Friday, December 15, 2017
The Internal Revenue Service has issued the 2018 standard mileage allowance rates for deducting business, medical, moving, and charitable driving.
Effective January 1, 2018, the rate for business use of a car, van, pickup truck, or panel truck will be 54.5 cents per mile, up from 53.5 cents per mile. The portion of this standard mileage rate that is treated as depreciation will be 25 cents per mile for 2018, the same as 2017.
The rate for medical and moving driving will be 18 cents per mile, up from 17 cents per mile.
The rate driving while performing volunteer services to a qualified church or charity remains at 14 cents per mile. This rate is set by Congress and has not been increased in decades.
The 2018 rate for medical and moving mileage may be of no value, depending on what is in the final tax legislation if it is passed and signed into law. Deductions for medical and moving expenses may not be around anymore, although it looks like medical deductions will remain. The final legislation may also finally provide for annual adjustments for inflation for the charitable rate.
Wednesday, December 13, 2017
The concern that changes in the tax law will at least initially adversely affect certain specific markets and industries, like the real estate market, are, in my opinion, excessive and, to be honest, not a concern that should be taken into consideration by lawmakers.
First of all - People buy, or SHOULD buy, real estate because (1) it is a good investment, and (2) they can afford the purchase. Tax benefits, while certainly a consideration, should never be the sole, or primary, motivation for any investment decision. Any corresponding tax benefits are certainly welcomed, but merely “gravy”.
Real estate is a good investment because it “appreciates” perhaps more consistently then stocks or mutual funds, and because it can provide a good “dividend” in terms of net rental income. However, it does require much more personal involvement on the part of the investor.
While I do agree a person should hold on to an investment before selling until the long-term capital gain requirements are met to realize substantial savings on the gain from a sale, this should NOT be done if it is anticipated that waiting to meet the holding requirement could materially reduce the net gain realized due to a drop in the investment’s price.
As I have been saying for years - The first criteria for evaluating any transaction, strategy, or technique you are considering should always be financial. Taxes are second. Never let the tax tail wag the economic dog.
And second – the one and only purpose of the Internal Revenue Code is to raise the money necessary to fund the government. Period.
It is my firm belief, shared by many, that the Tax Code must NOT be used for social engineering, to redistribute income or wealth, to deliver social welfare and other government benefits, to encourage or discourage certain economic decisions (other than savings, investment, and growth), or to provide exclusive benefits for specific industries, business activities, or classes of taxpayers.
One of the basic principles of sound tax policy, identified by the Tax Foundation, is –
“Neutrality: Taxes should not encourage or discourage certain economic decisions. The purpose of taxes is to raise needed revenue, not to favor or punish specific industries, activities, and products.”
I have made a similar argument in response to the claim that the GOP tax law changes will substantially reduce charitable contributions (see “THE REPUBLICAN TAX PROPOSALS – EVEN MORE COMMENTS”).
Monday, December 11, 2017
* If you want an extremely detailed analysis of the Senate tax bill with commentary check out “Parker's Explanation of the Senate Tax Bill (TCJA 2017)”.
* And there is an extensive “Roadmap to House and Senate Tax Reform Plans” – a side-by-side comparison of the two bills – from BLOOMBERG TAX.
* Or you can go here – and scroll down to “Tax Cuts and Jobs Act” and click on “Read the full coverage here” – to download the CCH “Tax Briefing” on the bill.
* Russ Fox has made his annual announcement at TAXABLE TALK – "Nominations Due for 2017 Tax Offender of the Year".
“To be considered for the Tax Offender of the Year award, the individual (or organization) must do more than cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions.”
* Today’s THE TAX PROFESSIONAL post is "Back on the Soapbox".
* Jim Blankenship lists “7 Mistakes With Stretch IRAs” at GETTING YOUR FINANCIAL DUCKS IN A ROW.
“The stretch IRA, when implemented properly, can be a great vehicle for transferring wealth to your heirs. Using this method, you pass along the tax-deferred status of the account until it is withdrawn, which may be much later. The problem is that there are some very specific rules that must be followed in order to achieve the stretch IRA.”
* A tweet led me to a PIM TAX SERVICES BLOG post on “Suspended Passive Losses on Rental Property” by Paul D Allen from October, a topic of relevance to several of my clients.
The post explains passive income, passive losses, and suspended passive losses. It’s bottom line is -
“If you don’t remember anything else from this article, remember this – you can still get tax benefits from real estate investing even if you have a high income. You may have to wait longer to realize it, but the benefits are still there.”
As a point of information – the competing GOP bills do not make any changes to the passive activity rules. The Senate version, however, reduces the “useful life” (an obvious misnomer) of rental real estate for depreciation purposes from 27.5 years to 25 years – which will increase the potential passive loss (although not the true economic loss, if any) on rental real estate investments.
* For those of you who are interested, Kay Bell provides a list of the members of the conference committee that will be working to reconcile the differences in the two GOP tax bills in her post “Tax reform conferees named. Let the tax mixing begin!” at DON’T MESS WITH TAXES.
* I have been saying that the eventual final version of the Tax Act will have definite effects on corresponding state tax returns, especially those that follow the federal 1040. At the TAX FOUNDATION Joseph Bishop-Henchman identifies “Seven Things States Should Monitor in the Federal Tax Bill”.
* Still looking for some “stocking stuffers”? Here are “Some Holiday Gift Ideas”.
THE FINAL WORDS
Part 1 -
I believe arrogant idiot Donald T Rump has done every single crime and “bad act” he has ever been accused of. I would actually believe that Trump has done any “bad act” that anyone would say he has done. There is no limit to the depth to his despicability.
But even if Trump did not actually do what he bragged to Billy Bush that he did in the infamous tape, and I do believe that he did do it, the mere fact that he thinks the actions he discussed are ok and something to brag about by itself disqualified Trump from being considered for President.
Part 2 –
I realize I may sound like a broken record. But watching the ABC television show DESIGNATED SURVIVOR is true therapy for America in this sad and dangerous time in our country. It shows how a “non-traditional” President can and should act – with intelligence, competence, honor, and integrity. These are all qualities totally lacking in the reality of the White House today.
Friday, December 8, 2017
Here are three things I very strongly believe –
(1) The Internal Revenue Code has become a true convoluted mucking fess. It must be rewritten – made simpler and fairer.
(2) The function of the Tax Code must be limited to raising the money needed to run the country, and should not be used for social engineering, redistributing wealth, or distributing government welfare and other social benefit programs.
(3) The Democratic Party concept that the answer to all our problems is to “tax the rich” merely because they can afford it is pure nonsense and a concept that should be aggressively opposed and denounced.
That being said, I also believe (and I know that I have said this here before) that the current GOP tax proposals –
(1) Are not at wonderful as the Republicans claim.
(2) Are not as horrible as the Democrats insist.
(3) Are not a massive tax cut for the middle class.
(4) Most certainly do hugely benefit Donald T Rump and family.
The two competing bills, like most legislation written by Congress, has some good, some bad, and some ugly.
I support both individual and business tax rate cuts – but I believe that individual cuts should be paid for by doing away with deductions, credits and loopholes that apply to individual taxpayers. And business cuts should be paid for by doing away with deductions, credits and loopholes that apply to business taxpayers. Business tax cuts should not be paid for by taking deductions and credits away from 1040 filers.
Neither of the GOP bills are anywhere near what I would have written (you can read how I would rewrite the US Tax Code in THE TAX CODE MUST BE DESTROYED!). But I doubt very much the cafones in Washington are going to listen to what I have to say, or to any intelligent discussion of tax reform – they have already made up their minds.
I expect a tax bill will be passed and signed into law by the idiot in the White House – so I will gratefully take what little good they do give me and deal with the rest.
Wednesday, December 6, 2017
While we are all thinking about tax reform - I have published my thoughts on what a new Tax Code should look like in THE TAX CODE MUST BE DESTROYED, but here is an alternative thought.
We have always had the option to deduct either a Standard Deduction or Itemized Deductions. But what about both?
* We would begin with a base Standard Deduction amount, maybe $5,000 or $6,000 per taxpayer/spouse.
* A taxpayer could also deduct a “homestead” amount - either the total amount of real estate taxes and mortgage interest (on limited principle) paid on one primary principal residence if a homeowner, or the actual amount of rent paid up to a maximum of $12,000, or a standard amount of $10,000, per household and not per taxpayer, if this is more than the actual homeowner or renter expenses.
* And a taxpayer could deduct actual contributions to charity (but not to churches or religious organizations for religious activity – see my above referenced publication), up to the current 50% of income limitation (with the excess carried forward).
In addition, there would be the normal “adjustments to income” for self-employed health insurance, half the self-employment tax, and contributions to retirement accounts, and early withdrawal penalties on CDs.
There would no longer be a Schedule A for Itemized Deductions. However, there probably would be a need for a Schedule CC to itemize charitable contributions.
Just a thought.
So, what do you think?
Tuesday, December 5, 2017
“A people that elect
corrupt politicians, imposters, thieves and traitors
are not victims... but accomplices.”
A day late, but let’s hope not a dollar short.
* Most of the BUZZ over the week-end concerns the Senate tax bill. Roger A McEowen provides a good summary of the key provisions of the bill in “Senate Clears Tax Bill – On To Conference Committee” at the AGRICULTURE LAW AND TAXATION BLOG.
FYI – I commented on the items that need to be reconciled by the conference committee here at TWTP in “Making One Bill Out of Two”.
* Drake Software recently surveyed 2800+ tax professionals throughout the US about their fees. It published the results in November in an “inforgraphic” titled “How Do Your Tax Prep Fees Stack Up?” (no free link available).
FYI – the national average tax preparation fees for a basic federal Form 1040 (does not include state return) is $139. For NJ and NY residents this is $146. And for “unenrolled preparers” (no “designation” like EA, CPA or attorney) the national average is $118. For a Form 1040 and Schedule A the corresponding numbers (again federal return only) are $191, $209, and $171.
Despite the above numbers, a return prepared by an “unenrolled” preparer does not have any less value, or is any less correct and complete, than one prepared by an EA or a CPA (in the case of a CPA, the most expensive category of preparer, the opposite can be true).
I hope my 1040 clients are reading this post!
* Kay Bell acknowledged Cyber Monday and the IRS “National Tax Security Awareness Week” last week by posting “7 online security steps to take this holiday season” at DON’T MESS WITH TAXES.
* And Kay lists “10 tax moves to make by Dec.31 — and before Congress changes the tax laws”.
Some good advice here – regardless of what the final conference committee tax legislation will actually contain. They are just good traditional year-end tax moves. However most only apply if you can itemize for 2017. And pre-paying taxes of any kind will provide no tax benefit if you are a victim of the dreaded Alternative Minimum Tax (AMT). The appropriate tax-planning strategies for you are dependent on the facts and circumstances of your specific situation.
BTW – I discuss year-end tax planning in detail in the November issue of ROBERT D FLACH’S 1040 INSIGHTS. A copy in pdf sent as an email attachment is only $3.00. Click here for details.
* Thanks to friend and fellow tax pro Jaimee Hammer of NJ, a member of national Board of Directors of NATP, for “turning me onto” the following upcoming state tax amnesty programs –
Ohio = 1/1/18 – 1/15/18 (click here for info)
Rhode Island = 12/1/17 – 2/15/18 (click here for info)
* Monday’s THE TAX PROFESSIONAL post was “Is A Puzzlement”.
* And the beat goes on. Jason Dinesen has posted “Part 12” of his ongoing series on “Revisiting a History of Marriage in the Tax Code” at DINESEN TAX TIMES.
* Professor Annette Nellen gives us some “Tax Reform Links and Examples” at 21st CENTURY TAXATION.
* A post on Spacebook led me to a list of “6 Dog-Related Tax Deductions You May Be Eligible to Claim” from January at the DOGINGTON POST.
The bottom line of this item is good advice for any tax topic –
“As always, discuss these potential deductions with your tax professional to confirm they are legitimate for your personal financial and tax situation.”
Another BTW – I wrote in detail about #6 on the list in “Doggie Deductions” back in 2009.
THE FINAL WORD
An ongoing puzzlement is why are there higher standards for members of the media than there are for elected officials?
Matt Lauer is NOT the "highest profile" face of sexual assault - Donald T Rump is! When will the multiple accusations against him be given the same credibility and response as those against individuals in the media and Hollywood?
Sociopath Trump revels gleefully in accusations against those who oppose, criticize and question him – but ignores accusations against himself and those who kiss his ring (and other body parts) and who can benefit him.
These acts are unacceptable regardless of who is accused. It is time we “fired” Donald T Rump!
Monday, December 4, 2017
Now that both houses of Congress have passed versions of the Tax Cuts and Jobs Act, and a conference committee is working on the final legislation, let me tell you what the tax reform legislation SHOULD have looked like in my new report “THE TAX CODE MUST BE DESTROYED! Tax Reform Proposals from a Tax Professional”.
I truly believe that, like Frankenstein in the Hammer film, the current “mucking fess” that is the Internal Revenue Code must be destroyed, and totally rewritten from scratch. In this report I provide, in detail, my principles for tax reform and thoughts on how I would rewrite the current US Tax Code, covering the taxation of both individuals and business entities.
As I say in the report, “My proposals are not initiated from an economic point of view – how much tax is collected and who pays how much tax – but solely from the point of view of simplicity and fairness.”
I am offering this report, delivered as a pdf email attachment, for $2.00. Half of the purchase price - $1.00 from each sale - will be donated to the Dessin Animal Shelter in Honesdale PA.
Send your check or money order for $2.00, payable to Taxes and Accounting, Inc, and your email address to –
TAXES AND ACCOUNTING, INCORPORATED
TAX REFORM BOOK
POST OFFICE BOX A
HAWLEY PA 18428
So, the Senate passed its version of the Tax Cuts and Jobs Act. It now must be reconciled with the House version in conference committee.
Considering the importance of this development I have postponed the regular Monday BUZZ for a day. This week’s installment will be posted tomorrow (Tuesday).
Whenever I talk about the GOP tax plans I feel I must make these preliminary comments –
(1) It is NOT as good as Republicans tout and NOT as bad as Democrats insist. The bills have BOTH good and bad in them.
(2) It is NOT a MASSIVE tax cut for the middle class.
(3) It most certainly IS a MASSIVE tax cut for arrogant arsehole Donald T Rump and his family.
Let’s discuss the items of difference in the two bills that affect most 1040 filers. In this analysis I am not considering the “appropriateness” or potential economic effects of the changes in the bills.
In the interests of full disclosure, I must state that the below discussion is not based on a personal reading of the official texts of the passed Senate or House legislation, but on what I have read in a multitude of online news articles, analyses and blog posts from reputable and credible sources.
The House version has 4 tax brackets going from 12% to 39.6%, with a “phantom” 5th bracket that apparently “phases-out” the effect of the 12% bracket. The Senate version has 7 brackets from 10% to 38.5% period.
Obviously, I prefer 4 brackets to 7 – keep it simple, stupid. But without any convoluted phase-out. If I had my druthers I would make the bottom rate 10% and the top rate 38.5%, but would accept the 12% and 39.6% rates.
There is a minimal difference in the amounts in the 2 bills, with the House being $200 for Single, $300 for Head of Household, and $400 for Married Filing Joint more. From the point of view of my clients, I would prefer the higher numbers, but would accept the Senate amounts.
Child and Family Tax Credits:
The House child credit is $1,600, maintaining the current age 17 as the cut-off and beginning the phase-out for joint filers at AGI of $230,000, and the “family” credit for the taxpayers and other dependents is $300. The Senate credit for a child is $2,000, but raises the cut-off age to 18 and begins the phase-out for joint filers at $500,000, with a $500 credit for all others.
I would want the higher numbers for both of the credits, and the higher age cut-off for the child credit. I would accept a compromise on the AGI phase-out levels, perhaps somewhere in the middle. I would want the family credit to include the taxpayer and spouse.
The House does away with the itemized deduction for medical expenses. The Senate keeps it and reduces the AGI exclusion threshold back to 7.5% for 2017 and 2018.
Most of my clients do not receive any federal tax benefit for their medical expenses, due to the AGI exclusion. However, a few do benefit, some consistently and some occasionally, and those that benefit consistently are retired seniors. I could accept the repeal of this deduction if it meant keeping preferred options in other areas.
Both versions allow for a deduction for real estate taxes paid up to a $10,000 maximum, not limited to the taxpayer’s one primary personal residence. And both maintain a deduction for interest on acquisition debt, at least in the House version limited to a taxpayer’s one primary personal residence, and do away with the deduction for interest on new home equity debt. But the House reduces the maximum acquisition debt principle to $500,000, while the Senate keeps the current $1 Million.
I would want both the property tax and acquisition debt mortgage interest deductions limited to one primary personal residence, and would prefer the lower House limitation on acquisition debt principle.
The House does away with the $250 adjustment to income for the qualified out of pocket expenses of K-12 teachers, aides and administrators. The Senate keeps the adjustment and doubles the amount to $500.
Both bills do away with the deduction for employee business expenses. This adjustment is an employee business expense. I have always had issues with this item. Why are teachers singled out for this minor deduction? What about other public service employees – police officers, fire fighters, emergency medical technicians, nurses? I support the House bill’s repeal of this item.
As I understand it, the House bill does away with the Lifetime Learning Credit, but the American Opportunity Credit remains and is available for a 5th year of post-secondary education at half the rate that applied for the first 4 years, with up to $500 being refundable. I also think the income phase-out range has been increased. I have seen nothing yet about the education credit(s) available in the Senate version.
I would certainly hope that the final conference committee bill includes the same enhancements to the AOC as the House bill. While I oppose using the Tax Code to deliver government tax benefits, if doing away with the education tax credit(s) is not replaced by corresponding increased direct student financial aid I would prefer that at least the AOC, with the House enhancements, remain.
ACA Individual Mandate:
The Senate version makes the penalty for not having “sufficient” health insurance for the entire year $0. The House makes no change to the current law.
I have always opposed the individual mandate penalty. While the government should encourage universal health insurance coverage, and provide financial assistance to help pay for premiums via the advance premium credit, it should not financially penalize those who do not have “sufficient” insurance for all household members for the entire year.
Alternative Minimum Tax:
The House totally repeals the dreaded AMT, but the Senate merely raises the current exemption amounts by about 40%.
The AMT must be destroyed! I do not want any individual Alternative Minimum Tax included in the final legislation sent to idiot Trump for signature.
Pass-Through Business Income:
Both versions add much complexity to the Tax Code and would provide much agita for tax professionals.
I would prefer, and could support, a 70% wage equivalent - 30% dividend equivalent allocation of net income (with no option for a different allocation based on “facts and circumstances”), instead of the flat percentage deduction in the Senate bill, for sole proprietors filing Schedule C and general partners receiving a Form K-1, with only 30% subject to a lower income tax rate and only 70% subject to the self-employment tax. And I actually could accept a lower maximum rate on sub-S pass-through business income. The lower rate would be comparable to the current lower tax rates for qualified dividends.
Both versions allow a full current expensing of all machinery and equipment purchases for 5 years; the Senate version phases out this deduction over a second 5 years. The House increases the Section 179 expensing deduction to $5 Million with the phase-out beginning at $20 Million of total purchases. The Senate increases 179 expensing to $1 Million with the phase-out starting at $2.5 Million.
I would go with the House for the 5-year limit for full expensing and the Senate for the increased Section 179 numbers. I do, however, oppose the idea of full expensing of all machinery and equipment purchases.
Both versions currently substantially increase the exemption, $10 Million in the House and double in the Senate. The House bill totally repeals this tax after 6 years. The House version maintains a consistent full step-up in basis for all inherited assets.
While I oppose the “death tax” on a philosophical level, I would accept a $10 Million exemption, with current “portability” intact, while not totally repealing it. My main concern is insisting on the consistent full step-up in basis for all inherited assets.
International Business Income:
I have absolutely no knowledge of or experience with the issues of international business income and repatriation that are covered in the two bills. These issues do not affect, and never have affected, any of my clients. So, I cannot intelligently comment on these components of the legislation. Anyway, they do not directly affect the filing of the Form 1040.
The individual tax cuts in the Senate bill expire in 2026. The corporate rate reduction is permanent, but does not take effect until 2019. In the House version the $300 per taxpayer/spouse "family credit" expires in 2023.
I have always been against temporary tax law, except in the case of tax relief related to natural disasters, or tax law changes that “sunset” after 10 years. Any changes to tax law must be permanent. If Congress wants to change things in the future they can do so via new legislation. I could accept the later beginning date for reducing the corporate tax rate.
I have done additional reading on the Senate tax bill provisions. Here are some more comments -
In the Senate bill personal casualty and theft losses are only deductible if attributable to Presidentially-declared disaster areas. I think the House bill does away with the deduction altogether going forward.
I would prefer the Senate version and allow for a deduction for disaster-area casualty losses.
The Senate bill reduces the recovery period (the depreciable life) for residential real estate from 27.5 years to 25 years, and for nonresidential real property (commercial buildings) from 39 years to 25 years. I do not think the House version makes any change.
Those of you who have read my tax reform proposals know that I oppose the deduction for depreciation of real estate, and capital improvements thereto, PERIOD. I certainly do not want the depreciable life of real estate, regardless of the use of the property, to be shortened, and oppose the Senate changes.
The Senate version does away with the ability of taxpayers to “recharacterize” ROTH IRA contributions as traditional IRA contributions. I do not think the House makes this change (though I am not certain).
I oppose doing away with recharacterization.
There you have my 2+ cents on the reconciliation of the two tax bills. So, what do you think?