How IRS Changes Could Affect Your Family

Tax season may still be months away, but the IRS is busily updating and revising tax code.

While changes are a common occurrence throughout the year, the implications of the updates often go unnoticed right up until it is time to file.

However, keeping an eye on the IRS during the "off season" can be beneficial and can keep you and your family in control of your financial situation. Particularly for older Americans -- those in retirement, facing retirement or helping their aging parents long into retirement -- IRS changes should not be shrugged off easily.

The IRS actually acknowledges the difficulties of filing in retirement and states, "While most federal income tax laws apply equally to all taxpayers, regardless of age, there are some provisions that give special treatment to older taxpayers." This may seem like a kind gesture (and is to a degree), but do not overlook what looms beneath those special accommodations: different rules, regulations and exemptions for filers who meet specific requirements/criteria.

Below are just a handful of the most recent revisions the IRS has published.

Related Link: How Filing Taxes In Retirement Differs From Employed Years

Penalty Updates

On July 31, 2015, the IRS issued a statement explaining penalty increases for incorrect filings or missing information on payee statements.

Penalty information can always be found on the IRS government website and in Section O of the IRS General Instructions document.

Submitted Corrections

The amended penalty fees establish a fee schedule for individuals who, upon catching an error in their filings, submit a correction.

• If the correction is submitted within 30 days, a $50 fee will be incurred per piece of incorrect information correct.
• If the correction is submitted between 30 days and August 1, a $100 fee will be incurred per corrected piece of information.
• If the correction is submitted after August 1 (or no correction is submitted), a $250 fee will be incurred per piece of information.

It is important to note that there are maximum amounts set for these penalties.

Non-Submitted Corrections

Additionally, the IRS reiterated that if information is incorrect and is not corrected, the penalty is $250 per piece of information.

Intentional Disregard Penalty

Furthermore, the IRS has increased the penalty for "intentional disregard of the requirements to furnish a correct payee statement." Where in the past this penalty was set at a minimum of $250, the revision raises the fee to a minimum of $500 per piece of information, with no maximum amount set.

Note that there are exceptions to all of the penalties above, specifically if the incorrect information can be shown "due to reasonable cause and not to willful neglect." In other words, you can be excused from the penalty if you can prove that the submitted incorrect information was beyond your control or an inconsequential omission.

Basically, if you did not maliciously or intentionally submit false information and you can prove that, you may not have to pay the penalties. The IRS is concerned with informational errors that hinder their ability to process returns.

Estates

Non-U.S. Citizen Surviving Spouses

On June 13, 2015, the IRS released final regulations regarding DSUE amounts. Previously, there existed ambiguity surrounding Deceased Spousal Unused Exclusion (DSUE) amounts, particularly in regard to married couples where the surviving spouse was not a U.S. citizen.

The new publication clarifies that "if a non-U.S. citizen surviving spouse becomes a U.S. citizen, he or she will be treated as any other citizen surviving spouse and will have immediate benefit of the DSUE amount."

One note: This ruling covers the estates of those decedents who passed no earlier than January 1, 2011 and their surviving spouses – deaths before that date or spousal deaths between that date and the present time exclude the decedents from receiving the benefits of DSUE amounts.

Gift Tax Updates

While gift taxes and their exclusions are constantly under revision by the IRS, the most recently updated publication states that the annual exclusion for gifts for 2013–2015 is $14,000 and the applicable exclusion amount for gifts is $5,250,000 for 2013, $5,340,000 for 2014 and $5,430,000 for 2015.

Another clarification was made to the Gift Tax Return (Form 709), which outlined that when a gift is made, the return is to be filed in the following year.

Estate/Generation-Skipping Transfer Tax Reform

There is no longer an allowable State Death Tax Credit. In its place, decedents who passed in 2005 or more recently can be enrolled for a deduction by their surviving filers (filing on behalf of the decedent).

As with all things financial, the more you know, the more control you can have over your financial health. Understand that major life changes in later years have just as significant financial implications as life changes made in young adulthood. Be prudent regarding major life changes, regardless of age or financial stability.