Tuesday, January 16, 2018
OOPS! They did it again! The NJ chapter of the National Association of Tax Professionals held another truly “famous” State Tax Seminar. In the 25+ year history of this annual event I have missed only 2, due to snow. As I have always said, this seminar is a “must attend” for any tax professional who prepares NJ state individual or corporate income, payroll, inheritance, and/or sales tax returns.
I provide a review of this seminar for my fellow tax pros at THE TAX PROFESSIONAL. For this post I want to review some of the things discussed at the seminar that are of interest to NJ taxpayers.
Most of this seminar is devoted to updates and presentations on the various NJ state taxes by “Jake and Company”, aka the NJ Division of Taxation’s “Taxation University”. The “Jake” is Jake Foy, head of TU, who has been a fixture at this annual seminar for almost 2 decades.
Jake started off on the topic of “tax updates” by telling us that, as was the case last year, the refunds requested on 2017 NJ-1040s will NOT begin to be issued until March 1st – regardless of when you actually file your return. Otherwise, NJ expects to process NJ-1040s and get refunds to NJ taxpayers within 3-4 weeks.
If you sent in your return today requesting a refund, either manually or electronically, you would NOT get your check, or a direct deposit of your refund, until March 1st.
Many NJ taxpayers chose to prepay the February and May 2018 property tax payments in December of 2017 to get a 2017 federal tax deduction, in response to the changes for 2018 – 2025 made by the GOP Tax Act. If you did this it will not affect either your 2017 or 2018 NJ-1040 filing.
For NJ-1040 purposes, the state only cares that what is considered the calendar year’s tax assessment – taxes due on February 1, May 1, August 1, and November 1 - are paid in full. They do not care in what year these assessments are paid. You can only deduct up to $10,000 in 2017 property taxes on the 2017 NJ-1040, and you can only deduct tax payments due in 2018, again up to $10,000, on the 2018 NJ-1040, regardless of when you actually made the payment. So, prepaying 2018 taxes in 2017 does not increase your 2017 NJ-1040 deduction, and it does not reduce your 2018 NJ-1040 deduction.
With regard to the deduction on the NJ-1040 for property taxes, like, coincidentally, the GOP Tax Act limited to $10,000, NJ has different rules for who can claim how much than the federal rules and regulations for the property tax deduction. This was not discussed in detail at the seminar, but I will share here what I have learned over the years, often from specific situations with my clients.
The NJ-1040 deduction is available only to the owner(s) on the title of the property, and in the same proportion as their percentage of ownership. If there are two unmarried owners each is entitled to deduct 50% of the property’s taxes. NJ considers a married couple to be ONE person.
So, if the owners of the property listed on the title are the father, mother and son, although there are 3 people who own the property, because husband and wife are 1 person, the mother and father can deduct 50% of the taxes on their joint NJ-1040 and the son can claim 50% - but only if all three people actually live in the home. If the parents live in the home, using 100% as their personal residence, and the son lives in another home, the parents can deduct 50% of the taxes, up to $10,000, and the son can deduct NONE of the taxes on that property. If the son owns and lives in another property he can claim the property taxes on that property as a deduction.
Unlike the IRS, NJ does not care who actually pays the property taxes. Even if the parents in the above example pay 100% of the real estate taxes they can still only deduct 50% - though the parents can, and do, claim 100% of the property taxes on their federal Schedule A.
Bottom line – the NJ-1040 deduction for property taxes is not always the same as the federal deduction for property taxes.
In the above example the same 50% applies to the Homestead Benefit and, if applicable, Property Tax Reimbursement applications of the parents.
The NJ Retirement Income Exclusion will increase to $75,000 for individuals, $100,000 for joint filers, and $50,000 for married couples filing separately over four years beginning with the 2017 NJ-1040. Here, from the NJDOT website, is the phase-in schedule. Note the numbers for tax year 2017.
A NJ taxpayer who is “a veteran honorably discharged or released under honorable circumstances from active duty in the Armed Forces of the United States, a reserve component thereof, or the National Guard of New Jersey in a federal active duty status” by the last day of 2017 is eligible for a $3,000 exemption on his or her NJ state income tax return. This exemption is in addition to any other exemptions the taxpayer is entitled to claim and is available on both resident and nonresident returns. The exemption can be claimed by both spouses on a joint return if they qualify, but the exemption cannot be claimed for a domestic partner or dependents.
You must provide a copy of documentation of your honorary discharge when filing your return. According to Jake, the Division will be flexible in considering documentation of a taxpayer’s veteran status, and will accept copies of the DD214, DD256, or a driver’s license with veteran status – which is a license which has the word “VETERAN” on it. This documentation must be submitted ONLY in the first year you are claiming the additional veteran’s exemption. If you submit your documentation when filing your 2017 NJ-1040 you do not have to submit any documentation again in future years.
I was pleased that Jake announced the state’s corporate business income tax return (CBT) e-file “mandate” has once again been suspended. This requirement, that does not have an “opt-out” option like the NJ-1040 does, and applies regardless of whether or not the corporation uses a paid tax professional, will not be enforced until NJDOT is able to allow corporations to submit their CBT-100 or CBT-100S returns directly to the state online, without having to buy outside software, as it does with 1040s via the NJWebFile system (which I use whenever possible).
The seminar also discussed the NJ Property Tax Relief programs – the Homestead Benefit and the Property Tax Reimbursement (aka “Senior Freeze”). There is nothing new here – other than that it is “anticipated” that the NJ Homestead Benefit property tax credits for the application filed in 2017 will be applied to either the May 1 or August 1 quarterly payments and checks sent out soon thereafter. Of course, there is no guarantee that this will be done – as the cafones in the NJ legislature always defer or curtail the property tax relief programs to balance the budget (God forbid they should actually try to cut government expenses, especially the excessive “entitlements” provided to legislators and other government officials).
The TU speaker addressed two scenarios related to the Property Tax Reimbursement program. One is the homeowner that qualified to participate in the program years ago, but is just now submitting his or her first application. This person should complete and submit a separate Form PTR-1 for each past year that they qualified for the reimbursement. They will obviously not get any actual reimbursements for any of these years, but doing this will establish a “base year” tax amount that represents the actual first year they qualified. The base year is used in calculating the reimbursement. If the base year tax was $6,000 and the current application year tax is $10,000, the qualifying homeowner will get a check for $4,000.
Another scenario concerned a qualifying couple who had been filing the PTR-2 application each year, and receiving a reimbursement, but, for some reason, such as the severe illness of one spouse, they forgot to file two or three years of applications, and in doing so lost their base year. They should call the NJDOT and request PTR-2 applications forms, preprinted with their original base year, for each missed year and complete and submit these applications. Again, no reimbursement will be issued for the missing years, but by doing this they can reinstate their original base year.
It is important to remember that in calculating the income used to determine eligibility for the reimbursement ALL income is included, including income not taxed on the Form NJ-1040 (Social Security or Railroad Retirement benefits, unemployment, tax exempt interest or dividends, etc.).
Usually an applicant must own title to the property for which he/she is applying for both programs. But, if a qualifying person lives in the property as a “life tenant” under a “life estate” and the title is in the name of another individual(s) or a family trust, he/she, the “life tenant”, can apply for the benefit or reimbursement.
As a point of information, the NJDOT speaker told us that the Homestead Benefit amount is currently based on the tax assessed on the property for 2006. The benefit amount is either 5%, 6.6667% or 10% of this tax assessment, based on the applicants age (or if disabled) and level of applicable year’s (tax year 2016 will be used for the 2018 Homestead Benefit application for benefits issued in 2019) NJ Gross Income (line 28 on the NJ-1040).
So, there you have “the word” on NJ taxes. The actual 2017 NJ-1040 and applicable instructions are not yet available at the NJDOT website. I will let you know here when it is, and will identify any changes to the form.
Monday, January 15, 2018
* No surprise here. Howard Gleckman of TAX VOX reveals that “The IRS Private Debt Collection Program Once Again Looks Like A Failure”.
“What’s the old line about ‘fool me once?’ When it comes to privatizing debt collections for the IRS, Congress has now tried to fool American taxpayers for the third time. According to a new report by the agency’s Taxpayer Advocate Service, the outcome is roughly the same as the last two episodes—the agency is spending far more on the program than the firms are collecting and remitting to the Treasury.
Just as troubling, the reports finds the debt collectors were mostly targeting lower-income taxpayers, some of whom are receiving Social Security Disability Insurance (SSDI)--a group that was supposed to be excluded from the program. Of the 4,100 taxpayers who made payments after their debts were assigned to private collectors, 1,100, or 28 percent, had incomes below $20,000. About 5 percent were receiving SSDI or Social Security retirement benefits. They had a median income of $14,365.”
Howard’s obvious bottom line (highlight is mine) – “so far, the evidence suggests it’s a much better deal for the debt collectors than for the rest of us”.
* The IRS has provided “Early Release Copies of the 2018 Percentage Method Tables for Income Tax Withholding”.
The IRS Notice says -
“Employers should implement the 2018 withholding tables as soon as possible, but not later than February 15, 2018.”
So employees will begin to see the effect of the slightly lower tax rates beginning with February paychecks.
* Last week-end a client told me about California’s attempted scam to change income tax payments into fully deductible charitable contributions. I told him it wouldn’t work – and that it was a scam. It appears Russ Fox of TAXABLE TALK agrees with me – as he explains in “Why California’s Attempt to Make State Taxes a Charitable Deduction is Doomed”.
Other states are trying to think “outside the box” to find ways to make the state tax payments deductible. None of them will work, for similar reasons.
* An interesting “Ask The Taxgirl” question for Kelly Phiilips Erb at FORBES.COM – “Charitable Deductions For Giving Away Free Stuff “.
As usual, KPE provides the correct answer -
“Sorry, only donations to qualified charitable organizations are tax deductible.”
“Donations to individuals will not qualify for a tax deduction. You cannot deduct contributions to individuals no matter how deserving.”
* Jennifer Dunn tells us “When are the Sales Tax Holidays in 2018?” at TAX JAR, providing a state-by-state listing and description of the various scheduled sales tax holidays.
* At THE TAX PROFESSIONAL I provide my “review” of the annual NJ-NATP "Famous State Tax Seminar", which is truly famous.
* Jason Dinesen continues with his “Glossary” posts at DINESEN TAX TIMES by explaining the term “Independent Contractor”.
* Michael Cohn reports "Taxpayer Advocate Worried About How IRS Will Handle New Tax Law" at ACCOUNTING TODAY.
* Speaking of Nina Olsen, from the IRS – “National Taxpayer Advocate Delivers Annual Report To Congress; Discusses Tax Reform Implementation,Unveils 'Purple Book'”.
* The TAX FOUNDATION explains “State Tax Changes That Took Effect on January 1, 2018”.
* Wow, NJ is only #10 on KIPLINGER’S list of “The Least Tax-Friendly States in the U.S."! I guess the reduction and eventual elimination of the estate tax helped it to move downward on the list.
Still a fact – “New Jersey’s property taxes are the highest in the U.S.”.
FYI, Maryland is #1 – the least tax-friendly state.
THE FINAL WORDS
It is an error to assume that opponents of shithole President Donald T Rump are limited to Democrats and “the left”.
Every patriotic American, whether Republican or Democrat, conservative or liberal, MUST oppose and denounce Trump the MAN and not merely Trump a Republican President. And many Americans of all political “persuasions” do.
The issue is with Trump the despicable, deplorable, unfit, and unstable individual and NOT Trump the alleged Republican or Trump the alleged conservative (he is neither).
Opposing and denouncing Donald T Rump is opposing and denouncing Donald T Rump – and not the Republican Party or conservative politics.
Republican and conservative politicians who publicly support Trump and attempt to protect or “explain” him are traitors to both the Party and the country.
Friday, January 12, 2018
For the future safety and security of America and the world Trump Must Go!
To save the Republican Party Trump Must Go!
Because of his history of sexual assault and misconduct, which he bragged about, Trump Must Go!
Because he is an outspoken bigot Trump Must Go!
Because as a businessman be consistently and unapologetically screwed his shareholders, investors, contractors, vendors, employees, and customers while lining his pockets Trump Must Go!
Because he fleeced vulnerable Americans with his Trump University scam Trump Must Go!
Because he refuses to divest himself of his holdings, using the Presidency to line his pockets at the expense of the American people Trump Must Go!
Because he spends just about every week-end playing golf at one of his resorts on the country’s dime, lining his pockets at the expense of the American people Trump Must Go!
Because he is a mentally unstable malignant narcissist Trump Must Go!
Because he is ignorant and incompetent Trump Must Go!
Because he is a serial liar who constantly lies to everyone about everything all the time Trump Must Go!
Because his one true agenda is and has always been (1) feed ego and (2) line pockets Trump Must Go!
Because is more interested in the perception of the size of his abilities, accomplishments, crowds, reception, wealth, and body parts than in the principals of American democracy or the American people Trump Must Go!
Because he is more concerned with the “reviews” of his “performance” than in actually accomplishing anything positive Trump Must Go!
Because his only priority will always be himself and never America or the American people Trump Must Go!
Because he cannot speak about anything to anyone anywhere without prefacing any statement or remarks by basically saying, “look how great I am”, spouting easily identifiable delusional lies as proof Trump Must Go!
Because he is incapable of dealing with challenges and criticism like a mature adult Trump Must Go!
Because he is ALL ego and NO character Trump Must Go!
Because he has seriously damaged the credibility and stature of America in the eyes of the world Trump Must Go!
Because he is being played like a fiddle by Putin, and can be easily played by other enemies Trump Must Go!
Because he is unqualified, unprepared and unfit Trump Must Go!
Because he has no conscience, no shame, no humility, no empathy, and, saddest of all, no humanity Trump Must Go!
Because, to use his own language, he is a totally worthless piece of shit Trump Must Go!
In order to Make America Great Again Trump Must Go!
Do you need any more reasons?
Thursday, January 11, 2018
There has been much talk about the effects of the limited $10,000 - $5,000 if Married Filing Separately - itemized deduction for property taxes and state and local income or sales taxes combined in the GOP Tax Act.
However, something that has not been mentioned, at least in what I have read, is the fact that this limitation substantially increases the Marriage Tax Penalty.
Two working single individuals, either living together or separately, who itemize can each claim a deduction of up to $10,000 in combined property taxes and state and local income or sales taxes. That is a total of $20,000 in itemized deductions on the 2 returns.
For residents of New Jersey, where my clients are from, it is not hard for each individual to reach the $10,000 maximum, or come close to it, even if they both own and live in one home.
If these two individuals, who both work and have their own separate income, were married the itemized deduction would still be limited to $10,000. Filing separately would not make any difference, as everything I have read specifically identifies the limitation as $5,000 for married taxpayers filing separate returns.
So, by having joined together in holy wedlock this dual-income couple will probably be paying tax on $10,000 more in net taxable income, which would, again in New Jersey, result in over $2,000 in additional federal income tax. This tax penalty could be increased if the state tax return follows the federal return.
I wonder if this is what the idiots in Congress intended. Of it they actually gave the matter any thought.
Wednesday, January 10, 2018
If you are able to make contributions to a ROTH IRA you should use a ROTH IRA account as your current savings account.
Contributions to a ROTH IRA are never deductible on your federal or state income tax returns. But earnings on money held in a ROTH IRA account can eventually be totally tax free to both you and your beneficiaries.
Here is what you need to know about a ROTH IRA -
* The maximum amount you can contribute to a ROTH IRA, a traditional IRA or a combination of ROTH and IRA accounts for 2018 is $5,500. If you are age 50 or older you can contribute an additional $1,000.
* You can contribute to a Roth IRA at any age as long as you have earned income from a job or from self-employment. You do not have to stop making contributions at age 70½ if you still have earned income.
* The amount of your allowable contribution to a ROTH IRA is phased out and eventually eliminated based on your Adjusted Gross Income (AGI). The AGI phase-out range for taxpayers making contributions to a ROTH IRA for 2018 is -
$120,000 - $135,000 = Single and Head of Household
$189,000 - $199,000 = Married Filing Joint and Qualifying Widow(er)
$0 - $10,000 = Married Filing Separate
* You can withdraw your contributions at any time without taxes or penalty. All withdrawals are considered to come from contributions first.
* You must hold the Roth account for at least five years and be at least 59½ before you can withdraw earnings tax-free and penalty-free. The 5-year period begins on the first day you make your first ROTH contribution.
* You never have to take any withdrawals from a ROTH IRA in your lifetime. There are no annual required minimum distributions beginning at age 70½.
As long as you never touch the accumulated earnings on your ROTH IRA investment, and withdraw only your contributions, you can take money from this account at any time over the years without any tax cost. And your accumulated earnings will grow to a nice retirement nest egg, or legacy for your beneficiaries, if invested wisely.
You have contributed $10,000 to a ROTH IRA over the past couple of years, which has accumulated earnings of $2,000. You need $5,000, or as much as $10,000, to pay for an extraordinary medical bill, or for needed home repairs, or to pay for your child’s college education. You can take the $5,000 - $10,000 from your ROTH IRA account without any tax consequences.
Here is another good idea – If your son or daughter has a summer job you should consider opening up a Roth IRA account for him or her.
To qualify for an IRA your child must have earned income — wages or net earnings from self-employment. Money you give your child for doing chores around the house doesn’t count, but earnings from babysitting or mowing lawns may qualify.
You can contribute 100% of your child’s earnings to the account, up to the $5,500 maximum. If your son earns $2,400 for the summer you can contribute $2,400 to a Roth IRA for him. If he earns $6,500 you can contribute $5,500.
There is nothing in the tax code that says that the money deposited in an IRA for your son or daughter has to come from the child’s funds. You can use your own money to fund the IRA contribution and let your child keep his earnings.
You can use a Roth IRA to encourage your children to work or to save. If your son earns $5,000 in a part-time job, open a Roth IRA for him. Or, if your daughter agrees to put $2,500 of her salary from a summer job in a Roth, match it and put in another $2,500.
If you put the maximum into a Roth each year for your 16-year-old from 2018 through 2023, when he/she will turn 21, and no other contributions are ever made, the account could grow to a truly tidy sum (in 6 figures) by the time the child turns 65.
One caveat - there exists a potential problem with opening a Roth account for a child. Once the child reaches the “age of majority,” usually 18, he/she will have full access to all the funds and can “take the money and run.”
One last thing - the earlier in the year you contribute to your, or your children's, ROTH IRA, the more money you will accumulate tax-free at retirement. So make your 2017 (if not already done) and 2018 ROTH IRA contribution today.
Tuesday, January 9, 2018
Do you need to find a qualified and competent tax professional to prepare your 2017 income tax returns? Here is some advice from my website FIND A TAX PROFESSIONAL (click in the title highlighted in blue) –
DON’T ASSUME (my annual, perhaps controversial, very important warning)
ALPHABET SOUP (explaining what all the “initials” have to do with preparing a Form 1040)
The last item – YOU ARE RESPONSIBLE – is very important. Regardless of who prepares your return you are ultimately responsible for all the information reported on your return!
And while we are talking about preparing your 2017 returns - here is more very important advice – don’t rely on a “box” to prepare a correct tax return!
Have you seen the tv ads for Turbo Tax? They are the most stupid things I have ever seen.
Please remember - No software package, or online filing service, is a substitute for knowledge of the Tax Code. And no tax software package, or online filing service, is a substitute for a competent, experienced tax professional.
As with any software program the rule is "garbage in - garbage out". If you don't know how to enter the information, or what information to enter, you will not get the best, or even a correct, answer.
IRS statistics indicate that taxpayers using do-it-yourself tax software spend an average of between 6 and 10+ hours longer preparing their tax returns (depending on the number of worksheets and schedules) than taxpayers who do manual calculations. Further, the IRS estimates that do-it-yourself software users spend an average of 10 to over 20 hours longer on the return than if they used a paid tax preparer, again depending on the returns’ complexity.
When the IRS comes after you for errors on your tax return you can’t blame it on the software. The US Tax Court has on several occasions rejected the "Turbo-Tax Defense" when a taxpayer attempted to blame tax preparation software for a negligent tax return.
You don’t save any time or get any added guarantees of accuracy. Paying a competent tax professional to do your return is ultimately much cheaper than taking a chance with a tax software package or an online service!
Monday, January 8, 2018
The tv ads from Henry and Richard have started. Of course, it had nothing to do with H&R’s ability to competently and accurately prepare tax returns – just “come in and get a check”. Thankfully it did not feature the idiot in the bowtie. It appears that Block is also offering some free online tax preparation – MORE ZERO – so they can sell your information to 3rd party advertisers.
And the Turbo Tax tv ad with the knitted teddy bear is perhaps the stupidest thing I have ever seen – dumber than Henry and Richard ads. Other TT ads I have seen are no less ridiculous.
* A reminder to journalists and bloggers of my annual Very Important Message.
* My fellow bloggers have joined me in posting about the year in taxes 2017 -
Kay Bell shared her list of the “Top 10 tax issues of 2017” at DON’T MESS WITH TAXES.
Professor Paul Caron, aka the TAX PROF, listed "The Top 10 Tax Posts of 2017" from his blog.
* Tony Nitti’s first “Tax Geek Tuesday” post of 2017 dealt with “Changes To Depreciation In The New Tax Law”.
* This week’s post at THE TAX PROFESSIONAL – "A Little This-A, A Little That-A".
* JD SUPRA reports “Treasury Inspector General Warns Taxpayers Of IRS Impersonators As Tax Filing Season Approaches”.
“The IRS generally first contacts people by mail – not by phone – about unpaid taxes, and the IRS will not ask for payment using a prepaid debit card, a money order, or wire transfer. The IRS also will not ask for a credit card number over the phone. If you get a call from someone claiming to be with the IRS asking for a payment, here’s what to do:
If you owe federal taxes, or think you might owe taxes, hang up and call the IRS at 800-829-1040. IRS workers can help you with your payment questions;
If you do not owe taxes, fill out the “IRS Impersonation scam” form on TIGTA’s website, www.tigta.gov, or call TIGTA at 800-366-4484;
You can also file a complaint with the Federal Trade Commission at www.FTC.gov. Add “IRS Telephone Scam” to the comments in your complaint.”
* I have said often that the new GOP Tax Act will cause states to revise their individual tax systems. The NY POST tells us “New York Could Restructure Tax Code to Dodge Effects of New Tax Law”.
The article quotes Governor Andy Cuomo –
“We are developing a plan to restructure our tax code to reduce reliance on our current income tax system and adopt a statewide payroll system.”
* FYI – I have publicly posted my details of what true tax reform legislation should have looked like here.
THE FINAL WORDS
You don't need a book to tell you Donald T Rump is an ignorant, incompetent and mentally unstable buffoon.
You just need to read his tweets and listen to him speak.