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

As this week’s entry covers almost two weeks of online activity it is a big one.

* An online op-ed piece from the Wall Street journal reports what I had already concluded - “The Tax Rebate Was a Flop. Obama's Stimulus Plan Won't Work Either.”

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The article points out (highlight is mine) - “The evidence is now in and that optimism was unwarranted. Recent government statistics show that only between 10% and 20% of the rebate dollars were spent. The rebates added nearly $80 billion to the permanent national debt but less than $20 billion to consumer spending. This experience confirms earlier studies showing that one-time tax rebates are not a cost-effective way to increase economic activity.”

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* Several sources have reported on the new IRS Publication 1828, Tax Guide for Churches and Religious Organizations. According to Professor Linda Beale of A TAXING MATTER, “The publication covers a full range of issues relevant to the tax exemption of churches and other religious organizations, but a substantial section is devoted to expanded guidance on the question of political activities. It includes a number of examples from the recent Revenue Ruling 2007-41, designed to illustrate the line between acceptable and unacceptable activities.”

* Joe Kristan of the ROTH AND COMPANY TAX UPDATE BLOG discusses “secret factors that tell the IRS there really is no profit objective” in “You Know You Really Have a Hobby Loss Problem When…”, and a unique business deduction that wasn’t allowed in “But What Was the Business Purpose?”. I expect that this particular deduction has been taken on many a return over the years. Perhaps the business reason is “entertaining clients”?

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* The Tax Foundation has published a new Fiscal Tax Fact report on the effects of the 2001 and 2003 tax rate reductions appropriately titled "The 2001 and 2003 Tax Relief: The Benefit of Lower Tax Rates."

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According to the report (highlight is mine) – “Recent research on President Bush's tax relief in 2001 and 2003 has found that the lower tax rates induced taxpayers to report more taxable income. In particular, the reduction in the top two tax rates induced taxpayers to report more taxable income—an increase in the size of the tax base—to such an extent that this positive behavioral response likely offset roughly 25 percent to 40 percent of the static revenue loss of lowering the top two tax rates.”

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* Professor Jim Maule continues the discussion of the weird “additional standard deduction” for real estate taxes in his post “When Those Who Make Tax Law Don't Understand Tax Law”.

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NJ politicians Corzine, Menendez and Holt recently conducted a presentation to tout this new tax complication that provided false information concerning the deduction – they said that the deduction could “put $500 or $1,000 in property taxpayers' pockets", when in truth the additional deduction, and not the actual tax savings, is limited to $500 if Single and $1,000 if Married.

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And, on a different but related topic, Barack Obama has said that homeowners who itemize "get a mortgage deduction, up to $1 million," which is also false - the $1 Million in the Tax Code refers to the principal of the mortgage, not the interest deduction.

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Jim draws the following excellent conclusion (the highlight is mine) - “The fact that politicians are having a tough time giving accurate descriptions of the tax law should teach everyone, including them, a lesson. The tax law is too complicated. All four of the politicians who goofed are in, or have served in, the Congress. If they don't understand the law for which they have voted, how can they expect everyone else to understand it? Rather than layering on more complexity each time a group arrives hat in hand, or check in hand, seeking special relief, Congress needs to overhaul the system before it collapses.”

Joe Kristan comments on Jim’s post over at the ROTH AND COMPANY TAX UPDATE BLOG in “What Do You Expect? They Only Want to Be President.” According to Joe, “I have the answer to this problem, of course -- require that all Congresscritters do their returns in public themselves via a live webcast.”

* The TV SQUAD blog reports on “What to Expect in Season Four of Bones”, the tv show about the forensic anthropologist teamed with an FBI agent to solve crimes based on the writings of novelist Kathy Reichs (it is one of my favorites).

According to the post, in one of the cases the crew will handle in the upcoming season “the host of a popular reality show will be found dead in an outhouse.” First comment – poetic justice (since reality tv = steaming piles of excrement). Second comment – what is the crime? Third comment – I hope it is Donald Trump!

Beware - the post contains lots of “spoilers”. BONES returns on September 3rd.

* Roni Deutch gives us the word on Joe Biden’s record on tax related issues in “Biden Has A Pro-Tax Career” at her TAX LADY BLOG.

* What would I like for my upcoming November birthday? Click here and here to find out at Paul Caron’s TAX PROF BLOG! You can email me for the address to have the gifts sent. Click here for the Tax Foundation’s TAX POLICY BLOG comments on the second item.

* From these political cartoons that appeared at the TAX GURU-KER$TETTER LETTER blog I assume that Kerry is a Republican.

* Kay Bell of DON’T MESS WITH TAXES continues to keep us up-to-date on the state sales tax holiday issue in her post “North Carolina Adds Energy Tax Holiday”. The post includes a chart of fall state sales tax holidays.

Speaking of state sales tax, while the cafones in Congress are still dragging their feet on the issue (too busy campaigning), the IRS speakers at the Nationwide Tax Forum I attended in NYC last Tuesday seem to feel that the option to deduct state and local sales tax instead of state and local income tax, as well as the various other expired individual and business tax breaks and the AMT patch, will eventually be extended for 2008.

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* Paul Caron reports on the “Tax Planks in Democratic Party Platform” at the TAX PROF BLOG. The Tax Foundation’s TAX POLICY BLOG had previously discussed the draft Democratic Party platform on taxes in “Democratic Draft Platform Details More Tax Complexity Despite Call for Simplification”

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The excerpt from the plank included in Paul’s post begins “We must reform our tax code. It’s thousands of pages long, a monstrosity that high-priced lobbyists have rigged with page after page of special interest loopholes and tax shelters.” Yet, as the Tax Foundation points out, “the platform actually proposes to create new special interest deductions and credits, worsening the complexity.”

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Obviously the Democrats have absolutely no intention of reforming or simplifying the Tax Code – it just makes a nice “sound bite”.

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* As further proof of my contention that bloggers are fixated on lists, Roni Deutch gives us “The 10 Most Famous Celebrity Tax Evaders of All Time” at her TAX HELP BLOG. Dan Meyer adds a name to the list in “Ruben Studdard's Taxes Go Off-Key” at TICK MARKS.

Roni continues with lists at her TAX LADY BLOG where she discusses “The 10 Best Places in the World for Surfing” (this has nothing whatsoever to do with taxes).

Speaking of lists I am currently in the process of compiling a “Book of Tax Lists” which I will be offering soon.

* Pete Pappas of THE TAX LAWYER’S BLOG takes up the fight to end the dreaded Alternative Minimum Tax in his post “Tempo di Dire Arrivederci to the AMT”. As I have posted here at TWTP many times in the past, like Frankenstein in the old Hammer film - The AMT Must Be Destroyed!

* Bruce THE TAX GUY provides an introduction to the history of the federal income tax in “Some IRS History. . .”, and makes some interesting comparisons between the first Form 1040 and the current one –

1. Taxes were only paid on income above $3,000, equivalent to $61,000 in today’s dollars, at the initial rate of only 1%.

2. The highest marginal tax rate in 1913 was 6%, which applied to income above $500,000, equivalent in today’s dollars to a little over $10 million.

3. The entire 1040 tax form in 1913, including all forms and instructions, and was only 4 pages. All instructions in 1913 were contained on a single page, compared to the 2007 1040 Instructions, which held 92 pages long, (without any forms).

FYI I have a section on TAX HISTORY on my website.

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TTFN

IRS NATIONWIDE TAX FORUM 2008

Each year after schlepping from 41st Street and 8th Avenue to 53rd and Ave of Americas in the height of the summer heat I vow “never again”. But each year I again enroll in the IRS Nationwide Tax Forum held at the Hilton in New York City. This year I had intended to avoid the heat and the schlep and take a taxi from the Port Authority!

For those of you who know not of what I speak, each year since 1990 the IRS Nationwide Tax Forums, a program of the Service’s Office of National Public Liaison, are be held in six cities across the US during July, August and September.

The Forums offer three full days of seminars with the latest word from the IRS leadership and experts in the fields of tax law, compliance and ethics. Attendees can earn continuing professional education credits, learn about the latest IRS e-Services products and schedule a visit to the Practitioner Case Resolution Room (where each practitioner participant may present one case to IRS decision-makers who can, according to the IRS promotional literature, 9 times out of 10 resolve them “on the spot” – so far I have not taken advantage of this service). The forums also feature a two-day Expo with representatives from the IRS, business, finance and tax software companies offering their products, services and expertise.

The New York area event (which before I started to attend was held in Atlantic City – again my timing sucks) is one of the most well-attended, with, as the keynote speaker pointed out, once again over 2000 registrants from all 50 states (last year there was even one from Switzerland).

Once the schedule, which is the same at each Forum location, was released earlier this year I chose the seminars I wished to attend and worked it out so that I would attend pretty much a full day on Tuesday (the first day) and a half day on Thursday (the last day), with Wednesday off for my regular weekly visit to my folks in assisted living at the Jersey Shore.

Tuesday started out great! It was brisk outside as I walked to Kennedy Boulevard, where a bus was actually waiting for me at the corner. There was no traffic (too early) going into “the City” and no lines at Deli Plus in the terminal where I stopped for breakfast. When I left the terminal it was still somewhat brisk, with a nice cool breeze, so I decided “what the heck” and began once again to schlep.

I actually learned something by schlepping through the streets of New York. A Broadway musical version of Irving Berlin’s WHITE CHRISTMAS, the beloved Bing Crosby and Danny Kaye holiday movie (it is a rare movie that I can watch just about every year without tiring of it) is coming! WHITE CHRISTMAS will open at the Marquis Theatre in November and run until January of 2009. Click here for the show’s website.

The “express check-in” at the Forum is indeed express – the fastest check-in anywhere. All one does is have the bar code on one’s name tag swiped and get handed a large IRS bag with all the various “stuff” inside. It takes 5 seconds. Along the same lines the “sign-in” at each session is equally simple – you just swipes the bar code under a machine reader on the way into the room and your attendance is recorded.

My first session was “Overview of 2008 Income Tax Law Changes”. At each Forum I have attended Bob Ericson of the IRS Forms and Publications division manages to squeeze an excellent presentation of tax law changes into the 45 minutes allotted to him (actually each session is a 50-minute hour as per CPE guidelines, but about 5 minutes are allocated at the end for questions). There was one year when the changes were so voluminous that a 100-minute general session was devoted to the topic. As one would expect the 50 minute time constraint does not allow for anything other than a basic “overview” of any topic, which is one of my major complaints about the Forum.

Bob told us that there were six (6) Tax Acts passed in 2008, and there are still at least three (3) pending. His presentation mentioned the new $30 per month ($360 per year) exclusion from federal income tax for payments made by a state or local government to members of a “qualified emergency response organization” such as a volunteer fire department or a volunteer EMS squad, and the fact that now 80% of allowable meals for “transportation workers” (including over-the-road interstate truck drivers) are deductible (while the rest of us poor souls continue to be limited to 50%).

The annual Keynote Speech followed in general session, again this year given by IRS Chief Counsel Donald L. Korb (who will be returning to private practice early next year). This address rarely provides any “meat” or tells us anything about the IRS perspective on tax law or other tax issues. It basically “pats the back” of the registrants, telling us that we honest, competent tax professionals provide an invaluable service in the process of tax administration, and brags about the IRS accomplishments of the past 12 months.

Actually the IRS has the right to brag this year. In two separate cases the IRS shined in its response to foolish acts of Congress – i.e. waiting until the day after Christmas to pass the annual one-year AMT patch and deciding to once again send “stimulus” rebate checks to Americans, a tactic that failed the last time it was done and so far looks like it will be a failure again.

There was a too-long lunch break before the next set of educational sessions so that registrants could attend the official opening of the Exhibit Hall. The hotel offers breakfast and lunch items will be available for purchase at an on-site concession, but the cost, especially for lunch, is way too expensive, even for NYC. I “brown-bagged” it. Another of my major complaints about the Forum is that in my 35+ years it is the only educational seminar or workshop offering that does not provide registrants with at least free coffee!

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My choices for the afternoon sessions were presented not by IRS employees but by representatives of the Service’s membership-organization “partners” – the American Association of Attorney-Certified Public Accountants (AAA-CPA), the American Bar Association (ABA), the American Institute of Certified Public Accountants (AICPA), the National Association of Enrolled Agents (NAEA), the National Association of Tax Professionals (NATP), the National Society of Accountants (NSA), and the National Society of Tax Professionals (NSTP).

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The first was “An Overview of the Most Common Mistakes Made by Tax Preparers” presented by a member of the National Society of Accountants who has been in practice longer than I have. The mistakes in question were made on paper-filed (and for the most part computer software generated) returns and not via e-file. Coincidentally, as the instructor pointed out, they are pretty much the same as the most common mistakes made on “self-prepared” paper returns.

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The instructor began his presentation by asking for a show of hands of those who still prepare tax returns by hand. My hand and four (4) others went up. This was in a room of close to 600 tax professionals – so less than 1%. As usually happens in this situation the instructor said something to the effect that “I now know 5 people who know the tax law”, implying that the rest of the audience was really nothing more than data entry clerks. I love it!

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He told us that the majority of the mistakes were a result of “our” (or rather, in my case, “their”) “data entry skills” and problems and deficiencies with the software programs. The fact that tax preparation software programs cause so many mistakes among professional tax preparers, who should know the tax law, is just one more reason why the “uninitiated” should not attempt to self-prepare returns using tax software – regardless of what the tv ads promise.

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The instructor told us that the way to avoid these mistakes is to ask our clients more, and more detailed, questions and to improve internal procedures for checking returns. Instead of just signing returns that have been spat out by the computer at the end of the day, preparers should actually look at the returns they are signing (you mean to tell me that every tax preparer does not at least mathematically check every computer-generated return!).

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My last session of the day was “Zero Capital Gain Rate” presented by Larry Gray, long-time NATP member, and former President, whose classes I have attended on many occasions over the years. Larry always does a great job. He gave a brief overview of the new “0” tax rate and discussed opportunities for tax planning. I have previously posted on this topic in “It’s That Time of Year Again – Part III”, and will devote a post to the tax planning tools and opportunities Larry discussed in the near future.

Larry did point out that while the 0% rate is currently in effect for 2008 through 2010 he cannot guarantee that it will last until 2010. It is definite for 2008 and he feels it will probably continue for 2009, but expects the taxation of capital gains, including the tax rates, will be changed for 2010 and beyond, just how depending on the results of the upcoming election.

During the lunch break I had reviewed the sections in the Seminar Handbook for the three sessions I had planned to attend on Thursday – “Schedule C Hot Buttons”, “LLCs – The Good, The Bad, The Ugly”, and “Reducing Taxpayer Burden”. There didn’t seem to be much new or of value, especially considering the 50-minute constraint, certainly not enough to make it worth another schlep or to justify the additional expense of a taxi. So, as I had in past years, I decided to stay home on Thursday.

It was interesting to hear that the general consensus among the IRS speakers at the Forum is that Congress will eventually pass a bill to extend the popular expired individual and business tax breaks and provide an AMT fix for at least one more year. Let us hope that the idiots in Congress do not wait until the day after Christmas to do so!

I have attended the Forum for 4 years now - once in Chicago and three times in NYC. I have paid $99.00, $129.00, $135.00, and, this year, $149.00, which each year has included an NATP or NSTP member discount. So in just 4 years the cost has increased 50.5% without any perceivable change to the actual “product”. It is still a true bargain, considering what is available to registrants, but it is getting rather pricey for what I take away from it. I have decided that I will no longer attend future IRS Tax Forums unless I do it in conjunction with the annual NATP National Conference, as I did in Chicago in 2006.

I have posted a commentary on the NYC Forum from the perspective of a tax professional at my NJ TAX PRACTICE BLOG. Click here if you are interested.

TTFN

CLAIMING CHILDREN OF DIVORCED OR SEPARATED PARENTS

Bruce recently discussed IRS Form 8332 (Release of Claim to Exemption for Child of Divorced or Separated Parents) and divorced clients who “share” the exemption(s) for their child(ren) – perhaps every other year - in the post “Release of Claim to Exemption” at his TAX GUY blog.

As Bruce points out “This is a pretty basic information form, but one that gets both abused and ignored. A lot of divorced parents aren’t even aware that it exists.” Bruce explains that this is usually because “they never really explain their situation fully to their preparer, or they are still doing their own returns, not knowing what this is”. Bruce goes about explaining the form in his post.

The July issue of NATP’s “TAXPRO Monthly” reported on a Tax Court opinion in the case of William N. Ward v. Commissioner (TC Summary Opinion 2008-54) that applies to the requirements for a non-custodial parent to claim a child as a dependent.

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The rules for Form 8332 state that a substitute for the form can be used, and must be attached to the return. According to IRS Publication 504 (Divorced or Separated Individuals) the substitute can be a divorce or separation decree or agreement that states all of the following -

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1. The noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support.

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2. The custodial parent will not claim the child as a dependent for the year.

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3. The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent.

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Under item number 1, if the decree or agreement has a condition placed on it it cannot be used as a substitute to Form 8332.

In the case discussed in the NATP publication the separation agreement stated that the father could claim his two children as dependents on his Form 1040 “so long as [he] is current in the payment of his child support obligations”. The father was current and claimed the children as dependents. But the mother, who was the custodial parent, also claimed the children on her 1040. The mother had not provided the father with a signed Form 8332, so he had attached a copy of the separation to his return.

Because the agreement specifically stated the condition that the father had to be current with all child support payments in order to claim the exemption the IRS did not allow it as a substitute for Form 8332. So as there was no Form 8332, or qualifying substitute, attached to the return the IRS disallowed the exemptions for the children. The Court decided for the IRS.

Was the father screwed? In this case the answer was no. He took his case to the Juvenile and Domestic Relations District Court in his county and the Court ordered that the mother reimburse the father for the tax benefit of claiming the children as dependents, which is this case was $2,326.00.

So if a custodial parent does not provide a Form 8332 to the non-custodial parent, as required by the divorce or separation decree or agreement, and the decree or agreement will not qualify as a substitute for Form 8332, the non-custodial parent should seek relief from the appropriate State or County court.

TTFN

THE FEELING IS DEMUTUAL

Over the past few years many of the nation's oldest and largest life insurance companies - including Prudential, John Hancock, MetLife, Principal, Mutual of New York – which began as mutual insurance companies have “demutualized”. This is converting from a mutual life insurance company owned by its policyholders to a publicly traded stock company owned by shareholders. In the process of demutualization qualified policyholders receive shares of stock in the converted public company. The policyholders can keep the shares, receiving annual dividends from the stock, or sell them on the open market.

The official IRS position is that the policyholder’s cost basis in the shares of stock it has received as a result of demutualization is “0”. If the policyholder sells the shares the gross proceeds are fully taxed as a capital gain.

The holding period for determining long-term capital gain treatment is the period of time that the taxpayer has held the underlying policy and not the period of time that the taxpayer has held the actual shares. If a company demutualized in January of 2005 and the policyholder sold the shares in October of 2005, but had purchased the qualifying insurance policy in March of 1990, then the holding period is March 1990 to October 2005. In most cases the sale of shares received in demutualization result in a long-term capital gain.

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The United States Court of Federal Claims in Eugene A. Fisher et al. v. United States has ruled that a taxpayer recognizes no gain from the demutualization of a mutual insurance company. The basis of “demutualized” shares is not “0”, as the IRS claimed, and we tax preparers had reported on sales of such shares over the years. A basis is allowed against demutualization proceeds.

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According to the Court decision the basis of the shares in the insurance company received in demutualization is equal to the value of the shares on the date of the demutualization, up to a maximum equal to the total of the premiums the taxpayer had paid for the insurance policy up to the point of the demutualization.

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In its decision the court cited Burnet v Logan and the “open transactions” exception to Regulation 1.61-6.

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Thanks to former NATP Research Department head David Mellem of Ashwaubenon Tax Professionals for an analysis of the decision. Dave provides tax professionals with frequent email updates on federal tax law and tax court decisions.

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FYI the IRS Chief Counsel told us at yesterday's IRS Forum in NYC that the US Solicitor General has not yet decided if it will appeal the decision, and that his office is in the process of deciding on its recommendation in the matter.

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What I plan to do once I have gotten “caught up” is to go through my files of completed returns for 2005 through 2007 and pull out all those on which I reported a sale of demutualized shares. I will need to prepare amended 1040X returns for all of them to, I expect, report a cost basis equal to the number of shares sold multiplied by the value of a share on the date of demutualization. Just where I will get these values I am not quite sure. I must do more research before I can start the 1040Xs – but it will be at least a month before I am anywhere near “caught up”.

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If you had sold shares in 2005, 2006 or 2007 in an insurance company that you received as a result of demutualization you should contact your tax professional and ask him to prepare the appropriate Form 1040X.

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You may be entitled to money from a demutualization that occurred in past years. If the insurance company cannot locate a policyholder to send them their shares it is required to turn the shares over to the State under local unclaimed property laws. This happened with my uncle, who had passed away. My father, as beneficiary, ended up with over $4,500 in "found money" (check out my posts “How I Made Over $4,500 By Watching Good Morning America” Part One and Part Two)!

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You can go to the Unclaimed Property website of your individual state or you can check out these web sites (one, two, and three), which you can use to inquire about the status of a policy or your ownership rights, or any other questions you may have about demutualization.

I will post more on this topic as information becomes available or my research progresses.

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TTFN

OUTTA STATE, MAN!

Today I will be off to New York City for the annual IRS Nationwide Tax Forum at the New York Hilton. I will report on the Forum (I will be attending sessions today and Thursday) at the end of the week. While I am learning about new tax changes, and reviewing some old tax law, from the point of view of the IRS, I thought you might like to read about my recent R+R trip to PA.

My annual pilgrimage to the summer playground of my youth – Wayne and Pike Counties in Pennsylvania (aka the Lake Region) - was once again scheduled around another silly farce (this time a British one) at Hawley’s Ritz Company Playhouse – KEY FOR TWO by John Chapman and Dave Freeman.

When I left for PA – as usual via Routes 15 and 206 and across the Delaware to Route 6 – I did not have a room reservation. I was hoping to return to the newly renovated Fife and Drum Motel in Honesdale, but got no response to an online inquiry. I discovered that it was now known as the Delaware and Hudson Hotel, after the Delaware and Hudson Canal. Luckily they had a vacancy. I had read last year that the new renovation would include a restaurant. There was none yet, but construction continued where it appears the restaurant will eventually be.

As usual I ventured along Routes 6, 191, 590, and 652 in PA, visiting Beach Lake, Hawley and Honesdale, and Routes 52 and 97 in NY, driving through Lake Huntington and Calicoon and stopping at Narrowsburg. Nothing much had changed since last summer, although there was some construction underway in Honesdale and the Wagon Wheel bar and grill at the end of Route 652 near the intersection of Route 6, which I had passed hundreds of times over the past 45 or so years, was being torn down.

And, as this annual trip is all about relaxation (not a thought of the GD extensions and minimal thoughts of anything 1040), I spent most of the time reading the latest entry in Margaret Truman’s Capital Crimes mystery series and enjoying a cigar (they are much cheaper in PA – my first stop on each trip is the Tobacco Road shop) while sitting at the Observation Deck and along the shore at Lake Wallenpaupack and in the Tusten Veterans Memorial Park under the Narrowsburg Bridge overlooking the Delaware River. I even managed a few afternoon naps!

Breakfasts were at usuals Towne House Diner in the center of downtown Honesdale, Shirley’s Family Restaurant across from the Wagon Wheel on Route 652, and the Country Café, also on 652, in Beach Lake, and, new for me this year, the Whistle Stop Café across from Peck’s Market in Narrowsburg. For dinner I returned to old favorites Gresham’s Chop House (Veal Saltimbocca) across from Lake Wallenpaupack and the Towne House Diner (French Toast Ham and Am) in the center of downtown Honesdale, and tried two new restaurants in Beach Lake.

The first was Joe’s Ranch House Restaurant on Route 652, where Bernadette’s Seafood Restaurant used to be. As the name would suggest it turned out to be a steak and ribs joint, neither a choice for me. While the drinks were well made (not a Stinger this time) and the service was pleasant and accommodating (the waitress got me a dish of ice cream even though it was not on the menu), the Spaghetti and Meatballs special was nothing to write home about.

Over the years I have wanted to dine at the Beach Lake Inn, but it was either closed or not in the cards. I noticed that the Inn was under new ownership, and now had a separate bar as well (as I was finishing up at 7:30 PM a jazz band was just starting to play in the bar), and made sure to include a stop. I was glad I did! This is indeed a hidden treasure in the heart of “downtown” Beach Lake, just passed the Central House and across from what used to be the General Store/Post Office. The last time I was in this building it was a gift shop – that was over 35 years ago.

I had a delicious corn chowder, Caesar salad and Veal Parmigiana with baked potato, ending with Cheesecake. For a change I did not have to teach the bartender how to make a Stinger! The service was good, although the one young girl seemed to be overworked, and the price was very reasonable, especially for the Stingers. I have added it to Greshams Chop House as a “must stop” for future annual pilgrimages.

The weather was very pleasant. The gas differential from NJ to PA was minimal – I paid $3.47 per gallon for regular when I filled up at a “no frills” station a few miles before crossing the bridge and $3.55 per gallon for “self-service” at a Sunoco in PA. The big difference was in NY - at the first station I came across when returning home along the Delaware on Route 97, a Citgo, a gallon of regular was $3.99. Last year at this time it was under $3.00 in both NJ and PA and $3.05 in NY. I put a total of 534 miles on the car round trip and spent $57.00 for gas.

It was indeed great to get out of New Jersey and do nothing but relax. Unfortunately the GD extensions were still there when I returned Sunday afternoon.

TTFN

BRING ON THE FLAT TAX!

I’m back!

(1) As promised here is my response to the contention of Kevin of NO DEBT PLAN that one reason we will never have a flat federal income tax system is because it would put accountants and tax professionals out of work -

As a long-time tax preparer I am not worried about how a simple “flat tax” would affect the tax profession. I do not believe that such a tax system would put me out of business, or even reduce my net income. I actually welcome such a tax system.

If I were to spend each day during the tax season preparing only 1040A forms, I guarantee that I would bill more fees, spend less money, reduce my potential liability, and have less agita to deal with both during and after tax-time. While I obviously charge a higher fee for more complicated returns, I make less profit per hour on these returns. I honestly believe that a true 1040-SIMPLE would increase both my efficiency and my bottom line.

In its report of a few years back, the President’s Advisory Panel on Federal Tax Reform (whatever became of them) often mentioned that complicated rules force taxpayers to use paid preparers, and the simplification they proposed would permit more taxpayers to be able to prepare their own returns.

While a flat tax system would make a tax return easier to prepare, I do not see my clients leaving me en mass to do their own returns. A majority of my current clients are fully capable of preparing their own tax returns under current law. They come to me because they do not want to be bothered with the task of doing it themselves. Because my fees are reasonable it is easier, and more cost and time effective, to have me do it. Plus they want to be sure they do not miss anything.

While a flat tax system would include a great deal of simplification, there would still remain enough complexity in certain areas of the tax code to keep us busy. I expect we would still need to prepare some kind of Schedule C for business income, Schedule D for capital gains and losses, and Schedule E for rental and pass-through income. Even though income is taxed at a flat rate, one still would have to calculate and report the income.

Even if the current Tax Code is greatly simplified, it is a proven fact that any change to the Code will increase business.

The only sectors of the tax preparation community whose income could possibly be affected by this simplification are CPAs with an extensive individual tax practice (but businesses would always need accounting services for a variety of internal and external non-tax purposes), and commercial preparation firms like Henry and Richard (although they, too, would profit as tax preparation became even more “assembly line”), whose fees in most cases are extremely excessive. Also with fewer things to audit tax professionals who specialize in representation would also need to adjust their focus. However I believe the average tax preparer will not be hurt, and will probably be helped, if a simple flat tax becomes the law.

I am curious to hear my fellow tax-preparing bloggers thinking on this topic.

(2) Also as promised I have dug up my old post about cell phones, which originally appeared under the title FINE WHINE –

“When visiting my “mail drop” the other day – Global Mail near Journal Square in Jersey City (also a client) – I noticed a sign at the counter:

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“PLEASE – NO CELL PHONE CONVERSATIONS WHILE AT THE COUNTER – THANK YOU”

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Kudos to my client! This sign should be prominently hung in every single business establishment and Post Office in America.

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I am constantly amazed that while waiting on line at the bank or Post Office the person who is at the window currently being served is carrying on a conversation on a cell phone. What idiots!

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As I have said before, in the “good old days” when you heard someone talking to himself/herself in the street it was because he/she was “not all there”. Nowadays, it is still because the person is “not all there”, only now he/she is talking on a cell phone.

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Whenever I ride a public bus or train I am forced to listen to one side of about half a dozen phone conversations, none of which are particularly interesting.

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I saw an excellent bumper sticker a while ago which read “GUNS DON’T KILL PEOPLE. IDIOTS TALKING ON CELL PHONES WHILE DRIVING KILL PEOPLE!” That is not a joke - I was almost run over crossing the street near my home when a person talking on a cell phone ran the red light.

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Every single theatrical production, lecture or continuing education seminar must now be prefaced with the instruction “Please turn off all cell phones.” There was never an announcement “Please do not stab the person next to you with a knife”. Only a person who carries a cell phone everywhere would be stupid enough to have to be told to turn it off in such a situation.

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There are only three (3) reasons why one should have a cell phone:

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(1) So that a babysitter is able to contact you while you are out to dinner or at a movie to let you know of an emergency at home.

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(2) So you can contact 9-1-1, the auto club, and/or your family if your car breaks down or you are involved in an accident (or to contact 9-1-1 for any other kind of emergency).

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(3) So you can call a client, or a friend or family member, if you are on the road and running late for a business or social appointment, or to ask for directions if you are lost.

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I dare anyone to name another legitimate reason.

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I had a cell phone briefly several years ago, for reasons number (2) and (3). I kept it in my car and it was stolen. I never replaced it – and have never missed it.”

Any comments?

SO LONG, FAREWELL, AUF WIEDERSEHEN, GOOD NIGHT

I have come to the realization that I have spread myself too thin with my multiple blogs, tax and otherwise. I have decided to pull the plug on ASK THE TAX PRO and ANYTHING BUT TAXES.

I will continue to answer ASK THE TAX PRO questions (with the same rules and regulations – click here to read what they are) when they arise on THE WANDERING TAX PRO, and will also occasionally post comments, ramblings and resources on topics from blogging to cats, personal finance, politics, religion, television, theatre, and travel here also – most prominently narratives of my travels and theatre reviews.

The ASK THE TAX PRO “experiment” has been interesting. Prior to setting up the separate blog, when I did an ASK THE TAX PRO weekly feature on Wednesdays at TWTP I received frequent questions, both general and specific. Actually I received the most submissions during the tax season, when I specifically said that I would not be doing any posting to TWTP, let along answer ATTP questions. I did manage to “stockpile” the questions submitted during this period and answered many of them in my posts to the ATTP blog.

When I set up the separate ATTP blog, and required a small payment for my service, the questions stopped completely! I guess the blog reading public is only looking for free advice and is not willing to pay even a token amount for the benefit of a tax professional’s knowledge and expertise.

In addition to specific tax questions sent via postal mail I will also accept general email tax questions, for which there will be no fee.

I will continue to maintain my THE FLACH REPORT blog for Schedule C filers and the NJ TAX PRACTICE BLOG for tax professionals preparing NJ returns, and will attempt to post to them more often in the future.

TTFN

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

I am off this morning, after counting the Doctor’s money, on my annual pilgrimage to the summer playground of my youth – Wayne and Pike Counties in Pennsylvania. I will not be posting for the rest of the week. I will, of course, report on the trip at ANYTHING BUT TAXES when I return.

So, as I will not be posting on Saturday, here is an early WHAT’S THE BUZZ column -

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* TAX GIRL Kelly Phillips Erb discusses the “employee cell phone controversy” in her posts “Dialing Up Trouble: IRS Tries to Enforce Cell Phone Fringe Benefits” and its follow-up “Cell Phone Tax Continues to Generate Publicity”

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Kelly tells us that, “According to the Los Angeles times, the IRS has decided to enforce a rule from 1989 that requires that employers that hand out cell phones to their employees report the cell phones as a taxable benefit. The same law requires employees to keep detailed records of all calls made on cell phones issued by employers which indicate which calls are business and which calls are personal.”

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She also reports that relief seems to be forthcoming from an unlikely source. “Congress is currently considering a bill to removing cellphones from the IRS list of fringe benefits. The bipartisan sponsored litigation passed the House earlier this year and a similar bipartisan bill, this one sponsored by Sen. John Kerry (D-MA) and Sen. John Ensign (R-NV), is pending in the Senate.”

FYI, I do not have a cell phone and have no intention of getting one. I wrote a post a few years ago about the use of cell phones (not as a tax deduction). When I return from PA I will see if I can dig it up and repost it.

* Kay Bell of DON’T MESS WITH TAXES reports that Obama has changed his tune in regards to some of his tax proposals in her post “Obama Tweaks His Tax Plan”.

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As Kay points out, “Now he's calling for a 20 percent tax on capital gains and certain dividend income, which currently is 15 percent, for individuals making more than $200,000 and families making more than $250,000.”

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And, “As for payroll taxes, Obama now wants to levy payroll taxes on earnings above $250,000 at a rate between 2 percent and 4 percent. We wouldn't see that increase, however, for at least a decade.”

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The post links to a side-by-side comparison of the major provisions of the candidates’ tax proposals (not yet updated for Obama’s change of heart) prepared by the Tax Policy Center. One word appears a lot on the Obama side – refundable credit! A refundable credit for “Making Work Pay”, a refundable “Universal Mortgage Credit”, making the Child and Dependent Care Credit, the Saver’s Credit and the Hope Education Credit refundable. Jim Maule of MAULED AGAIN rightfully warned us about refundable credits in an entry in last Saturday’s WHAT’S THE BUZZ.

Like the rebate check, the refundable credit is attractive to politicians because it is, as I have posted before, basically buying votes. “Look what Obama gave me” (or in this case “Look what Obama is going to give me”), beneficiaries (or potential beneficiaries) of these refundable credits are supposed to say, and then run out and vote Democrat.

I see from the Tax Policy Center comparison that Obama still supports the ridiculous idea to “give taxpayers the option of pre-filled tax forms to verify, sign, return to IRS”. Not smart at all, for a variety of reasons (and I am not speaking selfishly as a tax preparer). And McCain still wants to give taxpayers the choice of calculating their tax under the current system or a flatter, simpler one. Why give taxpayers the choice – just enact the flatter, simpler system!

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* Kevin of NO DEBT PLAN provides some interesting points on the topic of traditional 401(k) vs Roth 401(k) in his post “Why Roth 401k? Taxes are Bound to Go Up”.

He gives three reasons why he expects that a flat tax will never become law –

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“Income taxes and the breaks that different constituents are able to take year to year give Congress power. They can give special deductions and change the tax codes to make sure they get their campaign contribution from year to year. It sounds shady and cynical, but that’s how I see it. Congress will never give up that power.

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The second reason is what would we do with all of the accountants? If doing your taxes amounted to adding up your W2 with any other forms of income and taking out 15% that seems pretty easy. The tax code is so thick and complicated that we’ve created an industry to support it.

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Finally, have you seen our national deficit? Americans seem to be following the lead of the government in spending more than we bring in. Our national debt is enormous and I don’t see it being erased overnight with a new administration. On top of that you have the social security and Medicare issue to figure out in the next thirty years. If we keep taxes the same something is going to either shut down or have benefits cut. That’s politically unpopular. Raising taxes is politically unpopular, too… but if it is the only way to keep the programs running then they will raise taxes.”

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I certainly agree with reason number one, and can see his point on reason number three. However I have always said that a simple flat tax would not hurt my particular tax practice. I will comment on this topic in more detail when I return from PA.

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BTW, I learned of Kevin’s post from the weekly “Passing The Week . . .” column by Bruce, THE TAX GUY. It is a weekly review of blog postings, very similar to my WHAT’S THE BUZZ. While we both read the same tax blogs, Bruce regularly reads more and different personal finance blogs.

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* A WebCPA article, included in Monday’s AccountantsWorld.com daily headline newsletter, reports that “Missouri AG Sues Tax Resolution Firm”.

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According to the article, “The Missouri Attorney General has filed suit against tax representation chain JK Harris & Co., saying the firm did not provide the services promised to resolve its clients' state and federal tax problems”.

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JK Harris & Co has had lots of problems lately. “The Missouri lawsuit follows on the heels of a $1.5 million settlement by the chain with 18 other state attorneys general in June, and a $6 million settlement of a class-action lawsuit last year (see Tax Debt Firm to Pay $1.5M in Restitution). The AG's suit is seeking full restitution from JK Harris for Missouri customers who paid up to $4,500 for the services they did not receive.”

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The service that has gotten the firm in trouble is offering to help taxpayers resolve outstanding IRS debt for “pennies on the dollar”.

* A new tax blog to keep an eye on is TAXABLE INTEREST (A Personal Journey to CPA Success) by Michelle Rodriguez, a recent graduate of California Polytechnic State University currently pursing an MS in Taxation while simultaneously juggling to study for the CPA exam. According to Michelle “The focus of this blog to record my own personal experiences in graduate school, studying for the CPA exam, and to share strategies and tips I learn along the way.”

TTFN

MEAL EXPENSES OF FIRE FIGHTERS

Here is a deduction that I have been claiming for firefighters for some 30 years now.

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Firefighters usually work two or three straight 24-hour day shifts, followed by three or four days off. They eat and sleep at the firehouse.

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It is usual in firehouses to operate a common “mess” because of the long shifts and the requirement that firefighters remain in the station unless called away on official business. Under this common mess arrangement firefighters will contribute to a fund from which the food for their meals is purchased. For example each member of the shift will contribute $15.00 or $20.00 per 24-hour day to the fund to cover the cost of three meals.

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If the contribution to the fund is required by an official rule or regulation and is a condition of employment then it is deductible as an “employee business expense”, initially reported on Form 2106 and carried over to Schedule A as a “miscellaneous” deduction. If the contributions are voluntary they are not deductible.

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Of course as with any deduction for “business” meals, only 50% of the actual contributions are deductible.

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In Sibla vs Commissioner from 1977 it states “Where a fire department requires its firefighter-employees to make payments into a common meal fund a s a condition of employment, such expenses are ordinary and necessary business expenses under Section 162(a)”. In T.C. Summary Opinion 2004-63 the court upheld that “if the firefighters’ payments into a common meal fund are voluntary (not a condition of employment), the expenses constitute personal expenses and are not deductible”.

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To calculate the deduction for the year you need to know the unique shift schedule of the particular fire department - is it 2-on 3-off, or 2-on 4 off, or 3-on 4 off – and factor in vacation days and holidays to determine the actual number of 24-hour days by which to multiply the daily fund contribution. Different levels of rank may have different shift schedules.

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As I said, the meal expense of firefighters is a “miscellaneous” deduction and subject to the 2% of AGI exclusion. However when you add the meal amount to the other deductions available to firefighters – union dues, uniform cost and maintenance (the municipality will usually give their firefighters a flat annual “uniform allowance” that is included in taxable W-2 wages), equipment and supplies, continuing education (including classes to prepare for the captain’s exam) and travel thereto, etc – there is generally enough to exceed, if perhaps slightly, the 2% exclusion, which could “free up” other tax preparation and investment expenses.

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If you are a firefighter who participates in a common mess fund, and your department does not specifically require in an official rule that members contribute to such a fund as a condition of employment, talk to your union and see what can be done to have the department make the contribution to the common mess fund an official requirement so you can claim a tax deduction for the contributions.

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TTFN

MEMBERSHIP ORGANIZATIONS FOR TAX PROFESSIONALS

I spent Saturday and Sunday doing some heavy cleaning to my bathroom and kitchen (so, of course, no work on GD extensions). As I will be “out of state” for a few days (Wednesday thru Sunday) I have contracted with Mary's Petsitting & Dogwalking Service to come in and feed Nosey once a day while I am gone. This always motivates me to clean the apartment. I will be working on the living room later today.

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Before I get on with the topic of the morning I just want to “toot my own horn”. It seems that according to the FIRE FINANCE blog’s “Top 100 Personal Finance Blogs” for July 2008, THE WANDERING TAX PRO is #52 in the Sitemeter Rankings. The only other tax blog on the lost is DON’T MESS WITH TAXES, which is ranked #36 by Sitemeter.

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And now – on to “Membership Organizations for Tax Professionals” -

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Over the past 35+ years that I have been preparing 1040s I have belonged to just about all of the various tax professional and accountant membership organization applicable to my “status” at one time or another – NATP (National Association of Tax Professionals), NSTP (National Society of Tax Professionals), ASTP (American Society of Tax Professionals), and NSA (National Society of Accountants) to name most. I am not an Enrolled Agent so I have not joined NAEA (National Association of Enrolled Agents), although I have attended continuing education programs run by the California chapter, and I am certainly not a CPA.

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I currently maintain membership in NATP (I have been a member continually for 21 years now) and NSTP (almost as long).

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I would certainly highly recommend that any person serious about a career as a tax preparer join and take advantage of the educational and research programs of the National Association of Tax Professionals.

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I have attended the NATP annual conference 17 times at various locations throughout the continental US. The past two years, with the additional cost and agita involved with air travel, I have elected to stay home in NJ – but I expect to attend next year’s conference in Reno. I also usually attend the annual year-end tax update workshop – also held at many locations throughout the US (I once attended the workshop in Honolulu, though usually I attend one of the sessions scheduled in New Jersey) – each November and December. This year I will be going to the one in Atlantic City.

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NATP also has an excellent website, which I visit daily, and very good weekly, monthly and quarterly publications (I have written for the quarterly TAXPRO JOURNAL several times – including an article on tax blogs). And their Research Department, although I think it has gotten a bit pricey lately (a question was $10.00 in the early 2000s and is now $23.00 – although members do get one free question each year), has proven invaluable.

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There are many state chapters (New Jersey and New York have one) which offer educational and other programs on the local level. The NJ chapter sponsors an excellent seminar on New Jersey taxes (payroll, corporate and individual income) which I attend each January.

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If you are planning to join NATP I would ask that you mention my name (Robert D Flach) as your “referral”. Under the organization’s ‘Member Get A Member” promotion I will get a “gift card” to be used for future NATP purchases.

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I also highly value the education programs of the National Society of Tax Professionals and have attended many of the organization’s annual National Conventions over the years. Lately they have offered the annual summer conference at several locations directly before the IRS Nationwide Tax Forum (i.e. Chicago, Atlanta and Las Vegas). I also frequently attend their year-end update workshops, the past two years in Atlantic City.

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Of NATP and NSTP it is my opinion that NATP is the superior organization. My main concern with NSTP is that it’s benefits rely too much on the individuals at the top. When Tom Cooke, a tax law professor from Georgetown University, was the Executive Director we got a unique prospective on the tax scene from a Washington DC “insider”. Current ED Beanna Whitlock, former IRS Director of Public Liaison, is a perfect “replacement” for Tom, with a similar IRS insider’s prospective. Paul LaMonaca, NSTP’s other major workshop leader for many years, is also an excellent instructor. However, if Paul and Beanna decide to run off together to the Cayman Islands (or another tax shelter), and the new team is not of the same high caliber, then the organization’s effectiveness will be seriously diminished.

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The “Research Department” of NSTP (basically a telephone-only hotline) is not as well organized or staffed as that of NATP – although there is no charge for a question. I actually received an incorrect answer to a tax question I submitted to the “hotline” from a former IRS high level manager.

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TTFN

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

FYI – while I was able to “power-up” my Vonage box I have been unable to get the system up and running. It is all Greek to me! So I am without a phone – incoming or outgoing – until my “professional” installation on August 25th! I don’t mind no incoming calls – the phone is unplugged this time of the year anyway – but I might want to make a call of two before then.

On to the BUZZ -

* Bruce has moved his THE TAX GUY blog – click here for his new “address”. I like the new look of the blog.

His post “This Week Started Off Bad. .”, under the “Tax something” heading at the end, reminds taxpayers that “No matter who prepares the return, the taxpayer is ultimately responsible for the accuracy of the return.”

* Professor Jim Maule of MAULED AGAIN continued his discussion of the new additional Standard Deduction for real estate taxes in the post “Is This How Tax Laws Are Created?”. {aside – if I had written the original posting I would have titled it “Why God Why” or “Why God, Why This Provision” – a Broadway musical connection} This time he includes the comments of two of his readers, Andrew Oh-Willeke (?) and a veteran tax pro from Jersey City.

Oh-Willeke agrees with Jim and I that the tax provision “doesn't make much sense from a tax complexity or economic necessity perspective", and agrees with me about the major beneficiary of this deduction being senior citizens who do not itemize

Jim’s bottom line - “If Congress truly cared about the impact of rising property taxes on elderly low-income homeowners, it would do something other than enact a provision that benefits a fairly small proportion of them. It would examine the reasons for those property tax increases, and if it did so properly, it would discover that it, yes, the Congress, is responsible for a substantial portion of the increase.”

Jim also takes on another provision of the ill-conceived housing bill – the refundable credit for “first-time” home buyers – in his subsequent post “Yet Another Questionable New Tax Provision”.

In commenting on the concept of the refundable credit he says –

“This nation has had an educational experience with refundable credits targeted toward low-income taxpayers. The earned income tax credit has spawned so many schemes, many fraudulent, and has caused such havoc among taxpayers and tax return preparers, that the Congress should beware of imitating it without taking steps to minimize the temptations it presents to the schemers who would manipulate it to their advantage. Will the IRS end up directing even more of its resources toward audits of low-income home purchasers as it has had to direct a disproportionate amount of its resources toward auditing the earned income tax credit?”

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While I agree, as Jim points out, “A useless credit isn't much of an incentive whether or not one agrees with the incentive”, I am against any type of refundable credit. I am especially against the refundable Earned Income Credit – and have written about it on various occasions (click here for one of them).

* Joe Kristan of the ROTH AND COMPANY TAX UPDATE BLOG has introduced us to a new tax blog – THE TAX LAWYER’S BLOG – written by Peter Pappas, “a Certified Public Accountant and Tax Attorney with over 25 years representing taxpayers before the Internal Revenue Service, United State's Tax Court, United State's District Court and Bankruptcy Court”, who Joe thinks is from Orlando, Florida.

The blog has a comprehensive posting on the famous Cohan (as in George M) ruling, and has begun a series of posts on “Absurd Tax Protester Arguments”.

* The Small Business Tax and Management website’s “Tip of the Day” for last Wednesday (8/13) advises “Received a notice from the IRS about an AMT discrepancy on your return? Don't assume the IRS is right.” According to the item, “The Treasury Inspector General for Tax Administration (TIGTA) has done a study and found the complexity of the AMT causes errors in determining and computing the tax.”

Just another reason why when you receive a notice from “Sam”, or any of your other “uncles” (i.e. state tax authority), you should send it to your tax preparer ASAP! At least half of all such notices I have seen over the years have been incorrect.

* Kay Bell provides an update on state sales tax holidays in “Sales Tax Holidays, Take Two” at DON’T MESS WITH TAXES.

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* The Tax Foundation’s TAX POLICY BLOG reported in “Thursday Video: Social Security (and Payroll Taxes) Turn 73 Years Old Today” that this past Thursday was -

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“the 73rd birthday of the Social Security system in the United States. Signed into law in 1935, the first payroll taxes were collected in 1937 and the first payment made in 1940. Although initially the system was designed to pay out benefits from a reserve fund, it was changed in 1939 to "pay-as-you-go"—payroll taxes that are collected are immediately paid out to current retirees. Taxes are split, with half deducted from employee paychecks and the other half paid by the employer. Consequently, early retirees enjoyed a large windfall: the first recipient, Ida May Fuller of Vermont, for example, paid $22.54 in payroll taxes but collected $22,888.92 in benefits before her death at age 100.”

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When I first started doing payroll in the mid 1970s the maximum wages subject to both Social Security and Medicare tax was $14,100 and the combined withholding rate was 5.85% each for employee and employer (maximum withholding = $824.85)! Just about every full time employee that I did maxed out on FICA tax. Click here for historical FICA tax info.

* Read TAX GIRL Kelly Phillips Erb’s lips – “The Check Is NOT In the Mail: A Second Stimulus Package Has Not Been Approved”. Thank God!

* This has nothing to do with taxes (it probably belongs in ANYTHING BUT TAXES – and may still end up there in some form), but I just had to mention it. There is a great line in the trailer for the new Oliver Stone biopic “W.” (about, of course, the life of Dubya). The elder George Bush is chastising his young son, the future President, for his wild drunken behavior. “Who do you think you are – a Kennedy?”

TTFN

PARDON WHILE I VENT

The original deadline for senior and disabled homeowners to file the NJ Homestead Rebate and Property Tax Reimbursement (aka “Senior Freeze” – Form PTR-1 or PTR-2) applications was June 2, 2008.

The deadline for these forms was then extended to August 15, 2008, which was the deadline for non-senior and non-disabled homeowners to file the NJ Homestead Rebate application.

Today is August 15, 2008. But if you have not yet submitted your NJ Homestead Rebate (for all NJ homeowners) or Property Tax Reimbursement applications you still have time to do so – the deadline for filing these applications has again been extended to October 31, 2008, I expect the final deadline date.

The exact same scenario happened last year and the year before! Every year an early filing deadline is initially published, but the deadlines are eventually all extended to October 31st.

What a waste of government money (nothing new for New Jersey)! If you know full well that the deadline for these forms will eventually be extended to October 31st why not just make the original deadline October 31st!?! This way the State does not have to waste money issuing press releases and similar notices to announce the deadline extensions.

Here is an even better idea-

The NJ Homestead Rebate application for tenants is included as part of the filing of the annual NJ-1040 – it is Form TR-1040. This is due on April 15th or, if the return is extended, as late as October 15th. The filing deadline for the actual Form TR-1040, if filed by itself and not part of the NJ-1040 filing, is October 31st.

The NJ Homestead Rebate application for homeowners used to be included as part of the annual NJ-1040 filing – on the same form as the tenant application. There is absolutely no reason whatsoever why the homeowner’s rebate application cannot again be included in a rebate application form that is part of the annual NJ-1040 filing! There is also no reason why the Property Tax Reimbursement cannot be included on the same form as the rebate as part of the NJ-1040 filing.

Let me quote from a post I wrote for the NJ TAX PRACTICE BLOG back in December of 2005 –

“For the life of me I cannot understand why the ‘geniuses’ in Trenton insist on having homeowners file their application later in the year, separate from the NJ-1040 filing. When the NJ Homestead Rebate was the only rebate offered both tenants and homeowners would apply for it on a Form HR-1040. Now that there is once again only one property tax rebate, why can't we go back to the HR-1040 filing process?

It would be much, much more convenient and practical for taxpayers and tax preparers alike to have all New Jersey taxpayers apply for the NJ {Homestead} Rebate with the filing of the NJ-1040. I know I would much rather take care of everything at the same time, instead of having to deal with homeowner client inquires about the rebate 3 to 6 months after the end of the tax filing season. I expect that it would be more convenient and practical for the NJ Division of Taxation as well to have everything done in one filing.

The separate filing for homeowners especially affects senior citizen homeowners, many of whom are confused by the process and, I suspect, as a result do not file for the rebate. This defeats one of the major purposes of the rebate - tax relief for senior citizens.

I have written to Robert Thompson and John Tully asking them to explain the logic behind the separate applications. If I receive a response I will post it here. What are your thoughts on this issue?

There is no word on when the Property Tax Reimbursement application packages (PTR-1 and PTR-2) will be mailed out, but the website indicates that the applications must be filed on or before June 1, 2006. However, as has been the case in the past, I anticipate that this deadline will be extended several times. Actually, there is no reason why this application cannot also be part of the NJ-1040 filing.”

I did receive a response from the NJ Division of Taxation. I was told, “The property ownership records and assessed values of the properties are complied annually by each municipality and are not available to the Division of Taxation until sometime in March of the following year, long after the tax season has begun. Therefore, the rebate application cannot be included as part of the income tax return."

As I said in a January 2006 post to NJTPB reporting the NJDOT response, “What does the fact that the NJDOT cannot access verification information until March have to do with anything? The NJ rebate checks are not sent out until August - this gives the Division plenty of time to do whatever verification necessary to process the rebate!”

My above comments still apply today –

* It would appear to be more convenient and practical, not to mention much cheaper, for the State of New Jersey to have everything done in one filing – there would be no need for separate mailings of the PTR-1 or PTR-2 forms or the rebate application for homeowners, just a few extra pages added to the NJ-1040 instruction booklet.

* It would be much, much more convenient and practical for taxpayers and tax preparers alike to have all New Jersey taxpayers apply for the NJ Homestead Rebate, and the Property Tax Reimbursement, with the filing of the NJ-1040. To repeat what I said above – “I would much rather take care of everything at the same time, instead of having to deal with homeowner client inquires about the rebate 3 to 6 months after the end of the tax filing season.”

But, of course, the State of New Jersey, and particularly the NJ Division of Taxation, is not used to doing things that are convenient and practical for the NJ taxpayer. And I am sure some NJ politician’s relative has a fat contract for printing the various applications.

Thanks for letting me “vent”!

TTFN

LET THE CLIENT BEWARE

This began as an entry in the weekly WHAT’S THE BUZZ – but grew into a separate individual post.

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A TAX CONSULTANT FOR ALL SEASONS provides a reminder to be wary when selecting the person that will prepare your tax return in his post “Beware of Unscrupulous Tax Preparers”.

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He points out some signs that the preparer may not be totally “kosher” -

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* A tax preparer who does not sign the return and put his or her tax preparer ID on the tax form.

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* Tax preparers that guarantee you will get a refund.

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* Tax preparers that give you deductions you do not understand (they could be giving you ones you are not eligible for).

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I would add to the list a tax preparer who charges a percentage of the refund on a current or amended return.

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The TCFAS suggests that you seek out an Enrolled Agent (which he is) or a CPA (I am neither). I agree that an Enrolled Agent is a good choice, but not always a CPA. Usually with a CPA you pay twice as much for half the service – and there is no guarantee that just because the initials “CPA” appear after one’s name he/she is a competent tax expert. There are, of course, some very competent, experienced and tax-savvy CPAs who will not charge you an arm and a leg (perhaps only an arm, or an arm and a toe).

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There are a lot of “questionable” preparers out there. When I did accept new clients I would always ask to see the prior two or three tax returns. Often in the past when I asked the client if he/she has similar deductions for x, y, or z, which had been claimed on the prior return, for the current year I was faced with a blank expression – as if the client had no idea what I was talking about. In most of these cases I suspect that the previous preparer pulled deductions and numbers “out of the air” because they seemed appropriate for the taxpayer’s level of income, situation or job. The taxpayer was thrilled at the refund that resulted and didn’t question anything.

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I remember the famous tale from my early days as an “apprentice” about a local preparer who had done the returns for many of the town’s police officers. The preparer would take the client’s “stuff”, ask him “how much do you want back?”, and have the client sign the return in blank. He would then proceed to make up numbers so the client would get the refund that had been requested and mail it to “Sam”.

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And the final warning – do not use the minions of Henry and Richard to prepare your return.

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TTFN

WHERE THE FAKAWI

This past week-end nothing got done!

Friday I had a wedding at Chelsea Pier in NYC (a great location). It is on 23rd Street and the waterfront (Hudson River). I thought I would take the PATH to the 23rd Street station – not realizing that the station was on 6th Avenue and it was 5+ loooong blocks to the water! I certainly got my exercise this Friday, as I returned home the same way – getting back to my apartment at 2:00 AM.

Saturday was a “post-wedding” luncheon cruise on the Spirit of New York – a two hour cruise from Chelsea Pier (this time I was smart – I took the bus to the Port Authority and a taxi to Chelsea Pier) around the Statue of Liberty, under the Brooklyn Bridge and back. It has been well over 40 years since I have been on such a cruise (the last time was probably the Circle Line as a child) and the skyline of Hudson County has certainly changed!

Sunday I had planned to drive to PA for the day and see a show at the RITZ PLAYHOUSE in Hawley – but I was too tired from the wedding activities that I decided to stay home and watch the “PDW” (PBA great Pete Weber) bowling marathon on ESPN Classic.

I have changed my telephone service (which is only plugged in during the tax season anyway) from AT+T to Vonage – to save over $300.00 per year. Luckily I have been able to keep my existing phone number. I know the phone number has been successfully switched over because I got an email announcing a “voice mail” message.

I just got the “box” from my mail drop this morning – but have been unable to get the new system up and running. I hooked everything up this morning, following the instructions, but no luck. I will give it one more try tomorrow or Wednesday night with some newly purchased extension cords before I will be forced to spend the $100.00 (1/3 of the savings) for “professional” hook-up service. Wish me luck.

I am not particularly worried about an interruption of service, as even when Vonage is set up I will keep the machine unplugged – no incoming calls - although I am currently unable to call out. I receive and can send faxes via email – so that is not a problem.

I have an overdue calendar year 2007 Form 1120 – one of the very few corporate returns that I still to do because of a personal relationship – to complete (I finally got most of the information needed from the client), and two fiscal-year 1120s (FYE 6/30), also with personal connections, to work on. The client with the late 2007 return has promised the rest of the needed information via email later today or tomorrow.

I have to open a checking account for my new corporation at WAMU down the block – but it has been pouring on and off today and I have a good parking spot (I am good until tomorrow at 1PM) and do not want to lose it.

I will be making my annual pilgrimage to Wayne and Pike Counties in PA in a week and a half – so I definitely need to spend at least a full day cleaning the “living area” of my apartment (kitchen, bathroom and living room/bedroom) so it is at least presentable for the “cat feeder” who comes in to feed Nosey during my absence. I think I can hold that task off until the week-end. The office area was cleaned up a while ago.

And of course there are the GD extensions! I remain unable to get fully motivated. There are two that involve Schedule Cs that need to be addressed ASAP and one that I need to review and identify what cost basis info is still needed (a lazy broker involved). Plus there are a few 2210s to be worked up.

I will try to devote tomorrow late morning through the afternoon to the two Schedule C GD extensions. Wednesday, as usual, I am gone all day.

What I need to do is put aside blogging (writing and reading) for the rest of the week – so, unless there is breaking news that needs to be reported and/or commented on you will not hear again from me until Saturday’s WHAT’S THE BUZZ.

TTFN

BETTER LATE THAN NEVER

Although a week late, “Tax Carnival #39: Dog Days of Summer 2008” is now up over at DON’T MESS WITH TAXES. It was worth the wait, Kay!

The Carnival includes an example of my weekly WHAT’S THE BUZZ posting (every Saturday).

Be sure to check out the entry from MONEY UNDER THIRTY.

1040 FYI: CHARITABLE CONTRIBUTIONS – WHAT IS AND IS NOT DEDUCTIBLE

I often receive questions from clients and readers about what can and cannot be deducted as a charitable contribution on Schedule A.

Let us begin with a list of items that are not deductible:

* Contributions made directly to an individual or family, regardless of the recipient’s financial situation or health status. If you want to help a homeless family or a sick child you must give the money to a charitable organization that will provide the assistance in order to get a deduction.

* Contributions to an organization created to lobby for changes to federal, state or local laws.

* Contributions to political organizations or election campaigns.

* The value of blood donated.

* The value of your time to perform volunteer services.

* Contributions to non-profit homeowner or condo associations, or social or sports clubs.

* Contributions to foreign organizations.

* Raffle or “50-50” tickets. The purchase of a raffle ticket is not a contribution, even if the seller of the ticket is a charity. It is gambling! You are purchasing a chance to win a prize. Tickets purchased can, however, be deducted as gambling losses if you have any gambling winnings to report.

* The rental value of the use of a vacation property donated to charity for a “vacation auction”.

* Appraisal fees to determine the value of donated property (required if the value of the item donated is more than $5,000.00). These fees can, however, be deducted as a “miscellaneous deduction” subject to the 2% of AGI exclusion.

You can deduct:

* Cash or property given to a qualified tax-exempt organization created or organized in the United States or any possession under the laws of the United States or any state or possession.

* Out-of-pocket expenses connected with donations or volunteer service to a qualifying church or charity, such as the cost of the ingredients of homemade cookies or a cake donated to a church bake sale, or the cost and laundering of uniforms for a scoutmaster.

* Travel and transportation expenses incurred while performing a volunteer service for a qualifying church or charity. If you use your car you can deduct 14 cents per mile in lieu of actual expenses plus any parking fees and tolls. This amount is set by Congress and has not been increased for several years now.

* That portion of the cost of a ticket to a fund-raising event that is in excess of the “fair market value” of any goods or services you receive. If you buy a ticket for a fund-raising dinner for $100.00, and the cost of the dinner is valued at $35.00, you can deduct only $65.00. If you purchase a ticket to such an event and do not attend, but give the ticket back to the charity to be sold again, then you can claim a deduction. In such a case you are not receiving any value in return for your contribution. So if you bought a ticket to a fund-raising dinner and had planned to attend, but find out a week before that you will not be able to, give the ticket back to the charity and allow them to sell it again.

Of course, as we now all know, there are special rules and requirements for deducting cash and non-cash contributions.

To find out if a charity qualifies for a tax deduction go to the IRS website at www.irs.gov and enter “Search for Charities” in the Search for box and click on the first result. To check on the financial status of a charity go to www.charitynavigator.com.

TTFN

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

* What we residents of the Garden State have known full well for a long time is now official! The AccountantsWorld.com article “Tax Foundation Study: New Jersey Edges New York for Nation's Highest State-Local Tax Burden” reports that “New Jersey taxpayers bear the heaviest state-local tax burden in 2008”.

The article goes on to say “New Jersey residents paid 11.8%, topping the charts. New Yorkers were close behind, paying 11.7%, and Connecticut was third at 11.1%. The top ten were rounded out by Maryland (10.8%), Hawaii (10.6%), California (10.5%), Ohio (10.4%), Vermont (10.3%), Wisconsin (10.2%) and Rhode Island (10.2%).”

Alaskans have the lightest tax burden at only 6.4%.

This is also discussed on the Tax Foundation’s TAX POLICY BLOG.

* An article at MarketWatch.com reports “A new calculator on Social Security's Web site gives users a much-improved picture of what their benefits could look like in retirement. And coming in October: a faster and easier way to file for Social Security benefits online.”

* FYI, the Taxpayer Advocacy Panel has issued its 2007 Annual Report.

According to TAP, “This annual report highlights important actions of the Panel and summarizes 59 new recommendations for improvement that TAP generated for IRS consideration in 2007. The Report also provides a five-year retrospective on Panel activities and an update on the status of the 305 recommendations submitted to the IRS since TAP was established in 2002, many of which have been partially or fully implemented.”

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The Panel describes itself thus – “TAP is a Federal Advisory Committee made up of citizen volunteers, representing all 50 states, the District of Columbia, and Puerto Rico, who are dedicated to helping the IRS identify ways to improve customer service and responsiveness to taxpayers needs. By analyzing a large number of issues, setting priorities and conducting research, TAP has made important recommendations to improve the IRS and reduce taxpayer burden.”

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Another FYI – The yellow rose of taxes – Kay Bell of DON’T MESS WITH TAXES fame – is a member of the panel.

* TAX GURU Kerry Kerstetter reports of a new website devoted to the new First-Time Home Buyer Credit – FederalHousingTaxCredit.com – which is run by the National Association of Home Builders (“NAHB exists to represent the building industry”). The website has a good FAQ section.

* Tax professor Jim Maule asks an excellent question – one that I have asked myself – and makes some excellent points in his post “Why This New Tax Provision?” at MAULED AGAIN. He is talking about the new additional standard deduction amount for real estate taxes for 2008 only. In response to who will claim the deduction, as I have mentioned here before I do see several of my retired senior clients receiving the very small benefit of this deduction – taxpayers who have paid off their mortgage and have an inflated standard deduction which is more than their deductions due to 2 additions for age 65 or over.

* NATP’s Taxpro Weekly email newsletter reported that “Texas Hurricane Victims Qualify for Relief”.”Following Hurricane Dolly on July 22, the federal government declared Cameron, Hildalgo, and Willacy counties Presidential disaster areas qualifying for individual assistance.As a result, the IRS is postponing certain deadlines until September 22 for taxpayers who reside or have a business in the disaster area. The postponement applies to return filing, tax payment, and other certain time-sensitive acts otherwise due between July 22, 2008 and September 22, 2008.

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In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after July 22 and on or before August 6, as long as the deposits were made by August 6. Additional details are available on the IRS website.”

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* TAX GUY Bruce McFarland discusses still more reasons to avoid like the Plague going to “the brothers” to have your taxes prepared in his post “More on ‘Finding a Pro’. .” I know I said in an earlier post somewhere that I “never say never” any more – but I think this is the exception. You should never have your tax return prepared by the minions of Henry and Richard!

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* Xin Lu adds his 2 cents to the discussion in her post “Should You Choose a Roth 401k or a Regular 401k?” at WISE BREAD. While Xin decides she “would still go with a regular 401k” the post provides good coverage of both sides of the argument.

* As a “companion piece” to my recent 1040 FYI on charitable contributions, the IRS has issued a “Summertime Tax Tip” on the topic.

* Joe Kristan of the ROTH AND COMPANY TAX UPDATE BLOG brings good news for taxpayers who received “free” shares of stock in insurance companies as a result of something called “demutualization” in his post “IRS Loses Demutualization Argument in Court of Claims”. While I do believe much of the “demutualization” took place more than three (3) years ago, this decision will still prompt lots of 1040X filings – more money for us tax preparers!

I will not have enough time this week-end to properly review this issue (due to personal activities – a wedding Friday evening 8/8/08, a post-wedding lunch cruise later today, and a day trip to PA to see a show tomorrow) – but I will definitely devote more blog space to this issue in the near future.

TTFN

1040 FYI: IRA BASICS

Part I – Traditional IRA

Contributions to a “traditional” IRA are either deductible or non-deductible. If you are an active participant in an employer-sponsored pension plan, such as a 401(k), a 403(b) or a SEP, the amount of your traditional IRA contribution that is deductible is phased-out for a “modified” Adjusted Gross Income (MAGI) for tax year 2008 of $53,000 to $63,000 if filing as Single or Head of Household, or $85,000 to $105,000 if married and filing a joint return.

“Modified” AGI in this case begins with “regular” AGI and adds back the-

· foreign income and housing exclusions
· savings bond interest exclusion for higher education costs
· adoption assistance benefits exclusion
· deduction for student loan interest
· deduction for qualified tuition and fees
· deduction for domestic production activities

Deductible contributions are made with “pre-tax” dollars. If all of your contributions to all of your IRA accounts over the years were fully deductible, then all IRA distributions are fully taxable. Amounts that were “rolled-over” to an IRA from a pre-tax employer plan like a 401(k) are treated as deductible contributions.

Non-deductible contributions are made with “after-tax” dollars. You have already paid income tax on these contributions. Accumulated non-deductible contributions make up your “basis” in the IRA. If some of your IRA contributions over the years were non-deductible, then a portion of any IRA distribution is a tax-free return of your after-tax contributions. The tax-free portion is determined by a special formula and is calculated on IRS Form 8606.

Many taxpayers have more then one IRA account, and each individual account may have a different mix of deductible and non-deductible contributions. However, when you calculate the tax-free portion of a traditional IRA distribution all monies in all traditional IRA accounts are lumped together.

You must begin to take annual minimum distributions from your traditional IRA once you reach age 70½. Once you turn age 70½ you can no longer make contributions to a traditional IRA, even if you continue to work and have earned income. Upon your death your beneficiaries will be taxed on withdrawals from an inherited traditional IRA.

Part II – ROTH IRA

You can contribute to a ROTH IRA for 2008 if your “modified” AGI (same as above) is under 116,000 if Single or Head of Household, or $169,000.00 if Married Filing Joint.

Contributions to a ROTH IRA are made with “after-tax” dollars. ROTH IRA contributions are never deductible. Qualified distributions from a ROTH IRA are totally tax free.

A qualified distribution is one that is made after a 5-year holding period, beginning on the first day of the first year you make a contribution, and is made after the taxpayer reaches age 59½, or due to death or disability or for a qualified “first-time” home purchase. The earnings portion of a non-qualified distribution is fully taxable and may also be subject to a 10% penalty.

You do not have to begin taking annual minimum distributions from a ROTH IRA when you reach age 70½. You never have to touch the money in a ROTH IRA during your lifetime. You can continue to make contributions to a ROTH IRA after you turn age 70½ as long as you have earned income. If you are still working at age 80 you can contribute to a ROTH IRA. Beneficiaries do not have to pay income tax on distributions from an inherited ROTH IRA.

TTFN

1040 FYI: DONATING A CAR TO CHARITY

Congress changed the rules for deducting the contributions of a vehicle to charity a few years back.

In order to claim a deduction of more than $500 for donating a motor vehicle (car, motorcycle, boat, or airplane) to charity, you must attach Copy B of the IRS Form 1098-C, which has been provided by the charity, to the Form 8283 that is included in your 1040.

The Form 1098-C will include the name and Taxpayer Identification Number of the charity to whom the car has been donated, the vehicle identification number of the auto, and the date of contribution. Form 1098-C must be issued within 30 days of either the date of the contribution or the date of the disposition of the vehicle by the charity.

If you donated, or will donate, a car to charity in 2008 that is worth more than $500 make sure to get Copy B of Form 1098-C from the charity before the end of the year. If you have not received it by the middle of December you should call the charity and ask for it. The charity can give you a statement in lieu of Form 1098-C as long as it contains all the necessary information discussed below.

It is possible that you donate a car to charity in late 2008 and the car is not sold by the charity at auction until 2009. Just note that if you want to claim a deduction of more than $500.00 for the car you must have a Form 1098-C to include with the mailing of your 2008 Form 1040.

Besides the items listed above, additional information will be included on the Form 1098-C depending on what the charity does with the donated car.

(1) If the charity sells the car without significant interim use or material improvement, the Form 1098-C will include the date the vehicle was sold by the charity, certification that the sale was an "arm's length" transaction among unrelated parties, and the gross proceeds from the sale. Your tax deduction is limited to the gross proceeds from the sale.

(2) If the charity intends to temporarily or permanently use the car in its operations, or intends to make "material" improvements to the vehicle before selling it, the Form 1098-C will include a certification and description of either the significant interim use and intended duration of such use or the intended material improvement and a certification that the vehicle will not be sold before such use or improvement is completed.

(3) If the charity intends to sell the car to a "needy" individual at a price that is significantly below "fair market value", or give the car to such an individual, the Form 1098-C will include a certification that the charity will make such a sale or transfer of the vehicle, and that the sale or transfer will be in direct furtherance of the organization's charitable purpose of relieving the poor and distressed or the underprivileged who are in need of a means of transportation.

In situations (2) and (3) you can deduct the "fair market value" of the vehicle. You can use the "private party value" for the vehicle, adjusted for mileage and condition, as listed in the Kelly Blue Book or a similar established used vehicle pricing guide. If the fair market value is more than $5,000 you must obtain a formal appraisal, a copy of which must also be attached to your Form 8283. In these situations the charity will not provide a value - the taxpayer making the contribution must provide and substantiate the fair market value of the car donated.

To recap - in situation (1) the donee charity will tell you what you can deduct. In situations (2) and (3) the donor taxpayer must determine the amount of the deduction, subject to audit by the IRS.

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FYI, check out TAX GIRL's post "IRS Car Charity Rules Drives Donations Down".

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TTFN

1040 FYI: MULTIPLE SUPPORT AGREEMENT

This post first appeared here at TWTP in August of 2007 – but I felt it was appropriate to repeat it as a “1040 FYI”.

Generally in order to claim someone as a dependent on your tax return you must provide more than half of the person’s total support (there are other requirements – see IRS Publication 501 - Exemptions, Standard Deduction, and Filing Information).

If you do not provide more than half of the total support for a qualifying family member, an elderly parent for example, but you do pay more than 10% of the person’s support, and you and other members of your family together pay more than half of the person’s total support you can claim the family member as a dependent under a multiple support agreement. Only one of the family members who provide at least 10% of the person’s support can claim the person being supported as a dependent. A different qualifying family member can claim the dependency exemption each year.

The qualifying persons who are not claiming the exemption must sign a Form 2120 (Multiple Support Declaration), which is attached to the tax return of the person claiming the exemption. Here are some examples from IRS Publication 501:

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“Example 1 - You, your sister, and your two brothers provide the entire support of your mother for the year. You provide 45%, your sister 35%, and your two brothers each provide 10%. Either you or your sister can claim an exemption for your mother. The other must sign a statement agreeing not to take an exemption for your mother. The one who claims the exemption must attach Form 2120, or a similar declaration, to his or her return and must keep the statement signed by the other for his or her records. Because neither brother provides more than 10% of the support, neither can take the exemption and neither has to sign a statement.

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Example 2 - You and your brother each provide 20% of your mother's support for the year. The remaining 60% of her support is provided equally by two persons who are not related to her. She does not live with them. Because more than half of her support is provided by persons who cannot claim an exemption for her, no one can take the exemption.

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Example 3 - Your father lives with you and receives 25% of his support from social security, 40% from you, 24% from his brother (your uncle), and 11% from a friend. Either you or your uncle can take the exemption for your father if the other signs a statement agreeing not to. The one who takes the exemption must attach Form 2120, or a similar declaration, to his return and must keep for his records the signed statement from the one agreeing not to take the exemption.”

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Jane Q Taxpayer and her three brothers each provide 20% of the total support for their mother, who lives in an assisted living facility. The remaining 20% is provided by Social Security. Each year at tax time they get together and compare situations to determine which sibling would receive the most overall federal, state and local income tax benefit by claiming the mother as a dependent. When the refunds come, the person claiming the exemption gives each of his/her siblings a check for ¼ of the total tax benefit.

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TTFN

10 MID-YEAR TAX MOVES

I apologize for taking the lazy way out with today’s posting – but, knowing how much bloggers like lists, here are 10 mid-year tax moves courtesy of the National Association of Tax Professionals (I have been a member for 20+ years and I occasionally write for their quarterly journal). I have added a few of my own comments in bold italics -

“What is more exasperating than having to pay taxes? Understanding the constantly changing legislation affecting them! Yet, not fully understanding rights and how provisions work together costs taxpayers significantly every year. A mid-year tax review with an expert will help you. Here is why. Following are some common areas fraught with complex rules that cause taxpayers to miss valuable opportunities to leverage their options and lower their tax bills. Financial advisors and tax preparers are experts in these areas so you don’t need to be. Call your tax advisor for your mid-year review soon to discuss your financial plans and learn how you can save on your next tax return.

1) Overpayment or underpayment of taxes. Did you receive a big refund last year? If so, you overpaid and the government kept your money as a tax-free loan while you could have invested it and earned interest. Did you owe? Worse, were you stuck paying {the dreaded - rdf} Alternative Minimum Tax? A mid-year review will help determine where you are and allow you to adjust your withholding now to avoid penalties later. {Federal income tax withholding is treated as occurring evenly throughout the year for purposes of the penalty for underpayment of estimated taxes – regardless of when the money was actually withheld. If you have missed an estimated tax payment, or a special event has caused you to need to make estimated tax payments, you can increase your federal withholding during the 2nd half of the year and have the additional monies treated as being paid in evenly over the 4 estimated tax quarters – rdf}

2) Saving for retirement – IRAs, 401(k)s, profit-sharing, pensions, employer-sponsored plans, etc. Many changes have taken place in the last few years regarding retirement savings plans. The plan you originally began with may have been advantageous when you started it, but it might not be anymore. So much has changed with these plans that it’s important to review them to see if they are still performing as you intended, and to find out if there are new products available that you are not taking advantage of.

Many taxpayers do not have an Individual Retirement Account (IRA) and are missing an opportunity to defray their taxes and save for their own future. One of the primary reasons for not having an IRA is not starting one. Begin now, even if it is only a few dollars a paycheck. The government has increased the amounts IRA holders can save, and those over age 50 can place additional catch-up amounts into their IRAs.

3) Medical savings accounts and health savings accounts. Try comparing your high premium medical insurance plan against a high-deductible plan combined with a health savings account (HSA). You may be surprised at not only which one is less expensive, but reap tax savings besides. And are you using any available flexible spending accounts through your employer? They are another way to reduce taxable income.

4) Estimated tax payments. Adjusting these payments now will avoid underpayment penalties at year-end. {see my comment above under item #1 – rdf}

5) Take advantage of deduction bunching. Some itemized deductions must meet certain thresholds before you can claim them. By being aware of these and managing your expenditures to fall primarily in one year, rather than spread over two years, you may realize significant tax savings. This applies to several expenditures, especially to medical expenses, property tax payments, and charitable donations.

6) Getting married? Or divorced? These life-changing events have very significant tax implications. A divorce or change in child custody arrangements can mean tax implications in several areas. Attempting to reach a divorce settlement or filing taxes without expert financial advice will most likely not be to your advantage. {In light of a situation that I described in a recent post, if you have married and you are changing your name – i.e. the wife taking on her husband’s last name – it is very important that you change your name with the Social Security Administration as the SSA website – rdf}

7) Beneficiary designations, Powers of Attorney, wills, estate planning. Are these working advantageously for you? Do you even have them in place? This is the time to get your plans in order and be sure that tax changes have not changed how you intended these contracts to work.

8) Buying or selling stocks, bonds, real estate, or other investments. Many tax rules apply to all of these transactions. For example, a real estate like-kind exchange may work to your advantage. If you’re selling a residence, perhaps the exclusion for selling a principal residence applies to you. There are capital gains and losses, wash sale rules, long-term gains and losses, and a whole array of other rules when it comes to stocks and bonds. And don’t forget, investment expenses count as miscellaneous itemized deductions when used for the production of income. Handling these transactions wisely, rebalancing, and making changes are the name of the game with investments. Your financial adviser is worth his or her weight in gold here. {Time is extremely precious for your tax preparer during the tax-filing season. I am sure that he/she, like I, would jump at any opportunity to save time during this period. If you sell a vacation or rental property, or stock that you received through a spin-off or merger, especially stock that originally came from a Bell company, or a mutual fund acquired over the years through dividend investment, let your tax preparer work-up the profit or loss now while he/she has the time, rather than waiting till next year’s tax season when time is tight. Send your tax pro the details and documentation for these types of transactions after they have been completed and give him/her something to do during the year. rdf}

9) Financial planning is important when you have children and teens. Coverdell Education Savings Accounts (ESAs) and Section 529 plans are two ways to begin tax-deferred savings for a child’s education. Children grow up quickly, so begin these accounts early, and know how much you can add to them. Discipline yourself to save, and you help both yourself and your child.

Self-employed parents can hire their children or grandchildren and lower the overall family tax bill. The business also may benefit from hiring children under age 18, as their wages are exempt from social security and unemployment taxes paid from a parent’s sole proprietorship. Teens with earned income can make IRA contributions as well. However, if children plan to attend college, it is important to structure savings carefully to best work with college financial aid programs. When children are in college, remember to claim the education credits or the tuition and fees deduction.

10) Self-employed taxpayers and those with small businesses have many ways to plan for tax savings. This is another area where tax preparers prove their value. Several changes in recent years allow flexibility with carrybacks, carryforwards, employee benefit plans, expense deductions, etc. Certain small businesses that start retirement plans for their employees may even qualify for a tax credit to help recover the costs of starting up. The number-one rule-of-thumb here is to carefully document, backup, and substantiate all expenses in order to claim them on tax returns. If you have not done that, you will miss deductions. Timing of purchases and assets can make big differences on your tax return, and some of these things need to take place before year-end to qualify. Work closely with your tax preparer and plan carefully, using his or her advice.”

Any questions on either the NATP suggestions or my comments?

TTFN

UPDATES

Here is some updated information on recently discussed topics -

* Well it seems that one of my questions has been answered with regard to the economic “stimulus” rebate.

In my Monday posting “Something To Think About” I asked if the rebate amount allowed on the 2008 Form 1040 can be used to offset self-employment tax. The answer is “yes”! It appears that the strategy discussed in the post is “workable”.

The current draft version of the 2008 Form 1040 (as of 7/1/2008) indicates that the “Recovery rebate credit” adjustment, determined by using a worksheet that will be included in the instruction booklet, is entered on Line 71 (Page 2) under the category of “Payments”. So it is treated the same as withholding, estimated tax or the Earned Income Credit.

If you received a 2008 rebate check that is more than you will be entitled to based on the information on your 2008 tax return, i.e. you were overpaid, then the amount on this Line 71 would be “0” and not a negative number.

Of course this draft of the 1040 is not the final one. There will have to be additions to the form for the provisions of the recently passed housing bill – i.e. the first-time homebuyer credit and the additional standard deduction for real estate taxes. This draft version also does not have lines for the “adjustment to income” for educator expenses or tuition and fees, as these “above-the-line” deductions have not yet been extended for 2008.

We can only hope that Congress will get off their arses and pass the “extenders” in time for the deductions to be included on the final 2008 Form 1040 and 1040A. This must be done by October!

FYI, you can click here to check out the current “draft” copies of other IRS forms.

* Here is some more information on the credit for “first-time homebuyers” that was included in the recently passed housing bill –

· The credit does not apply if you purchase the residence from a “related party” – i.e. a spouse, an ancestor, or a lineal descendant.

· If you are building the principal residence you must occupy the residence by the July 1, 2009 deadline in order to qualify for the credit.

· The home must be located in the United States for the purchase to qualify for the credit.

· If the purchase of your residence is financed by a mortgage provided with tax-free financing you do not qualify for the credit.

· Married couples who claim the credit on a joint return are treated as each claiming one-half (1/2) of the total credit allowed – in case of a subsequent death or divorce.

· With regards to the three-year “look-back” period – according to the NATP analysis of the bill “If the individual is married, neither the individual nor his spouse may have had a present ownership interest in a principal residence during that three-year period.”

· I mentioned in my initial post that if you make a qualifying purchase in calendar year 2009 (by July 1st) after you have filed your 2008 tax return you can file an amended 2008 return to claim the credit. To clarify, if you make a qualifying purchase in, say, January or February of 2009, before filing your 2008 tax return, you can claim the credit for the 2009 purchase on your 2008 Form 1040.

TTFN

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

* The Tax Foundation’s TAX POLICY BLOG wonders, with the new credit and deduction from the housing bill and the need to reconcile the economic “stimulus” rebate check, “Will the 1040 Be 3 Pages Next Year?”

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* We welcome Joe Kristan of the ROTH AND COMPANY TAX UPDATE BLOG back from vacation. BTW, I like his definition of "bipartisan" - “We're all screwed regardless of party affiliation.”

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And thanks for reminding us in the post “Iowa’s Sales Tax Holiday Runs Today and Tomorrow” to “mark your calendar to go to South Carolina in November to get accessories during their new sales tax holiday for guns.”

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* Theodore Seto, the professor of tax law and policy at Loyola Law School Los Angeles who writes the blog UNDERSTANDING TAX, makes some interesting points in the first posts in a series “Who Pays Taxes: The Concept of "Incidence," Part I”. I like his example of the “luxury” tax on yachts. As he correctly points out – “The ‘rich’, it turns out, can do without yachts. Yacht makers, on the other hand, cannot do without customers. And yacht makers’ workers have no choices at all.”

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* Walter Antoniotti, a retired accounting teacher, has created Free Internet Libraries for students, teachers, and professionals – including one for the accounting profession. He has included TWTP in the Interesting Accounting Sites, Accounting Organizations and Blogs, Teacher Sites section.

* The opening paragraph of Friday’s “News and Tip of the Day” posting at the Small Business Taxes and Management website reads –

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“Because the Senate has again failed to begin consideration of the extenders tax bill, it's anticipated that no action will be taken until Senators return after the August recess.”

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Oi vey! Looks like it will be “down to the wire” again this year.

* We tax professionals love our acronyms!

Speaking of the Small Business Taxes and Management website’s “News and Tip of the Day”, an earlier entry discussed a Revenue Proclamation that concerned a CLUT – a Charitable Lead Unitrust. As opposed to a Charitable Lead Overseas Trust, or a Charitable Lead Investment Trust? (Sorry – I couldn’t resist!)

A few years ago at my previous host I blogged about the LUST Tax, which has nothing to do with the recent talks of taxing pornography or a “pole tax” on “exotic dancers”. It actually refers to a Leaking Underground Storage Tank.

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* In my “wanderings” on the web I have come across THE TAX PROTESTER FAQ, created by Philadelphia lawyer Daniel B. Evans to debunk all the ridiculous arguments that the federal income tax is unconstitutional, the income tax does not apply to individual citizens, the government cannot tax wages, etc.

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According to Evans - “The purpose of this FAQ is to provide concise, authoritative rebuttals to nonsense about the U.S. tax system that is frequently posted on web sites scattered throughout the Internet, by a variety of fanatics, idiots, charlatans, and dupes, frequently referred to by the courts as ‘tax protesters’. This ‘FAQ’ is therefore not a collection of frequently asked questions, but a collection of frequently made assertions, together with an explanation of why each assertion is false.”

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TTFN

WHAT DID I TELL YOU!

As I expected, and as has been done in past years, the deadline for filing the NJ Homestead Rebate and the Property Tax Reimbursement (aka Senior Freeze – Forms PTR-1 and PTR-2) applications has been extended again from August 15 to October 31, 2008.

The Governor has also announced that the Homestead Rebate checks for eligible senior and disabled homeowners, and all tenants, who filed their application by June 2nd are in the mail!

NJ Homestead Rebate checks for eligible non-senior and non-disabled homeowners who file their application by August 15th are scheduled to be mailed out in the fall.

Click here to read the Press Release.

The NJDOT website has also updated its “Where’s My Rebate” service. You can now check on the status of your 2007, 2006 and 2005 rebate checks, which will be or were issued in 2008, 2007 and 2006, online. Click here.

YOU LIKE ME! YOU REALLY LIKE ME!

Fellow tax blogger Bruce McFarland of L & R Tax Preparation in Grandview, Missouri asked me to write a guest post on the “stimulus” rebate situation for his TAX GUY blog.

I am truly honored by the request – it is my first guest post!

So check out my guest post “That Was The Economic Stimulus Rebate That Was”, which is currently up and running.

While you are over at TAX GUY take a look at Monday’s guest post by Kevin of No Debt Plan who wrote about the stimulus plan’s “Good Intentions, Terrible Execution”. He provided an excellent alternative to the rebate – “If the government directly pushes spending into bridge infrastructure across the nation, that creates jobs. The employed workers spend their earnings in the economy. Everyone wins.” Remember your history – it was government programs like the WPA that got us out of the depression.

And be sure to check out the “achieves”, especially these postings-

· Audit Insurance
· Avoid A Tax Audit With These Tips
· Are You Having Enough Withheld

You might also enjoy his Fun With Math posts. And Bruce also does a WHAT’S THE BUZZ type week in review on Sundays.

FYI – I am available for quest posts on tax topics of your choosing at other tax and non-tax blogs (and welcome guest posters here at TWTP as well as ASK THE TAX PRO and THE FLACH REPORT). I am also available, for a fee, to write 1040-related articles, columns and Q+As for your print or online newsletter. You can contact me at rdftaxpro@mail.com with details if you are interested.

TTFN