L1: sepp cents
Getting ready to calulate an SEPP, what about the cents. Should you drop the cents or round it off.
2012-01-04 19:33, By: Ron, IP: [18.104.22.168]
L2: sepp cents
Neither – use the calculated annual amount (check our calculator) including the cents – if you want to take monthly withdrawals, divide the annual (including the cents) by 12 and round to the nearest 1 cent. If you them multiple the rounded
monthly by 12 you will be within 50 cents of the original annual. 50 cents is about the maximum amount that you want to be off from the annual amount.
2012-01-04 20:49, By: Gfw, IP: [22.214.171.124]
L2: sepp cents
My wife and I have been doing our own taxes successfully for the past 42 years. During that time, we have rounded our tax obligation to the nearest $1. If we owe $xxx.49 or less, we round down to $xxx. If we owe $yyy.50 or more, we round up to $yyy +
$1. Although the IRS has questioned us on a few issues over the years, this has never been one of them.
2012-01-06 18:02, By: Ed_B, IP: [126.96.36.199]
L3: sepp cents
You asked a question and we gave you an answer. If you already made up your mind, why did you even ask the question?
Food for thought…Most everyone rounds when paying their income taxes, but then a SEPP may not be the same as you paying your income taxes.
2012-01-06 20:02, By: Gfw, IP: [188.8.131.52]
L4: sepp cents
My point was that the IRS HAS looked at our returns WHILE my SEPP was running and took no issue with the rounding. Whether that is official IRS policy or not is unknown. One would think that if this was an issue, they would have raised the point while
discussing the other points of their concern… all of which were resolved in our favor once additional information was provided.
More food for thought… I am not the OP but am commenting on his post.
2012-01-06 21:19, By: Ed_B, IP: [184.108.40.206]
L5: sepp cents
You could have been audited for every year for the past 42 years, but that does not mean that they look at every item on the tax return. For example, the IRS does review schedule C’s, but may not look at anything else on the tax return. You might have been
lucky that they did not look at your SEPP that you rounded for > 50 cents, because that could have cost you thousands of dollars.
Taxpayers get away with a lot of incorrect actions, until they get caught.
Just do not complain if once they do look, and it costs you a lot of money for being stubborn, and not listening to professional advice. It’s your choice.
2012-01-06 21:43, By: dlzallestaxes, IP: [220.127.116.11]
L6: sepp cents
The main point is that proper rounding in completing tax forms is a little different than rounding for 72t distribution purposes. The OP did not state at which point the rounding was to occur, but the usual IRS rounding rules applied to monthly 72t distributions
could result in the total annual distribution being off by up to $6. The goal to to have the 1099R form showing total annual distributions identical to the 72t calculated amount.
2012-01-06 21:52, By: Alan S., IP: [18.104.22.168]
L6: sepp cents
Ed_B… my mistake to reference the original poster. And I’m glad that the issue didn’t create any problems for you.
Yes, the IRS does allow rounding, but why give them the opportunity to take what may seem like an insignificant amount and run the risk of it being treated as a modification resulting in a busted plan. Old carpenter saying “Measure Twice, Cut Once”. Old
saying when dealing with the IRS – don’t give them the opportunity to find an issue.
An easy example of dropping cents… Calculated annual distribution of $10,000.49. Drop the cents and divide by 12 for monthly = $833.33. Drop the cents and take 12 monthly withdrawals of $833. Total withdrawals for the year $9,996.00 – now we are off by
$4.49 – probably not a De minimusÛ amount.Same example except using the non-rounded amounts results in an annual distribution of $9,999.96 – only 4 cents off the calculated annual amount
As Bill points out in his book, the risk is all downside for the taxpayer.”Calculate, recalculate, and stick to the correct amountswithin one dollar.” I prefer to try and stay within 50 cents.
2012-01-06 22:02, By: Gfw, IP: [22.214.171.124]
L7: sepp cents
I agree that minimizing the potential for problems, especially when dealing with the IRS, is a great idea and one that I use a great deal too.
The cents that we added was on the annual ammount, so was not quite as sliced and diced as it could have been via the monthly route in your example.
“I prefer to try and stay within 50 cents.”
We do as well and did. Perhaps I could have explained that a bit more clearly. In my SEPP, the annual distribution / taxable amount per IRS approved distribution calculations was $33,513.92, which we rounded to $33,514 and then taken as 1/4 of that
amount in equal quarterly payments.
2012-01-06 23:43, By: Ed_B, IP: [126.96.36.199]
L8: sepp cents
Not to belabor a point, but to make a point. Here’s by “2 cents” worth, if you get my point.
$ 33,513.92/4=$ 8,378.48/quarter
$ 33,514/4=$ 8,378.50/quarter , but rounded up it’s $ 8,379 x 4 = $ 33,516 !!!
BINGO — YOU BUSTED YOUR PLAN BY $ 2.08 !!!! ( $ 33,516 – $ 33,513.92)
PLR ( Private Letter Ruling) charge by IRS is $ 10,000 plus attorney fee of $ 7,500. For a difference of just 2 cents per quarter !!!!
2012-01-07 00:45, By: DLZALLESTAXEs, IP: [188.8.131.52]
L9: sepp cents
DLZ, I think by rounding, most posters were referring to rounding the dollar and cent annual amount into a periodic distribution done inrounded dollars and cents, so even if 12 payments per year, the most the rounding difference would be is $.01 per month
x 12 = $.12per year. If you round up annual amount to next whole dollar, and then round up the qtrly payment after that you can create a more than $1.00 overage inpayments, as you showed. Your example is correct, but may not apply to this discussion.You
should definitely include the dollars and cents in the annual distribution, before calculating the periodic payments in a year, as GFW pointed out. KEN
2012-01-07 01:04, By: Ken, IP: [184.108.40.206]
L10: sepp cents
I was not making a general example as to “most posters”. I was using this poster’s figures, as he stated them.
If he had actually taken $ 8,378.50/quarter then he is ok, but that is not what he implied in his narratives.
2012-01-07 01:11, By: dlzallestaxes, IP: [220.127.116.11]