Question

This will be probably the most important discussion we have, the 60-day rule. In government, as you can see we have few estimates. If we make all receipts only count if the cash is received (or paid) within 60 day of year end, by the time we complete financial reports (usually within 90 days of year end) we KNOW what will be collected. This fits with the current approach we use for funds. While only required for property tax, we generally use this rule for ALL taxes. So, if a tax is for the 2018 (June 12017-July 2018) budget, it is revenue in 2018 if collected before September 29th, 2018. If not, it will become revenue when it is collected. If it is collected before July 1, 2017, it is not considered revenue either since it is not available (budgeted) until July 1. We have a similar approach for matching costs.

Why would we avoid estimates? What about Sales or Income taxes?

Answer 1

The 60 day rule refers to the length of time an individual has to deposit money back into a retirement account that was previously withdrawn without incurring a taxable event. There are a number of reasons someone would withdraw money from an account whether it be to pay a large tax bill, obtain cash for an unexpected expense, or to rollover the balance into another retirement account.
There are multiple ways to rollover a balance from one retirement account to another so we will begin by explaining the more common ways to rollover a balance where the 60 day rule won’t come into play.
Direct Rollover

A direct rollover is a transfer from a retirement plan to another retirement plan or IRA where the custodian of your current plan makes payment directly to your new account. This can be in the form of a check made payable to the new account custodian or a direct wire transfer. This method will avoid taxes and penalties because the account owner never had access to the cash during the transfer.
Trustee to Trustee Transfer

Similar to the direct rollover, a trustee to trustee transfer moves money from one IRA to another IRA without the account owner ever having access to the cash and therefore avoiding taxes and penalties.
The direct rollover and trustee to trustee transfer methods both avoid taxes and penalties as cash is never available to the owner and therefore the 60 day rule does not come into effect. In any case where the account owner has access to the cash, the money will have to be redeposited into another retirement account within 60 days or the owner will be taxed on any pre-tax dollars and possibly penalized if the owner is under the age of 59 ½.
The 60 day rule is one of the only ways an owner has access to money in a retirement account without paying taxes or penalties on the distribution. An individual can take advantage of this if they are in need of immediate cash for something like an unexpected expense. The distribution is essentially an interest free loan from your retirement account for 60 days. If the money is not available within the 60 days to redeposit, taxes and possible penalties will be assessed on the distribution. One of our recommendations to clients is to obtain access to a home equity prior to taking the distribution. If the cash is not available before the 60 days, use the home equity line which is typically at a low interest rate to replenish the retirement account and avoid taxes and penalties.
IRS: One 60 Day Rollover in 12 Month Rule

The IRS recognized that individuals were taking advantage of this rule by taking multiple distributions in a single year and therefore increasing the time period. Beginning after January 1, 2015, the IRS changed the law to state that only one rollover can be made from one IRA to another IRA within a 12 month period. This rule does not apply to the following:
rollovers from traditional IRAs to Roth IRAs (conversions)
trustee-to-trustee transfers to another IRA
IRA-to-plan rollovers
plan-to-IRA rollovers
plan-to-plan rollovers
It shows the one rollover in a 12 month period rule was meant to limit the abuse of the 60 day rule because direct rollovers and trustee to trustee transfers are excluded.
What can be Rolled Over?

Most of the time the entire balance in a retirement account can be rolled over to another account unless the balance includes an amount of money that is required to be withdrawn. Examples include required minimum distributions and contributions in excess of limits (plus earnings on the excess contributions). For retirement plans, in addition to RMD’s and excess contributions, any loans outstanding at the time of rollover or hardship distributions taken during the year will be subject to taxes and possible penalties.
Are Taxes Assessed at the Time of Distribution?

Distribution from an IRA: Typically, a tax is not assessed on a distribution from an IRA unless the account owner elects to have taxes withheld. A distribution from a a pre-tax IRA account is typically subject to a 10% early withdrawal penalty if taken before 59 ½.
Distribution from Retirement Plan: Any distribution taken from a retirement plan where cash is made available to the owner is subject to a minimum 20% federal withholding. For example, if you request a $10,000 distribution, you will receive $8,000 and $2,000 will go to the government. There is no option to opt out of this withholding even if you intend to rollover the balance within 60 days. For this reason, a direct rollover would be a way to avoid the 20% withholding.
It is important to understand if you intend to rollover a distribution from a retirement account that the entire amount of the distribution must be redeposited within 60 days to avoid taxes and penalties even if taxes were already withheld. Using the previous example, if you take a $10,000 distribution from a retirement account and have the 20% withheld for taxes you must redeposit $10,000 within 60 days even though you only received $8,000 in cash. This scenario may appear that you are losing $2,000 but when you complete your taxes the $10,000 distribution will not be taxable as long as the full amount was redeposited within 60 days. When you file your taxes, the $2,000 will be included in the federal taxes withheld which is how the money is recouped.
How is the Rollover Reported to the Government?

Any time you wish to utilize the 60 day rule, it is important you keep documentation. Any distribution from a retirement account will generate a 1099-R form that must be reported as income on your tax return. Also, the 1099-R will show any taxes withheld from the distribution. You will receive a 1099-R even if a direct rollover or trustee to trustee transfer was done. The way the distribution is coded determines how the IRS treats it for tax purposes. If the distribution is coded as a direct rollover or trustee to trustee transfer, the distribution will not be treated as taxable income. If the distribution gave you access to cash, the 1099-R will be coded in a way that treats the distribution as a taxable event. If you redeposited the amount into another retirement account within 60 days, it is important you notify your tax preparer and bring documentation showing the deposit was made timely. The tax preparer should then treat the distribution as a non-taxable event.
Tax rates for individuals are common for all, irrespective of their residential status. The income tax rates proposed for assessment year 2018-19 (tax year 2017-18) are as follows:
Proposed Income tax rates table for the tax year 2017-18
Taxable income bracket Total tax on income below bracket Tax rate on income bracket
From INR To INR INR Percent
0 250,000* 0
250,001 500,000 0 5% of the excess over INR250,000
500,001 1,000,000 INR12500 20% of the excess over INR500,000
1,000,001 No limit INR11,25,00 30% of the excess over INR1,000,000
* 300,000 in case of a resident individual of the age of 60 years or above (below 80 years).
* 500,000 in case of a resident individual of the age of 80 years or above.
Surcharge at the rate of 15 per cent is payable where the total income exceeds INR 10 million. Education cess at the rate of 2 percent and Secondary and Higher Education Cess at the rate of 1 percent is payable on the amount of tax and surcharge, if applicable.
Therefore, the effective maximum marginal rate would be 35.535 percent (with surcharge i.e. where income exceeds INR 10 million) and 30.90 percent where the income does not exceed INR 10 million.
The Finance Bill has proposed to levy a surcharge of 10% where the income exceeds INR 5 million. Surcharge at the rate of 15 per cent would continue to be payable where the total income exceeds INR 10 million. Further, education cess at the rate of 2 percent and Secondary and Higher Education Cess at the rate of 1 percent would continue to be payable on the amount of tax and surcharge, if applicable. Therefore, the effective maximum marginal rate would be as under:
35.535 percent (with surcharge i.e. where income exceeds INR 10 million).
33.99 percent (with surcharge i.e. where income exceeds INR 5 million but does not exceed INR 10 million).
30.90 percent where income does not exceed INR 5 million.
Tax rebate of up to INR 2,500 per annum for resident individuals, with total income up to INR 3,50,000 per annum.
A taxpayer can claim marginal relief from the amount of surcharge, subject to certain conditions. The concept of marginal relief is designed to provide relaxation from levy of surcharge to a taxpayer where the total income exceeds marginally above INR 5 million/INR 10 million.
There is no provision for joint filing of the return of income. There is no distinction amongst individuals, whether married, unmarried, or having children and the same rate is applicable to all.