Janell A. Israel & Associates
1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817
April 2016 Tax Newsletter
What's New in Taxes:
IRS Interest Rates Rise For The First Time Since 2011
When you underpay tax on your personal or business return, you'll owe interest on the shortage. The interest accrues from the date the tax was due until you actually pay it. For example, say you requested an extension of time to file your personal return until October 17, and paid what you thought you owed with the extension. When you complete your return, you discover more tax is due. Generally, you'll be charged interest from the due date of your return until you remit the additional balance.
When you overpay your taxes and do not receive a timely refund, the IRS is required to pay interest to you. In general, "timely" means a 45-day processing period applies before your refund will earn interest.
The IRS publishes the interest rates for underpayments and overpayments of tax each quarter. Here are the rates in effect as of April 1, 2016.
* 4% for overpayments (3% in the case of a corporation);
* 1.5% for the portion of a corporate overpayment exceeding $10,000;
* 4% for underpayments; and
* 6% for large corporate underpayments (those exceeding $10,000).
Changes in IRS Interest Rates Can Offer Planning Opportunities
Do you keep up with fluctuations in interest rates? The IRS does too, and changes in those rates could affect your tax return. For instance, applicable federal rates, or AFRs, are published by the IRS to set a minimum interest rate for certain transactions, such as loans to family members.
How does that affect you? Loans you make that carry an interest rate lower than the market offers can be considered a taxable transfer for income and gift taxes. The result: You might have taxable income even if you receive no interest, and a gift tax return may be required. Not reporting the income, or not filing a gift tax return when necessary, could lead to penalties.
Establishing a written loan agreement with a stated interest rate - for example, the AFR in effect for the month of the loan - helps avoid misunderstandings.
The IRS also publishes interest rates that apply to the underpayment and overpayment of tax.
Say you get a notice increasing the liability on your federal return. You'll generally owe interest from the due date of the return until you make payment. The interest is compounded daily and applies to penalties as well as to the underpaid tax.
Interest rates can provide opportunities for planning, including strategies for making transfers of your business to family members and charitable trusts. Please call for information
Make Sure That Email Is Really From Your Boss
Do you work in human resources or payroll? The IRS and the FBI want you to be aware of a new twist on email scams. In this version, an email appearing to come from a CEO or other high-ranking company official requests payroll data or Forms W-2. The email is known as a "spoofing" scam because it appears to be from a legitimate source. In truth, it's an attempt to get the personal information of employees in order to file a fraudulent tax return or steal the financial identity of the employees. As a safeguard, implement a policy requiring that requests for sensitive personal information of employees be verified, preferably via a different means of communication than the original request. Also a good idea: Check your business liability insurance to make sure you're covered for this type of security breach.
If your company is a victim of the scam, notify the IRS. Alert your employees so they can add a fraud alert or freeze to their credit accounts, and provide your employees with free credit monitoring.
What's New in Finances:
Spend? Save? What Are Your Plans For Your Tax Refund?
According to a recent survey by the National Retail Federation, you have plenty of company if you know exactly what you plan to do with your tax refund. The Federation conducts the survey annually, and this year more than 49% of the survey's participants report they plan to save their tax refunds. Tackling debt is another priority. Nearly 35% of the survey's participants intend to use tax refunds to reduce debt. Either choice is a smart financial move. Contact our office for help with these and other financial decisions.
Get Your Savings Strategy Back on Track
Have recent economic events slowed or stopped your savings efforts? Have constant changes to tax laws and the magnitude of investment choices added to your confusion? If your answer to either question is yes, it's time for a change in attitude and strategy. Here are suggestions.
* Set goals. Receipt of a sum of money - such as a tax refund - is a good time to make financial resolutions, including improving your savings self-discipline. Start by deciding how much you want to accumulate and how long you have to do it.
* Save more money. Next, resolve to put money into a savings account on a regular basis. Consider automatic withdrawals from your paycheck or checking account to make this happen. You can also take advantage of tax-deferred retirement plans and employer-matched savings plans. This includes IRAs and retirement plans at work, such as SIMPLE and 401(k) plans. Using these plans to save may generate additional cash from the saver's tax credit or an employer's matching contribution.
* Control spending. Resolve to be more prudent with expenditures. Establishing a budget is a good place to start. Watching your savings grow and knowing you'll be able to pay for an important future goal is rewarding.
We can help you set financial goals and assist you in devising a savings plan to meet them. Contact us for a financial checkup.
All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy. The information contained in this newsletter is provided by Mostad & Christensen, Inc. The information is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in this newsletter, or for assistance with any of your tax, business or financial strategy concerns, contact our office.
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Mosted &Christensen, Janell Israel& Associates and NPC are separate and unrelated companies. NPC does not provide tax or legal advice.
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