Thursday, November 23, 2017

HAPPY THANKSGIVING!


May your stuffing be tasty.

May your turkey be plump.

May your potatoes and gravy

have never a lump.

May your yams be delicious.

and your pies take the prize.

And may your Thanksgiving dinner

stay off of your thighs!

TTFN








Wednesday, November 22, 2017

THIRD TIME WILL NOT BE THE CHARM!

As I told you in Monday’s BUZZ introduction, I recently attended the National Association of Tax Professionals’ (NATP) annual year-end tax update class “The Essential 1040”.

I provided a “review” of the class I attended in Parsippany NJ for my fellow tax pros in “The 2017 NATP ‘ESSENTIAL 1040’”.

This class covered the new COLA and inflation-adjusted numbers for tax year 2017 (which I have compiled here), that we preparers will use during the upcoming tax filing season, and new tax law, Tax Court decisions, IRS regulations, and other developments that will affect 2017 returns.

There has not been any substantive new tax legislation, nor any new developments of consequence, and not much of real value of interest to report here.

I did learn that, in addition to the “normal” Standard Mileage Allowance” for business, charitable, medical, and relocation driving, there is also a specific Standard Mileage Allowance for business use of motorcycles and airplanes – for 2017 the amount for motorcycles is 50.5 cents per mile and for airplanes is $1.15 per mile.

A draft copy of the 2017 Form 1040 was included in the workbook, and it appears the only change is to Line 34 on Page 1, previously the line to claim the Tuition and Fees adjustment to income, which now reads “Reserved for future use”.

We were told that the instructions for the 2017 Form 1040 will tell taxpayers who are not requesting direct deposit of their refund to put X’s in all of the boxes at 76b and 76d, where you would enter the bank account information, so crooked IRS employees could not enter their own personal bank information, which, apparently, has been done in the past.

The class included a discussion of the continued concerns of National Taxpayer Advocate Nina Olsen about the use of, and abuse by, outside collection agencies to collect outstanding tax debt, required, despite a history of pervious failures, by the idiots in Congress.

As fellow tax blogger Kelly Phllips Erb, FORBES.COM’s TaxGirl, pointed out in a discussion of this issue when Congress first passed the law that required this nonsense -

About 20 years ago, the IRS tried their hand at using private debt collectors. That lasted a year and was canned amid complaints about unfair practices and harassment. Congress made another go at private tax debt collectors during the George W. Bush administration as part of the American Jobs Creation Act. It didn’t end happily. That program ‘resulted in a number of complaints, including one case in which a private debt collector made 150 calls to the elderly parents of a taxpayer’ even after the collection agency discovered the taxpayer was no longer at the address.”

And -

The 1996-1997 program resulted in a $17 million net loss to the government. That second go in the mid-2000s? Another loss of $4.5 millionThose aren’t costs. They’re losses.”

I doubt the third time will be the charm.

My advice to taxpayers who are contacted by a private collection agency about a tax debt has always been this - If you receive an IRS letter stating that your account has been referred to an outside agency, write to the IRS, and the assigned agency, and tell them that you refuse to deal with a private collection agency and will only deal directly with the IRS because of your privacy concerns.

I have always said -

Outside collection agencies don’t give a rat’s hind quarters about the legitimacy of an alleged outstanding tax debt.  They only make money if they collect money, whether the money is actually due or not.  And they will continue to unethically harass alleged tax delinquents, as they do when collecting alleged private debts, and as they been proven to have done in prior outsourcing programs. 

It appears that NATP agrees, and included in the Appendix to the workbook for “The Essential 1040” class the following “Sample Letter For Returning Collection Cases From the Private Debt Collection Agencies to the IRS” –

Agency Name
Agency Address

Taxpayer Name:
Taxpayer SSN:

Dear Agency Name,

I am in receipt of IRS letter CP40 assigning my account to your agency for collection actions.  I am enclosing a copy for reference and am copying the IRS office that issued this letter on this correspondence.

Pursuant to the Fair Debt Collection Practices Act, I am instructing you to return my account to the Internal Revenue Service immediately for resolution.  I will contact the IRS Collections division to pursue a resolution to this matter.

Please provide a written acknowledgement of receipt of this request confirming that my account is being returned to the IRS for resolution.

I am further requesting you immediately cease all attempts to contact me pursuant to the Fair Debt Collection Practices Act, except for the written acknowledgement that the account is being returned to the IRS.

Sincerely,

Taxpayer Name

Great letter, NATP!  Thanks for providing this.


TTFN





Tuesday, November 21, 2017

IMPLEMENTING THE POSSIBLE NEW MORTGAGE DEDUCTION RULES

The House passed tax bill – the Tax Cuts and Jobs Act - is NOT as great as the Republicans say it is, and it is NOT as disastrous as the Democrats say it is.

It is a mixed bag – with good, bad, and ugly.  It has some simplification, and also adds unnecessarily to the complication of the Tax Code.

It is most certainly NOT a “massive tax cut for the middle class”.  And arrogant idiot Donald T Rump and his family benefit substantially from its provisions.

Whatever tax legislation is finally signed into law, if one is indeed finally signed into law – it will not deal with the practical implementation of the provisions of the Act.  The idiots in Congress rarely, if ever, take this into consideration when writing tax law.  It will be up to the Internal Revenue Service to establish the rules and regulations for implementation, up to the taxpayer and tax preparer to properly comply, and back to the IRS to verify compliance.

Let us look, for example, at the deduction for mortgage interest.

As I understand it, in the House bill existing mortgage debt is “grandfathered”, keeping the current rules for deduction.  For all new mortgage debt incurred after November 2nd, or perhaps the date of enactment, the deduction will be limited to interest on principle of up to $500,000 of acquisition debt only for a taxpayer’s one primary personal residence.  Interest on new home equity borrowing will no longer be deductible.  I am assuming that additional borrowing for the “substantial improvement” of the primary personal residence will continue to be classified as acquisition debt.

The Senate’s final version keeps the mortgage interest deduction intact (but it does do away completely with all state and local taxes – income, sales personal property, and real estate).

Currently the Form 1098 (Mortgage Interest Statement) – which the IRS matches to deductions for mortgage interest claimed on Schedule A - reports the total amount of all “mortgage interest received from borrowed”, as well as “points paid on purchase of principal residence”.  It also indicates the outstanding mortgage principle balance at the beginning of the year, for example 1/1/2017, but does not break down the specific amount of acquisition debt or home equity debt. 

The taxpayer is currently responsible for keeping separate track of acquisition and home equity debt – something I truly believe probably 90% of taxpayers do not do, or do not do properly.  And, I expect, a similarly substantial percentage of tax preparers do not keep separate track of debt for their clients.  If the House provision survives the conference committee and makes it into the final law, and no change is made to the current Form 1098, it will be more important than ever for taxpayers to keep separate track of acquisition debt and home equity debt.

A new Form 1098 should be created to separately report –

1. Total mortgage interest received for the year on all “grandfathered” mortgage debt.

2. Year-beginning principle balance of all “grandfathered” mortgage debt.

3. Total mortgage interest received for the year on “new” acquisition debt on the purchase of, and capital improvement to, the mortgagee’s primary personal residence on up to $500,000 in principle.

4. Points paid on the first $500,000 of principle on the purchase of a primary personal residence.

The form would not report any “new” home equity debt interest.

Mortgage lenders should be required to identify the purpose of the borrowing – acquisition debt or home equity debt – via taxpayer certification, and keep separate internal track of the two types of debt.  Perhaps mortgage lenders should create two separate debt instruments and not combine acquisition and home equity debt in the same loan.  Going forward, for simplicity sake, the closing costs on the refinancing of “new” acquisition debt, where the borrower does not take additional money for anything other than capital improvements to the residence, should be included in acquisition debt.  

Obviously, this would create more work for mortgage lenders.  But it would greatly improve compliance and make the job of the IRS, and the tax preparer, much easier.  Mortgage lenders would have a full year from final passage of the Act to change their internal accounting systems.

As an aside – one question I have is whether new refinancing of grandfathered debt would be treated as continued grandfathered debt, and deductible under current rules, or as new mortgage debt, and subject to the new limitations.

And as a further aside - I totally support the new treatment of the deduction of mortgage interest as it exists in the recently passed House version of the Act.  I would actually go further and limit “grandfathered” debt to mortgages only on a taxpayer’s one primary personal residence – I would no longer allow any itemized deduction for a second or vacation home. 

There will certainly be implementation issues with other provisions of any final act that will need to be, hopefully, intelligently dealt with.

So, what do you think?


TTFN 







Monday, November 20, 2017

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

Last Friday I attended the National Association of Tax Professional’s annual “The Essential 1040” year-end tax update workshop.  Last year in October I had compiled “What’s New For 2017” (click here to download) to report much of what was discussed at this workshop.  Today’s post at THE TAX PROFESSIONAL, “The 2017 NATP Essential 1040”, has my “review” of the event.  And I will post items of interest for taxpayers from the workshop here later this week.  

* Speaking of NATP – the organization has produced a good, but very general, comparison of the recently passed House “Tax Cuts and Jobs Act” and the version approved by the Senate Finance Committee that will be voted on after Thanksgiving.  Click here to download.

In case you are interested - in my opinion the Senate version is worse than, or perhaps I should say not as good as, the House version.  Of the 2 I prefer the House version, although it certainly has provisions that I oppose.

* Paul D Allen deals with an important but little understood topic in “Interest Tracing Rules” at the PIMCO TAX BLOG.

Like many things in the tax law, this is one of those concepts that doesn’t seem important to know until it applies to your personal tax situation.”

An excellent bottom line –

Taxes are definitely not easy, and interest tracing rules don’t make them any easier.”

* Kelly Phillips Erb, aka FORBES.COM’s TaxGirl, gives us an “Ask The Taxgirl” post on “Dependent Care Expenses & Stay-At-Home Parents”.

* Kay Bell provides a timely warning - “Beware year-end ID theft and quick cash scams” - at DON’T MESS WITH TAXES.

* Once more, for those who are interested – click here to download TAX BUZZ, the new monthly e-newsletter for my 1040 clients.

THE FINAL WORDS

(1) I 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.

(2) More Republicans in Congress are now rightfully calling for Ray Moore to step down, based on the multiple credible accounts of under-age women he assaulted.

Yet most of these same Republicans ignore the 15 credible accounts of women assaulted by Trump, and his unapologetic bragging about sexual assault.

So, according to the Republican Party, it is only wrong to assault teenagers. Once a woman reaches the age of majority she loses her rights and it is okay to assault her without consequences?

But wait, Trump is also accused of sexually assaulting a 14-year old.

An aside – it is odd that Hollywood has higher standards for behavior than Washington.

Bottom line - the same Republicans calling for Moore to step down should also be calling for Donald T Rump to step down!


TTFN







Friday, November 17, 2017

THE HOUSE DOES IT

Yesterday the House passed the “Tax Cuts and Jobs Act” (H.R. 1) by a vote of 227-205 along party lines.  Not a single Democrat voted for the Act, and 13 Republicans from states with high taxes voted against it – no surprise there. 

While it very obviously is NOT a “massive tax cut for the middle class” as promised by arrogant arsehole Donald T Rump and the Republicans, and serial liar Trump and his family benefit “huuuuugely” from its provisions, it is not all bad.  As I have said elsewhere, like TRA ’86 it is a mixed bag – there is some simplification, yet there is also more ridiculous complication.  I wrote about the House version in several previous posts here at TWTP - click here, here, here, and here.

The Senate will vote on its version after Thanksgiving, and the prospect for passage is actually up in the air.  If the Senate does pass its Act, a conference committee will have to work out the differences.

I will not discuss this Act in detail any further until it is actually signed into law by the idiot in the White House, if that actually does happen.

What I will talk about at this time is what is actually very, very good in the House bill, as I understand what it includes - items which I really, really, really hope will remain in any final bill that is signed into law.

1) It maintains the step-up in basis for inherited assets even after the total repeal of the federal Estate Tax.

(2) It repeals the dreaded Alternative Minimum Tax.

(3) It provides an annual inflation adjustment for the Standard Mileage Allowance amount for charitable driving.

As for everything else, while I support some items and oppose others, I will not be devastated if any of the other items I support do not make it to the final cut.

TTFN






Tuesday, November 14, 2017

THE FLACH TAX PLAN – A NEW SIMPLER FORM 1040

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 one return 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 reduce the 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 comments on my new Form 1040 are welcomed.  And you are welcome to share the link with, or download and copy the report to distribute to, friends, family, co-workers, and colleagues.


TTFN









Monday, November 13, 2017

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

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 WORD

I 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