Retirement
Question #6 - I'm referring to a beneficiary who is an individual that inherits an IRA and must withdraw from the account within 10 years under the newer rules. Do they have to take RMD's each year? Or can they wait until year 10 to withdraw the entire account balance?
If the owner reached their “Required Beginning Date” (RBD) at the time of their death, then RMDs must continue (waived for 2021, 2022, and 2023). Distribute using Table I –
- Use younger of
- Beneficiary’s age or
- Owner’s age at birthday in year of death
- Determine beneficiary’s age at year end following year of owner’s death.
- Reduce beginning life expectancy by 1 for each subsequent year.
- Can take owner’s RMD for year of death.
If the owner did not reach the “Required Beginning Date” –
- Take entire balance by end of 5th year following year of death, or
- Distribute based on Table 1 –
- Use beneficiary’s age at year-end following year of owner’s death.
- Reduce beginning life expectancy by 1 for each subsequent year.
Question #7 - Are the distributions from a 10-yr. inherited IRA part of the RMD calculation?
Yes. I’m assuming that during a particular calendar year a distribution from an inherited IRA is received by the beneficiary. These distributions may be considered as part of the RMD obligation for a particular calendar year.
Questions #8 - In the Secure Act 2.0 the IRS supposedly included a new provision that if the original Trad IRA account owner has started RMDs, then the beneficiary (in addition to the 10-yr depletion rule) would also need to take RMDs each year during those 10-years. The IRS has waived this requirement for 2022 and 2023 because the details on how that RMD is calculated has not been defined properly. But the IRS is suppose[d] define the calculation by Jan 1 so that this will be enforceable for 2024. Is this correct?
Not exactly. First, the Secure Act 2.0 did not address the issues that you have outlined in your question. The Proposed Regulation released on February 23, 2022, did address the need to take RMDs during the 10-year period if an owner of the IRA account reached their Required Beginning Date (and therefore were taking RMDs). It is true that in Notices issue in 2022 (October) and 2023 (July) that no RMDs for 2021, 2022, and 2023 are required and the excise tax associated with the failure to distribute and RMD will not apply. In Notice 2023-54 (7/17/2023) Section III is states … “Final regulations regarding RMDs under IRC §401(a)(9) and related provisions will apply for calendar years beginning no earlier than 2024.” Obviously, until the final regulations are released, there will not RMDs required for Inherited IRAs with non-eligible designated beneficiaries.
Question #9 - Can I take $35,000 at one time to the Roth or am I limited to $6,500 per year? Are you asking if you can contribute $35,000?
The $35,000 is a lifetime maximum amount that an individual may rollover to a ROTH IRA from an IRC §529 account. However, upon satisfaction of certain ground rules for the IRC §529 arrangement, an individual may contribute each year up to the maximum IRA contribution limit ($7,000 in 2024) for a particular calendar year. This limit will be reduced by any other deducted IRA contribution or Roth IRA contribution made during the same calendar year. Once an individual has rollover $35,000 from an IRC §529 arrangement, the ability to future rollovers is prohibited.
Question #10 - From the 529 to the Roth in one year?
See my discussion in Question #9. I believe we have cover most of the rules on this issue. You may want to note wages or earnings will be necessary the ROTH IRA holder in other to make an IRC §529 rollover.
Question #11 - Wife (54) inherited traditional IRA from 55 yr. old husband in 2022. Is there any possible requirement for an RMD until wife reaches under the 10-year rule she reaches 73?
Assuming that the wife is the sole beneficiary of the husband’s IRA, the wife is an “Eligible Designated Beneficiary” and all of the stretch IRA rules still apply. There is a special election that the spouse may want to make in 2024 under SECURE 2.0 that would permit the wife to use the Uniform Life Time distribution table and any beneficiaries that she would name would be treated as “eligible designated beneficiaries” and allow the beneficiaries of the surviving spouse’s IRA to continue the “stretch IRA” distribution methodology. Also, the wife would not have to begin RMDs from this until age 75 under the SECURE Act 2.0 changes to RMD age.
Question #12 - If the sole beneficiary of the IRA was the spouse and she transferred it to a new beneficiary IRA, does she need to take RMD's and wipe it out over 10 years? I know the spouse isn’t normally required to follow that rule but does it at all depend how she moved the IRA into her name to determine whether the "spouse exception" applies? (New IRA in her name/beneficiary IRA)
The action "she transferred it to a new beneficiary IRA" is not quite accurate. A beneficiary of an IRA would leave the owner's account in the same solution but just maintain the account as a beneficiary. Then we follow the rules for RMD distribution based on the deceased spouse. For example, husband is age 63 (and died) and wife is 67. Husband dies. The wife maintains the IRA as a beneficiary IRA. She may take distributions from the IRA after the spouse's death. However, it she does not, then the first distribution (assuming we are in calendar year 2023), would not apply until the calendar year in which the deceased spouse would have reached age 75 (under SECURE Act 2.0). That would be the calendar year 2035. Hopefully this helps you with this question. If not, just re-question and I'll answer.
Questions #13 - I thought that an inherited IRA is not subject to the 10% penalty even if under 59-1/2? Is that not the case?
ABSOLUTE NOT TRUE! Once she transfers the inherited IRA, she is now the owner of the IRA and unless there is an exception to an IRA distribution prior to age 59 1/2, she would be subject to the IRC §72(t) additional tax. That's why you maintain the "beneficiary status” because the deceased spouse is still treated as the owner of that account for purposes of these rules.
Question #14 - I turn 73 on 10/13/2025. What tax year do I start RMD?
Your required beginning date will be April 1, 2026 (the date you must take out the 2025 RMD). However, you will also have a 2026 RMD based on the calendar year account balance @ 12/31/2025) in calendar year 2026. You may distribute the first RMD in calendar year 2025 and satisfy the RMD requirements for the year in which you turned aged 73 (calendar year 2025).
Question #15 - If you have a trust [named as a beneficiary of an IRA] bene IRA after 2020, can they be paid out over 10 years vs the previous rule of 5 years?
No, the five year applies because the beneficiary is a “NON-DESIGNATED” Beneficiary (i.e., an estate or a trust). However, if RMDs have commenced prior to the death of the IRA holder and estate or trust is the named beneficiary (without any provisions that would make the beneficiary designated qualify as a “Designated Beneficiary”), then the distributions will follow the rule – the period (which ever longer), (a) the life expectancy of the deceased owner, or (b) the five-year period. If the Required Beginning Date was in play (i.e., death of the IRA owner prior this April 1st date), then the 5-year rule applies (no RMDs required during the 5-year period).
Sole Proprietorship/Schedule C/ 1099 Questions
If your gross receipts on Schedule C (for example) include sales tax, then your state sales tax filings will not necessarily match the reported figure on Schedule C?
If sales tax is included in income, then you would be taking a deduction for sales tax and the two should match. There may be a small difference with rounding and such, whereas exact amounts need to be shown.
If a client is filing late, a couple years, should he still file the 1099s for sub-contractors on Schedule C?
Yes, always try to stay current with filings even late. This impacts chances of getting penalty abatements and such. Remember to take the expense on Schedule C.
Do you see any risk in issuing a person a 1099 and W-2 within a given year. For example, someone was a contractor for a few months early in the year and then came in as an employee later in the year.
As long as the type of work is different, you're allowed to do that.
What did you say about a professional gambler? If he plays online poker and reports income - can he also deduct expenses on Schedule C?
If it is an active and a true trade and business, I do not have an issue with Schedule C. Regular ongoing continuous rather sporadic activities must be substantial and there must be a profit motive.
In the case of a retail store, would "COGS" purchase PRIOR to opening day (to stock the store) be "start-up" costs on the Sch C? Or normal COGS expense?
Normal Cost of Goods Sold
I do lots of daycares that receive block grant and food program income on 1099-misc's. I usually put these amounts on other income line. what do you think?
Either the gross receipts or the other income. The key is reconcile all of the Form 1099-XXX income on the Schedule C.
S Corporation
Amy, any way to get another CP 261, if the original has been lost? This is the S Corporation election approval from IRS.
If you’ve lost your S-Corporation Approval Letter, known as the CP261 Notice, you cannot request another copy of it. However, you can request an S-Corp Verification Letter, or 385C, by calling the IRS at 1-800-829-4933.
On § 351 transfer to new S Corp, how do the liabilities that transfer in affect basis. In year one they have an S operating loss. If they did not transfer in much in asset value and little for capital stock, does the basis limit prevent deduction of the loss on the personal 1040?
Correct; but note that in order to have a loss, either the shareholder transferred in money (in which case they have basis) or they took out a loan (in which case this does not create basis.)
I have a new client and the prior tax/attorney preparer took all his home office expenses directly on Schedule C, when I take his home office expenses on 8829 this year, can I say this is the first year for depreciation for the home? No depreciation for the house was ever taken.
"From IRS FAQs - Can depreciation for the portion of the home used in a qualified business use be deducted for a taxable year in which the simplified method is used?
No. You cannot use the simplified method and deduct any depreciation (including any additional first-year depreciation) or IRC § 179 expense for the portion of the home used in a qualified business use for the same taxable year. However, you can deduct depreciation for depreciable business assets (for example, furniture and equipment) other than the portion of the home used in the qualified business. Follow up item - FAQ #20 - Question asks recapture of depreciation when you used the simplified method - For taxable years in which the simplified method is used, the depreciation deduction allowable for the portion of the home used in a qualified business use is deemed to be zero. Accordingly, you do not have to recapture any depreciation for taxable years in which you used the simplified method. However, you may have to recapture depreciation for taxable years in which you used the standard method.
