919-463-7588 david@carytax.com

Avoid the 50% Penalty!

Understanding Required Minimum Distribution (RMD) Rules

Every year thousands of taxpayers are hit with a heavy 50% penalty for not withdrawing enough money from their retirement plan(s). Here is what you need to know to ensure this does not happen to you or someone you know.

Who is subject to Required Minimum Distribution (RMD) rules?

  • Anyone who participates in a qualified retirement plan like IRAs (traditional, SEP, SARSEP, and SIMPLE), Roth 401(k), 401(k), 403(b), 457(b) and profit sharing plans AND
  • is 70 ½ years or older,*
  • who is generally retired OR
  • who is the beneficiary of a plan
  • Exception: Owners of qualified Roth IRA accounts

The confusion of multiple tables

To determine the amount that must be withdrawn each year you need to go to the correct life expectancy table published by the IRS in Publication 590. There are three tables:

  1. Joint & Last Survivor.

When to use: Your spouse is the sole beneficiary AND your spouse is more than 10 years younger than you.

  1. Uniform Lifetime Table.

When to use: Your spouse IS NOT more than 10 years younger than you OR your spouse is not your sole beneficiary

  1. Single Life Expectancy.

When to use: You are a beneficiary of another account

How much do I need to take out and when?

Once you find the correct table, determine your life expectancy and divide the result by the balance in your account as of December 31st of the previous year.

  • The amount must be withdrawn by December 31st of the year.
    Exception: in your initial RMD year you have until April 1st of the following year to withdraw the funds.
  • Thankfully, many retirement account administrators will make the RMD calculation for you. But it is still your responsibility to ensure the calculation is correct.
  • The deadlines are strict so don’t miss them. The 50% penalty can be applied each year, so the impact can be dramatic over time. On the other hand, if you are penalized and have a defensible reason you did not take the RMD, you should try to get the penalty reduced or eliminated.
  • Remember to conduct the calculation each year. Not only do life expectancy numbers change as you age, so does the balance in your retirement savings accounts.

Some Tips to Help Never Forget

Want to make sure this doesn’t happen to you? Here are some tips.

  • Calculate the RMD for each account in early January each year. Set up automatic periodic withdrawals from the account to accommodate the RMD.
  • Make a review of your accounts part of your tax planning each year.
  • Ask for help. At first, finding the correct life expectancy table and determining the correct calculation can be overwhelming. Have someone review your calculations until you feel comfortable with the process.
  • Connect your RMD to a key event like your birthday or anniversary. Then give yourself the additional gift of a payday out of your retirement account.

* Can be later if you are still actively working. If, however, you are a 5% or greater owner of the business sponsoring the retirement plan you must take an RMD when 70 ½ whether retired or not.

Does Your Mileage Log Travel the Distance?

The tax code allows deductions for qualified miles driven for business, medical, moving and charitable purposes. But to claim this deduction you must keep adequate records of actual miles driven. During an audit this is an often disallowed deduction, despite the fact that you actually drove the distance claimed. How to make sure this doesn’t happen to you? Here are some tips.

  1. Keep a log. The tax code is clear on this point. You may not estimate your miles driven. You must support your claimed deduction, ideally with a detailed mileage log.
  2. Create good habits. Your odometer reading and miles driven should be noted as soon as possible after the event. Keep a log book in your car and note the miles each day. Logs created after the fact with estimated miles driven could be disallowed during an audit.
  3. Make thorough entries. Note the odometer readings, date, miles driven, the to/from locations, and the qualified purpose for the trip.
  4. Don’t lose out on the extras. The deduction for miles driven is meant to provide a deduction for fuel, depreciation, and repairs. You can also deduct out-of-pocket expenses for tolls, parking and other transportation fees. Keep a running total of these fees in the back of your mileage log.
  5. Keep separate logs for each deduction. Remember you may deduct mileage for business, charitable purposes, qualified moving and medical miles. It is best to keep track of each in a separate mileage log.

Alternative business transportation deduction. When it comes to deducting business transportation expense, remember the miles driven method is not the only one available to you. You may also deduct your actual expenses, but how and when you make this determination is important. In the initial year of placing your auto into service for your business, it is best to keep track and record all your actual auto expenses. An analysis can then be conducted to see which method is best for you to maximize your deduction.

Who Pays What?

In a continuing effort to provide information as we listen to the budget and debt debates out of Washington D.C., outlined here are some IRS statistics on who pays individual income taxes. The information provided here is the most current available information.


% of Income

Share of
Income Tax Paid

Tax Rate

Top 1%




Top 5%




Top 10%




Top 25%




Top 50%




Bottom 50%




All Taxpayers




How to read:The top 10% of Adjusted Gross Income (AGI) on 2010 tax returns reported approximately 45.2% of the income and paid 70.6% of the total individual income tax collected in 2010.1


The top 1% of income paid 37.4% of the federal individual income taxes with 18.9% of the reported income.
The largest gap between income representation and amount of tax paid is in the top 10%. The top 10% of reported income have approximately 45.2% of claimed income, and pay approximately 70.6% of the individual income taxes.
The Tax Policy Center estimates that 46.4% of households paid no federal income tax for 2011.

Note: The above figures net out “negative” income tax returns for those who filed a tax return, but due to adjustments and credits have negative adjusted gross income.

1 Source: Internal Revenue Service. SOI Bulletin Table 5 – Selected Income and Tax Items, Shares of Adjusted Gross Income and total income tax and average tax rates. All figures are based on estimates from sampling conducted by the Internal Revenue Service using 2011 tax filing data for 2010 taxes. Income means Adjusted Gross Income (AGI) as reported on individual income tax returns.

So You’re Thinking about Starting a Business?

Tax complexities can be confusing.

Creating and running a small business in America can be a lot of hard work. It can also be rewarding. Unfortunately, doing the tax part of this correctly can be a real head-ache. Here are some tips.

Other reporting may be required depending on your type of business and your state and local requirements.

Start-up expenses. Keep track of expenses prior to starting your business. Even without revenue, these costs can be deducted using the IRS start-up rules.
Register your business. This includes setting up a legal business entity (sole- proprietor, S-Corp, C-Corp, LLC or Partnership), filing for permits at the state level, filing for an EIN (employer identification number) at the federal level and any business entity registrations required at the federal level.
Keep separate accounts. One of the biggest mistakes made by budding new businesses is combining personal with business expenses. The IRS is quick to make all expenses personal, non-deductible expenses when this happens. Having a separate checking account and a credit card for your business are good ideas.
Ordinary and necessary. These two words are key terms in determining if your expenses are deductible as business expenses for tax purposes.

  • Ordinary: An ordinary expense is one that is common and accepted in your trade or business.
  • Necessary: A necessary expense is one that is helpful and appropriate for your trade or business.

Know the additional filings required. Here are some of the key ongoing requirements:

  • annual business filing
  • payroll reports (monthly, quarterly, annually)
  • monthly sales tax filings
  • payroll tax deposits
  • unemployment filings
  • workman’s compensation filings
  • quarterly estimated tax filings (as appropriate)
  • annual tax returns and information returns (W-2s and 1099s)
  • applicable business licenses/permits

Create a calendar. Create a calendar to help you remember important filing dates. Online calendars with automatic reminders will help make the complexity of reporting easier to manage.
Ask for help. You should focus on developing and growing your business. The hassle of keeping track of the paperwork and required filings is something that proper assistance can make easier.

The IRS understands the regulations on small businesses are complex and confusing. In their effort to help, they have created a set of resources. They can be found at: IRS small business resource center

Beware IRS Phishing Scams

Each year the IRS publishes the top dozen tax scams it encounters over the prior year. One of them that makes an all too common appearance on their list is the phishing scam. Here is what you need to know.

Phishing requires bait

Phishing is the act of creating a fake e-mail or website that looks like the real thing. This “bait” is then used to bring you into the scam by asking for private information. This includes your name, address, or phone number. It could also include potentially dangerous ID theft information like your social security number, a credit card number or banking information. The bait is often very real looking – just like correspondence from the IRS or the IRS web site.

How to avoid the lure

How do you know the phishing is fake? Here are some tips.

  1. The IRS never initiates contact via email. If you get an unsolicited e-mail from the IRS requesting a response, do not reply! Instead forward the email to: phishing@irs.gov
  2. Know the IRS or vendor web site. This includes the appearance, but more importantly the address. The valid address for the IRS is: www.irs.gov
  3. They may know some things. Good phishers already have parts of your identity, so just because they know things like your middle name and birth date does not make them legitimate.
  4. What about phone calls? Phishing over the phone is also a problem. If you receive an unsolicited phone call, get the person’s name and ID. Hang up. Then go to the IRS (or vendor) web site, take down their phone number and call them back using this phone number. Most fake calls are ended quickly when taking this approach.
  5. Don’t forget social media. Phishing can also happen via social media and texting. Virtually every digital resource has the potential to be used as a tool for theft.

What do phishers do?

When the phishers have your information, they can file false tax returns requesting refunds, steal bank information, set up fake credit cards, establish false IDs plus much more. Remember if it smells like a phish, it probably is.

"Worried about an IRS audit? Avoid what's called a red flag. That's something the IRS always looks for. For example, say you have some money left in your bank account after paying taxes. That's a red flag."
-Jay Leno...

Tax Advisors of Cary

140 Preston Executive Dr
Suite 100H
Cary, NC 27513

Phone: 919-463-7588
Fax: 919-400-4272