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THE WANDERING TAX PRO



Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice,



Updated: 2017-11-17T07:30:06.514-05:00

 



THE FLACH TAX PLAN – A NEW SIMPLER FORM 1040

2017-11-14T05:00:08.679-05:00

In light of the revelation of the dueling GOP tax Acts I have created my own Flach Tax Plan and a new, much simpler Form 1040.My new simpler Form 1040 that follows was not created from an economic point of view – how much tax is collected – but from the point of view of simplicity and fairness.I have actually incorporated some of the GOP proposals in my plan.  But it also contains some unique concepts –* There is only one tax rate schedule for all taxpayers, regardless of filing status.  The Head of Household filing status is gone.  Married taxpayers can elect to file separately on onereturn or to file separately on separate returns – and a married person filing separately is treated exactly the same as a Single filer.  The method for calculating the tax liability of married couples filing a joint return does away with the marriage penalty.* No deduction would be allowed for any business activity on any tax return for the depreciation of real estate or capital improvements thereto.* The delivery of government social welfare and other program benefits are totally removed from the Tax Code.  There is no Earned Income Credit, refundable Child Tax Credit, deductions or credits for qualified post-secondary education expenses, or Premium Tax Credit on my new Form 1040.  I have not done away with these benefits; they are distributed via more “normal” methods.* I replace IRA, HSA, MSA, ESA, and Section 529 accounts with an all-inclusive USA (Universal Savings Account).  All taxpayers, without exception, can contribute up to $10,000 per year.  Distributions made before age 62 for education and medical expenses or to purchase a first home (only one first home per lifetime) would be considered to be qualified withdrawals.  There would be no penalty on non-qualified withdrawals after age 59½, but earnings would be taxed.  All withdrawals after age 62 would be considered to be qualified.   I also replace all employer and self-employed retirement plans with a RSA (Retirement Savings Account).  Employers can elect to contribute up to 25% of wages annually, all employees can elect contribute up to $20,000 of wages annually.  There would be no requirements for either to contribute.  Self-employed taxpayers can contribute, and deduct, up to 20% of adjusted net self-employment income.There would be “traditional” (for the USA fully deductible and no tax on earnings for qualitied withdrawals and for the RSA employee contributions would be “pre-tax” on the W-2) and ROTH (contributions non-deductible – qualified withdrawals totally tax free) options for both accounts.* Contributions to an RSA by a self-employed taxpayer and the deduction for the health insurance premiums paid by a self-employed taxpayer would reducethe net earnings from self-employment that is subject to the self-employment tax.* Social Security and equivalent Railroad Retirement benefits would be taxed the same as regular employer pensions.  Employee contributions would be recovered by amortizing them over the taxpayer’s life using the, what else, “Simplified Method” to determine the taxable amount of the benefits received.   * And perhaps most controversial - no charitable deduction would be allowed for contributions to a church or religious organization for religious activity.  Non-religious social and community action programs (soup kitchens, homeless and domestic violence victim shelters, youth centers, day care centers, etc) run by individual churches and religious groups would need to separately organize and request non-profit status to allow contributions to be deductible.  Permitting a deduction for contributions to churches and religious organizations for religious activity results in the government in effect subsidizing religious activity, which, in my opinion, is a violation of the separation of Church and State.Click HERE to download my report A NEW FORM 1040: TAX REFORM PROPOSALS FROM A TAX PROFESSIONAL.As always, your thoughts and comm[...]



WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’

2017-11-13T07:11:26.580-05:00

Recent tax buzz continues to be dominated by talk of the proposed GOP tax Act.  I continued my comments on the proposals here and here.   Check out my TWTP post tomorrow for the Flach Tax Plan and my new, simpler Form 1040.* Speaking of the GOP tax Act, the Senate has released its version.  The TAX FOUNDATION has a good “cheat sheet” on the “Details of the Senate Version of the Tax Cuts and Jobs Act”.* And Kay Bell, the yellow rose of taxes, does a good job of comparing the dueling plans in “The great tax reform plan duel of 2017 is on!”* Over at DINESEN TAX TIMES Jason Dinesen answers an oft-asked question – “Can I Claim My Boyfriend/Girlfriend As a Dependent?” Can you guess the answer?  Why “it depends”, of course.* Today at THE TAX PROFESSIONAL – “Simpler Is Better”.* At the SLOTT REPORT Sarah Brenner lists “10 Things to Know About the Still-Working Exception” from taking an RMD from an employer plan.  * For those who are interested – click here to download TAX BUZZ, the new monthly e-newsletter for my 1040 clients. THE FINAL WORDI do not oppose, nor would I deny, an individual’s right to possess genuine religious beliefs and convictions. I do not, for example, question a person’s right to legitimately be a “devout” Christian, or a “devout” Muslim, and lead their personal lives accordingly.I may personally disagree with, challenge, or oppose an individual's specific religious beliefs and convictions, and interpretations thereof, and an alleged “devout” person’s hypocrisy in the selective choice of specific beliefs, interpretations and convictions of a religion to support.But I certainly strongly oppose, and would most certainly deny, an allegedly “devout” religious person’s attempt to force his specific religious beliefs or convictions on me, or any other person, via local, regional or national legislation. If nothing else, the separation of Church and State forbids this.TTFN[...]



THE REPUBLICAN TAX PROPOSALS – EVEN MORE COMMENTS

2017-11-08T05:00:05.640-05:00

Over at DON’T MESS WITH TAXES earlier this week, Kay Bell suggested “Tax reform could cost charities $13 billion a year”.I don’t agree that reducing the number of itemizers will so substantially reduce charitable giving.  The post indicates that currently about 1/3 of taxpayers itemize.  But certainly more than 1/3 of taxpayers contribute to charity.  I do not itemize and I contribute to charity.  If I were able to itemize I would not give any more than I normally would just to get a tax deduction.Taxes are pennies on a dollar.  A $100 charitable contribution may save $15 or $25 or more in federal taxes if you currently itemize.  But, as with any other deductible item, the purpose for spending the money for the item is not just to get a tax deduction – or it SHOULD not be.  That would be stupid.  There is no sense or logic in spending $100 to save $25 – you are still “out of pocket” $75.  Being able to deduct charitable contributions is just an added benefit to the gift – an additional “thank you” – and not the primary motivating factor.  People who have always given to church and charity are not going to automatically stop just because they can no longer itemize and claim a tax deduction for their gift. The ability to itemize can affect the timing of the contribution – sooner instead of later – when it comes to year-end tax planning.  For example, many current itemizers who may not be able to itemize in the future under the GOP proposal will “accelerate” their contribution and give money that they were going to give to charity in 2018 in November and December of 2017.If a $100 donation, which previously only cost $75, will actually now cost $100, perhaps in some cases a person may only give $75 instead.  But I do not think that will happen on a grand scale.Taxpayers often don’t know if they will be able to itemize until they actually prepare their return.  In 45 years no client has ever called or emailed me before giving to charity to ask if he will be able to itemize, waiting for my answer before making the contribution.TTFN[...]



THE REPUBLICAN TAX PROPOSAL – THE DISCUSSION CONTINUES

2017-11-07T05:00:21.087-05:00

 Like the historic Tax Reform Act of 1986, the current proposed Tax Cuts and Jobs Act is a mixed bag.There is simplification.  Less rates, less deductions and credits, no more Pease phase-out of the remaining itemized deductions, and the repeal of the dreaded Alternative Minimum Tax.But there is new complexity.  The ridiculous special tax treatment of “pass-through” business income, apparently including sole proprietorships reported on Schedule C, is truly a convoluted mucking fess.  It looks like the computation of pass-through business income will be a nightmare for tax professionals – fortunately, based on my clients, not for me, but definitely for my colleagues.If we want parity for the tax treatment of pass-through entities here is what I think should happen.Taxation of pass-through income from Schedule C sole proprietorships should remain the same as current law – taxed as ordinary income subject to SE tax.  Pass through business income of the “general partners” of a partnership, the equivalent of Schedule C sole proprietors, should also not change – it is taxed as ordinary income subject to SE tax.  Pass through business income of the “limited partners” of a partnership is basically the equivalent of corporate dividends, and should be taxed as such.Pass through business income of a shareholder in a sub-S corporation is also basically the equivalent of corporate dividends, and should be taxed as such. The Act maintains the current special tax rates for qualified dividends and long-term capital gains (it also maintains the NIIT and .9% Medicare “Obamacare” surtaxes).  But it appears it also maintains the tax brackets for these rates the same as under current law, and does not just apply the rates directly to the new tax rate brackets – so there will actually be two sets of tax rate brackets.There are some weird items in the proposal.  Taxpayers would be able to contribute to a 529 Education Saving Plan on behalf of an unborn child - described as “a member of the species homo sapiens, at any stage of development, who is carried in the womb”.  And churches would be allowed to make political statements, and pastors endorse specific political candidates from the pulpit, without losing tax-exempt status.  Just one more example of the Republican Party pitiful pandering, erroneously and certainly contrary to traditional conservative philosophy, to the “religious right”.In my opinion, from a tax policy point of view, some of what is wrong with the Act, based on my Principles of Tax Reform (click here) is –It continues to use the Tax Code to distribute federal social welfare and other tax benefits – the Earned Income Tax Credit and the education benefits for example. It continues to provide refundable credits, which are a magnet for tax fraud.It continues to phase-out tax deductions and credits based on an AGI income threshold.I expect the above will NEVER be changed, and the Tax Code will ALWAYS be used, erroneously and inappropriately, to distribute government benefits and provide refundable credits and a “back-door” progressive tax rate increase without the honesty of actually increasing tax rates.  But I can dream, can’t I.Your thoughts?TTFN     [...]



WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’

2017-11-06T05:32:32.351-05:00

Most of the recent BUZZ has been about the final release of the details of the Republican tax reform “framework” – the Tax Cuts and Jobs Act (you notice that the word “Reform” is not in the title).  Did you see my posts of details and commentary on Friday and Saturday?  More posts will come at TWTP as more is revealed and the debate progresses.* Professor Annette Nellen posted an updated compilation of “Disaster Relief Tax Links” at 21st CENTURY TAXATION. * Links in the above referenced post indicate “Louisiana, South Carolina now get hurricane tax relief”, as Kay Bell, the yellow rose of taxes, tells us in detail in a post at DON’T MESS WITH TAXES.  * Today at THE TAX PROFESSIONAL – “A Holiday Tax Practice Tip”.And did you see last Wednesday’s TTP post “Watch the IRS Nationwide Tax Forum Sessions for Free!”? * The week-day daily CHECKPOINT NEWSSTAND email newsletter from last Wednesday announced how the IRS has decided to celebrate my 64th birthday - “E-file for 2016 returns closes on Nov. 18; disaster victims & others must file on paper after that”.“In an Information Release, IRS has reminded taxpayers who want to file a 2016 tax return electronically, including those in disaster areas, to do so by Saturday, Nov. 18, 2017. After that date, paper tax returns must be filed.New guidance. In IR 2017-183, IRS advises that any taxpayer needing to file a 2016 tax return after Nov. 18 must do so on paper.” * Robert W Wood of FORBES.COM provides us with “IRS Tax Lessons for Everyone From Paul Manafort Indictment”.TTFN[...]



MORE DETAILS AND THOUGHTS ON THE PROPOSED REPUBLICAN TAX ACT

2017-11-04T05:00:20.514-04:00

Here are more details of and commentary on the "Tax Cuts and Jobs Act" as finally revealed – the “fleshing out” of the cocktail napkin scribblings.As I have said in the past, my interest in and comments on the Act are not from an economic point of view – who pays more and who saves more.  With any tax reform legislation, I look at it in terms of tax policy and of simplification and fairness.Although I am a tax professional, and in theory my business benefits from continued complication, I strongly believe that tax simplification, even in the extreme, would not result in a loss of clients or of income.  It would only greatly reduce the agita, aggravation and anxiety related to 1040 preparation.A very important “disclaimer” that I should have included in Friday’s post on the details of the Act.  Everything I posted Friday, and below, is “proposed” tax legislation.  None of it is actual tax law.  Chances are very good that any final bill signed into law will be different, perhaps very different, then what I have identified and discussed then and here.  And it is also possible that no tax Act will actually be passed.  * The limited deductions for acquisition debt mortgage interest (on new home purchases) would apply only to your one primary personal residence – the home you live in.  I support the reduction in the acquisition debt threshold, the repeal of the deduction for home equity interest, and limiting the deduction for mortgage interest to one primary residence.* The limited deduction for real estate taxes, up to a maximum of $10,000, appears to be available for taxes paid on the home you live in and vacation homes.  The $10,000 limitation applies to all homes combined.  I oppose the dollar limitation on the property tax deduction, but I would want the deduction to be limited to your one primary personal residence – the home you live in – like the deduction for acquisition debt interest.* My Friday post stated that alimony paid would no longer be deductible.  This means that alimony received would no longer be included in taxable income.  I agree that this certainly simplifies the issue – but I don’t know if I support this.  I think the current system is actually “more fair”.  I would perhaps limit the deduction to actual payment of “spousal support” and no longer allow an alimony deduction for expenses paid to a third-party on behalf of the former spouse, such as health insurance. * Currently a business can deduct 50% of “entertainment” expenses if it “establishes that the item was directly related to the active conduct of the taxpayer’s trade or business”.  An expense is considered directly related if “it is associated with a substantial and bona fide business discussion”.But under the Act “no deduction would be allowed for entertainment, amusement or recreation activities, facilities, or membership dues relating to such activities or other social purposes”.Also – “In addition, no deduction would be allowed for transportation fringe benefits, benefits in the form of on-premises gyms and other athletic facilities, or for amenities provided to an employee that are primarily personal in nature and that involve property or services not directly related to the employer’s trade or business, except to the extent that such benefits are treated as taxable compensation to an employee (or includible in gross income of a recipient who is not an employee).”I have mixed feelings about this change.  I do realize there is much abuse of the entertainment deduction, even at the 50% level, especially by closely-held businesses.  But in many cases business entertaining is as important, and legitimate, an expense as advertising.  I have always had concerns about the 50% limitation on business meals.  I realize that the employee or business owner has[...]



IT'S HERE - THE DETAILS OF THE "FRAMEWORK"!

2017-11-03T06:16:39.992-04:00

I haven’t done deep research on the Tax Cuts and Jobs Act – but based on what I have read here is how it would affect individual taxpayers. There would be 4 tax rates – 12%, 25%, 35%, and 39.6% - with increased brackets.Adjustments to Income:The educator expenses up to $250 per taxpayer, moving expenses, alimony, student loan interest, tuition and fees, and domestic production activities costs would no longer be deductible. Schedule A:Medical Expenses – No longer deductible.Taxes – Up to $10,000 (hey, like the NJ-1040) of real estate (aka property) taxes only.  No deduction for state and local income or sales tax or, presumably, personal property tax or foreign income tax.Interest – Rules remain unchanged for existing mortgage debt.  For debt incurred after November 2, 2017, only interest on acquisition debt of up to $500,000 in principal is deductible.  Interest on new home equity debt incurred after November 2, 2017 is no longer deductible.Charity – Rules remain unchanged for the most part (some minor changes appear to be made to more obscure charitable deduction rules).  The standard mileage allowance rate for mileage in the course of providing volunteer services to a qualifying organization would be indexed for inflation.Casualty and Theft Losses – No longer deductible.Job Expenses and Certain Miscellaneous Deductions – Unreimbursed employee business expenses and tax preparation fees and costs no longer deductible.  All other miscellaneous deductions subject to the 2% of AGI exclusion are also probably no longer deductible.Gambling Losses – Losses would still be deductible to the extent of winnings.  It appears that non-loss deduction for “professional gamblers” no longer allowed.  There would be no more “Pease” reduction of itemized deductions based on AGI.The standard deduction would be $12,000 for Single filers, $18,000 for Head of Household (so it appears the Head of Household filing status remains), and $24,000 for Married filing jointly.  There would be no additional standard deduction amount for blind or age 65 or older.  There is no personal exemption.  The Child Tax Credit would be increased from $1,000 to $1,600 per dependent child, with the first $1,000 being refundable, and the phase-out threshold would be increased to $115,000 for single filers and $230,000 for joint filers.  A non-refundable $300 credit would be allowed for the taxpayer, his spouse, and all “non-child” dependents.  The same phase-out threshold would apply to this new $300 credit.  The Lifetime Learning Credit is gone.  The American Opportunity Credit remains as it is under current law, but would be available for a 5th year of post-secondary education at half the rate that applied for the first 4 years, with up to $500 being refundable.The exclusion of up to $250,000 ($500,000 on joint return) of gain on the sale of a personal residence remains, but the “2 out of 5” year rule is changed to “5 out of 8”.  You must own and live in a personal residence for at least 5 of the 8 years prior to sale to qualify for the exclusion.The determination of the tax on “pass-through” business income, including the income of “sole-proprietorships” reported on Schedule C, becomes a convoluted “mucking fess”.  However, a “personal service” business – “businesses involving the performance of services in the fields of law, accounting, consulting, engineering, financial services, or performing arts” – would not necessarily benefit from the lower 25% maximum tax rate.   The dreaded Alternative Minimum Tax is repealed (hurray!).It appears that there is no change to the special lower tax rates for qualified dividends and long term capital gains - other than new bracket thresholds for the specific rates.  And the 3.8% Obamacare NIIT apparently rem[...]



NEW JERSEY 2018 SUI, SDI AND FLI NUMBERS

2017-11-02T05:00:01.422-04:00

For New Jersey employers, here is the information on 2018 unemployment, disability and family leave insurance contributions and payments.For calendar year 2018, the maximum unemployment insurance, temporary disability insurance and workers' compensation benefit rates, the alternative earnings and base week amounts, and the taxable wage base are listed below.2018 Maximum Workers' Compensation weekly benefit rate: $9032018 Maximum Unemployment Insurance weekly benefits rate: $6812018 Maximum Temporary Disability Insurance weekly benefit rate: $6372018 Alternative earnings test amount for UI and TDI: $8,5002018 Base week amount: $1692018 Taxable Wage Base under UI, TDI and FLI: $33,700 U.I. D.I. W.F./S.W.F. F.L.I 0.003825 0.0019 0.000425 0.0009 January 1, 2018 to December 31, 2018 2018 = 33,700SUI = 143.23SDI =   64.03FLI =    30.33          237.59TTFN[...]



WE NEED TRUE TAX "REFORM"!

2017-11-01T05:45:35.073-04:00

There is no question that tax “reform” is needed.Not because the middle class is paying too much tax and the “wealthy” are not paying enough tax – which may or may not be true (I tend to lean toward it not being true).  But because the United States Tax Code is truly a convoluted “mucking fess”.The purpose of the federal income tax is to raise funds to run the country.  Period.  It is not to “redistribute wealth” or to distribute social welfare benefits or to reward campaign contributors and generous lobbyists or to provide specific benefits to specific industries or professions.The US Tax Code must be reformed to simplify the reporting of income and payment of taxes.  And to remove all the inappropriate “loopholes”, benefits, and “expenditures”.  I have outlined my “Principles of Tax Reform” at my website A TAX PROFESSIONAL FOR TAX REFORM.If it is thought that the “wealthy” do not pay enough taxes, in proportion to the amount paid by the “un-wealthy”, then the solution is not to punish ambition and success by excessively taxing incremental income but to remove in total from the Tax Code all inappropriate “loopholes”, deductions and credits that cause the wealthy to avoid taxes.As for whether the “wealthy” are paying their “fair” share of taxes, here is information from IRS reports for tax year 2015 - Percentages Ranked by AGI AGI Threshold on Percentiles Adjusted Gross Income Share (Percentage) Percentage of Federal Personal Income Tax Paid Top 1% $480,930 20.65 39.04 Top 5% $195,778 36.07 59.58 Top 10% $138,031 47.36 70.59 Top 25% $79,655 68.99 86.62 Top 50% $39,275 88.72 97.17 Bottom 50% 11.28 2.83 Obviously, the fairest, and simplest, tax system would assess a single rate – 10% or 15% - on gross income (reporting netcapital gain, self-employment and rental income) in excess of a basic Standard Deduction per taxpayer (a base number for Single filers which would be doubled for married taxpayers filing a joint return) and a Personal Exemption amount per dependent that would apply equally to all taxpayers in all levels of income with no other deductions or credits allowed.The Pennsylvania state income tax, for example, is a flat 3.07% tax on allgross income.  However, it does not allow for net business or net investment losses, a standard deduction, or personal exemptions. But I expect it would be impossible to enact such a simple federal income tax system.  And certain deductions are appropriate to encourage saving and investment and to, in my opinion, “geographically equalize” income.What we know of the “cocktail napkin scribblings” that is the Administration “framework” for tax reform touches somewhat on what should be done – but much, much more work needs to be done to properly “reform” the US Tax Code.Your thoughts?TTFN[...]



TALKING TAX REFORM - FIXING THE LIMITED PARTNERSHP K-1

2017-10-31T04:56:33.002-04:00

It seems appropriate on Halloween to discuss one of the scariest items involved with 1040 preparation.   I have said it before and I will say it again.  I HATE K-1s.  Specifically, the K-1s, always late, for limited partnership investments.   In almost all cases, unless there is a substantial investment, the financial tax benefits of these type of investments, if there are any, are wiped out by the cost of the additional work to actually prepare the investor’s individual tax returns.   I very seriously believe that brokers receive a higher commission for selling these investments, and often brokerage houses instruct their brokers to sell specific limited partnership investments to clients.  I also firmly believe that there are alternative mutual fund investments that provide the same, or perhaps better, investment returns.   If all we had to deal with were items in boxes 1 through 10 and 12 – business income, interest, dividends, capital gains, and the Section 179 deduction – it would be ok.  The instructions on Page 2 of the Form K-1 clearly indicate what line on series 1040 forms and schedules on which to enter these numbers.  The problem with these GD forms concerns the items of “other income” and “other deductions”.   For example, under “other income” the referenced internal supplemental statements reference Internal Revenue Code Sections 475, 988, and 1256, cancellation of debt, other portfolio income, and other income (not specifically identified).  For most of these items the instructions say “See the Partner’s Instructions”.    “Portfolio income” is interest, dividends, royalties, and capital gains.  Sometimes the “other income” boxes detail specifically references “interest, dividends, and capital gains”.  Why is this income not included in the boxes in the first 10 that specifically identify interest, dividends, royalties, and long and short-term capital gains?  Are these items reported on Form 1040 Schedules, B, D or E, or are they merely “other income” reported on Form 1040 Line 21?  Or do they go elsewhere?   “Other deductions” refers to Internal Revenue Code Sections 59(e)(2) and 743, pass-thru deductions, royalty deductions, and, again not specifically identified, other deductions.  Again, we are told to “See the Partner’s Instructions”.  While I would expect “royalty deductions” are entered on Page 1 of Schedule E, where do the rest of these deductions go?   Of course, the taxpayer investor has absolutely no idea what these things mean – nor do they, for the most part, give a rat’s hind quarters.  They just give the multiple K-1s to their tax preparer, often as they arrive (usually after April 15th) and expect us to figure it out.   The “framework” for tax “reform” talks of doing away with business “loopholes”.  The answer to fixing the dreaded limited partnership K-1 would be to do away with all the “loopholes” and Internal Revenue Code Sections that create the confusing and convoluted components of “other income” and “other deductions” identified above, and have ONE net income item for either “ordinary business income(loss)” or “net rental income(loss)” to report all “non-portfolio” income and deductions, include all portfolio income from all sources in the appropriate boxes 5 through 10, and limit “other deductions” to the traditional Section 179 deduction, charitable contributions, investment interest, and miscellaneous “portfolio” expenses.  I hope this is part of what the “framework” is talking about.   I would be interested in hearing from other tax pros about the dreaded limited partnership investment K-1.   TTFN &nbs[...]



WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’

2017-10-30T06:18:55.173-04:00

We are all, taxpayers and tax professionals alike, anxiously awaiting the actual specific details of the “cocktail napkin scribblings” that is the Republican “framework” for tax “reform”, which is expected to be released in early November.    While we are waiting, here is some BUZZ -   * The blog of the NATIONAL SOCIETY OF ACCOUNTANTS (the other NSA) quotes from the IRS “Commissioner’s Corner” to announce “David Kautter to serve as Acting Commissioner” –   “Secretary Mnuchin has announced that David J. Kautter, Treasury’s Assistant Secretary for Tax Policy, will serve as Acting IRS Commissioner when my term ends next month.”   * TaxGirl Kelly Phillips Erb of FORBES.COM addresses “The Difference Between Innocent Spouse And Injured Spouse” in an “Ask the TaxGirl” post.   * Want to know “What’s New For 2018” in taxes (under current tax law)?  Click here for my free compilation.   * Kay Bell’s DON’T MESS WITH TAXES post “Medical tax provisions affected in 2018 by inflation” includes 2018 information on HSAs and MSAs that are not included in my “What’s New for 2018” compilation.   * And click here for my free TAX TOPICS e-newsletter.   * Jason Dinesen adds to his Glossary with an explanation of the difference between “Tier I/Tier II Railroad Retirement Benefits” at DINESEN TAX TIMES.   * Today at my THE TAX PROFESSIONAL blog “2017 Year-End Tax Planning – What Do We Tell Our Clients?”.   BTW – did you see last Wednesday’s TAXPRO BUZZ?   * It is that time of the year for year-end tax planning again.  The November issue of ROBERT D FLACH’S 1040 INSIGHTS includes details on year-end planning techniques and strategies, details on what’s new in taxes for 2017, and some worksheets to help with your year-end plan.  I will send you a copy of this issue as a pdf email attachment for only $3.00.    Send your check or money order for $3.00 payable to TAXES AND ACCOUNTING, INC to Taxes and Accounting, Inc, 1040 Insights Tax Planning Issue, PO Box A, Hawley PA 18428.  THE FINAL WORD   It is vitally important that every American read this remarkable speech from one of the sadly too few true patriots in politics today.  Click here.   Let’s get one thing perfectly clear.   Arrogant idiot Donald T Rump does not want tax reform, or anything else on the so-called "agenda". He wants a legislative victory – any legislation regardless of its content or merit – simply so he can say “Look what I did”.   Trump has no political beliefs. His one and only true belief is "Trump is good and Trump is great".   Republicans who refuse to vocally denounce Trump because they believe he wants what they want are as delusional as he is!   TTFN    [...]



TALKING TAX REFORM - MORE ON THE DEPRECIATION DEDUCTION

2017-10-26T05:00:05.592-04:00

If you want to talk about tax loopholes that disproportionately benefit the “wealthy” let’s take a look at the deduction for depreciation of real property.  See my post "A Controversial Tax Reform Idea".   Those in the higher brackets – 28% to 39.6% - get, at some point (the deduction may not be currently allowed but “suspended” to be deducted in the year of sale), an ordinary income deduction for a truly phantom expense – depreciation of real estate.  This deduction is merely a “loan” that must be paid back – referred to as “recapture” - when the property is sold.  But it is paid back at a maximum rate of 25%.  So, the net benefit is 3% to 14.5% on a non-existent expense.   As a general rule - to which, as with any rule, there are certainly exceptions – real estate does not “depreciate”.  It “appreciates”.  My father sold the home he purchased for $13,000 in the 1950s for $75,000 in the 2000s – and the sale price was too low.   Real estate is an investment, just like stocks, bonds, mutual funds, etc.  You invest in rental real estate because you expect the building to increase in value over time, often more so than stocks and mutual funds, and because it generates “dividends” in the form of net “in pocket” rental income.   The deduction for depreciation of real estate is like allowing those who purchase stock to depreciate the purchase price of the stock as a deduction against the dividends paid out.   Being a phantom expense, the deduction for depreciation of real estate distorts the true economic reality of the investment activity.  An activity producing a positive cash profit becomes a deductible tax loss.    A good example is the truly huuuuuuge loss reported on the one tax return of arrogant idiot Donald T Rump that we have actually seen, almost a billion dollars, that caused him to avoid income taxes that year and potentially on several carryback or carryforward years, has been explained by many as the result of the deduction for depreciation on real estate.   If the cocktail napkin scribblings that is the “framework” for tax reform truly wants to do away with tax loopholes that benefit the wealthy it should include the deduction for depreciation of real property on the list.    What do you think?   TTFN       [...]



WE NEED TO IMPEACH THIS DANGEROUS PRESIDENT

2017-10-25T07:02:02.077-04:00

It is important to sign this petition and call for the impeachment of arrogant, dangerous, deplorable, despicable, ignorant, incompetent, mentally unstable, truly unfit Donald T Rump! Go to NEED TO IMPEACH today and join with me. The highlights in the below letter are mine - Wednesday, October 18, 2017 Dear Elected Official, This is not a time for “patience” — Donald Trump is not fit for office. It is evident that there is zero reason to believe “he can be a good president.” Whether by the nature of Mr. Trump’s relationship with Vladimir Putin and Russia, his willingness to exploit the office of the Presidency for his personal gain and treat the government like a family enterprise, his conduct during Charlottesville, his decision to pull out of the Paris climate accords, or his seeming determination to take the nation to war, he has violated the Constitution, the office of the Presidency, and the trust of the public. He is a clear and present danger to the United States of America. Republican Senator Bob Corker, Chair of the Senate Foreign Relations Committee, referred to the Trump White House as a day care center, and observed that this president has put us “on the path to World War III.” This comes following reports that Trump’s own Secretary of State referred to him as a “moron” and that Chief of Staff John Kelly and Secretary of Defense James Mattis have an agreement not to leave Trump home alone for fear of what he could do. And we have seen other Republican Senators, including Senators Sasse and Flake, express their own profound concerns. If Trump has lost the trust of the members of his own administration and leading members of his own party, surely it is time to act. An accounting of his record to date leads to the same conclusion. He is turning his back on Lady Liberty by holding immigrant children hostage. He is actively sabotaging the Affordable Care Act — a law he is constitutionally obligated to faithfully execute — while seeking to strip away health care coverage that will leave millions of Americans to choose between life and bankruptcy. He is repealing clean air protections and unleashing polluters, even as increasingly catastrophic natural disasters supercharged by our warming planet ravaged the country throughout the summer — from hurricanes Harvey, Irma, and Maria, to the wildfires that have raged across California, Oregon, Washington, Idaho, and Montana. He has threatened to reduce aid for millions of American citizens in Puerto Rico who are struggling to survive without drinkable water or electricity — a move that would be a total dereliction of his duty. And every day, Americans are left bracing for a Twitter screed that could set off a nuclear war. These actions represent systemic attacks on our nation’s future. They endanger every single one of your constituents. That’s why you have a duty to speak out. There is no moral reason to remain silent about this. Constitutional experts like Noah Feldman have already laid out clear legal and historical foundations for impeachment.  Founding Father Alexander Hamilton, a co-author of the Federalist Papers — and an immigrant himself — argued that “high crimes and misdemeanors” could be defined as “abuse or violation of some public trust.” This president has clearly already exceeded these standards. Congress has impeached past presidents for far less. While we know that Republicans do not seem prepared to pursue impeachment even as members in their own ranks openly question Trump’s fitness for office, we are all working hard to ensure Democrats will take back the House and Senate in 2018.   Given Trump’s total lack of f[...]



TAXES AIN'T FAIR!

2017-10-24T04:34:28.634-04:00

Tax reform has become a hot political topic.  Reduce taxes on the middle class, or increase taxes on the “wealthy” simply because they can afford it.  I see a great need for substantive tax reform not to reduce, or for some taxpayers increase, the actual amount of taxes paid – but to simplify the Tax Code and make it more fair. Nobody ever said taxes are fair.  There are many inequities in the US Tax Code, some purposeful and some unintended. Among the biggest inequities concerns how the Code treats some aspects of “gross income” and expenses related to generating this income.  I speak specifically of the taxation of gambling winnings and legal settlements. If you have gambling winnings you must report, in most cases (how to report some winnings is a topic for another post), the grosswinnings as income on Page 1 of the Form 1040.  This is the amount that is reported on Form W-2G.  So gross winnings are included in Adjusted Gross Income (AGI).  But gambling losses, to the extent of winnings reported, are deducted as a Miscellaneous Deduction on Schedule A if you are able to itemize(although not subject to the 2% of AGI exclusion). Similarly, the gross amount of legal settlements, except for settlements for physical injuries or sickness (any damages or settlement you receive to compensate you for your medical expenses, lost wages, and pain, suffering, and emotional distress is not included in income), is included as income on Page 1 of Form 1040.  The legal fees, often as much as 1/3 of the settlement, and other related are also deducted as a Miscellaneous Deduction on Schedule A if you are able to itemize (in this case the deduction is subject to the 2% of AGI exclusion). A taxpayer can have $5,000 in gross winnings from gambling activities for the year, but $6,000 in gambling losses.  So, the taxpayer’s gambling activity for the year has resulted in a loss.  The taxpayer ended up with no money “in pocket’ from gambling.   If the taxpayer is able to itemize without taking into effect the allowed gambling losses, the Schedule A deduction for $5,000 in gambling losses results in net taxable income of 0 – so, in effect but not necessarily in reality, he/she does not pay federal income tax on the winnings.  But if the taxpayer is not able to itemize, even with the gambling loss deduction, or if he/she is only able to itemize because of the gambling loss deduction (without the deduction his itemizable deductions do not exceed the applicable Standard Deduction), he/she will be paying federal income tax on up to $5,000 of income that was not actually received – in the 25% tax bracket $0 in net gambling income could cost the taxpayer at least $1,250. Similarly, with a taxable legal settlement, the need to deduct legal fees as a miscellaneous itemized deduction subject to the 2% of AGI exclusion could result in federal income tax being paid on more than the actual “in pocket” amount. Of course, a large portion of the inequity comes from the fact that various items of income are increased and deductions and credits are reduced or eliminated based on one’s AGI.  And the fact that most itemized miscellaneous deductions are not allowed in calculating the dreaded Alternative Minimum Tax (AMT). While a taxpayer may be able to wipe out gambling winnings with fully deductible gambling losses, the fact that gross winnings are included in AGI could result in more of the taxpayer’s Social Security or Railroad Retirement benefits (the amount of benefits taxed is determined by a formula that is based on AGI) being taxed – many frequent gamblers in the casino[...]



WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’

2017-10-23T10:01:16.822-04:00

* During my 45 years in “the business” I have heard a lot of strange things from clients – about taxes and other topics.  Russ Fox lists “The Five ‘Strangest’ Things Clients Told Us This Tax Season” at TAXABLE TALK. #2 is something I have never heard – ““The side income was only $30,000. Doesn’t that qualify for the de minimis exception to reporting income?” #1 is a very common “urban tax myth” that many taxpayers actually believe - “The 1099 never showed up. I don’t have to report the income, right?” Russ correctly reminds us –  “All income is taxable, no matter if you receive paperwork or not.” And – “There is no de minimis exception to reporting income.” I look forward to reading Russ’ “serious thoughts about the Tax Season that was” that he promises to post next week. * On the same topic, I recently came across a blog post by Paul Allen at the PIM TAX SERVICES BLOG from April that I missed the first time around – “Tax Season 2017 in Review - The Biggest Mistakes I Saw”. Paul makes reference to my special designation for extensions. The post has an excellent discussion of the importance of recordkeeping (highlights are mine) - “Tax records are for YOUR benefit. Here’s why – the courts interpret the internal revenue code to mean that ALL your income is taxable. Any adjustments, deductions, or tax credits you might receive are bestowed upon you through legislative grace. It is the taxpayer’s responsibility to prove they are entitled to any adjustment, deduction, or credit. May people seem to believe it is the other way around – that they are entitled to claim adjustments, deductions, and credits and the IRS must prove they are not entitled to claim them. It absolutely does not work that way. If you are audited and you cannot document your qualification for a deduction or credit the IRS will disallow it and charge you additional taxes, interest, and possibly penalties. Keep good records!” * Today at my THE TAX PROFESSIONAL blog “Just Say No!”. * Getting back to Russ Fox of TAXABLE TALK, he was the first blogger to report “California Fire Victims Have Extension Until January 31, 2018” - “The IRS announced today that California wildfire victims have until January 31, 2018 to file various tax returns (including tax returns on extension due this coming Monday, October 16th). California’s Franchise Tax Board (the state income tax agency) immediately followed suit.” Click here for the official IRS announcement. * It appears I missed this post first time around, but “found” it via a reprint at TAX VOX.  From Janet Novack’s “Tax Reform Week” series at FORBES.COM a guest post from Eugene Steuerle, co-founder of the Tax Policy Center, that discusses “How To Design Tax Reform: 8 Lessons From 1986”. * A “tweet” led me to a primer on the pros and cons of “Combining Retirement Accounts” by Paul D Allen of PIM Financial Partners. * The TAX FOUNDATION has released its annual State Business Tax Climate Index, which “enables business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare”. No surprise that my former home state of New Jersey is #50 in overall ranking – like Oliver Twist last on the list!  My relatively new home state of Pennsylvania ranks #26. The 10 best states in this year’s Index are: 1. Wyoming2. South Dakota3. Alaska4. Florida5. Nevada6. Montana7. New Hampshire8. Utah9. Indiana10. Oregon The 10 lowest ranked, or worst, states in this year’s Index are: 41.[...]



THIS JUST IN – IRS COLA AND INFLATION ADJUSTEDMENTS FOR 2018

2017-10-20T06:39:42.734-04:00

As it does every year at this time, the Internal Revenue Service has announced the new inflation and COLA adjustments for calendar year 2018.   I am in the process of preparing my annual “What’s New in Taxes for 2018” report.  I will let you know when it is available.  But I will identify some of the basic changes for you here.   For calendar year 2018 tax returns -   The Personal Exemption is $4,150 (up from $4,050).   The Standard Deduction Amounts are:   Single and Married Filing Separate= $6,500 (up from $6,350) Head of Household = $9,550 (up from $9,350) Married Filing Joint and Qualified Widow(er) = $13,000 (up from $12,700)   The Standard Deduction for a dependent remains the greater of (1) $1,050, or (2) the sum of $350 and the individual's earned income.   The additional Standard Deduction amount for the age 65 or older or blind is $1,300 (up from $1,250) for married individuals and $1,600 (up from $1,550) for Single and Head of Household.   The maximum IRA contribution and “catch-up” remains at $5,500 and $1,000.    The maximum employee contribution to a 401(k), 403(b), 457 and federal Thrift Savings Plan is $18,500 (up from $18,000).  The “catch-up” contribution remains at $6,000.   The estate and gift tax exemption is $5.6 million (up from $5.49 million).    The annual gift exclusion amount is $15,000 (up from $14,000).   It is important to note that these numbers are for the tax law as it currently exists.  Tax legislation may be passed by the end of the year that changes some or all of the above numbers.   Click here for the official IRS “Revenue Proclamation”.   To see the appropriate numbers for 2017 tax returns, click here.         [...]



A TIME FOR GIVING

2017-10-20T05:00:02.461-04:00

The upcoming holiday seasons are a time for giving.  So now seems like a good time to review the rules for deducting donations.   You can deduct as a charitable contribution on Schedule A (if you are able to itemize):   * Cash or property (appliances, books, clothing, computer hardware and software, electronics, furniture, household items, toys, videos, etc.) contributed to a qualified tax -exempt organization created or organized in the US or any possession under the laws of the United States or any state or possession.   * Out-of-pocket expenses connected with donations or volunteer service to a qualifying church or charity, such as the cost of the ingredients of homemade cookies or a cake donated to a church bake sale, or the cost and laundering of uniforms for a scoutmaster.   * Travel and transportation expenses incurred while performing a volunteer service for a qualifying church or charity. If you use your car you can deduct 14 cents per mile plus any parking fees and tolls.   * The portion of the cost of a ticket to a fund-raising event that exceeds of the “fair market value” of goods or services received.  If you buy a ticket for a fund-raising dinner for $100 and the cost of the dinner is $35 you can deduct $65.   * Rebates earned on credit card purchases that the cardholder elects to have the credit card company give to a qualified charity. These rebates are not taxable income to the cardholder.   The following items are notdeductible:   * Contributions made directly to an individual or family, regardless of the recipient’s financial or health status.   * Contributions to an organization created to lobby for changes to federal, state or local laws.   * Contributions to political organizations or election campaigns.   * The value of blood donated.   * The value of your time to perform volunteer services.   * Contributions to non-profit homeowner or condo associations, or social or sports clubs.   * Raffle tickets. These can, however, be deducted as gambling losses if you have any gambling winnings to report.   * The rental value of the use of a vacation property donated to charity for a  “vacation auction ”.   If you plan to make donations to a church or charity AND claim a charitable itemized deduction on your 2017 Schedule A you MUST have -   (1) Documentation of your contribution.    (2) A contemporaneous written acknowledgment from the church or charity for any single donation of $250 or more.   Acceptable documentation includes-   * a cancelled check,   * a bank record (i.e. a copy of the front of the check included on your monthly bank statement),   * an entry on a bank or credit card statement indicating a credit or debit card charge,   * a written acknowledge from the church or charity, or   * if you give to the United Way or other charity via payroll deduction a pay stub, Form W-2, or other employer furnished document that sets forth the amount withheld for payment to the charity, along with a pledge card prepared by or at the direction of the charity, will be appropriate documentation.   The written acknowledgement from a church or charity must include the organization’s name and address, the date and amount of the contribution, and indicate whether you were provided any goods or services (other than “intangible religious benefits”) in exchange for the donation.  To be able to claim a deduction for the full amount of your contribution the acknowledgement must state - “No goods or servi[...]



COMING ATTRACTIONS

2017-10-19T05:00:01.833-04:00

Coming your way in just two weeks – the November 2017 issues of my two e-newsletters ROBERT D FLACH’S 1040 INSIGHTS and L O I S (aka Lots of Interesting Stuff)!   The November issue of my ROBERT D FLACH’S 1040 INSIGHTS, which shares my insights on tax deductions, credits, strategies, and issues based on 45 years in “the business”, discusses in detail a variety of tax-saving year-end tax planning ideas, strategies and techniques.  It also includes a compilation of what is new in taxes for 2017 and helpful worksheets.    A one-year (5-issue) subscription to the newsletter is only $11.95delivered as a pdf email attachment.  A print edition sent via postal mail is available for only $17.95.  One tip from an issue could return the cost of a subscription many times over.    If your order is postmarked by October 31st I will send you the May, July and September 2017 issues as a bonus – so you will receive 8 issues instead of 5.    Or you can order just the November special year-end tax planning issue as an email pdf attachment for only $3.00.   In the November 2017 L O I S I discuss –   * Avoiding the penalty for underpayment of estimated tax   * Broadway sequels   * Year-end investment-related "to-dos”   * Conservatives and the religious right   * Why you make your check for taxes due to “United States Treasury”   * British police hierarchy   * A visit to San Antonio TX   * An interesting website   And, hopefully, leave you laughing.   L O I S is an “e-newsletter”, and is only available in pdf format delivered as an email attachment.  There is no print version available.   An annual subscription to LOIS is only $7.95!   I will send readers of TWTP a copy of the November issue for only $1.00!    Send your order, with check or money order payable to TAXES AND ACCOUNTING, INC, to –   TAXES AND ACCOUNTING, INC TTFN OCTOBER NEWSLEETTER OFFERS POST OFFICE BOX A HAWLEY PA 18428   TTFN       [...]



A REVIEW OF RECENT TAX DEVELOPMENTS

2017-10-18T05:00:04.670-04:00

The week-day daily “Checkpoint Newsstand” from Thomson Reuters recently provided a good summary of some important tax developments that have occurred in the past three months that affect taxpayers, their investments, and their livelihood.    I have provided some of TR’s summary below, with my own wording replacing theirs in several places, and including some of my own personal comments.   (1) The Donald T Rump Administration and select members of Congress have released a "unified framework" for tax reform. The official framework document leaves many specifics to be worked out by the tax-writing committees (i.e., the House Ways and Means Committee and the Senate Finance Committee).   The “framework” –   * Increase the standard deduction to $24,000 for married taxpayers filing jointly, and $12,000 for single filers;   * Eliminate the personal exemption and the additional standard deductions for older/blind taxpayers;   * Reduce the number of tax brackets from seven to three: 12%, 25%, and 35%; Increase the child tax credit;   * Repeal the individual alternative minimum tax;   * Largely eliminate itemized deductions, but retain the home mortgage interest and charitable contribution deductions;   * Repeal both the estate tax and the generation-skipping transfer tax;   * Provide a maximum 25% tax rate for "small" and family-owned businesses conducted as sole proprietorships, partnerships and S corporations;   * Reduce the corporate tax rate to 20% (down from the current top rate of 35%);   * Provide full expensing for five years;   * Partially limit the deduction for net interest expense incurred by C corporations;   * Repeal most deductions and credits, but retain the research and low-income housing credits;   * Modernize special tax rules that apply to certain industries and sectors;   * Provide a 100% exemption for dividends from foreign subsidiaries; and   * To protect the U.S. tax base, tax the foreign profits of U.S. multinational corporations at a reduced rate and on a global basis.   As mentioned above, the actual details on these proposals have still not yet been determined.  As it is so late in the year it is, in my opinion, doubtful that substantive tax reform legislation will be passed before year-end.  In any case, I do not expect any legislation to affect the 2017 Form 1040.   (2) On September 29, the "Disaster Tax Relief and Airport and Airway Extension Act of 2017" (P.L. 115-63) was signed into law. The Act provides temporary tax relief to victims of Hurricanes Harvey, Irma, and Maria.   Relief for individuals includes, among other things, loosened restrictions for claiming personal casualty losses, tax-favored withdrawals from retirement plans, and the option of using current or prior year's income for purposes of claiming the earned income and child tax credits.   Businesses that qualify for relief may claim a new "employee retention tax credit" of 40% of up to $6,000 of "qualified wages" paid by employers affected by Hurricanes Harvey, Irma, and Maria (for a maximum credit of $2,400 per employee).   In addition to the new law, IRS has granted specific administrative hurricane relief, for example, extending various deadlines, encouraging leave-based donation programs for hurricane victims, and allowing retirement plans to make hardship distributions.   (3) On July 28, the Treasury Department announced that it would begin winding down the myRA (my Retirement Account) program—a ty[...]



SO WHAT ABOUT THE MORTGAGE INTEREST DEDUCTION

2017-10-17T05:00:29.093-04:00

According to the cocktail napkin scribblings that is the “framework” for tax reform currently being touted by arrogant demagogue Donald T Rump, one of the very few itemized deductions that will remain will be the deduction for home mortgage interest.   I do believe that the deduction for acquisition debt interest (but not home equity debt interest) for a taxpayer’s primary principal residence should be kept (as well as the deduction for state and local income and property taxes).  Not to support the housing market, but as part of an attempt at “geographical equalization”.   What do I mean?  Americans are taxed based on income measured in pure dollars.  But the “value” of one’s level of income differs, sometimes greatly, based on one’s geographical location.  A family living in the northeast (New York, New Jersey, Massachusetts, and Connecticut) or California with an income of $150,000 may be just getting by, while a similar family that resides in “middle America” lives like royalty on $150,000. Many components of the Tax Code are indexed for inflation, but nothing is indexed for geography.   It costs an awful lot to live in the northeast and California. State and local income and property taxes are the highest in the country. The cost of real estate is also excessively high, and so acquisition debt is higher. As a result, one must earn a lot more money to be able to live in these states – and so salaries are arbitrarily increased to reflect the higher cost of living.  Since we pay taxes on “net income” after deductions, allowing an itemized deduction for these items would help to somewhat geographically equalize the tax burden.   In my opinion, the current deduction for mortgage interest – both on Schedule A and Form 6251 (Alternative Minimum Tax) is perhaps the area of the Tax Code where proper documentation and strict adherence to the law is the most overlooked (or actually ignored).    Let’s take a look at the current deduction for mortgage interest.   “Qualified residence interest” on debt secured by a residence, aka mortgage interest, that is paid on your primary and secondary residences may be deductible on Schedule A.  But just how much can you deduct?  It depends.    There are three types of qualified residence interest debt -   1) Grandfathered debt – debt acquired on or before October 13, 1987, that was secured by a main residence or a qualified second home.  It does matter what the proceeds of the loan were used for, as long as the debt was secured by the property.  The interest deduction is not limited.  Interest on grandfathered debt is deductible in full as mortgage interest.     2) Acquisition debt - debt acquired after October 13, 1987, that was used to buy, build, or substantially improve a main residence or a qualified second home. A “substantial improvement” is one that adds value to the home, prolongs the home’s useful life, or adapts the home to new uses.  You can deduct the interest on up to $1 Million in principal ($500,000 if Married Filing Separately). Qualified acquisition debt cannot exceed the cost of the home and any substantial improvements.    3) Home equity debt – debt acquired after October 13, 1987, that is secured by a main residence or a qualified second home that is not used to buy, build, or substantially improve the property.  There is no restriction or limitation on what the money can be [...]



THIS JUST IN!

2017-10-16T08:27:41.163-04:00

An important item that I missed in this morning’s BUZZ post.According to the Social Security Administration (highlights are mine) -“Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 66 million Americans will increase 2.0 percent in 2018, the Social Security Administration announced today.”And -“ . . . the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $128,700 from $127,200.”Click here for a Fact Sheet on the 2018 changes. [...]



WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’

2017-10-17T16:09:52.285-04:00

Very, very important – you MUST get your extended tax returns in the mail (postmarked) TODAY– even if you cannot afford to send your “uncle(s)” the total amount of any tax due! A “meaty” BUZZ today. * Today at THE TAX PROFESSIONAL - "The AFSP - Boon or Bust?". * For those affected, ACCOUNTING TODAY has a slideshow on “Rebuilding tax records after a disaster”. * Have you ever thought about becoming a professional tax preparer? If the answer is yes you should check out my book SO YOU WANT TO BE A TAX PREPARER.  Click here to read a review.  And click here to order a copy in e-book format you can read on Kindle.  * I have talked often about how ending the federal Estate Tax might result in the end of the step-up in basis of inherited assets, which would be a total disaster for tax preparation.    Daniel Berger suggests another result from eliminating the “death tax” in “The Unintended Consequences of Killing the Estate Tax” at TAX VOX, the blog of the Tax Policy Center - “But there are other considerations to repealing the estate tax. One is that many wealthy people use charitable giving while alive or through bequests to reduce or eliminate their estate tax liability. In the mid-1940s the bequests of Henry Ford’s sons made the Ford Foundation the largest philanthropy in the world, and in 2014 businessman Ralph Wilson Jr. left $1 billion to his charitable foundation. In 2015, charitable bequests amounted to around $20 billion dollars. While it is not possible to know how the estate tax affected any individual bequest, nor should the generosity of these gifts be minimized, there is evidence to suggest that the existence of an estate tax does effect decisions to leave charitable bequests and increases lifetime giving. The economics are relatively simple. Each dollar bequest to charity lowers the size of the taxable estates by a dollar, and reduces the amount of estate tax liability by as much as 40 cents. Eliminating the estate tax would make leaving money to charity more “expensive”, compared to current law. The same logic follows with lifetime giving. If a high-income household claims an itemized deduction for a charitable contribution on its income tax, the gift will lower its current tax bill and at the same time the contribution will reduce the amount of money that might eventually be subject to the estate tax.”  This is certainly something to think about when evaluating the fate of the Estate Tax.  I have not been a fan of the Estate Tax, but to be honest, at current levels it only affects at most 2 or 3 of my clients. * Jeffrey Bartash tells us “Here’s how much Social Security checks could increase in 2018” at MARKET WATCH – “By triggering higher inflation in August and September, the storms may have boosted the expected increase in benefits in 2018 by the most in six years. The annual COLA, or cost-of-living adjustment, could be as much as 2% versus the 1.6% to 1.8% increase that seemed likely a few months ago.” * FORBES.COM’s TaxGirl Kelly Phillips Erb deals with a little-understood tax form in her “Ask the TaxGirl” post “Should I Cancel A Form W-9?”  * Kay Bell warns that “IRS e-Services is bait in new tax ID theft phishing scheme” – a scheme aimed at tax professionals.  Kay tells us – “Everyone — tax professionals and all us individual taxpayers — should be cautious when we receiv[...]



SOME THOUGHTS ON EMPLOYEE BUSINESS EXPENSES

2017-10-10T05:00:13.081-04:00

While doing away with all itemized deductions except mortgage interest and charitable contributions, as it is thought the “framework” for tax reform does, would certainly simplify the Tax Code, it would, in some instances, be unfair.   Let’s look at the deduction for “employee business expenses”.   Many employers have established an “accountable” plan for reimbursing employees for these expenses.  If an employee incurs a legitimate job-related out-of-pocket expense he/she submits proof of payment to the employer and is reimbursed.    However, others, especially outside commission salesmen, are not reimbursed for the expenses incurred to generate sales.  The employer pays the employee a draw and a commission based on sales volume.  The employee is expected to “eat” his out of pocket expenses, which could be extensive in terms of business miles, meals and entertaining, and promotional expenses.    In the case of the reimbursed employee, his net salary is, in effect, all “in-pocket”.  In the case of the unreimbursed employee his net “in pocket” is his net salary less his unreimbursed expenses.  And the salary of the unreimbursed employee is usually higher due to the “unreimbursementness”.  The unreimbursed employee is being more highly taxed than the reimbursed employee.   If the commission salesman was self-employed instead of an employee he/she would be able to deduct in full all related expenses, and pay tax, income and payroll, on the true “in pocket”.   Currently the unreimbursed employee can claim a tax deduction for his/her expenses on Schedule A, although this is limited by the 2% of AGI exclusion for “miscellaneous” expenses.  FYI, back when I started in “the business” (early 1970s) outside salesmen could deduct unreimbursed expenses as an “Adjustment to Income”.   On the other hand, allowing employees a deduction for business automobile expenses that includes depreciation is perhaps excessive and unfair.   For the most part taxpayers who use their car for business, other than commuting, would own a car whether or not one was needed for business. The business use, however extensive, is basically secondary to personal use.  I own a car. I have always owned a car.  Although a large percentage of my current driving is business related (because since I work out of a home office I have no “commute”), I own the car primarily for personal and not business reasons, and would own a car whether it was needed for business or not.      Currently the standard mileage rate for business is calculated using an annual study of fixed and variable costs of operating an automobile - including insurance, repairs and maintenance, tires, gas and oil, and depreciation. For example, the 2016 business standard mileage rate of 54 cents per mile included 24 cents allocated to depreciation.     But because the main reason for purchasing a car is personal and not business, depreciating the cost of purchasing the car, based on business use, is not really a true business expense.  Only the business use percentage of actual operating expenses should be allowed as a deduction – because the more miles you drive the more you spend for gas, oil, repairs and maintenance, tires, and probably insurance.   So, to be more representative of the actual out of pocket business[...]



WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’

2017-10-09T05:00:08.811-04:00

An important reminder for all taxpayers –  Every person has a unique tax situation.  No two tax returns are the same.  Your situation is different from other taxpayers.  Not every question has the same answer for every taxpayer.  The actual correct answer to just about every tax question, except “Should I cheat?” – is “It depends”. Now, on to the BUZZ. * Leandra Lederman makes some very good points about the alleged “IRS Scandal”, which TAX PROF Paul Caron tells us in now in its 1600+ day (I agree with fellow blogger Peter J Reilly that the Professor has most certainly “jumped the shark” with this blog post series) in “The Real IRS Scandal” at the SURLY SUBGROUP blog - “The fact that IRS employees were using keywords to identify progressive as well as conservative organizations doing too much political activity to qualify under 501(c)(4) should have been clear to anyone who dug into the public documents. But it wasn’t the message that the House Oversight Committee–and thus many media stories–disseminated. The real scandal was the damage the resulting witch hunt did to the IRS.” There was no IRS scandal.  IRS employees were doing their “due diligence” in investigating the organizations applying for 501(c)(4) status (organizations “for the promotion of social welfare”).  Tea party related organizations should have been closely investigated, as well as more “politically liberal” organizations, which also were. The unacceptable and inappropriate act was not by the IRS, but by the idiots in Congress who continually underfund the IRS as “punishment”.    * Paul D Allen explains “If It Isn't Taxable Why Do I Have to Put It on My Tax Return?” at the PIM TAX SERVICES BLOG. PDA is correct when he says, “It’s important for your overall financial well-being to understand your taxes,” even if you use a tax professional to prepare your return.  I have said for years that the more informed you are on taxes the better prepared you will be when you see your preparer at tax time.  A good reason to “subscribe” to THE WANDERING TAX PRO (see upper right-hand margin). * This week’s Monday post at THE TAX PROFESSIONAL asks “Is Silence Golden?”.  Be sure to return there on Wednesday for an interview with the President of NATP.  * Professor Annette Nellen gives us her “Tax Reform Framework Observations” at 21st CENTURY TAXATION. In the post the Professor also exposes arrogant Trump’s obvious “pants on fire” lie that the “plan” does not help him personally - “The rate cut helps him. Also, he likely holds his vast business operations in many different types of entities including partnerships and S corporations and will benefit from the top rate of 25% on such income even after paying himself reasonable compensation. Also, if he is still carrying forward a net operating loss, repeal of the AMT helps him. And repeal of the estate tax is a tremendous tax cut for him.”  * Kay Bell suggests “5 things to consider in choosing workplace benefits” at DON’T MESS WITH TAXES.  * And Kay wonders “Will Equifax hack affect 2018 tax filing season?”. She ends the post with a reminder - “ . . . the IRS urges tax professionals and their clients — and all of us who do our taxes on our own, too — to assume that some t[...]



TAX RELIEF FOR HURRICANE VICTIMS

2017-10-04T05:00:03.203-04:00

On September 29, Trump signed into law H.R. 3823, the "Disaster Tax Relief and Airport and Airway Extension Act of 2017". The disaster relief component of this Act makes temporary changes to the Tax Code for individuals and businesses who were affected in – * the Hurricane Harvey disaster area on or after August 23, 2017, * the Hurricane Irma disaster area on or after September 4, 2017, and * the Hurricane Maria disaster area on or after September 16, 2017. The Act – (1) eliminates the current requirement that the allowable deduction for net casualty losses from the above disasters must be reduced by 10% of Adjusted Gross Income; (2) eliminates the current requirement that taxpayers must itemize deductions on Schedule A to claim a casualty loss deduction for the above disasters (the deduction will be treated as an additional Standard Deduction – and this additional deduction will be allowed in calculating the Alternative Minimum Tax); (3) provides an exception to the 10-percent early retirement plan withdrawal penalty for premature distributions related to hurricane relief for the above disasters; (4) allows for the re-contribution of retirement plan withdrawals for home purchases cancelled due to the above disasters; (5) provides flexibility for loans from retirement plans for qualified hurricane relief for the above disasters; (6) temporarily suspends the 20%, 30% and 50% limitations on charitable contribution deductions to qualified organizations associated with hurricane relief for the above disasters made before December 31, 2017; (7) creates an “Employee Retention Credit” of 40% of wages (up to $6,000 per employee) paid for employers that conducted an active trade or business in the above listed disaster areas on the date of the disaster and the active trade or business for which was rendered inoperable for some period of time following the disaster; and (8) allows taxpayers to use earned income from 2016 to calculate the 2017 Earned Income Tax Credit and Child Tax Credit. TTFN    [...]