Thursday, May 31, 2007


Self-employed individuals, and one-man LLCs, who file a federal Schedule C (or C-EZ) must pay their own Social Security and Medicare Tax in the form of “Self-Employment Tax” if their “net earnings from self-employment” is $432.00 or more. Partners must also pay self-employment tax on their share of the net earnings from self-employment of the partnership passed through on a Form K-1.

The self-employment tax, calculated on Schedule SE, is applied to 92.35% (.9235) of the actual net earnings from self employment. If the total of your net self-employment earnings plus your W-2 Social Security wages are less than the Social Security maximum income base, which is $97,500 for 2007, the tax is 15.3% (.153).

If you are an employee you pay half of the FICA (Social Security and Medicare) Tax on your wages and your employer pays the other half. If you are self-employed you pay 100% of the tax.

If your net earnings from self-employment are $10,000 (and your Social Security wages are less than $87,500) you will pay $1,413 in self employment tax ($10,000 x .9235 = $9,235 x 15.3%). So in effect the self-employment tax is 14.13% of your Schedule C (or C-EZ) bottom line and/or your K-1 pass-through self-employment earnings.

You are allowed an “above-the-line” deduction (an “adjustment to income”) for one-half of your self-employment tax from Schedule SE.

So, taking into account the 50% self-employment tax adjustment to income, the “effective” cost of your self-employment tax is -

· 15% Bracket = 13.07%
· 25% Bracket = 12.36%
· 28% Bracket = 12.15%
· 30% Bracket = 12.01%
· 33% Bracket = 11.80%

If you are in the 25% federal tax bracket and have $10,000 in net earnings from self-employment you will pay $1,413 in self-employment tax. However you will get a $707 above-the-line deduction on Page 1 of your Form 1040, which will result in a $177 income tax savings. So the actual cost of the self-employment tax will be $1,236. If we add the $2,500 in income tax you will pay a total of $3,736 in federal taxes on your Schedule C earnings. When you also add in the state tax on this income we are talking about a total tax cost of more than 40% - so Schedule C deductions, like a home office, business use of your car, or paying a salary to your dependent children, are especially valuable.


Tuesday, May 29, 2007


(Q) If my company reimburses me 28.5 cents per mile for using my personal vehicle to travel to different job sites can I deduct the remaining 16 cents per mile on my taxes?


(A) In a word – yes! (As Shakespeare wrote – “brevity is the soul of wit.”)

To elaborate - As long as you submitted the actual miles driven for business to your employer on a regular basis and “he” reimbursed you under an “accountable plan” at a rate that does not exceed the IRS standard mileage allowance the reimbursement is tax-free and will not be included in taxable wages on your Form W-2. If the rate of reimbursement, in this case 16 cents per mile, is less than the federal standard mileage allowance, which was 44.5 cents per mile for 2006 and is 48.5 cents per mile for 2007, you can deduct the difference as an “employee business expense” on Form 2106. The net amount on Form 2106, in this case 16 cents per mile for 2006, is claimed as a “miscellaneous deduction” on Schedule A – subject to the 2% of AGI exclusion. The total amount of job, investment or tax-preparation related expenses must be reduced by 2% of your Adjusted Gross Income. If your total miscellaneous deductions are $1,000 and your AGI is $51,000 you get no deduction. If the total is $2,000 and your AGI is $51,000 you can deduct $980.


Monday, May 28, 2007


Happy Memorial Day! As is my custom I will be working away catching up on non-GD extension tax work. No cook-outs for me – although I will be having hot dogs for dinner.

A few items of interest before I go back to work.

· The U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 not only increases the minimum wage to to $7.25/hour over 2 years, but also contains several tax provisions tht affect 1040s. I will post a summary on the FEDERAL TAX UPDATE page of my website once I have been able to fully “digest” the contents of the Act.

· A client received her federal tax refund check relatively late. There was a notation on the bottom of the check that indicated $4.39 in interest.

Generally if the IRS does not process your return in a “reasonable” period of time you will receive a payment of accrued interest included in the check, and this amount will be identified on the bottom of the check. However, the check the client received was for the exact amount of the refund requested. In addition, the check was not “unreasonably” late and the $4.39 amount was much more than any interest that would have accrued on a late payment. Another client just received a very substantial 2006 refund check, within the normal processing time, and also discovered a notation for $5.00+ in interest on the bottom of the check.

FYI, what this interest notation refers to is the amount of accrued interest included in the standard Telephone Excise Tax Rebate amount of from $30.00 - $60.00 claimed on the 2006 Form 1040. It has nothing whatsoever to do with the amount or timeliness of processing of the 2006 refund.

· Relatively new blog Bankaholic reports on the various offerings of online banks. It has two tools that compare the interest rates on money market accounts and certificates of deposit. You no longer have to settle for the pitiful .5% to 1% that your local “brick and mortar” banks pay on savings accounts.


Saturday, May 26, 2007


The postings to some of the various tax blogs I check out regularly have been rather limited lately – perhaps a result tax season burn-out. It looks like some have given up completely. However, I have nonetheless come across some interesting “stuff” this past week.

* Mark Minassian, your guide to business law and taxes at provides a helpful “Home Office Deduction FAQ” page on his blog.

* Want to know HOW TO SOLVE AMT? FIX THE REGULAR TAX! Duh - constipation, Mr Holmes. Of course such a simple solution would be too easy for the cafones in Congress. Someone, I don’t recall who, very astutely said that “the creation of the original add-on Minimum Tax is an example of just how lazy Congress is”. Anyway, this posting to the ROTH AND CO TAX UPDATES blog discusses the Tax Foundation’s new study to fix the alternative minimum tax.

* Not only is Kelly Phillips Erb’s TAX GIRL blog presenting Presidential candidates’ responses to a tax policy questionaire, but she also posts a regular weekly “Getting to Know You Tuesday” interview with fellow tax bloggers. Last week she featured law professor Jim Maule of MAULED AGAIN, and this week the spotlight is on the Yellow Rose of Taxes – Kay Bell of DON’T MESS WITH TAXES. I, too, was interviewed for this series, and my Getting to Know You Tuesday posting will probably be the first one in July.

* The Small Business Taxes and Management “News and Tip of the Day” blog's May 24th posting reports that a bill titled the Universal Higher Education and Lifetime Learning Act has been introduced to consolidate the HOPE and Lifetime Learning education credits and the “above-the-line” deduction for tuition and fees. Under this bill the maximum consolidated credit would be $3,000, computed as 50% of the first $3,000 and 30% of the next $5,000. Phaseout of the credit would begin at $50,000 for single taxpayers and $100,000 for joint filers.


Friday, May 25, 2007


The deadline for senior and disabled homeowners to file the 2006 NJ Homestead Rebate and the Property Tax Reimbursement (aka Senior Freeze) applications has been extended from June 1, 2007 to August 15, 2007. For more information check out the NEW JERSEY UPDATE Page of my website.


As it now stands the credit for purchase of energy-saving items for your personal residence will expire on December 31, 2007.

The Energy Tax Incentives Act of 2005 created for two tax credits for residential energy improvements and equipment.

1) A credit for energy saving items used in your principal personal residence of up to a $500.00 lifetime maximum for 10% of the cost of qualified energy efficiency improvements to an existing home, such as -

· Insulation materials
· Exterior windows, including skylights
· Exterior doors,
· Metal roofs with special heat-reduction pigment coatings

Plus 100% of the cost of "qualified residential energy property", such as -

· Electric heat pump water heaters
· Electric and geothermal heat pumps
· Central air conditioners
· Natural gas, propane, or oil water heaters or furnaces
· Hot water boilers
· Advanced main air circulating fans

The lifetime maximum $500.00 credit is subject to the following specific credit limit amounts:

· Window components = $200.00
· Advanced main air circulating fan = $50.00
· Qualified natural gas, propane, or oil furnace or hot water boiler = $150.00
· Energy-efficient building property = $300.00

As the credit is limited to a total of $500.00 for 2006 and 2007, if you have already taken the maximum $500.00 credit on your 2006 Form 1040 you cannot claim a credit for the above items for 2007. If you claimed $300.00 in 2006 you can still claim up to $200.00 in 2007.

2) A credit for 30% of the cost of

· qualified solar water-heating equipment (maximum $2,000.00),
· qualified electricity-generating solar photo-voltaic property (maximum $2,000.00), and
· qualified fuel-cell property (maximum $500.00 for each .5 kilowatt of capacity).

The credit applies only to equipment used in a personal residence (including a vacation property) in the US, with fuel-cell property further restricted to a principal personal residence, and cannot be claimed on equipment used to heat a swimming pool or hot tub.

When purchasing an item or improvement that qualifies for the residential energy credit you should receive a manufacturer’s certification from the seller. Save this certificate and give it to your tax preparer with your 2007 “stuff”.

For more detailed information on what qualifies for the credit go to the Energy Star website.

FYI, the credit for purchase of a qualified “hybrid” automobile is available through December 31, 2009. However, if you are considering purchasing a hybrid you should know that the credit will be lost if you are a victim of the dreaded Alternative Minimum Tax (AMT). See my December 2006 posting on “
The AMT and the Energy Credit for Hybrid Vehicles”.


Thursday, May 24, 2007


The Pension Protection Act of 2006 created a special provision to allow taxpayers age 70½ and older the ability to directly transfer up to $100,000.00 tax-free from an IRA account to a qualifying charity. These charitable transfers can be used to satisfy the taxpayer's “required minimum distribution” (RMD) for the tax year. However, this special provision is only in effect for 2006 and 2007 – so, unless Congress acts, this is your last chance to take advantage of this unique tax break.

Here is how it works:

Let us say that Ely Mosynary, age 72, must take a fully taxable required minimum distribution of $4,263.00 from his IRA in 2006. Ely also owes $5,000.00 on a pledge to the Visual Art Center of New Jersey building fund. Ely can contact the trustee of his IRA account and request that $5,000.00 be sent directly from the account to the Visual Art Center of New Jersey to cover both his required minimum IRA distribution for 2007 and his outstanding pledge. The $5,000.00 is not reported as income on his 2006 Form 1040, and he cannot deduct the $5,000.00 as a charitable contribution on his 2007 Schedule A.

Before PPA Ely would have had to claim $4,263.00 as gross income on Page 1 of his Form 1040 and claim a $5,000.00 charitable deduction on Schedule A. The $4,263.00 would increase his Adjusted Gross Income (AGI) and could, as a result, increase the taxable portion of his Social Security (or Railroad Retirement) benefits by as much as $3,624.00, reduce his medical and miscellaneous itemized deductions by up to $405.00, and reduce or eliminate a number of other deductions and credits that are affected by AGI, and could cause him to fall victim to the dreaded Alternative Minimum Tax (AMT).

Under PPA, the $5,000.00 IRA transfer is tax-free, and does not increase his AGI. Plus the additional $737.00 represents a tax-free withdrawal from his IRA.

There is nothing in the law that limits the number of transfers that can be made during the year, or the number of charities to which the money can be transferred. So during 2007 Ely can chose to transfer $1000.00 each to four different churches or charities and $263.00 to a fifth. The only requirements are –

· the taxpayer must be at least 70½ years old and subject to the required minimum distribution rules,

· the distribution must be a direct trustee-to-trustee transfer. The IRA trustee must transfer the money directly to the charity – the taxpayer cannot receive the distribution in his/her hands and then donate the money to the charity.

· the full amount of the transfer (100%) must qualify as a charitable contribution eligible to be deducted on Schedule A.

· the maximum amount that can be excluded from taxable income for the year is $100,000.00.

Many retired taxpayers who must take required minimum distributions from an IRA are not able to itemize, due to the additional standard deduction for age 65 or older and the fact that their mortgage is paid off, and therefore get no tax benefit from their charitable contributions. By using a direct transfer to the charity of their choice to satisfy their annual required minimum distribution they will be able to get the full tax benefit for their contribution, as well as possibly reducing their taxable Social Security.

What if there is a “tax basis” in Ely’s IRA from non-deductible contributions, and part of his RMD is tax-free. If Ely decides to transfer his entire $4,263.00 RMD to various charities during 2007, but the calculation from Form 8606 indicates that only $3,950.00 of the distribution would have been taxable, Ely can claim the $313.00 “return of basis” as a charitable contribution on Schedule A.

Be advised that charitable distributions should only be made from a “traditional” IRA. Because qualified distributions from a ROTH IRA are totally tax-free both to the owner as well as his or her beneficiaries there is no tax benefit in a direct transfer of funds from a ROTH IRA to a charity. In such a case it would be “more better” to take a distribution from the ROTH and make a cash contribution to the charity. The ROTH distribution is not included in taxable income, and the contribution can be claimed as a deduction on Schedule A.

Qualifying taxpayers may also want to consider making a direct transfer from a traditional IRA to a charity now, instead of having a cash bequest made from their estate. As beneficiaries will be taxed on monies received from an inherited traditional IRA, by making the contributions as a direct transfer now one will -

· reduce the tax cost to the beneficiaries of their inheritance,

· reduce the balance in the traditional IRA, which will in turn reduce taxable required minimum distributions,

· get the money to the charity sooner,

· enjoy the appreciation of the charity during one’s lifetime, and

· see how the contribution is put to use.

FYI, the direct tax-free transfer to a charity is not available from SEPs or SIMPLE IRAs.

To be continued......


Wednesday, May 23, 2007


Unless Congress does something several popular tax breaks will expire on December 31, 2007 – so this year may be the last year to take advantage of them.

While I have high hopes that most, if not all, of the expiring tax breaks will be at least temporarily extended, with the Democrats now in charge of both houses the odds of this happening have been somewhat reduced.

Congress waited until literally the very last minute, December of 2005, to extend the “above-the-line” deductions for educator expenses and tuition and fees and the option to deduct state and local sales taxes paid instead of state and local income taxes paid on Schedule A, all of which were originally scheduled to expire on December 31, 2005. But they only extended these deductions for 2006 and 2007. As it now stands they will not be allowed in 2008 and beyond. For specific information on these deductions see my December 2006 postings “They’re Back – Part One” and “They’re Back – Part Two”.

While the “above-the-line” deductions do not require any special year-round tax planning – educators will no doubt spend at least $250.00 on classroom supplies and the like whether or not this break exists, and the tax-planning aspect of the tuition and fees deduction involves determining whether it is better to claim the deduction or take a tax credit, which is done when preparing your return – calculating your tax benefit from deducting state and local sales tax requires year-round action.

An item from a tax planning booklet I wrote back in 1983, when you could deduct both state and local income tax and state and local sales tax (part of which I quoted in my “They’re Back - Part Two” posting), is once again relevant for 2007 returns:

“The second option states that ‘if you kept records that show you paid more sales tax than the tables list you may deduct the larger amount.’ More likely than not, in the course of a year you will pay more state [and local] sales tax than the tables allow.

The key to the substantiation of this deduction lies in the phrase, ‘if you kept records’. Keep a manila envelope or shoe box in your kitchen, bedroom or study and save every supermarket, department store, credit card or other receipt that lists the amount of sales tax paid on your purchases. If you are dining out and pay cash, make a note of the date, name of restaurant, cost of meal, and amount of sales tax and put it with your receipts. If you use your credit card when dining out, make sure the sales tax is itemized on the receipt.

At the end of the year, add up the sales tax from these records, exclusive of any applicable to a car, boat, etc, and compare your total to the amount allowed in the Optional Sales Tax Table. You may find that you are allowed a larger deduction by using the tables, but you will never know unless you save your receipts and compare.”

Remember that the actual state and local taxes paid on the purchase of “big-ticket” items such as a car, motorcycle, motor home, recreational vehicle, sport utility vehicle, truck, van, off-road vehicle, boat, airplane, home, and home building materials, and any sales tax paid on the lease of a motor vehicle, can be deducted in addition to the amount from the tables, so do not include the tax on such items when comparing the actual amount from your receipts to the amount allowed in the tables.

FYI, I have found the sales tax deduction to be especially beneficial for many of my retired taxpayers who itemize. New Jersey, like many other states, has a “retirement income exclusion” which, combined with the $10,000 or $20,000 filing threshold (depending on filing status), means that seniors often pay minimal, if any, state and local income tax.

Here is something else to keep in mind when deciding which tax to deduct. Just about every state income tax return will not allow you to claim a deduction for state and local income taxes, but I have come across a few state returns that will permit a deduction for state and local sales taxes.

To be continued …..


Friday, May 18, 2007


While I have been behind in my own postings, I have been checking the other tax blogs daily, and I have come across lots of interesting stuff this week in tax, finance and other blogs:

* BLUEPRINT FOR FINANCIAL PROSPERITY discusses whether you should use “Cash, Checks or Credit When Traveling Internationally”. I agree with his ranking of the different methods. During my international wanderings I have often saved even more by using a credit card - the exchange rate when the item I charged was actually processed by the credit card company was better than it was on the day of the purchase.

* Dan Meyer of TICK MARKS reminds us that the telephone tax refund is also available for Non-Profit Organizations. Click on the title of this posting on his blog to go to an article from SmartPros with more detailed information on the subject.

* AVIVA DIRECTORY covers “12 Important US Laws Every Blogger Needs to Know”, with helpful “never”, “always” and “consider” points for each of the 12 to help keep bloggers out of trouble. I learned of this article on Michelle Golden’s GOLDEN PRACTICES blog.

* The first Presidential candidate to discuss his tax policies on Kelly Phllips Erb’s TAX GIRL blog is former Wisconsin Governor Tommy Thompson, who supports repeal of the dreaded AMT.

* Brendan Moore’s AUTOSAVANT, a blog “all about cars and the car business”, goes into detail on the hybrid cars eligible for the tax credit.

* Kay Bell of DON’T MESS WITH TAXES tells how the US Tax Court recently “just said no” to a deduction for medical marijuana in her posting “Marijuana Deduction Goes Up In Smoke”. As I state in my special report DEDUCTING MEDICAL EXPENSES ON YOUR 2006 NEW JERSEY STATE INCOME TAX RETURN - “According to the Internal Revenue Code you cannot deduct expenses for an illegal activity. Under the federal Controlled Substance Act marijuana is an illegal controlled substance.”

And elsewhere on the internet:

* MarketWatch reports that the recently passed tax-cheat whistleblower law has scored some early successes.

* The IRS has released statistics related to the recent tax-filing season. More than 59 million refunds, a new record, were deposited directly into savings, checking and brokerage accounts, representing more than 61 percent of all refunds issued. Almost $158 billion has been directly deposited so far this year, an 11 percent jump over last year at this time. The average refund this year is $2,255, a 2.5 percent increase over last year at this time.


PS - Trying to publish this post properly, with all appropriate links, has been a very frustrating pain in the ass this morning - blogger is very difficult at times! I have given up for the moment - and will come back later and try to enter the rest of the links. Sorry that the blogger system is such a POS this morning.
I give up! Here are the "missing links" -

Thursday, May 17, 2007


It has been a month since the end of the 2007 tax filing season - and I have completed almost half of the 39 GD extensions I had to file this year!

Unfortunately, although not unexpected, several of the GD extensions I started to work on had to be transferred to red files, as all the information needed to properly prepare the return was not included in the package I received. As the missing information comes in I am finishing the returns promptly.

More than half of the remaining GD extensions are either red files or "not yet received" (I filed an extension at the client's request without receiving any 2006 "stuff") – so I must wait until I hear from the client before I can do anything more.

I am pleased with the progress so far!

One question I am often asked in regards to the GD extensions is - “So if you can do close to 400 returns in 2½ months why does it take several months to do 39 returns?”

During the tax-filing season (February 1 - April 15) I spend at least 12 hours per day, 7 days a week, working on pretty much nothing but 1040s (I do also manage to continue to prepare payroll and pay bills for my one big year-round business client). I am "at the desk" by at least 5:00 am each morning and end each day at between 7:00 and 8:00 pm, with only brief meal breaks. I dare not take any time off due to the mid-April deadline hanging over my head.

During the rest of the year I actually do other things - many of a personal nature (yes, I do have a life!) - and, on average, work on one or two returns per day. I occasionally “sleep in”, and actually rise after the sun. I need to catch up on the payroll taxes and bookkeeping and accounting of my business clients (while I do not accept any new year-round business clients I do have a few left). And there is correspondence from “Sam” and other “uncles” related to the already-filed 2006 and previous years tax returns that I need to respond to. There are days when I do not do any 1040 work - for example every Wednesday I count a client's money in the morning and visit my folks in Ocean Grove in the afternoon and early evening.

With no looming deadline hanging over my head I work at a much more relaxed pace.

As mentioned above, often when I start on a GD extension I find that I need additional information from the client - and I must wait to get all of the missing information before I can properly complete the return. It seems that clients are slower in providing missing information in the “off” season.

FYI, I do not work on the GD extensions in a FIFO (first-in, first-out) manner. There are many criteria for choosing the order in which I work on the GDE, not the least of which is my own personal convenience. Of course I do try to give priority to those returns received before March 31st that were "lost in the shuffle" for which I have all the information necessary to properly complete the return in one sitting, and to returns that I anticipate will have a balance due.

Now, back to work on the GD extensions!


Friday, May 11, 2007


"Tax Carnival #18: Tax Break Time ... Maybe" is currently up and running, a few days late, at Kay Bell’s DON’T MESS WITH TAXES blog. My posting on how long you should keep your tax records is included.


* Here are some recent interesting posts from my fellow tax-bloggers:

--TAXGIRL Kelly Phillips Erb reports on how the GOP candidates addressed the issue of federal taxes during the May 3rd debate in her May 7 posting “The 4-1-1 on the GOP, Tax Speak, That Is”. In her May 9th posting she shifts focus to the Democrats’ comments on taxes during their April 27th debate.

Kelly has asked each of the candidates to respond in writing to six tax-related questions. She will post the responses as received on her blog.

--Trish McIntire of OUR TAXING TIMES discusses the new proposed IRS regulations on the qualifying child issue is her May 4 posting “Qualifying Child”.

-- Ironman of the political calculations blog has created a calculator where you can enter your 2006 income and deduction information to find out how much you would have been taxed under the very first Form 1040 from 1913!

* An article in Wednesday’s STAR LEDGER under the title “Griffith Sues and Loses” tells that actor Andy Griffith lost his lawsuit against a man who took the name Andrew Jackson Griffith help in his campaign for sheriff in a small south-western Wisconsin town. The candidate, whose real name is William Harold Fenrick, came in third in the election.

The article stated that during his campaign Fenrick spoke out against speed traps, saying “They never did unethical stuff like that in Mayberry!”

No so! America was first introduced to Sheriff Andy Taylor, and the town of Mayberry, in a 1960 episode of The Danny Thomas Show (aka Make Room for Daddy). Danny Williams and wife, played by Marjorie Lord, were driving across country when they were caught in a speed trap in Mayberry. Rather than “pay the $2.00” Danny decided to protest by electing to do the jail time instead. The resulting “Andy Griffith Show” was television’s first “spin-off”. FYI, Deputy Barnie Fife did not appear in the episode.

* The National Association of Tax Professionals weekly email newsletter reports that purchasers of General Motors Corp. qualified vehicles may continue to claim the full alternative motor vehicle credit at least through March 31, 2007. The announcement comes after the IRS concluded its quarterly review of the number of hybrid vehicles sold. The make and model of qualified GM vehicles sold, and the credit amounts, are:

2006 and 2007 Chevrolet Silverado Hybrid 2WD - $250
2006 and 2007 Chevrolet Silverado Hybrid 4WD - $650
2006 and 2007 GMC Sierra Hybrid 2WD - $250
2006 and 2007 GMC Sierra Hybrid 4WD - $650
2007 Saturn Vue Green Line - $650
2007 Saturn Aura Hybrid - $1,300

The make and model of the qualified Nissan vehicle sold, and the credit amount, is:
2007 Altima Hybrid - $2,350

The Toyota and Lexus hybrids will be completely phased out of the credit for vehicles purchased beginning October 1, 2007. There is still a reduced credit amount for vehicles purchased through September 30, 2007

Additional qualifying vehicles, including the credit amounts, are available on the IRS website.


Thursday, May 10, 2007


If you haven’t received your federal or state refund check yet don’t call or email me (if I prepared your return) or your tax professional - there is nothing we can do.

The first thing you should do is to look at your copy of the return to see if you requested direct deposit of the refund. If you have done so, check your most recent bank account statement or access your account online to see if the refund was deposited. You will not receive a written acknowledgement of the direct deposit from your “uncle(s)” or the bank – the money will just appear in your account.

If it has not been directly deposited, or elected to receive a check, do the following:

· You can check the status of your federal income tax refund online. Click on HEY DUDE, WHERE’S MY REFUND in the right hand margin of this page. Or go to the IRS website and click on “Where’s My Refund?” Or you can call 1-800-829-1954.

· To check on a NJ state income tax refund, call the Automated Refund Inquiry System from a touch-tone phone at 1-800-323-4400 (within NJ, NY, PA, DE, and MD) or 609-826-4400 (from anywhere else).

You can also perform an
online search to determine if your NJ refund was returned to the Division of Taxation by the Post Office due to an invalid mailing address. If your refund check was returned you can submit an online claim form.

· You can check the status of your NY state refund online. Go to and click on “online” under the heading “Income Tax Refund Status Inquiry”. Or you can call 1-800-443-3200.

For any other state you should go to the website of the appropriate state tax agency.

You must wait at least eight (8) weeks after mailing your return to check on its status. Have your copy of the tax return in front of you when you call or go online as you will need information that is on the return.

If you are told that your return has not been received, contact me, or your preparer, to prepare a duplicate return.

If you are told that your refund has been issued but you have not received it, follow the instructions provided to request a new check.


Wednesday, May 9, 2007


I encourage my 1040 clients to email me with tax questions during the year. I generally do not charge for answering these questions. I would rather have a client ask me a question first before going off and doing something that could prove to be “tax foolish”. It could save me time and agita in the future, so it is worth offering this service free to clients. However, if a client question involves extensive research I do charge at my normal hourly rate.

As a “tax blogger” I also welcome general tax questions, which I can use as the basis of a posting or answer under the ASK THE TAX PRO heading.

What I do not solicit, nor welcome, are emails from strangers with specific tax questions for which I am expected to provide detailed answers, with Tax Code references, free of charge.

1. I make my living as a professional tax preparer and consultant. This is how I pay my bills. Would you email a doctor you have never met out of the blue and ask for a free diagnosis?

2. I am absolutely, positively not looking for any new 1040 clients. I already have more than I need.

If you want someone to do tax research for you I suggest you contact the National Association of Tax Professionals Research Department. They will provide detailed tax research for a minimum of $49.50 per question.

Or, more appropriate, ask your own tax preparer and pay him/her for his/her time.


Tuesday, May 8, 2007


I do not “text message” – I do not even own a cell phone – but I do email and blog. However, my fascination with and use of acronyms goes back many years.

Here are some of the acronyms I use in my emails and blog postings:

SGTM – Sounds Good To Me

TTFN – of course, Ta Ta For Now, or, alternatively TAFN – That’s All For Now

FFR – For Future Reference

GD (as in extensions) – one of my clients recently asked me what GD extensions meant, and I told him “exactly what you think it means”! The GD does not stand for “government deferred” or anything like that. I could have used “MF Extensions” – but chose not to.

DFB – the "clean” version is Damned Fool Bureaucrats. It is generally used in reference to our beloved lawmakers in Trenton and Washington. You can probably figure out the real version on your own.

Nowhere in society is the acronym more widely used than in government – and taxes are certainly no exception.

The Tax Code overhaul of the Reagan years generated a ton of new tax acronyms. There was ACRS (Accelerated Cost Recovery System) – the new word for depreciation – followed by MACRS (Modified Accelerated Cost Recovery System). And then there was FACRS (Foolhardy Acts of Congress under the Ruse of Simplification), which described the entire process. Under the Reagan tax laws you needed a PIG (Passive Income Generator) to wipe out a PAL (Passive Activity Loss).

Here are some of the tax acronyms that I use most often in my postings:

AGI – Adjusted Gross Income. This is the total of your gross income less certain allowable “adjustments to income” – aka “above the line” deductions (your AGI being “the line”) – such as IRA, SEP, SIMPLE, Keogh, MSA and HSA contributions, ½ of any self-employment tax, educator expenses, qualified tuition and fees, early withdrawal penalties on CDs, student loan interest, etc. As many tax credits and deductions are phased-out, or altogether eliminated, based on your AGI, or in some cases a “Modified” AGI (see below), and several items of income are increased and some deductible losses are reduced based on AGI or MAGI, it is perhaps the most important number on your tax return.

MAGI – Modified Adjusted Gross Income. As just mentioned, certain items of income and deduction and certain credits are increased, decreased or totally wiped out based on your AGI. In many cases the AGI is “modified” in the calculation by adding or subtracting certain specific items. Different items have different MAGIs.

AMT (usually preceded by “the dreaded”) – Alternative Minimum Tax. More appropriately called the Maximum Mandatory Tax, this is a required “alternative” method of calculating your federal tax liability that is much more restrictive than the “regular” income tax. It does not allow deductions for personal exemptions, the standard deduction, taxes or miscellaneous itemized deductions, and certain other Schedule A items, and requires an adjustment to the amount of income or deduction claimed for certain “tax preferences”. You must calculate your tax under both the “regular” income tax and the dreaded AMT and pay the higher amount.

NOL – Net Operating Loss. If losses from a business activity, such as self employment or rental property, generate a “negative” net taxable income on your Form 1040 you may be able to carry back or carry forward some of these losses to apply against past or future income. You must first carry back the loss two tax years, and then can carry forward any remaining losses for 20 years. You can elect not to carry back an NOL, using it to reduce only future income.

Any questions?


Monday, May 7, 2007


As Kay Bell of DON’T MESS WITH TAXES reports in her May 5th posting, George W’s fiscal 2008 budget includes a proposal that would require brokers to report cost basis information to taxpayers and the IRS. If approved, the reporting change would affect publicly traded stocks, mutual fund shares and securities purchased on Jan. 1, 2009, and later.

This idea is nothing new. Similar legislation was introduced in the last Congress, and Democrat Sen. Evan Bayh, one of its authors, plans to reintroduce it this year. I also believe that instituting this requirement was one of National Taxpayer Advocate Nina Olsen’s recommendations a few years ago.

Currently, many mutual fund houses provide clients with Average Cost Statements along with the 1099 information when fund shares are sold. And many brokerage houses provide P+L reports in their consolidated year-end 1099 statements. However, these reports generally only include investment sales where both the purchase and sale was made through that broker. The cost price of a stock purchased by a taxpayer when a client of UBS will not be reported on the P+L generated by Merrill Lynch when the taxpayer changes brokers, or the broker changes houses, and sells the stock.

Sometimes when a broker changes houses he will bring along the cost basis information of clients who follow him, and enter this info into the system of his new employer. However, this is extremely rare.

Having to come up with a cost basis for investments sold is perhaps the number one cause of delays in preparing client returns during the tax-filing season. More often than not clients do not provide me with sufficient cost basis information – they give me the 1099-B reporting “gross proceeds” and expect me to know the cost basis by some kind of magic.

Some brokerage houses will include a schedule of investment purchases in their year-end consolidated package – but others do not. Merrill Lynch used to provide such information years ago - but not any more. When provided, I photocopy these schedules and attach them to my copy of the tax return.

Determining the cost basis of an investment sold becomes more complicated when dividend reinvestment, splits, spin-offs, etc are involved. The individual websites of publicly traded companies often provide worksheets or guidance for determining cost basis when there have been splits and spin-offs under “Investor Relations” – but the process is time consuming. When I am stuck I turn to a longtime friend, client and fraternity brother, a broker, for help.

Nothing would please me more than if all brokerage and mutual fund houses were required to report cost basis on all Form 1099-Bs. It would certainly make my life much easier during the tax-filing season.

One of the GD extensions currently in my “red file” box is from a client who sent me her “stuff” before March 31st, but did not include the date of purchase and cost basis for her one stock sale of the year. I contacted her broker but with no success - the stock had been purchased years before by another broker from a different brokerage house and transferred in to her current brokerage account. While I had photocopied her year-end consolidated statements from all brokerage accounts over the years I could find no information on the purchase of the investment in my file. A real PITA!

If this new requirement becomes law (fingers crossed) I would expect that the cost basis for stocks would be reported using FIFO (first-in first-out) method. However, taxpayers have four (4) options when it comes to calculating the cost-basis of mutual fund shares sold:

· First-in first-out
· Specific share identification
· Average Cost - Single-category method
· Average Cost - Double-category method

As mentioned above, currently mutual fund houses will report the cost basis of shares sold using one of the Average Cost options. I find that, on average, using FIFO will result in a larger cost basis – but I use the cost basis provided on Average Cost Statements when preparing the Schedule D unless I have readily available all the purchase information necessary to calculate the FIFO basis. I would hope that required cost basis reporting for mutual funds would use the FIFO method – leaving taxpayers the option to elect to use one of the other methods.

So what do you think?

While we are on the subject here is a reminder - according to T.C. Memo 2003-259, if a taxpayer cannot provide proof of the cost basis of a stock or other investment sale it will be considered to have a "0" cost basis. As a result, the entire gross proceeds are fully taxable! See my 2006 posting on “Keeping Track of Investment Cost Basis”.


Friday, May 4, 2007


* The Tax Foundation’s TAX POLICY BLOG May 2nd posting discusses a Wall Street Journal article regarding a paper by Harvard economists which concludes that taxing tall people more than short people meets the two criteria of an ideal tax system - it is both equitable and efficient.

* The May 2nd TAX WATCH posting to MarketWatch - “Don't pack away that return just yet: Your 2006 return offers signposts for 2007 tax planning” - elaborates on what I discussed in my posting “Learning From Your 1040”.

* Trish McIntire at OUT TAXING TIMES speaks to some of the frustrations we tax preparers encounter when dealing with the “great unwashed masses” in her May 3rd posting “Shoot The Messenger”. Trish, I feel your pain. My only comment is that Donald Trump is the last person I would imagine myself as.

* A belated thank you to Dan Meyer of
TICK MARKS, my client Chris S, and all of the others who sent comments and emails to welcome THE WANDERING TAX PRO back from my tax season hiatus.

* Most restaurants limit access to their rest room facilities to patrons. The Mexican Deli/Restaurant down the block from my apartment requires you to be in “fancy dress”, like a kid at Halloween, if you want to use its “jake”. A sign in the window announces “Rest Rooms for Costumers Only”.

* The IRS announced tax relief for New Jersey, New York and New Hampshire taxpayers in the Presidential Disaster Area that was struck by severe storms and flooding April 14-18, 2007. The disaster area consists of the Bergen, Burlington, Essex, Passaic, Somerset, and Union counties in New Jersey, Orange, Rockland, and Westchester counties in New York, and Grafton, Hillsborough, Merrimack, Rockingham and Strafford counties in New Hampshire. Deadlines for affected taxpayers in these counties to file returns, pay taxes, and perform other time-sensitive acts falling on or after April 14, 2007 and on or before June 25, 2007, have been postponed to June 25, 2007. For more information go to the IRS website at


Thursday, May 3, 2007


You have submitted your 2006 Form 1040 and received your refund, or written your check. You have put your copy and its documentation in the file cabinet with your other prior year returns. You are finished with your “uncles” for another year.

But wait – you read about a deduction, credit, technique or loophole here in THE WANDERING TAX PRO or another tax blog, or somewhere else, that could have gotten you a bigger refund, or reduced the amount you had to pay, on your 2006, and/or earlier, tax return.

All is not lost. You can still take advantage of the deduction, credit, technique or loophole on your 2006, or 2005 or 2004, tax return. While April 15th (April 17 this year) is the statutory deadline for filing your return, you have three (3) years from the due date of the return, including any extensions, - or two (2) years from the date you actually paid the tax, whichever is later - to “amend” the return and get an additional refund (similar to the rule that the IRS has three years from the due date of your return to audit and change that return).

On the other hand, let us say you receive a K-1 or a Form 1099 after filing your 2006 tax return that reports additional income not included on the original return. You should file an amended return to report the additional income and pay the additional tax before “Sam” catches the omission in its matching program and bills you.

Form 1040X, Amended U.S. Individual Income Tax Return, should be used to correct the original Form 1040 (or 1040A) for the year in question. The form has three columns. In Column A you state the income, deductions, exemptions, credits and tax payments as reported on the original return. In Column B you report the individual changes you are making. Column C reports the corrected figures. You must explain the changes you are making in a statement on the back of the Form 1040X.

You should attach to the Form 1040X any IRS schedules or forms that change as a result of the “amendment(s)”. If you are claiming additional or corrected itemized deductions for 2006 attach a corrected 2006 Schedule A. You should also attach a corrected Schedule A if the change reduces, or increases, your Adjusted Gross Income (AGI) and as a result your deduction for medical or miscellaneous expenses is reduced or increased. If you are reporting additional expenses related to rental income or self-employment income for 2004 attach a corrected 2004 Schedule E or Schedule C, and if appropriate Schedule SE. You should also attach copies of any other documentation that supports your changes.

If amending your return results in a refund of overpaid taxes, the IRS will also pay you interest on the amount of the refund, which, of course, must be reported as taxable income on your 2007 return. However, if you are filing an amended return to claim additional income and pay additional taxes the IRS will charge you interest on the tax due, which, as “personal interest”, is not deductible.

Do not file an amended return until the original return has made its way through the system. If there was a refund on the original return, wait until you have received and cashed your original refund check.

One reason to file an amended return is if you did not claim the refundable telephone excise tax credit on your original 2006 tax return, or if you claimed the wrong amount. You would claim this credit on Line 15 of the Form 1040X.

There are certain situations where you cannot file an amended return. If you filed your original return as Married Filing Separate you can amend the individual separate returns to claim one joint return, but if the filing status on your original return was Married Filing Joint you cannot amend the return to file separate returns after the due date of the original return (i.e. April 17th for a 2006 return).

There are also situations when you have more than three (3) years to file an amended return. If the Form 1040X is being filed because of a worthless stock you generally have seven (7) years from the due date, including any extensions, of the return for the year in which the stock became worthless. For the carryback of a Net Operating Loss (NOL) you have three (3) years from the due date of the return for the year in which the NOL was created. In the case of an NOL carryback you would file Form 1045, Application for Tentative Refund, instead of Form 1040X.

Any questions?


Tuesday, May 1, 2007


The NJ Department of the Treasury has announced that the applications for the 2006 Homestead Property Tax Rebate for senior and disabled homeowners are “in the mail.”

Senior and disabled homeowners in Atlantic, Camden, Essex, Hudson, Hunterdon, Monmouth, Morris, Ocean, Salem, Somerset and Sussex counties should be receiving their applications first. I have already heard from one Jersey City client who has the application in hand. Those in Bergen, Burlington, Cape May, Cumberland, Gloucester, Mercer, Middlesex, Passaic, Union, and Warren counties should have their applications by the week-end.

For more information on the new New Jersey Homestead Rebate/Credit program go to the NEW JERSEY UPDATE Page of my website.