Tuesday, August 26, 2014
* Did you see the “Message from My Cat” yet?
* Barbara Weltman’s BARBARA’S BLOG post “Small Business and Politics” brings us some good news.
According to a recent Manta survey of small business owners –
“81% plan to vote out sitting incumbents.”
Barbara reminds us (highlight is mine) –
“November 4 is Election Day, which is less than 3 months away. On this day, all members of the House of Representatives and one-third of the Senate are up for election.”
Many people believe that the 113th Congress is the worst Congress in history, and certainly the least productive.
Since the current batch of idiots in Congress have not been doing the job they were elected to do we should “vote the bastards out” in November by getting a “GRIP” – Get Rid of Incumbent Politicians.
An important reminder – whatever you do, DO NOT replace incumbent Congresscritters with candidates who belong or pander to the Tea Party Movement! I realize it is hard to believe that Congress could be worse than it is now, but with more Tea Party voices in the mix it certainly would.
* Laura Saunders provides an example of “Tax-Smart Philanthropy Made Easy” at THE WALL STREET JOURNAL. She tells us “Many Donors Should Consider a 'Charitable Gift Trust' or 'Donor Advised Fund'” -
“Charitable-gift funds enable investors to earmark funds for gifts and get an immediate tax deduction, while allowing them to postpone making decisions about specific recipients. Meanwhile, the money is invested and grows tax-free until it's disbursed.”
This is great for those who need a bigger current tax deduction, but do not want to make a direct gift to a charity or charities this year. You can contribute $5,000 to a “Donor Advised Fund” today, or in December, and get a 2014 tax deduction, but you do not have to identify the specific charities until 2015.
* Kay Bells tells us about the “Coverdell Education Savings Account's Pre-College Options” at DON’T MESS WITH TAXES –
“That's right. Unlike many Internal Revenue Code education tax breaks, the use of Coverdell funds also includes qualified costs incurred from kindergarten classes and through high school diploma day.”
* In my annual warning about not using fast-food tax preparation chains to prepare your 1040 (DON'T ASSUME) I say –
“With commercial preparation chains I expect that the actual cost of preparing the return - salaries paid to the seasonal preparers and the training of these preparers - is one of the smallest items in the budget.”
I recently came across a post from EDUCATION CAREER ARTICLES – “Salary Information for Tax Professionals” – from November 2013 that apparently confirms this -
“The leading tax preparation companies, H&R Block, Liberty Tax and Jackson Hewitt pay an average wage of $9.50 an hour.”
The LAW DICTIONARY, in “How Much Do Tax Preparation Firms Pay Their Employees During the Peak Tax Season?”, says –
“On average, H&R Block pays its temporary employees about $12 per hour.”
And it also says –
“ . . . and may also pay commissions on sales of certain non-essential products.”
And MONSTER.COM says in “Seasonal Tax-Preparation Jobs” –
“H&R Block tax professionals are paid based on a commission formula. In addition to an hourly rate (average starting rate is $9 per hour), consideration is given to such factors as the number and complexity of the tax returns you prepare . . .”
So the base wage of the average tax season employee of Henry and Richard is pitifully low (based on the level of education and training that should be required to properly do the job of correctly preparing 1040s), but they can increase their earnings based on the fees they charge to clients (the more they charge a taxpayer for a return the more they put in their pocket) and by forcing unnecessary and “non-essential” products on clients.
* Tax pros – still waiting to hear your comments on “THE SOLUTION TO THE QUESTION OF A VOLUNTARY TAXPREPARER CREDENTIAL”!
Monday, August 25, 2014
The State of New Jersey wants its residents to submit their NJ-1040 state income tax returns electronically. Those taxpayers, and tax preparers (like me), who do not use flawed and expensive tax preparation software can do so via NJWebFile, which allows taxpayers to submit their returns directly to the NJ Division of Taxation without going through a third-party commercial preparation or software company.
The advantage to the taxpayer is that if your NJWebFile generated NJ-1040 results in a refund you can have the money directly deposited to your bank account instead of waiting for a paper check, which you must do with a paper return. And, as with any electronically submitted return, the preparer of the return is entering the information directly into the State’s system. There is no middle-man data entry person who could make an error in entering the information, as is the case with a paper filed return.
If the NJWebFile generated return results in a balance due, the system creates a payment voucher that the taxpayer prints out to accompany the check payment. On the bottom of this computer-generated voucher is a numerical code that is scanned in Trenton to process the payment.
For the third time during a tax filing season the NJWebFile generated payment voucher code apparently identifies the year for which the payment is being made as the prior year and not the current year. Although the voucher itself clearly says “2013 Payment Voucher” the payment is applied to 2012 and not 2013.
As a result, taxpayers who made a full and timely payment of the balance due on their NJWebFile submitted 2013 NJ-1040 are now erroneously receiving underpayment notices for the previously paid balance due on their 2013 return plus interest. I have heard from 5 clients already.
Applying the 2013 payment to 2012 would create an overpayment on the taxpayer’s 2012 tax account. If there was an overpayment on a federal return tax year account the Internal Revenue Service would promptly send the taxpayer a notice identifying the overpayment and asking for an explanation of the payment or if the taxpayer wants the amount refunded. One would think that the NJ Division of Taxation would do the same thing. It certainly has a fiduciary responsibility to do so. But, of course, the NJDOT remains silent and just gladly accepts the overpayment.
I realize I am cynical when it comes to government and politics, having grown up in Hudson County NJ. But my take is that NJDOT is purposefully silent, hoping that the taxpayer does not discover the overpayment, thus allowing the State of New Jersey to keep the money for its legislators to waste on pork and entitlements. But that is just me. I expect that the excuse that would be given is that the software system is at fault because it does not include an internal “prompt” to create an overpayment notice the same as it automatically generates an underpayment notice.
Well if the reason for the silence lies in the limitations of the software then fix the software so that it does automatically generate an overpayment notice.
The NJ Division of Taxation does fix the FU and properly apply the payment when it is told of the error.
This is not a new problem. It has happened before during two prior tax filing seasons – in 2009 for 2008 NJ-1040s and in 2006 for 2005 NJ-1040s.
So if you have received an underpayment notice for your 2013 NJ-1040 DO NOT PAY IT. Send it to your tax professional ASAP. You should do this any time you receive a balance due notice from the IRS, the NJDOT, or any other state tax agency. In my experience more than 2/3 of all balance due notices from tax agencies are wrong (and that is a conservative estimate).
If you “self-prepared” the 2013 NJ-1040 check to see if the “Balance of Tax” indicated on the notice is the same as the balance due on the 2013 NJ-1040 that you paid back in March or April. If it is write to the NJDOT to tell them they FU-ed and include a copy of your cancelled check for the original payment.
The “management” of the NJ Division of Taxation is well aware of the existence of this systemic problem – I have made them so aware. Let us hope that they fix the system so that –
(1) this error does not happen again two or three years from now, and
(2) their system automatically identifies and generates a notice to the taxpayer when an overpayment on a tax year account is made.
The State wants taxpayers, and preparers, to submit income tax returns electronically – but when they do the returns and payments therefor are not properly processed.
The NJWebFile is a great system – yet it is seriously limited. There are too many situations where a taxpayer cannot submit a NJ-1040 via this system. For example, you can reduce 1000 individual investment trades to one entry under the online schedule for “Net gains or income from the disposition of property” with NJWebFile, but you cannot use this method if you have Schedule C income or income from a K-1 for a partnership or sub-S corporation. The NJDOT should restructure the system to reduce these limitations.
Friday, August 22, 2014
* Did you see the “Message from My Cat” yet?
* My post on keeping W-2s forever is included in ACCOUNTING TODAY’s weekly BUZZ-like “In the Blogs” post, this one titled “Maybe They Should Tax Doritos”.
* It’s time for FORBES.COM’s TaxGirl Kelly Phillips Erb annual “Call For Guest Posts About Hot Tax Issues” -
“This year, I’m offering readers the chance to answer one of six tax-related questions:
• To combat inversions and other tax planning techniques for corporations, do you think Congress should lower corporate tax rates?
• Do you support repeal of the federal estate tax?
• Would you be willing to give up your citizenship if it meant you would save money in taxes?
• Should our Social Security system be privatized?
• Would you support a commuter tax by the mile if it meant the elimination or reduction of excise taxes on gas?
• If you could make one significant change to the existing Tax Code (change a rate, eliminate a deduction or something else), what would it be and why?”
* In light of the recent fascination with “tax inversions” Kay Bell answers the question “How Does the U.S. Corporate Tax Rate Compare to Other Countries?” at DON’T MESS WITH TAXES.
Kay’s “tweet” promoting the post tells us –
“Of the 163 nations it surveyed, the Tax Foundation found the United States has the third highest corporate tax rate.”
And the post itself tells us -
“Topping the tax list is the United Arab Emirates at 55 percent, with Chad in second place at 40 percent.
Overall, the Tax Foundation found that the U.S. tax rate is 16.5 percentage points higher than the worldwide average of 22.6 percent.”
* The TAX FOUNDATION has a map of “The Real Value of $100 in Each State” -
“Using data from the Bureau of Economic Analysis that we’ve written about previously, we adjust the value of $100 to reflect how prices are different in each state.”
My former home state of NJ is the 4th worst state on the list. $100 is worth only $87.64 (better than New York but worse than California). I do much better in my new home state of PA at $101.32.
* An FYI – check out some “Historical Highlights of the IRS”.
THE FINAL WORD –
Looting and destruction of property is NEVER an acceptable response to an alleged or real injustice. It is a selfish criminal act.
And opportunists like Al Sharpton should stay home and shut up. Their “involvement” in situations like Ferguson only make things worse. Taking advantage of a family tragedy for personal publicity or gain is despicable.
Tuesday, August 19, 2014
* Did you see the “Message from My Cat” yet?
* Eva Rosenberg of EQUIFAX explains “What You Need to Know About Inheritance Taxes”, specifically dealing with whether or not an inheritance is taxable.
* At FORBES.COM David Brunori tells us “Congress Shouldn't Make State Tax Systems Worse”. Easier said then done!
I like, and agree wholeheartedly with, David’s introductory statements –
“Our national legislature, whether the Democratically controlled Senate or the GOP-led House, is a joke.
Congress certainly doesn’t do taxes well, or at least it hasn’t since 1986. The federal corporate tax needs to be reformed. The personal income tax could stand some good tax policy revisions as well. Members of Congress have very little knowledge about good tax policy . . .”
* Did you know “The IRS Has a Tax Cheat Sheet for Small Business Owners”? So we are told by FOX BUSINESS.
Think what you will of the IRS and its past and current management, the Service’s website has some great resources.
* Kay Bell asks “Would You Trust Your Taxes to a Robot?” at DON’T MESS WITH TAXES.
She tells us –
“Most of the folks who participated in Pew Research Center's 2014 Future of the Internet canvass said they expect robotics and artificial intelligence, or AI, will permeate much of our daily lives by 2025.”
And also refers to “the September 2013 paper "The Future of Employment: How Susceptible Are Jobs to Comptuterisation?" by Carl Benedikt Frey and Michael A. Osborne”.
Tax preparers have a 99 percent potential for computerizationon on the Frey/Osborne list. However, this certainly will not happen in my lifetime.
Kay correctly observes –
“While on paper, tax preparation with all its forms and math calculations looks to be a good fit for total computerization, we know that won't happen. Trained people always will be needed to decipher the laws that govern the required paperwork.
More importantly, we'll need people to help work out strategies for the best, most money-saving application of the tax laws.”
Hey, aren’t many returns already being prepared by “robots” – or at least computers? Most employees of Henry and Richard and other fast food preparation chains are nothing more than data entry clerks – with the return actually being prepared, often erroneously and always expensively, by computerized tax preparation software. And unfortunately this situation is not limited to fast food chains.
I like Kay’s tax preparation scenario with Hal, “the implacable, and lip-reading space craft controller in 2001: A Space Odyssey”.
* USA TODAY brings us some disturbing news – “A Third of People Have Nothing Saved for Retirement”.
“A lot of folk have empty nest eggs. A third of people (36%) in this country have nothing saved for retirement, a new survey shows.
In fact, 14% of people 65 and older have no retirement savings; 26% of those 50 to 64 have nothing saved; 33%, 30 to 49; and 69%, 18 to 29, according to the survey of 1,003 adults, conducted for Bankrate.com.”
What about you?
THE FINAL WORD
This past week-end was the 45th Anniversary of the Woodstock Music and Arts Fair at Max Yasgur’s farm in Bethel Woods NY.
I was in the area, spending summer vacation in Beach Lake PA, during the original festival – but was only 15 and too young to attend. I do remember seeing overhead shots of the crowds in the Sunday News.
My family had driven to Lake Huntington NY, less than ten miles from Yasgur’s farm, (where my mother grew up; she told me that she knew Max Yasgur in her youth), and we stopped at a local general store. The proprietor told my father he had nothing to sell him because the “hippies” had bought everything in the store!
Earlier this summer I went to the Bethel Woods Center for the Arts, on the site of the original festival, to see Crosby, Stills and Nash, who had performed at Woodstock.
Monday, August 18, 2014
For years now, when asked by clients or readers, “How long should I keep my tax records?” I have recommended that you keep the copy of your actual Form 1040 (or 1040A) with all attached forms and schedules forever.
My reasons - your 1040s provide a permanent record of your financial history, and you never know when the information on a prior year’s tax return will come in handy for a variety of tax or financial related reasons, or just to satisfy personal curiosity.
I now add to this advice also keep copies of all your W-2s forever.
Just the other day a long-time client asked me if I had copies of his wife’s 1998 and 1999 Form W-2s. He had not saved them, and needed the forms for an issue with his wife’s employer, who had lost their records for past years in a flood and did not have back-up copies stored elsewhere. While I have copies of his 1040s back to the mid-70s, I did not have a copy of the needed W-2s. Back then I was not keeping copies of W-2s and other information returns.
FYI, I did start making copies of at least W-2s and 1099-Rs to attach to my copy of client returns in the early 2000’s.
During the tax filing season I came across a situation where a client, a retired municipal police officer, took a distribution from his deferred compensation account. The distribution was fully taxable on the federal return, as employee contributions were “pre-tax”. But for NJ state income tax purposes employee contributions were not “pre-tax”, so he had a “basis” in the account and at least some of the distribution would be considered a tax-free return of contributions.
I told the client to call the account trustee and ask for the total amount of employee contributions to the plan over the term of his employment. However, because the trustee had changed several times over the years, information was only available for contributions made since 2000. The client, who first came to me in the early 2000’s, had joined the police force in the 1980s.
The trustee told my client to get the information for the years before 2000 from his W-2s. Client contributions to retirement plans are usually reported in Box 12 or Box 14 of Form W-2. Of course the client did not have copies of all his W-2s going back that far, nor had he kept copies of all of the year-end account statements.
So you see, you never know when you will need the information reported on a Form W-2.
I provided the client looking for his wife's W-2s with the information I found on the IRS website -
"The IRS does not retain actual copies of Form W-2 except as an attachment to your tax return, for prior years. However, the IRS maintains (and will provide free of charge) Form W-2 information for any purpose for the past ten processing years. Use Form 4506-T (PDF), Request for Transcript of Tax Return, to request Form W-2 information. The only way to get an actual copy of your Form W-2 from the IRS is to order a copy of the entire return on Form 4506 (PDF), Request for Copy of Tax Return, and pay a fee of $50.00 for each return requested."
So the bottom line - keep copies of all your W-2s forever.
Friday, August 15, 2014
* Hey tax pros – I am still waiting to hear your thoughts on the topics discussed in the premier “issue” of THE TAX PROFESSIONAL!
* Did you see the “Message from My Cat”?
* EA, CPA, JD, ATP, AFSP – what’s the story? I explain the different “initials” as they relate to tax preparation at FIND A TAXPROFESSIONAL.
* Jason Dinesen brings to our attention a “Rare Home Office Deduction Win in Tax Court” at DINESEN TAX TIMES.
The case concerns the use of a studio apartment as a home office and the Court-upheld fact that “de minimis personal usage of office space is impossible to avoid in a studio apartment”.
* And Jason discusses “Proper Documentation of Business Expenses”.
Bottom line = “Keep your receipts”.
* NOLA.COM reports that the Louisiana “Revenue Department Announces Tax Amnesty Program” -
“The Louisiana Department of Revenue announced Tuesday its plans to host a tax amnesty program for 30 days in October and November.
The amnesty program would allow noncompliant taxpayers an opportunity to settle their accounts with the state by paying all of their delinquent taxes, while receiving a waiver of penalties and 50 percent of the interest owed for tax balances prior to Jan. 1, 2014.
Noncompliant taxpayers include those who failed to file a tax return, those who did not report all income or tax, interest and penalties, those who claimed incorrect deductions, and those who misrepresented or omitted any tax due.”
* A thoughtful post with some good advice from FORBES.COM’s TaxGirl Kelly Philips Erb - “Think Before You Post: The Dangers Of Seeking Tax Advice On The Internet”.
* And, in case you are interested, Kelly tells us “Tax Revenues Still On Pace To Break Records In 2014”.
The government still spends more than it makes, but there is some good news on this front (highlight is mine) –
“Our outlays still outpace our revenues for the year, leaving a deficit of just over $460 billion. And although that number seems impossibly big, it’s down 24% from the same time last year.”
* According to the LIFE AND TAXES blog of the “other” NSA “IRS Repeats Warning about Phone Scams After Over $5 Million Stolen”.
The post quotes IRS Commissioner John Koskinen –
“Taxpayers should remember their first contact with the IRS will not be a call from out of the blue, but through official correspondence sent through the mail.”
And it also points out -
“Additionally, it is important for taxpayers to know that the IRS:
• Never asks for credit card, debit card or prepaid card information over the telephone.
• Never insists that taxpayers use a specific payment method to pay tax obligations.
• Never requests immediate payment over the telephone and will not take enforcement action immediately following a phone conversation. Taxpayers usually receive prior notification of IRS enforcement action involving IRS tax liens or levies.”
So always remember – the IRS will NEVER email you or call you on the telephone!
THE FINAL WORD
Here is a question I have always wanted to ask the likes of Matt Lauer –
You interview kings and presidents, politicians, legitimate actors, heroes, real newsmakers – all people with actual talent or ability and worth who contribute to society and have something of value to say or share. Do you feel insulted when you are forced to interview self-important reality tv “stars” like Kardashians, real housewives, and the Trumpster – people with no talent and nothing of value to share with or contribute to society?
Thursday, August 14, 2014
My name is TURBO. I am the adopted son of Wandering Tax Pro Robert D Flach.
Before coming to live with my new father I resided at the Dessin Animal Shelter just outside of “downtown” Honesdale PA.
My former home is currently in financial trouble. The shelter is facing shut-down due to lack of funding. Many of my friends still live at the shelter. Could you please help?
Click here to donate online.
Or mail your check to –
Dessin Animal Shelter
138 Miller Dr.
Honesdale, PA 18431
Here is another way you can help yourself and Dessin at the same time.
If you order any of the books or forms compilations listed below between now and the end of September we will donate 50% of the purchase price to the Dessin Animal Shelter!
So you can help yourself by getting great tax advice, information, and resources at a great price, help support the continuation of my father’s blog, and help Dessin Animal Shelter! What could be better?
When ordering one of the above products send your check or money order, payable to TAXES AND ACCOUNTING, INC, to –
DESSIN SHELTER APPEAL
TAXES AND ACCOUNTING, INC
POST OFFICE BOX A
HAWLEY PA 18428
And, as my father always ends, TTFN