Archive for August, 2015


August 25th, 2015 No comments

Reuters has reported Click Here to Read Full Article that President Obama and Congress are looking to close 3 tax loopholes. The first loophole is one that we discussed in our March 7, 2012 Blog Posting. Persons who are ineligible to make a Roth IRA contribution make a traditional IRA contribution and then immediately convert the traditional IRA to a Roth IRA. Usually this tax planning strategy can be done with little or no income tax paid. President Obama’s 2016 budget proposal suggests that future Roth conversions be limited to pre-tax money only, effectively killing this back door strategy.

The second loophole involves using “stretch IRAs”. Using this strategy, (wealthy) individuals convert their traditional IRAs to Roth IRAs (paying the tax on the conversion) with the objective of providing tax-free income to their heirs for decades. The heirs inherit the Roth IRAs, and since Roth withdrawals are not typically taxed, the heirs receive tax-free income when distributions are made. Congressional thinking is that IRAs were intended to be used for retirement purposes and not as a bonanza for inheritors. Reuters reports that Congressional bills have included a provision to kill this technique and replace it with a law requiring beneficiaries (other than spouses) to withdraw the money within five years. The fact that withdrawals must be made within 5 years will make Roth conversion planning for the benefit of future generations of heirs less attractive.

Obama’s budget also wants to eliminate Social Security claiming strategies. While the provisions he wants to eliminate were not specified, Reuters reported that retirement experts think he will be targeting the “file and suspend” and “claim now, claim more later” strategies. Very briefly, these strategies are combined and when a spouse reaches full retirement age, that person applies for Social Security benefits and immediately suspends the benefits so their benefits can continue to grow until they reach an older age, say 70. Rather than receiving Social Security benefits based on their earnings record, that person claims a spousal benefit. Thus the claimant is receiving a reduced spousal benefit today (claim now) and will receive a higher benefit in the future based on their earning record (claim more later).

If you want to learn more about tax preparation services or tax planning strategies related to your retirement planning, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

Copyright © 2015 Keystone Financial Solutions, P.C. All rights reserved. BE SURE TO READ THE DISCLAIMER PAGE: Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information.


August 18th, 2015 No comments

As a taxpayer, you may receive a letter from the local tax collector (e.g., Berkheimer, Keystone Collections Group) that states that the income that was reported on your local earned income tax (EIT) return differs from what was reported to the local tax collector by the PA Dept. of Revenue (DOR). Why did you receive this letter? Part of the agreements between the PA DOR and the PA Department of Education requires that the DOR provide a report each year to each school district detailing the individuals that utilized their “school code” when they filed their state return and the income reported. This report is then used to verify that the school district is receiving all of the taxes it is due, as well as to determine funding levels to the district. The reports are released approximately 15 months after the taxpayer was required to file with the state. So as an example: the PA-40 form for 2013 was due 04/15/14. The report on the income reported by each taxpayer will be released in or around July 2015.

Should your local earnings match your state earnings? In 2003, the PA legislature passed ACT 166 which made the definitions of “earned income” and “net profits” identical for both local and state taxation purposes. The change was implemented to help eliminate the confusion that had existed to that point with what was taxable to each. By implementing the change, it became easier for taxpayers and preparers alike to know exactly what was to be reported to their local collector.  The definitions are based on the state’s which are found in the “Tax Reform Code of 1971”. Based on ACT 166 there is only one source of earned income that is not taxed by both. That income source is “Clergy Housing Allowances” which are taxed by the state, but not locally.

Accordingly, what appears on a taxpayer’s PA-40 form as taxable W-2 earnings should also be reported on the local EIT return as taxable W-2 earnings. If the earnings do not agree, Read more…

Categories: Pennsylvania Tax News Tags:


August 11th, 2015 No comments

If you as a taxpayer fail to file a tax return, the Internal Revenue Code authorizes the Internal Revenue Service (IRS) to prepare a return for you. Now before you begin to jump in jubilation thinking that this is a great way to have your tax returns prepared by a tax professional for free, think again.

When the IRS prepares your tax return for you, its objective is to get your attention. The best way to get your attention is to prepare a substitute for a return (SFR) showing a high tax liability, and then should the taxpayer fail to respond to subsequent IRS notices for payment, begin to levy bank accounts and wages to collect the taxes due. Once the intent to levy notice is sent by the IRS, the taxpayer usually Read more…



August 4th, 2015 No comments

When President Obama signs the Highway and Transportation Funding Act of 2015, the following changes to the due dates of tax returns will become effective for tax years beginning after Dec. 31, 2015:

S Corporations: The due date for Form 1120-S remains unchanged and is still due on March 15 (for calendar-year corporations) and the 15th day of the third month following the close of the fiscal year (for fiscal-year S Corporations).

Partnerships: Partnership tax returns, Form 1065, are now due March 15 (for calendar-year partnerships) and the 15th day of the third month following the close of the fiscal year (for fiscal-year partnerships). (Currently, these returns are due on April 15 for calendar-year partnerships.) The act directs the IRS to allow a maximum extension of six months until September 15 (currently October 15).

Thus, the due date of March 15 for “flow-through” tax entities (partnerships & S Corporations) will now be the same. The thinking behind this change is that since “flow-through” tax entities are taxed at the individual level, individual taxpayers will receive their K-1s in time to file their individual tax returns by the required due date. Before this change, individuals may not have received their partnership K-1 until Oct. 15, the same date their personal tax return was due. With this change, these individuals will receive their partnership K-1 30 days before their personal tax returns are due.

With the earlier due date for partnership tax returns, it is worth mentioning that failure to file a timely partnership or S Corporation tax return is subject to a $195 penalty for each month or portion of a month that the return is filed late, times the number of partners. So if a 2016 Form 1065 with 10 partners is filed on April 15, 2017, it will be 30 days late. However, there are two portions of a month that the return was filed late (March & April). Thus, the late filing penalty is computed as $195 x 2 months X 10 partners or $3,900.

C Corporations: Corporate tax returns, Form 1120, are now due April 15 (for calendar-year partnerships) and the 15th day of the fourth month following the close of the fiscal year (for fiscal-year C Corporations). Currently, these returns are due on March 15 for calendar-year corporations. Corporations will be allowed a six-month extension, except that calendar-year corporations would get a five-month extension until 2026 and corporations with a June 30 year end would get a seven-month extension until 2026.

FinCEN Form 114: FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), the due date is changed from June 30 to April 15, and for the first time taxpayers will be allowed a six-month extension. FinCEN Form 114 applies to taxpayers who hold at least $10,000 in a foreign account (bank, investment, cash value in an insurance policy, pension plan, etc.) on any day during the calendar year.

Other Due Date Changes: The act directs the IRS to modify its regulations to allow a Read more…

Visit Us On TwitterVisit Us On FacebookVisit Us On LinkedinCheck Our Feed