Monday, October 24, 2016
* Professor Jean Murray details “First Steps to Starting a Business” at THE BALANCE.
* Manasa Nadig EA explains “Running A Gig or Two? What You Need to Know!” at the nicely named THE BUZZ ABOUT TAXES blog -
“If you participate in the Gig or the Shared Economy, there are certain tax obligations you have to fulfill.”
* Jason Dinesen gives a straight, firm answer to the question “Do Property Managers Send 1099 Based on Gross Rent or Net Rent?” at DINESEN TAX TIMES.
* The CCH week-day DAILY HEADLINE NEWS reports “Tax Relief For Victims of Hurricane Matthew Expanded; Parts of Four States Eligible”.
* Did you celebrate? October 22nd was the 30th anniversary of the signing of the Tax Reform Act of 2016 (aka TRA86), the last major reform of the federal income tax laws.
Annette Nellen and Jeffrey A. Porter have written an article for THE JOURNAL OF ACCOUNTANCY on what led to the TRA86 and what happened afterwards titled “30 years after the Tax Reform Act: Still aiming for a better tax system”.
* And for THE TAX ADVISOR Annette discusses “Form 8332 Challenges for Divorced Couples”.
The rules for divorced parents claiming children as dependents can cause lots of agita. What is agreed upon in the divorce agreement is not always carried forward properly at tax time. Annette’s piece offers some “lessons learned” from some court cases.
This piece just underscores the importance of having your, or a, tax professional review your divorce agreement before you sign it. Many divorce lawyers are highly competent and knowledgeable in divorce law but don’t know their arse from a hole in the ground when it comes to tax law.
* Now that the tax filing season is truly officially over – the extended deadline has passed – Russ Fox borrows my annual tax season review post title to talk about “That Was the Tax Season That Was” at TAXABLE TALK.
Russ warns that the 2017 tax filing season, for 2016 returns, will bring new problems – more late K-1s (which I truly hate) for limited partnerships because of more extended Form 1065s due to the new earlier initial filing deadline, and more, in my opinion erroneous and unnecessary, work for tax preparers due to additional due diligence for certain tax credits.
My 1040 tax filing season has not yet ended, as I am currently finishing up my last GD extension.
* Let me end with an interesting item from Kay Bell’s DON’T MESS WITH TAXES – “N.J. man files toilet paper tax class action lawsuit”.
THE FINAL WORD
It is vitally important that anyone out there who is still “on the fence” about dangerous and despicable Donald Trump and is considering a vote for him as an option on November 8th, as well as those who already plan to vote for him, read in full the humongous 14-chapter 7,900-word editorial in Friday’s New York Daily News titled “Bury Trump In A Landslide”.
Click here to read this editorial.
It begins (highlights are mine) –
“When deliberating over a presidential endorsement, the Daily News Editorial Board strives to identify the person who offers the greatest promise to brighten the futures of Americans and to safeguard the national security.
Never have we questioned a candidate’s fitness to serve.
Then came Donald Trump — liar, thief, bully, hypocrite, sexual victimizer and unhinged, self-adoring demagogue.
The 16-month campaign since Trump vaingloriously entered the race has horrifyingly revealed that the Big Lie brazenly told — built on smaller falsehoods and spread by social media and a lust for TV ratings — can bring the United States to the brink of electing an aspiring strongman with no moral bearing or self-control.”
And goes on, in 14 separate sections from “Trump the demagogue” to “Trump the enemy of democracy”, to describe in detail, using Trump’s own words and actions, the reasons why he must never become President, and identifying his many, many, many failures as a businessman, a candidate, and a human being.
Here are just two of the multitude of facts the editorial presents, and certainly not the most heinous –
“During the campaign, Pulitzer Prize-winning PolitiFact has rated fully 71% of Trump’s statements as mostly false, false, or pants-on-fire false. The Washington Post Fact Checker has given 65% of the Trump statements it reviewed four Pinocchios, its worst rating for truthfulness.”
“Researchers at NBC News have catalogued Trump’s positions on major issues since the start of the campaign.
They found, as of early October: 18 different positions on immigration reform; 15 different positions on banning Muslims; nine different positions on how to defeat ISIS; eight different positions on raising the minimum wage; seven different tax plans, and eight different strategies for dealing with the national debt.”
It is impossible to read this editorial without coming away with the firm belief that we must, as its title suggests, “bury Trump in a landslide” defeat in November.
Please, please, please read this editorial in its entirety, and forward it to anybody you know who is planning on or thinking about voting for this vile piece of excrement.
As I have been saying throughout the campaign – if Trump wins America, and the world, truly loses!
Wednesday, October 19, 2016
The following has just been released -
The 2017 Social Security wage base for computing the Social Security component of the FICA tax is 127,200, up from $118,500. The maximum withholding for Social Security tax for 2017 is $7,886.40.
The self-employment tax imposed on self-employed people is 12.4% Social Security tax on the first $127,200 of self-employment income, for a maximum of $15,772.80, plus 2.90% Medicare tax on the all self-employment income.
Click here for a chart of historical contribution and benefit bases from 1937 through 2017.
The Social Security Administration has also announced -
“Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 65 million Americans will increase 0.3 percent in 2017, the Social Security Administration announced today.
The 0.3 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 60 million Social Security beneficiaries in January 2017. Increased payments to more than 8 million SSI beneficiaries will begin on December 30, 2016. The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.”
Tuesday, October 18, 2016
Do you volunteer your services for, or serve on the Board of Directors of, a church or charity?
As a volunteer, while the value of your time, however important, is not deductible, if you itemize you can deduct as a charitable deduction on Schedule A out-of-pocket expenses incurred while performing your volunteer service, as well as travel and transportation expenses related to your service.
To be deductible the expenses must be -
· directly connected with the services you are providing,
· incurred only because of the services you gave, and
· not personal, living, or family expenses.
Here are some examples of deductible volunteer expenses –
• The cost and cleaning of uniforms that are not suitable for everyday use and that you must wear while performing donated services for a charitable organization, such as the uniform of a Scout Master.
• The ingredients of baked goods - cookies, cakes, etc, - made for a fund-raising event.
• The cost of hosting a party or fundraiser for the organization.
• Postage and copying charges for sending mailings to members or potential members, or to contributors or potential contributors.
• The cost of travel, including reasonable amounts for meals and lodging, If you are selected to attend a regional or national conference or convention as our representative.
If you use your car for local travel in the course of performing your volunteer duties the easiest way to claim a deduction is to use the standard mileage rate of 14 cents a mile. Unlike the standard mileage rates for business, medical, and moving, which are set by the IRS each year, this amount is set by Congress and has not changed since 1998. You can instead elect to deduct the actual cost of gas and oil directly related to volunteer travel.
Charitable travel includes –
• Round-trip travel to attend committee and Board meetings.
• Transporting sports-team and youth club members to games and events, or organization members and clients, such as the disabled or the elderly, to appointments.
• Delivering food and other services to shut-ins.
• Shopping for food or other items for a soup kitchen or for organization members and clients, such as the disabled or the elderly.
• Visiting businesses to solicit or pick up donations.
You must have adequate records to prove the amount of the expenses. We can provide you with an acknowledgment that contains a description of the services you provided and a statement that we did not give you any goods and services or other reimbursement for the expenses incurred.
If you use your car to perform volunteer services your records must show the name of our organization, the date each time you used your car for a charitable purpose, where you drive, the nature of the service provided, and the miles you drove. A mileage log, similar to one used for business driving, should be kept.
The above discussion of deductible volunteer expenses is taken from my VOLUNTEER TAX GUIDE. I also have a CONTRIBUTOR TAX GUIDE. These guides are available free of charge to qualified tax-exempt non-profit organizations, including a qualifying church, to reprint and distribute free to volunteers, members, and contributors of the organization. The organization cannot use guides cannot be sold to anyone or distributed to the general public.
All I ask is that the organization that prints and distributes my guides that it sends me a signed letter on official organization stationery telling me so.
To request your free printable copy of these reports, sent as a word document email attachment, send an email to firstname.lastname@example.org with VOLUNTEER TAX GUIDE in the subject line.
Monday, October 17, 2016
Today is the deadline for filing extended 1040s. Your return must be postmarked today to be considered timely filed. The penalty for late paying is ½ of 1% (.5%) of the balance due per month (now 6 months). The penalty for late filing is 5% of the balance due per month – 10 times more! However the primary importance of this deadline is for returns with a balance due. There is no penalty or interest charges if the IRS or your state owes you money.
* THE HILL reports “Obama signs Olympic medal tax-exemption bill” -
“President Obama on Friday signed legislation to exempt from taxes the value of Olympic and Paralympic medals and prize money from the U.S. Olympic Committee. The tax exclusion does not apply for athletes with adjusted gross incomes of more than $1 million.”
Bad tax policy!
* FYI – “From September 1 through October 31, 2016, the State of Arizona is offering an opportunity for those who live, work, or do business in Arizona to pay any back taxes owed to the state without penalty, interest or criminal prosecution for those who qualify.”
Click here for more information on this program.
* TaxGirl Kelly Phillips Erb tells us “IRS Announces Tax Relief For NC Victims Of Hurricane Matthew, More To Come”.
* I agree with Jorge Gomez who says “It is never too soon to start thinking about tax preparation” in his post “The Dangers of Preparing Your Own Tax Return” at the nicely named TAXBUZZ blog.
Jorge talks about the benefits of using a tax professional to prepare your return. In most cases, as he points out, “professional tax preparers are constantly continuing to update their knowledge and education of the law, studying the direct impact of how the tax code impacts individuals.”
The choice of an appropriate tax professional is an important one. Not everyone who says he is a tax professional is qualified, competent, or current in 1040 preparation. You can begin your search at my site FIND A TAX PROFESSIONAL. Begin by reading the articles on the site.
As a point of information – I do not accept any new clients.
* Speaking of looking for a tax professional – also please read “How to Be a Better Client: Don’t Argue with My Advice” by Jason Dinesen at DINESEN TAX TIMES.
Be sure to read carefully, and follow, the “things you can do to get off on the right foot with the professional” at the end of the post.
And always remember my absolute BEST tax advice - Do not accept tax advice from anyone other than a professional tax preparer.
THE FINAL WORD
(1) To be honest, I had expected a lot more “hate email” from Trump supporters in response to my constant anti-Trump tweets and posts.
Here is a recent Trump-like tweet response from an apparent misguided supporter –
“@rdftaxpro damn youre a light weight”
I actually now am a light weight – having lost at least 90 lbs in 9 months in response to my diagnosis as a diabetic!
(2) I now realize why Despicable Donald continues to run for President, and why he will never “pivot” and change his tactics or comments. It is the rallies.
Being the ultimate narcissist Trump is orgasmic at these rallies because he is the center of attention and his deplorable fanatical followers cheer at his every nonsensical spewing.
Doesn’t the fool realize that if, God forbid, he is elected the cheering will stop?
Thursday, October 13, 2016
In light of the discussion of Despicable Donald’s humongous tax loss, which may or may not be to a large part the result of depreciation - Trump has admitted he loves depreciation, although obviously not as much as he loves himself - I thought I would reintroduce a controversial tax reform proposal I first put forward in 2007.
What if we did away with the depreciation deduction for real estate – on the Form 1040 and on all the various entity tax returns?
According to the IRS, depreciation is “an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property”.
Let’s look at depreciation from the point of view of the Income Statement. Basically, if you purchase an asset (i.e. equipment, a vehicle, or real estate) that will last more than one year you spread the cost of the asset over its “useful life”. You purchase a new computer. You certainly do not purchase a new computer each year – you expect that it will continue to provide service for several years. So you divide the cost of the computer over a period of years to reflect this fact, and to properly report the economic reality of the purchase.
If you deducted the full cost of the computer in the year of purchase this would distort the true cost of doing business. Since you generally purchase a new computer every five years, claiming a deduction of 1/5 of the cost each year “more better” represents your cost of operations.
Thus depreciation is used to “recover the cost or other basis of certain property”.
Another way to look at depreciation is from the Balance Sheet perspective. When you purchase an asset that asset has value to you. You trade the asset of cash for a computer. If you sold your business the value of the computer would be included in the value of the business. As an asset ages its value drops. A two-year old computer does not have the same value in the market as a comparable brand new computer. Depreciation is used to reflect the drop in value of the asset.
Thus depreciation is used to reflect the “wear and tear, deterioration, or obsolescence of the property.”
There are several ways to depreciate an asset. The simplest method is “Straight Line”. You deduct the cost of the asset evenly over its life. If you purchase a computer for $1000 and you expect it to last for five years you would deduct $200 per year. There are also “accelerated” methods which recognize that the value of an asset will be reduced disproportionately, with the reduction in value being greater in the earlier years. As you well know, when you buy a new car it drops in value the minute you drive it off the lot.
To simplify matters, the government provides guidelines for the “useful” life of different types of assets. The current depreciation system is called the “Modified Accelerated Cost Recovery System” (MACRS), which came about with the Tax Reform Act of 1986. MACRS is divided into two separate depreciation systems:
General Depreciation System (GDS) – this is “regular” MACRS and is used most often. It provides the shortest “recovery periods”. You can use the accelerated “150% Declining Balance” method or the Straight Line method over the GDS recovery period.
Alternative Depreciation System (ADS) – you can elect to deduct the cost of the asset over a longer life using the Straight Line method.
MACRS allows the cost of the asset, other than real estate or improvements thereto, to be deducted over 3, 5, 7 and 10 years. The most common recovery periods are 5-year, for cars, computers, copiers, typewriters and software, and 7-year, for furniture and fixtures.
For tax deduction purposes depreciation begins when the asset is “placed in service” and not necessarily when it was purchased. If I purchase and pay for a computer online in December of 2016, but the computer is not delivered to my office until the first week of January 2017, then depreciation begins in January and I can begin to deduct depreciation on the computer in tax year 2017.
Tax rules call for a “half-year convention”, which treats all assets whose cost recovery begins during the year as being placed in service on the midpoint of the year. It basically allows for 6 months of depreciation. Under certain circumstances assets can be depreciated using a “mid-quarter” convention, provided a greater first year depreciation for assets purchased early in the year.
Real estate is treated differently in the Tax Code. First of all the cost of land is never depreciated. So one must remove the value of the land from the purchase price of the property. The adjusted purchase price of Residential Real Estate, including residential rental property, is recovered over a “useful life” of 27.5 years. Non-residential Real Estate, i.e. commercial property, has a useful life of 39 years. The depreciation of real estate uses a “mid-month” convention.
If we look at economic reality, a building has a life of much more than 27.5 or 39 years. A building I lived in over a decade ago was 100 years old and still going strong. And, for the most part, the value of real estate does not drop in value over the years. If properly maintained its value will generally increase. My parents purchased their first home for $13,000 and sold it many, many years later for $75,000 (and they were robbed).
When a property is sold you must “recapture” any depreciation that was “allowed or allowable”, so the depreciation deduction is in reality just a loan from the government.
For all intents and purposes, again for the most part, real estate does not “depreciate”. You do not replace a building every few years because it no longer provides the same service or function. And the value of real estate as a component of the value of a business does not drop as it ages. So why do we allow a tax deduction for the depreciation of real estate?
Doing away with the depreciation deduction would provide the federal and state governments with additional tax money upfront, instead of having to wait years or decades till the property is sold to finally collect it. Without this deduction Despicable Donald would have actually had to pay income tax.
And bottom line - doing away with the depreciation deduction would more correctly tax the actual economic activity.
So, what do you think - should we do away with the depreciation deduction for real estate?
Tuesday, October 11, 2016
Some good news from the IRS!
Taxpayers under age 59½ have 60 days from the date you receive a distribution from an IRA account to rollover the monies to a new IRA account and avoid the 10% premature withdrawal penalty. In the past the IRS has chosen not to apply the penalty in certain special situations where the late rollover was the result of trustee error or other circumstances beyond the control of the taxpayer.
The IRS recently issued Revenue Procedure 2016-47, which provides for a new “self-certification” procedure designed to help recipients of retirement plan distributions who, due to one or more specified reasons, inadvertently miss the 60-day time limit for properly rolling these amounts into another IRA. The new self-certification procedure allows these taxpayers to claim eligibility for a waiver of the 60-day rollover requirement that can be relied upon by a plan administrator or IRA trustee in accepting and reporting receipt of the rollover contribution.
There are 11 situations that qualify for the waiver. They are –
1. The financial institution receiving the contribution or making the distribution to which the contribution relates made an error.
2. The distribution check was misplaced and never cashed.
3. The distribution was deposited into an account that the taxpayer mistakenly thought was an eligible retirement plan.
4. The taxpayer’s principal residence was severely damaged.
5. A member of the taxpayer’s family died.
6. The taxpayer or a member of the taxpayer’s family was seriously ill.
7. The taxpayer was incarcerated.
8. Restrictions were imposed by a foreign country.
9. The Post Office made an error.
10. The distribution was made on account of a levy under Sec. 6331, the proceeds of which have been returned to the taxpayer.
11. The party making the distribution delayed providing information that the receiving plan or IRS required to complete the rollover despite the taxpayer's reasonable efforts to obtain it.
I am currently in the process of writing a comprehensive guide on retirement savings. I will let you know when it is completed.
Monday, October 10, 2016
* Kay Bell provides some good suggestions in “4 (and more) tax moves to make this October” at DON’T MESS WITH TAXES
* Did you see my guest post on the “Alphabet Soup” of tax preparation at FINDING TAX LOOPHOLES – THE BLOG?
* The CCH FEDERAL TAX NEWS HEADLINES email newsletter reports “IRS Provides Relief for Drought-Stricken Farmers, Ranchers Forced to Sell Livestock”.
* Ed Slott warns us to “Avoid this disastrous IRA blunder” at FINANCIALPLANNING.COM.
* Kelly Phillips Erb, FORBES.COM’s TaxGirl, explains “A Tax Loss By Another Name Is Not The Same”, describing the various different types of tax losses.
THE FINAL WORD
What has Donald Trump proven during the Presidential campaign?
(1) A large percentage of the American public is frustrated and disillusioned, justifiably so, with the incompetence and inaction of “traditional” politicians, especially the idiots in Congress.
(2) He, Trump, is a dangerous, deplorable, despicable, unstable, worthless piece of excrement. It is obvious he is worse than any "traditional" politician.
(3) But, unfortunately, a surprisingly large percentage of the “great unwashed masses”, those who support Trump, are either naïve, gullible, mindless lemmings, bigots, or just plain stupid.
Based on the tape of the disgusting pig released Friday the Republican Party should tell him “You’re fired!”. Trump should indeed pull out, like his father should have!