Tax Tips – November 2019

Prepping for the year’s end

November 2019

Howard Abrams

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Q. I own a trucking business. I use the cash method of accounting. While looking over my books I realize that I may have a large net profit from my business. How can I reduce my net profit in order to reduce income and self-employment taxes due? I have several expenses that I have not yet paid. Can I write checks for these expenses and date and mail them by Dec. 31, 2019, and still deduct the expenses on my 2019 tax return?

A. Yes, you can deduct the expenses on your 2019 tax return as long as the checks clear when they are presented to the bank.


Q. I have some extra money set aside and have made my estimated tax payments. Should I wait until tax time to make my IRA contribution?

A. Make your IRA contributions now. Don’t delay making contributions. Deposit the full amounts now, and start earning tax-deferred income sooner.

For the 2019 tax year, you may contribute $6,000 to a deductible IRA or nondeductible Roth IRA ($7,000 if you are age 50 or older by year-end). You can also do the same amounts for your spouse, called a Spousal IRA. Please consult with your accountant for limitations on the above.

If you have your own business and do not have a pension plan, and you would like to contribute more than the IRA allows, consider opening a 401(k) Plan. If you have no full-time employees with the exception of your spouse, you are eligible for an owner-only 401(k) regardless of whether you operate as a sole proprietor, a partnership, a corporation or a limited liability company. Multiple owners also qualify. The plan offers the advantage over the traditional IRA retirement programs for the self-employed by enabling you to put more money toward your retirement.


Q. I’m 70½ and heard I must take a required minimum distribution from my IRA account. What about my 401(k)?

A. Yes. You are required to take a required minimum distribution from your 401(k) as well as your IRA. There are actuary tables the IRS has available to figure out the annual required minimum distribution amount. Consult your banker or broker to determine the amount.


Q. Can I draw from my IRA the required minimum distribution for both plans combined and leave my 401(k) alone?

A. No. You must take the required minimum distribution from each account.

Note: If you forget or do not take the required minimum distribution, there is a 50% IRS penalty on the amount that should have been taken.


Q. I may inherit an IRA. Is that tax free?

A. When a spouse inherits an IRA, you have three choices you should discuss with your tax adviser.

Treat it as his or her own IRA by designing himself or herself as the account owner.

Treat it as his or her own by rolling it over into a traditional IRA, or to the extent it is taxable, into:

  • Qualified employer plan.
  • Qualified employee annuity plan (section 403(a) plan).
  • Tax-sheltered annuity plan (section 403(b) plan).
  • Deferred compensation plan of a state or local government (section 457 (b) plan).

Or treat himself or herself as the beneficiary rather than treating the IRA as his or her own.

If a surviving spouse receives a distribution from his or her deceased spouse’s IRA, it can be rolled over into an IRA of the surviving spouse within the 60-day time limit, as long as the distribution is not a required distribution, even if the surviving spouse is not the sole beneficiary of his or her deceased spouse’s IRA. LL

 

This article has been presented by PBS Tax & Bookkeeping Service, a company which has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. If you would like further information, please contact us at 800-697-5153. Visit our website at www.pbstax.com.

Everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.