forms W-2 and 1099 Series – Acceleration of Due Dates for Filing Information returns

W-2 and 1099 Forms have generally been due to recipients by January 31st and due to the IRS/SSA by February 28th (or March 31 if filed electronically). For the 2016 Forms due in 2017, returns will be due to the IRS/SSA by January 31st, the same day they are due to the recipients.

Businesses should review accounting records now in order to verify that vendor information is complete and ready to file 1099 forms at the end of the year.

Why change the due dates now? 

If you are wondering why these changes have been implemented and how they will be helpful, continue reading below:  The partnership Form 1065 is now the first return due (March 15th).  All other entities and individuals can be partners in a partnership and may need information from Schedules K­1 from partnerships to complete their tax returns. For this reason, it is both logical and helpful to many that it be completed first.

Once partnership and S corporation returns have been filed by March 15, individuals, trusts, and C corporations will have the information (K-1s) they need from their pass-through entities to file timely returns. Trusts will have two more weeks after receiving extended partnership and S corporation Schedules K­1 to finalize their extended returns and issue their Form 1041 Schedules K­1 to beneficiaries, who will have an additional two weeks to complete their personal returns. Taxpayers with foreign accounts will have all the information needed to complete FinCEN Form 114 at the same time as the individual tax return due date and extension.

C corporation new due dates of April 15 (or the 15th day of the fourth month following the close of the tax year for most fiscal­year corporations).  Many C corporations previously needed to extend their returns because they were waiting on audited financial statements.  Audited financial statements are typically complete by the end of March. These corporations may no longer need to extend the income tax return.

It makes logical sense…only a tax season will tell whether the new dates truly make a difference in the hectic, fast-paced busy season!

For a quick-reference guide on the new due dates, click the link below to access the AICPA Federal Due Date Chart

http://www.aicpa.org/Advocacy/Tax/DownloadableDocuments/Federal-Due-Date-Chart-1-22-2016.pdf

 

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Tax Relief to Louisiana Storm Victims

Louisiana storm victims will have until January 17, 2017

to file certain Federal individual and business tax returns and make certain Federal tax payments, the Internal Revenue Service announced Monday.  All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief.  Taxpayers in East Baton Rouge, Livingston, St. Helena, Tangipahoa, Acadia, Ascension, East Feliciana, Iberia, Lafayette, Pointe Coupee, St. Landry, Vermillion, Avoyelles, Evangeline, Iberville, Jefferson Davis, St. Martin, St. Tammany, Washington, and West Feliciana parishes will receive this and other special tax relief.

The Federal tax relief

postpones various tax filing and payment deadlines that occurred starting on August 11, 2016.  As a result, affected individuals and businesses will have until January 17, 2017 to file Federal returns and pay any Federal taxes that were originally due during this period.  This includes the September 15, 2016 deadline for making quarterly estimated tax payments.  For individual tax filers, it also includes 2015 income tax returns that received a tax-filing extension until October 17, 2016. The IRS noted, however, that because tax payments related to these 2015 returns (see more on this below) were originally due on April 18, 2016, they are not eligible for this relief.  A variety of business tax deadlines are also affected including the September 15, 2016 deadline for corporation and partnership returns on extension and the October 31, 2016 deadline for quarterly payroll and excise tax returns.

In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due on or after August 11, 2016 and before August 26, 2016 if the deposits are made by August 26, 2016.  Details on available relief can be found on the disaster relief page on IRS.gov.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area.  Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area.  Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227.

What does this mean for you?

  • Any 2015 individual or business tax return (including trusts) with an extended due date ON OR AFTER August 11, 2016 will now be extended until January 17, 2017 (Federal tax returns)
    • This includes 2015 individual income tax returns originally due April 18, 2016 but on extension until October 17, 2016. 
    • This includes S Corporations and C Corporations originally due March 15, 2016 but on extension until September 15, 2016 as well as partnerships and trusts originally due April 18, 2016 but on extension until September 15, 2016.
    • This includes 2016 3rd quarter estimated (quarterly) tax payments due September 15, 2016.
    • This includes 2016 3rd quarter payroll tax returns due October 31, 2016
  • CAUTION:  This relief does not apply to Federal taxes owed prior to August 11, 2016.
    • What do we mean by this?
      • Consider your 2015 Federal individual income tax return originally due April 18, 2016.  If you filed for an extension but did not pay ALL of the tax due, any penalty/interest accruing from April 18, 2016 will continue to accrue.  The individual extension extends the time to file the return (originally until October 15, 2016, now until January 17, 2017 based on the info above) but does NOT extend the time to pay your tax.

In addition to the Federal relief detailed above, the Louisiana Department of Revenue has also granted relief.  Individual and corporate tax returns as well as estimated payments due on or after August 11, 2016 (including returns on extension) will have an extended deadline of January 17, 2017.  This new due date mirrors the Federal extended due date.

Please do not hesitate to contact us if you have any questions.  We are here to help! CONTACT US TODAY!

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