SOMETHING TO THINK ABOUT

With all the talk about tax reform and reducing the corporate tax rate I have not heard anyone propose a “dividends paid” deduction for corporations.

 

Corporate profits are taxed twice – on the corporate return, and then again on the individual income tax return when dividends are paid to shareholders out of corporate profits.  On the individual level there is some relief via the reduced tax rates on “qualified” dividends – 0%, 15% and 20%.  But, except for the lowest level, there is still double taxation.

 

Instead of reducing the corporate tax rate to 15% why not just allow corporations to deduct from net taxable income dividends paid to shareholders.  And on the individual level tax all dividends as ordinary income, like interest income.  There would no longer be “double-taxation” of corporate income and basic investment income – interest and dividends - would be taxed the same as earned income.

 

On the corporate level I would also suggest removing all industry-specific tax “loopholes”, and tax corporations on net book income less dividends paid.  I would also do away with the deduction for depreciation on real property (buildings) and true capital improvements thereto – both on the corporate and individual tax return.  Generally, in reality, the value of investments in real estate do not “depreciate” over time.

 

Under my suggestion “C” corporate income and pass-through corporate income would be taxed in a similar method.  Dividends paid from a “C” corporation, not taxed on the corporation level, would now be taxed to the shareholder at ordinary income rates, and “S” corporation profits, an equivalent of dividends, would continue to be taxed at ordinary income rates.

 

My proposals would result in both corporations and individuals being taxed on the net “cash in pocket” economic result of their activities.

 

What do you think?

 

TTFN

 

 

 

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

As you are reading this I am attending the National Association of Tax Professionals’ Tax Forum in Atlantic City NJ.  I will post on this event when I return home.   

 

* Fellow tax pros – check out the premiere issue of my new free monthly e-newsletter ROBERT D FLACH’S THE TAX PRO.

 

It includes a “Meet and Greet” with NATP President Gerard Cannito CPA, CFP, and lots of other stuff of interest to tax professionals.     

 

* Kelly Phillips Erb, FORBES.COM’s TaxGirl, explains “How Helping Out With Donations After Irma Is The Same - And Different - From Harvey” and reports “IRS Announces Tax Relief For Taxpayers Affected By Hurricane Irma”.

 

* And Kelly continues her series of guest posts during the FORBES.COM “Tax Reform Week” with –

 

ü  “Tax Reform: 3 Myths & 4 Realities” by Edward Mendlowitz

ü  “Will Tax Reform Simplify The Tax Code?” by Bob Meyers

ü  “2017 Is Our Year To Make History On Tax Reform” by Congressman Kevin Brady

ü  “What A Tax Professional Would Like To See Out Of Tax Reform” by Russ Fox

ü  “Lifting The Middle Class Through Tax Reform” by Senate Finance Committee Chairman Orrin Hatch

ü  “Will We Get Tax Reform? It's A Matter Of Congressional Debate” by Todd Simmens, and

ü  “The Implications Of Revenue-Neutral Tax Reform” by Laurence M. Vance.

 

In his guest post Bob Meyers, “an Accounting Department lecturer and runs the University of Wisconsin - Whitewater Volunteer Income Tax Assistance (VITA) clinic”, suggests the Tax Code needs to be complicated because –

 

“We ask the U.S. income tax code to do a lot of heavy lifting. We want it to raise revenue, control the economy, create jobs, encourage and discourage certain activities, redistribute wealth, even participate in the country’s health care system.”

 

But the US Tax Code SHOULD NOT be used to “control the economy, create jobs, encourage and discourage certain activities, redistribute wealth, even participate in the country’s health care system”!  It’s one and only purpose is to “raise revenue”.

 

Prof Meyer does say –

 

“Maybe we could live with a tax code that does not do so much controlling of the economy, changing social behavior, or encouraging certain activities. This would allow us to get rid of many of those confusing tax code provisions. I could get behind that proposal.”

 

I talk more about this in “Tax Reform: What the Tax Code Should Not Be Used For”. 

 

And I like Russ Fox’s bottom line –

 

“The reality is that Congress benefits from the complexity. Lobbyists spend their largesse on Congress, and our Congressional representatives are the beneficiaries. Maybe Congress will surprise me. Being cynical, I doubt this will change.

 

I’d love to be surprised out of what emerges from Congress (if anything). I suspect, however, that my cynicism is well placed.”

 

Yes, Russ, it is truly well placed!

 

* Kay Bell explains that “Timing is among unanswered tax rewrite questions” at DON’T MESS WITH TAXES.

 

KB is correct when she says -

 

“From a tax planning standpoint, however, retroactive tax changes tend to be a royal pain in the ass.”

 

* Before we leave the topic of tax reform - have you seen my editorial on “What Tax Reform Should Look Like” at TAXPRO TODAY yet?  Why not?

 

* Getting back to Harvey and Irma, Russ Fox gives us the word that “Harvey and Irma Relief Includes the FBAR” (not to be confused with FUBAR) at TAXABLE TALK.

 

* And the IRS offers “Tax Relief for Victims of Hurricane Irma in Puerto Rico”.

 

* At the TURBO TAX BLOG (I don’t recommend using a box to prepare your tax returns, but it is ok to get advice from the blog) Ginita Wall answers the question “Can I Write Off My Grandparent as a Dependent?” -

 

“There’s no requirement that your grandparents live with you to be claimed as your dependent, as long as you meet the other five qualifications.”

 

* Monday’s post at THE TAX PROFESSIONAL provided a listing of “Online Resources for Tax Preparers”.

 

* Before I go a request to check out my “Author Page” at AMAZON.COM.   

 

THE FINAL WORD

 

“The most frustrating thing about the ignorant is how hard they work to remain ignorant.” - Will Spencer

 

An excellent description of Donald T Rump’s cult of ignorant supporters.

 

TTFN

 

 

 

 

TAX REFORM, TAX REFORM, WHERE FORTH ART THOU TAX REFORM?

There is a lot of talk about tax reform – but not much detail.  As I have constantly repeated, not much more than scribblings on a cocktail napkin.

 

As I said in my previous post “Trump and Tax Reform” –

 

“But he {Donald T Rump – rdf} really doesn’t give a rodent’s hind quarters, or an airborne sex act, about the actual details of this ‘reform’ – other than how it will save him and his business activities taxes, if he actually pays any taxes at all.

 

The Dumpster wants Congress to pass tax reform legislation – any tax reform legislation – only so he can claim a victory and say, ‘Look what I have done,’ regardless of what, if anything, he actually does.

 

Hopefully Ryan and McConnell will actually provide real and substantive tax reform legislation and not just a token bill aimed solely at giving the Party, and the idiot in the White House, a victory.”

 

Tax reform is turning out to be like health care “repeal and replace”.  The Republicans have opposed Obamacare and have been calling for its “repeal and replacement” since its introduction, perhaps more because it was a Democratic proposal than anything else.  They have had 7 years to come up with a “more better” option – but when it came time to actually introduce legislation they really had nothing.  There is much wrong with Obamacare, and also stuff right, and it truly needs to be fixed (see “The Good, The Bad, and The Ugly”) – but don’t hold your breath.

 

Republicans have had the same 7 years to come up with substantive tax reform plans and proposals – and I thought they had done so at various times in the past – but now they seem merely to have nothing more than a list of “concepts”.

 

I seem to recall reading that the tax reform proposal put forth by the Reagan Administration in the mid 1980’s was 300 pages (please correct me if I am wrong) – anyway that it was truly detailed and specific.

 

The more we do not hear actual specific plans and proposals the more I expect that there will not be any real tax reform legislation passed this year.  If anything there will be some token tax cuts merely to provide idiot Trump and the apparently incompetent Republican Party with the appearance of a win on something.

 

I really do not think anything of substance will be accomplished on anything with arrogant demagogue Donald T Rump in the White House. 

 

TTFN

NEW JERSEY HOMESTEAD BENEFIT UPDATE

Here is the latest word on the 2015 New Jersey Homestead Benefit, to be distributed in 2018 -

 

The Division of Taxation will mail 2015 Homestead Benefit packets over a three-week period in September 2017 -

 

Cape May, Mercer, Ocean counties = Saturday, September 16

 

Monmouth, Somerset, Union counties = Tuesday, September 19

 

Hunterdon, Middlesex, Passaic, Sussex counties = Thursday, September 21

 

Camden, Hudson, Morris counties = Saturday, September 23

 

Burlington, Essex, Gloucester, Salem counties =Tuesday, September 26

 

Atlantic, Bergen, Cumberland, Warren counties =Thursday, September 28

 

Using the same delivery schedule, NJDOT will send an email with instructions for downloading the packet to those filers who requested electronic delivery.

 

If you did not receive your application or an email message, wait at least one week after the expected delivery date for your county before contacting the Division. Call the Homestead Benefit Hotline at 1-888-238-1233, 8:30 a.m. to 5:30 p.m., Monday through Friday, except State holidays, or visit a Regional Information Center for help.

 

The filing deadline is November 30, 2017.

 

You may be eligible for a Homestead Benefit if you met these requirements:

 

·        You were a New Jersey resident; and

·        You owned and occupied a home in New Jersey that was your principal     residence on October 1, 2015; and

·        Property Taxes for 2015 were paid on that home; and

·        You met the 2015 income requirements

 

To meet the income requirements your 2015 New Jersey Gross Income – from Line 28 of your 2015 NJ-1040 - cannot be more than –

 

·        $150,000 for homeowners 65 or older or blind or disabled on December 31, 2015; or

·        $75,000 for homeowners under 65 and not blind or disabled on December 31, 2015.

 

If you were not a homeowner on October 1, 2015, you are not eligible for a Homestead Benefit, even if you owned a home for part of the year.

 

You are not eligible unless you are required to pay Property Taxes on your home. For example, you are not eligible if -

 

·        You are completely exempt from paying Property Taxes on your principal residence (such as certain totally and permanently disabled war veterans).

·        You made P.I.L.O.T. (Payments-in-Lieu-of-Tax) payments to your municipality. These payments are not considered Property Taxes for purposes of the Homestead Benefit.

 

If you sold your home, or plan to close on the sale on or before November 30, 2017 - if you no longer own the home that was your principal residence on October 1, 2015, or you plan to close on or before November 30, 2017, you must answer “No” to the question asking whether you still own the property when filing the Homestead Benefit application or you risk losing your benefit.

 

If you sell your home after filing your application - the Homestead Benefit will reduce the tax bill of the person who owns the property on the date the benefit is paid. This means that if you indicated you still own the home when filing your application, and later sell it, the only way to receive your 2015 Homestead Benefit is to take credit for the benefit at the closing of your property sale. If you plan to sell your home, discuss these instructions with your attorney or closing agent so they can negotiate on your behalf.

 

Your 2015 Homestead Benefit is based on your –

 

·        2015 New Jersey Gross Income,

·        2015 filing status (single; married, filing jointly; head of household; etc.),

·        Age/disability status (whether you were 65 or older and/or disabled on December 31, 2015),

·         Property Taxes paid in 2006 on your principal residence.

 

In most cases your 2015 Homestead Benefit as a credit on an installment of your quarterly property tax bill.  Your tax collector issues you a property pax bill or advice copy reflecting the amount of your benefit.

 

You will receive a check or direct deposit only if –

 

·        Your home was a unit in a co-op or a continuing care retirement community; or

·        You indicated that you no longer owned your home. (See Homeowners Who Sold or Plan to Sell Their Homes for more information.)

 

TTFN

 

 

 

TAX REFORM: WHAT THE TAX CODE SHOULD NOT BE USED FOR

Fellow tax blogger Kelly Phillips Erb, aka TaxGirl, put out a call for guest posts on the subject of tax reform for FORBES.COM’s “Tax Reform Week”.  I sent her one. 

 

I just heard from KPE, who emailed me –

 

“Unfortunately my timeline only allowed me to choose a few and I was not able to include your post. I tried to choose posts that represented a range of interests, backgrounds, and perspectives.” 

 

So it shouldn’t go to waste, here is the guest post I sent KPE -

 

As a 45-year veteran tax preparer I know too well that the current US Tax Code is a complicated “mucking fess”.  It should be shredded and rewritten from scratch.

 

The one and only purpose of the Tax Code is to raise the money necessary to fund the government.  It should not be used for social engineering, to redistribute income or wealth, or to deliver social welfare and other government benefits.

 

One of the biggest problem with the current system, and responsible for a large amount of its complexity and most cases of tax fraud, is the use of the Code, and the 1040, to deliver government benefits, especially through the use of “refundable” credits.  The Internal Revenue Service, and the tax preparer community, should not be required to act as Social Workers and administer and verify government benefit payments.    

 

It is not saying that the government shouldn’t provide financial assistance to the working poor and college students, provide encouragements for purchasing health insurance, making energy-saving purchases and improvements and other ‘worthy’ actions,”  But such assistance and encouragements should not be distributed via Form 1040.

 

The benefits provided by the Earned Income Tax Credit and the refundable Child Tax Credit should be distributed via existing federal welfare programs for Aid to Families with Dependent Children. The benefits provided by the education tax credits and deduction for tuition and fees should be distributed via existing federal programs for providing direct student financial aid. The benefits provided by the Premium Tax Credit, the energy credits, and other such personal and business credits should be distributed via direct discount payments to the appropriate insurance companies and vendors, similar to the successful Cash for Clunkers program of a few years ago, funded by the budget of the appropriate Cabinet department.

 

Distributing the benefits thIs way is much “more better” than the current method for many reasons:

 

1. It would be easier for the government to verify that the recipient of the subsidy, discount or rebate actually qualified for the money, greatly reducing fraud. And tax preparers, and the IRS, would no longer need to take on the added responsibility of having to verify that a person qualifies for government benefits.

 

2. The qualifying individuals would get the money at the “point of purchase,” when it is really needed, and not have to go “out of pocket” up front and wait to be reimbursed when they file their tax return.

 

3. We would be able to calculate the true income tax burden of individuals. Many of the current “47 percent” would still be receiving government benefits, but it would not be done through the income tax system, so they would actually be paying federal income tax.

 

4. We could measure the true cost of education, housing, health, energy and welfare programs in the federal budget because benefit payments would be properly allocated to the appropriate departments.

 

To be honest I do not expect Congress to stop this inappropriate practice.  Congress rarely does what should be done.

 

So, what do you think?

 

TTFN

 

 

 

 

 

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

* I explain “What Tax Reform Should Look Like” in an editorial at TAXPRO TODAY.

 

* Monday’s post at THE TAX PROFESSIONAL discusses “A Controversial Tax Reform Idea”.   

 

* Attention tax pros - Russ Fox has announced “IRS Appeals Steele Decision” at TAXABLE TALK - 

 

“To no one’s surprise, yesterday the IRS appealed the decision to the US Court of Appeals for the District of Columbia. It will likely be sometime next year before the case is heard and a decision rendered.”

 

So I won’t be looking for my refund check for past fees paid in the mail.

 

* At DON’T MESS WITH TAXES Kay Bell has some tips on “Reconstructing tax & other records after a natural disaster”.

 

* And Kay celebrated Grandparents Day with “Tax-advantaged ways grandparents can give to grandchildren”.

 

* FORBES.COM has launched a “Tax Reform Week”, starting off with “GOP Is Making Tax Reform Much Harder Than It Needs To Be” from Stan Collender.

 

* And FORBES.COM’s TaxGirl Kelly Phillips Erb continues “Tax Reform Week” with “Guest Post: Can the Tax Code Really Be Simple?” by Shaun Hunley.

 

Continue to follow Kelly’s week of guest posts – my guest post should be included soon.

 

* Tony Nitti also joins in the fun of “Tax Reform Week” with “The 5 Big Questions Surrounding Tax Reform”.

 

Not only is it Tax Reform Week, but Tony points out -

 

“It also happens to be National Prostatitis Awareness Week, and it's debatable as to which one is tasked with drawing attention to the bigger pain in the ass.”

 

And Tony explains the main reason why we probably will not get true substantive tax reform (highlight is mine) –

 

“You get the idea: for every provision that makes our tax law "complicated" and is targeted for removal, there will be a group willing to fight for its continued existence. And congressmen and women unwilling to ruffle the feathers of either these special interest groups or general constituents.”

 

* Hey, check out my “Author Page” at AMAZON.COM.  Several of my tax planning and preparation books are now available in e-book format for reading on Kindle!

 

THE FINAL WORD

 

An IRS tax collector, a reality tv “celebrity” (reality tv does not have “stars” – the description “star” assumes at least some degree of talent) and Donald T Rump are in a row boat in the middle of a lake.  The boat overturns.  Neither of the three can swim.

 

You pass by them in another boat.  You would only be able to save one of the three from drowning.

 

What would you do - read the paper or eat your lunch?

 

To be honest, I would probably at least think about saving the IRS tax collector.

 

TTFN

 

 

 

 

 

 

 

NEVER FORGET

 

 

 Police Officer Maurice Barry - PATH Emergency Service Unit - P.O. Shield #1038

A Port Authority officer for 16 years, Maurice "Moe" Barry, 48, was assigned to the PATH commuter train system. The resident of Rutherford, NJ, upon hearing the reports of the terrorist attacks, was one of the first on scene when he rushed from Jersey City to Lower Manhattan and then into the North Tower to help in the rescue efforts. As thousands fled the searing flames and smoke of the Towers, Officer Barry was attempting to reach trapped and frightened workers on the upper floors. The last time he was seen, he was on his way to the higher floors to get people out.
.
Moe had a history of heroism - he was involved in rescue efforts during an airplane crash at La Guardia airport; he once climbed a bridge to retrieve the body of a person electrocuted there; he was involved in the rescue effort during the 1993 bombing of the World Trade Center; and he rescued a woman from her home, by boat, during Hurricane Floyd. Moe was also a volunteer for the Rutherford Ambulance Corps.

------------------------------------------------------

Most of us can remember exactly where we were and what we were doing on dates of historic importance.

The day President Kennedy was shot I was on a 6th Grade field trip to the Museum of Natural History in New York City. I was sitting in the theatre at the Hayden Planetarium watching a presentation when the show suddenly stopped. The lights went on and it was announced over the PA system that President Kennedy had been shot. We were all told to go home.

The day President Nixon resigned I was at a Crosby, Stills and Nash concert in Roosevelt Stadium on Route 440 in Jersey City (it no longer exists – it has been replaced by condos). CSN announced that Nixon had just resigned and proceeded to break into a rousing version of "Ohio" (“Tin soldiers and Nixon’s coming…).

When the planes crashed into the World Trade Center on September 11, 2001, I was on a Parker Tours escorted bus trip to Ocean City, Maryland. At the time of the attack our group was at the Assateague Island National Seashore. We were not told about it until we had returned to the bus and were driving back to our hotel, where we were supposed to attend a welcome reception. The reception was cancelled and we all went to our individual rooms to watch the tragedy unfold on television.

On September 11, 2001, my client, and fellow Dickinson High School Class of 1971 graduate (although we did not discover this until many, many years later when he happened to notice an award I had received from my high school graduating class that was hanging on the wall of the Newark Avenue office and said that he graduated from DHS in 1971 too), Maurice “Moe” Barry was one of the members of the Port Authority Police Emergency Response Team, among the “first responders” to the initial attack, who were killed when the tower collapsed.

Moe always came in to have his tax return prepared on the very last day of the season, April 15, 16 or 17 of each year, a long-standing tradition he first began as a client of my mentor Jim Gill before I “inherited” the practice. Each year when we saw Moe we knew it was almost over. One year he came in on April 10th and we told him to go away and come back on the 15th. To honor Moe’s memory I no longer work on 1040s on the last day of “the season”. For me the tax filing season ends each year on April 14th (or 15th or 16th). 

 

TTFN