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Tax mess advice? Part whine and part asking for advice.


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#1 dirty ethel rackham

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Posted 21 April 2017 - 10:07 AM

I'm trying to breathe deeply and not get too upset about this.  I know there are worse problems in the world. But, I am upset.

 

I do the taxes in our family.  Mostly because I learned as a teen and dh didn't.  And I have a business and need to do that part anyway.  (Dh hasn't bothered how to learn to do online banking or even purchase anything online. )  So, I filed an extension on Tuesday because there is this business mess that hasn't been figured out and it wasn't going to get figured out by midnight. 

 

In the course of continuing to work on rest of our taxes, I discovered that dh hadn't taken the required minimum distribution from his beneficiary IRA from when his dad died.  I took mine from my mom and told him to get his taken care of.  So, he called back in December to check on it and they told him that it was already taken care of.  So, when I couldn't find his tax form for his distribution, I looked over his account.  NOPE.  There was no distribution last year.  So, the Morgan Stanley people are saying that it is our responsibility.  But, Dh did his due diligence up to calling to check on it.

 

So, from what I understand, the tax penalty for not getting this distribution is 50% of what we were supposed to take out?  Is this part of our return?  If so, then it is over and above the refund we are expecting and then we will have a penalty for filing the extension, but not paying taxes owed. 

 

I keep trying to think of ways to reduce our tax burden to help make sure that we are not incurring that addtional penalty.  Our medical expenses are only about $900 under the threshhold where we can claim a deduction.  (We paid a ton of out of pocket and we didn't have an FSA this year due to dh's employer messing up big time the last couple of years.) 

 

So, how do I proceed?  What do I do next so that I don't incur even bigger fines? 


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#2 Starr

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Posted 21 April 2017 - 11:06 AM

I don't have the info you need but I'm sure someone will.  :grouphug:  :grouphug:  :grouphug: It's so frustrating!



#3 Starr

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Posted 21 April 2017 - 11:06 AM

I don't have the info you need but I'm sure someone will.  :grouphug:  :grouphug:  :grouphug: It's so frustrating!



#4 Jean in Newcastle

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Posted 21 April 2017 - 11:13 AM

Do you know the date and time he called Morgan Stanley?  If he calls and talks to a supervisor, they might be able to pull up a tape of that conversation.  And they "might" then take responsibility.  Might.  We are no longer with Morgan Stanley because of issues.

 

I think from the IRS's standpoint, it doesn't matter who didn't do what.  It just matters that it wasn't done.  So you are going to have to pay a fine. And then try to collect separately from Morgan Stanley. 

 

Do you use someone like Turbotax?  I found the experts there so helpful with my questions. 


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#5 dirty ethel rackham

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Posted 21 April 2017 - 11:20 AM

We don't have a date of the conversation.  I just remember it took place.  It was with the head of the office, who we have known for 25 years.  This is the first screw up we've had with him. 

 

I do use turbotax, but it was about 2 in the morning when I discovered this problem and I was afraid to ask.  I had dh check on it today and he confirmed that the distribution did not take place.  I'll have to log back in to find out what TT says about this. 



#6 dirty ethel rackham

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Posted 21 April 2017 - 11:22 AM

Oh, and we can no longer claim ds23 as a dependent on taxes despite providing almost all of his support.  He is too old, no longer a student and makes too much money.  Not enough to live off of (what he makes would barely pay rent, let alone food and transporation.)  That was another big hit. 



#7 Jean in Newcastle

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Posted 21 April 2017 - 11:25 AM

:grouphug:   Last year was a bad year for us.  Some bad decisions in how much was withheld plus ds's birthday made us owe thousands that we didn't have.  But we got through it and made different decisions for this year - adjusted withholding etc. and this year was so much better.  :grouphug:



#8 StephanieZ

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Posted 21 April 2017 - 11:27 AM

Bummer. I've read that the IRS often/even routinely waives the penalty on RMDs if you have been acting in good faith and made an honest error . . . so, assuming this is a relatively recently inherited IRA, and/or there were some other "circumstances" (not sure if flaky dh counts), the IRS might forgive the penalties. 

 

Personally, this is why I take my RMD early in the year, even though, theoretically, there'd be a bit of a financial advantage to taking it late in the year. 

 

If I were you, I'd go ahead and take the late RMD, PLUS this year's RMDs . . . That'll give you plenty of cash to pay the taxes . . . and, meanwhile, I'd call the IRS and ask about if you can get the penalty waived -- and how to go about asking for the waiver. 

 

My impression is that it's pretty easy to get that waiver. Just be sure to emphasize that it was new (assuming it was) and that it was an honest error, and that you've now taken the overdue RMD and also the current year RMD and that you won't be making this error again. Sob story, confusion, grieving, bad advice, etc. Apparently the IRS has a lot of leeway on this topic, so you want to be sympathetic, not in warrior-mode. 

 

FWIW, with Vanguard, we were able to fill out some lengthy (notarized) paperwork so that dh's accounts can all be viewed by me online (along with my own accounts, kid accounts, etc), and I can act on his behalf for distributions, etc. It's very helpful for me to be able to view everything in one place, plus since they have all our investment accounts in one place, as a "bigger fish", we end up qualifying for various higher levels of service which is rather handy. 

 

You can also set up automatic RMD calculations AND distributions at most brokerages. If you don't want to set a firm date to do the full year's RMD on a set date, you could set it up to do 1/12 of it each month (early in the month, just so it's all done well before 12/31) or maybe 1/4 of it at the beginning of each quarter. Personally, I am still doing mine manually, sometime in the first quarter of the year (easy to remember when you do your taxes -- make sure you've already done the new year's RMDs.), but by the time I'm 55 or 60, or earlier if either dh or I have major health issues, I'll automate all this stuff. It's way too easy to screw it up if a serious health or family issue occurs. Same with my own IRAs, etc -- we'll automate the RMD distributions for sure on those, as it's way too easy to screw it up as you age, dementia kicks in, etc, and anyway, you want life simpler, not more complicated, as you enter old age. 

 

So, anyway, I'd look at consolidating accounts and/or putting them all under your control, so you can make sure these things get done properly. (You can move IRAs from one brokerage to another -- you do NOT need to leave them where the deceased relative had them! I moved mine to my own brokerage, so I have everything in once place, much easier to keep track of.)

 

From googling, it looks like you'll use the Form 5329 to both report your RMD error and to request a waiver of the penalty. If the penalty would be under 2000 or so, I'd do it myself with the 5329. If the penalty is more like 5k or more, then I'd probably bite the bullet and consult a CPA to make sure I did it right, as s/he might have better advice on how to word your request for waiver. So, read up on this form, and figure out what to do next -- not sure if it'd be best to just fill out the form and hope for the best or try calling. Maybe just the form first . . . call IRS (or CPA) later if your request is denied.

 

 

 


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#9 Carol in Cal.

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Posted 21 April 2017 - 11:34 AM

If it were me, I would take steps to figure out as closely as possible when I called them.

 

Usually there is something that I can remember about this--at least the month, if the Christmas tree was up, if the college kids were around, etc.  Maybe day of the week if there is just one day when I would have done this.  I'd look back at my calendar to see if I wrote anything down about it, either planning to call or having called and checked it off. 

 

Then I'd call the guy back and say, DH distinctly remembers this conversation in early December with you.  We are going to incur a penalty because he took your word for this.  What do  you suggest we do?

 

Because

--Maybe there is a way to appeal to the IRS due to a screw up.  Maybe they will be lenient if it's just one time.

--Maybe there is a recording of that call.

--Maybe you can file a complaint and MS will reimburse you for the financial loss if it's found that they are at fault

--Maybe there is something else that will take care of this

--???

 

 

 



#10 marbel

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Posted 21 April 2017 - 11:54 AM

Nm 'cause it's not probably not something I should leave here.  :-)


Edited by marbel, 21 April 2017 - 05:34 PM.

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#11 Lanny

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Posted 21 April 2017 - 12:07 PM

First, you did well to file for an Extension. I do not believe that people who have more than a very simple return, where they are going to get a huge refund, should file early. The extra time to sift through the issues is very helpful.  We are overseas so we get an automatic 60 day extension, but I am almost ready to file my U.S. return, which is very early for me. I think it's done, but I haven't filed yet...

 

Now to my suggestion to your request for advice:  I suggest that you use one of the FREE online services and that you put all of your information into their system and see what they come up with for your situation. If necessary, request help from them.

 

For years, I used TaxAct. First the free Federal and then I paid for the Premium service, which I think was $8 or $10 a year or something nominal and made it faster and easier for me. Then, last June (like on June 15th...) when I went to the TaxAct.com web site, I discovered they'd greatly increased the Fee for the Premium service. I think to about $30 or something. Enough to make me take the time to find FreeTaxUSA.com   

 

I filed my Federal Tax return with them last year and this year when I logged into my account, everything was there, except for Miscellaneous things on my Schedule C form, which was trivial for me to complete.  So, I am going to file with FreeTaxUSA.com again this year...

 

If you try to do that by hand, you are going to need a lot of time and you may or may not end up with a correct return.

 

If you cannot do it with TaxAct.com or FreeTaxUSA.com  then I would suggest that you get an appointment with an I.R.S. Enrolled Agent. Those are people who passed an I.R.S. Examination and who are up-to-speed with I.R.S. things.

 

GL



#12 dirty ethel rackham

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Posted 21 April 2017 - 12:20 PM

Thanks.  This confirms what I am reading online.  I can view dh's account with MS, but I can't actually request the distribution.  I told dh to call about it and he did.  I wasn't privy to the conversation, but I trusted that he received good advice.  (I am usually toast in December due to SAD and struggle with executive function so I didn't follow up any further.) 

 

He checked his phone and he called on December 11.  I told him to ask if they happen to have a recording of that call.  Since it is the first year he was supposed to take a distribution, it may make a good case for a waiver.  I will go ahead and pay the penalty so that if we don't get the waiver, we won't get any more penalties on top of that.  I now have to purchase turbo tax and download it onto my computer because their online program is not capable of doing this form without a 1099 (which we don't have because no disbursement was made.)  Heavy sigh.

 

At least our person at MS did a much better job than the person who was handling the IRA right after his dad died.  Since I had gone through this before, I knew that he needed a beneficiary IRA.  But the guy at his dad's brokerage firm was going to just do a lump sum distribution, thus incurring a whole crap-load of taxes.  His brother, the executor didn't know any better and hadn't heard back from the attorney assisting him with the estate.  I caught it in time so that they could back it all out and do it the right way.  I was uber ticked off at the other brokerage guy.  I hope he was fired.  It sounded like he was trying to get away with doing less work.


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#13 dirty ethel rackham

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Posted 21 April 2017 - 12:23 PM

Oh, and I made a recurring appointment on my calendar (and dh's) to make sure we get our RMD's for the year. 


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#14 williams6039

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Posted 21 April 2017 - 12:25 PM

That's rough and unfortunately, I don't have any advice that would help your current situation.

 

For the future with medical expenses, you may want to look into an HSA. My understanding of it is this:

- you have to have a high deductible plan to be able to use an HSA

- you can use it for any medical expenses incurred AFTER the HSA was established

- you can pay for the expenses yourself, however you normally pay, then make a contribution to the HSA, then submit a claim to reimburse yourself

- the contribution deadline for the previous year is April 15

- any contributions to your HSA are tax-deductible, whether you itemize or not

 

I am not a tax professional, so obviously you should run this by someone who is, but how this works for us is that we do our normal health stuff throughout the year, pay our portion. Then, in the early part of the next year, I look at our insurance claims and total up what we paid out of pocket. I contribute that amount as a previous year contribution to our HSA. Then I submit claims to reimburse ourselves for what we paid. The net affect of the contribution/distribution on our checking account is neutral (spend $xxxx throughout the year, contributed $xxxx to HSA, get $xxxx back from HSA), but the amount that we contributed is then a tax deduction. It saves us from over-contributing and ending up with money tied up in the HSA.

 

edited to fix acronyms ...


Edited by williams6039, 21 April 2017 - 12:36 PM.


#15 Lanny

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Posted 21 April 2017 - 12:25 PM

Before you pay for TurboTax ($$$$$)  look on the web sites of TaxAct.com and FreeTaxUSA.com and see if you can do your taxes there. I believe they have all forms that the I.R.S. allows to be e-filed.  If you can use another service, you will save a lot of $.  GL



#16 dirty ethel rackham

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Posted 21 April 2017 - 12:33 PM

That's rough and unfortunately, I don't have any advice that would help your current situation.

 

For the future with medical expenses, you may want to look into an HSA. My understanding of it is this:

- you have to have a high deductible plan to be able to use an HSA

- you can use it for any medical expenses incurred AFTER the HSA was established

- you can pay for the expenses yourself, however you normally pay, then make a contribution to the HSA, then submit a claim to reimburse yourself

- the contribution deadline for the previous year is April 15

- any contributions to your HSA are tax-deductible, whether you itemize or not

 

I am not a tax professional, so obviously you should run this by someone who is, but how this work for us is that we do our normal health stuff throughout the year, pay our portion. Then, in the early part of the next year, I look at our insurance claims and total up what we paid out of pocket. I contribute that amount as a previous year contribution to our IRA. Then I submit claims to reimburse ourselves for what we paid. The net affect of the contribution/distribution on our checking account is neutral (spend $xxxx throughout the year, contributed $xxxx to HSA, get $xxxx back from HSA), but the amount that we contributed is then a tax deduction. It saves us from over-contributing and ending up with money tied up in the HSA.

We don't qualify for an HSA, just an FSA.  And the idiots in HR who manage the FSA screw it up every year and we ended up not being able to access all of the funds, so we stopped doing it to save ourselves $$ and hours of phone calls with nasty people who can't be fired because they are politically connected.  (Think DMV only worse.).  Of course, we picked a bad year to stop doing it. 

 

Before you pay for TurboTax ($$$$$)  look on the web sites of TaxAct.com and FreeTaxUSA.com and see if you can do your taxes there. I believe they have all forms that the I.R.S. allows to be e-filed.  If you can use another service, you will save a lot of $.  GL

Our tax situation is too complicated for any of the free services, plus we make too much money to qualify.  TT has worked for me for years (after trying the other products.)  It is just that their online system does not allow for this form.  I have to pay either way (I pay when I file for the online version, I pay upfront for the downloaded version.)  I might as well get the program that will work for our situation.  It's just one more hassle.  And I am running out of time and energy for hassles today.  And my poor dog needs to be walked.  I think he just tore up the packing material that came with dd's order today (we let him tear up the paper filler - it keeps him busy and paper is easy enough to clean up.  Maybe one day, we will teach him how to clean up his own messes :laugh: .) 



#17 lewber

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Posted 21 April 2017 - 01:30 PM

Good luck with your puppy:)
There is a good bit of advice online for filing the 5239. I think since it's the first year you have a very good chance of having it waived. I've found the IRS fairly forgiving with penalties. They can't help with interest, but penalties are generally forgiven in cases like this.
Most advice is to explain what happened, and what you've done to insure it won't happen again. Also take the RMD asap, and do not take it with the current year's distribution. You want a separate check you can attach a copy of to attach to the waiver request.
Also, I would not pay the penalty when you ask for the waiver, but that's a personal decision. I like to go in with the assumption I have a good reason that will be approved and therefore don't pay. Also, write the most polite letter you can:) thank them for their time and attention, etc.
Good luck!
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#18 dirty ethel rackham

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Posted 21 April 2017 - 02:01 PM

Good luck with your puppy:)
There is a good bit of advice online for filing the 5239. I think since it's the first year you have a very good chance of having it waived. I've found the IRS fairly forgiving with penalties. They can't help with interest, but penalties are generally forgiven in cases like this.
Most advice is to explain what happened, and what you've done to insure it won't happen again. Also take the RMD asap, and do not take it with the current year's distribution. You want a separate check you can attach a copy of to attach to the waiver request.
Also, I would not pay the penalty when you ask for the waiver, but that's a personal decision. I like to go in with the assumption I have a good reason that will be approved and therefore don't pay. Also, write the most polite letter you can:) thank them for their time and attention, etc.
Good luck!

This concurs with the advice I am reading about online.  Some sites said to pay the fee in case they don't waive it and some don't advise that.

 

Oh, and about my pup ... that wasn't paper he got into.  He decided to open the packages of clothing that dd received.  These were prizes from a climbing competition she placed in and it was the first time she won anything of real value ... $100 gift card to Adidas.  So, there are tooth marks in the $75 leggings and the shorts had a chunk taken out of the drawstring waist closure.  She would never have paid that much for clothing so it was a real treat.  The only thing he did not ruin was the shirt that she decided to return since it didn't fit.  He has never done anything like this before.  Paper filling?  Yes.  Actual product? No.  I think I owe dd some clothes.