Sunday, November 30, 2008



Rather than, as I had planned to do, dwell on the nadir of the live television variety show – the debacle known as ROSIE LIVE – I have been inspired by a PBS documentary to instead discuss perhaps its zenith – THE MIKE DOUGLAS SHOW.

The Mike Douglas Show, the first syndicated talk show to win an Emmy, started on December 11,1961 in Cleveland Ohio as a local show on Westinghouse's KYW-TV (now WKYC-TV). Mike Douglas had been a singer with the Kay Kyser Band and appeared on Kyser’s tv show. In July 1963 it was syndicated by Westinghouse to all five of its owned-and-operated stations.. In August of 1965 the show moved from Cleveland to Philadelphia. By 1967 the show was available in 171 markets and seen by an audience of 6 Million viewers a day. It moved to Los Angeles in 1978 where it remained until the end of the show's run in 1982.

The show started off as a live broadcast. After an off-color on-air remark by Zsa Zsa Gabor in 1965 - she called Morey Amsterdam a "son of a bitch" - the producers decided to tape all shows in advance of broadcast. While taped, the show itself was not edited other than to remove any such similar “objectionable material”.

During the 21 years Mike interviewed Rev. Martin Luther King, Angela Davis, members of the Chicago 8, including Black Panthar Bobby Seale, Ralph Nader, Richard Nixon, F. Lee Bailey, Hubert Humphrey, and welcomed such musical guests as John Lennon and Yoko Ono, Liberace, the Rolling Stones, Ray Charles, KISS, Louis Armstrong, Bobby Darin, Liza Minelli, and on and on and on.

Each week would feature a guest “co-host” who would appear for all 5 days. The guests and segments of the week were scheduled around the interests of the co-host(s). John and Yoko co-hosted a week.

After singing their song or doing their stand-up each and every guest would join Mike and his other guests to talk (this was not always the case on other talk shows) – not on a couch with the host sitting separately at a desk, but in a grouping of chairs where each person, including the host, was equal.

In the course of a 90-minute show Mike would sing a duet with Della Reese, make popcorn with Paul Newman, watch a comedy bit by George Carlin, wrestle a bear with Robert Goulet, do back-up for Sammy Davis Jr as a go-go dancer with Rowan and Martin, spit watermelon seeds with Carol Burnett, and interview Martin Luther King Jr and Alfred Hitchcock.

I grew up watching THE MIKE DOUGLAS SHOW, and specifically remember discussing the show in class in grammar school (I think it was 8th Grade). I do believe the teacher encouraged us to watch it as a way of learning about current events.

While Mike interviewed many controversial political figures, the show itself was not political. He was an easy-going guy, who represented middle-America. He was equally at ease with each of his guests.

The show has historical prominence not only for its interviews with news makers but also for the unique pairing of musical guests – most notably John Lennon and Chuck Berry performing “Johnny B. Goode”. Lennon and Berry had never met before appearing together on MIKE DOUGLAS.

THE MIKE DOUGLAS SHOW was the first talk show appearance for Jay Leno at age 21. It also showcased early appearances of Bill Cosby, Billy Crystal, Dave Letterman, and, yes, even Rosie O’Donnell.

The show featured the first television appearance of Tiger Woods, who showed off his golf swing for Bob Hope and Jimmy Stewart at the age of 2. The child upstaged Bob Hope (never work with children or animals).

Mike Douglas died in Palm Beach, Florida on August 11, 2006 - his 81st birthday. He had been married to the same woman since his days as a serviceman in WWII.

The PBS special was a presentation of portions of the DVD “Mike Douglas - Moments & Memories”. Unfortunately it was not shown in its entirety, and was, as is a PBS custom, frequently interrupted for begging. The DVD is available at Click on the picture in the right hand margin.


Saturday, November 29, 2008


* Oops, missed this post in last week’s BUZZ. Bill Perez of WILLIAM’S TAX PLANNING BLOG at reminds us to “Max out Your 401(k) Plan (Year-End Tax Tips)”. As Bill points out, “Maxing out a 401(k) or other employer-sponsored retirement plan has long been a staple of tax planning” and reminds us, “unlike IRAs, contributions to a 401(k) or 403(b) plan must be made by the end of the calendar year”.

Bill reminds us that the maximum contribution for 2008 is $15,500. However be sure to check your plan, as the maximum contribution may be limited to a % of your salary. I recently came across this issue with a client. You are also allowed a $5,000 “catch-up” contribution if age 50 or older, and this is normally permitted in addition to any plan limitation based on salary.

If I can add my 2 cents – the fact that your 401(k) balance may have tanked because of the current economic mucking fess is no reason to stop making the maximum contributions. With the market so low now is the time to buy. If you are concerned you may want to, as Bill suggests, “review your retirement plan's asset allocation, investment options”.

* Russ Fox of TAXABLE TALK reports another in a long line of tax FUs from the Chairman of the House tax-writing committee in his post “Rangel's Tax Troubles Mount”.

* As promised, Dan Meyer of TICK MARKS has announced his “Nominees for 2008 Twelve Blogs of Christmas”. Good choices all.

* Nothing to do with taxes, but I had to get this in somewhere -

As I twitted (or is that twit, or tweet?) after it was over – “If the Variety Show wasn't already dead it was just killed for sure by Rosie O'Donnell! A total waste of potentially good guest stars.”

Rosie, a supposed stand-up comic, was stiff and unfunny. Alec Baldwin, Jane Krakowski, Harry Connick Jr, Clay Aiken, and Kathy Griffin, who could have made for a good show if properly used, were paraded on and off in seconds while prime time was given to bland and boring pop tunes from Neo (wtf?) and Alanis Morissette (unintelligible – I couldn’t understand a word she was singing) and weird unknown vaudeville-type acts.

Let us hope that this universally-panned debacle is not brought back, as promised, as a weekly show. A total insult to the much-missed variety shows of the 50s–70s.

Thursday’s PARDON OUT PLANET cartoon by Vic Lee in the Star Ledger has the Devil welcoming a new resident of Hell, who is seated among the flames in front of a tv set. “You’ve gotta be kidding”, the new denizen exclaims. “Nothing but reruns of RAWHIDE and ST ELESWHERE?!” That wouldn’t be so bad. Before Wednesday I would have said Hell was having to watch nothing but reality tv. Now I know that Hell is being forced to watch ROSIE LIVE!

* Who is the manliest man in the tax blogosphere? Check out Joe Kristan’s post “Macho Macho Tax Blogs” at the ROTH AND COMPANY TAX UPDATE BLOG.

* Peter Pappas brings us the “best tax blog posts of the month” in “Issue #4: Dr. Tax-O-Sphere, Or How I Learned to Stop Worrying and Love the Tax Code” at THE TAX LAWYER’S BLOG. Yes that is a picture of me!

* A week of “re-runs” of good information posts at TAX GUY – “Are You Having Enough Withheld”, “Filing Status”, and “529 College Savings Plans”.

* First I used
Typealyzer to discover my blog’s personality characteristics (see last Saturday’s WHAT’S THE BUZZ), which told us I was ”the independent and problem-solving type”. Then, as mentioned above, I used Genderanalyzer to find out that I was 89% manly (and to find that Kay Bell was 4% more manly than me). Now, thanks to a prompt from Prof Jim Maule of MAULED AGAIN (“Giving MauledAgain a Personality”), I have taken the Blog Readability Test and found – “This Blog’s Reading Level: College (Post Grad)”.

Are there any other blog tests I can put THE WANDERING TAX PRO to?

* A reminder. Just in case I have not made this clear in earlier posts, the Emergency Economic Stabilization Act of 2008 has reinstated the expired $500 credit for energy-efficient property such as doors, windows, water heaters, and central air units. This credit is reinstated for the 2009 tax year, so if you’re considering energy-efficient improvements to your home, 2009 is the year to have that done. Thanks to the NATP weekly email newsletter for reminding me!

* More from the NATP’s TAXPRO Weekly –

The IRS has extended return-filing and payment deadlines for victims of recent wildfires in the California counties of Los Angeles, Orange, Riverside, and Santa Barbara. Taxpayers residing or having businesses in these disaster areas have until February 11, 2009, to file returns, pay taxes, and perform other time-sensitive acts otherwise due between November 13, 2008, and February 11, 2009.

In addition, taxpayers whose books, records, or tax professionals' offices are located in the covered disaster areas are also entitled to this relief. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866.562.5227 to request relief.

Additional information is available on the IRS

* Always leave them laughing. Compliments of Peter Pappas of THE TAX LAWYER’S BLOG – “Funny Late Night Tax Quotes”.


Friday, November 28, 2008


Welcome to “Black Friday” – the busiest retail shopping day of the year.

I no longer exchange Christmas gifts so this day means nothing to me. I will spend it working on GD extensions.

However, for those of you who are looking for Christmas gifts here are some suggestions -

(1) Steven Zelin is known as “the Singing CPA”. Steve writes and performs funny songs about taxes and accounting, most to the tune of popular favorites, a la Weird Al Yankowic. I first wrote about Steve in my post “The Singing CPA”.

Steve has produced an album of his accounting and tax song parodies.

You can check out Steve at his website at or find out more about his album at

(2) I discovered Tres Hanley-Millman when she was in high school. She appeared in several of my shows (COMPANY, THE FANTASTIKS, LAST OF THE RED HOT LOVERS, MADAME BUTTERFLY) during my days as a producer of local theatre, before going on to much bigger and better things (including Britcoms). Any fan of musical theatre would enjoy her “Tres Broadway” album.

Tres Hanley Millman’s voice is affectionate and profoundly personal. I get chills up my spine when I hear this ethereal, mega talented woman sing. Buy her highly acclaimed Broadway album.” So says Ian Halperin of the IAN UNDERCOVER blog.

Click on the picture in the right hand margin to check out the album.

(3) I just received my copy of “The Complete Tax Guide for Real Estate Investors: A Step-By-Step Plan to Limit Your Taxes Legally” by Chicago journalist Jackie Sonnenberg in the mail this week.

According to a review from S Canty on this book “breaks down a complicated and often intimidating subject into an easy guide for people looking to cut down the amount of taxes on their real estate investments.

This book explains everything from a dealer versus an investor to the different classifications of real estate to ways to cut taxes and increase earnings. The language is simple and easy to understand, and the book runs through the entire process from explaining what real estate is up through the time of the investment and after.
Even for someone that has never quite understood taxes in real estate, this book will give you the knowledge that you need to make wise investments that will pay you back for as long as you have them

You will find tax guidance from the author of the popular blog THE WANDERING TAX PRO sprinkled throughout the book!

Click on the picture in the right hand margin to check it out.

(4) Your tax pro would love to receive a roll of 1040 Tax Form Toilet Paper from! It was $6.89 but is now only $3.49! also has George W Bush (with classic quotes) and Dick Cheney toilet paper. What better way to celebrate the end of the Bush presidency then with toilet paper that has W’s face on it!


Thursday, November 27, 2008



I am hoping for ham today instead of turkey.


Wednesday, November 26, 2008


Q. I have a question. I work for a college and I am only on the main campus one day per week. The other 4 days I am traveling to other campuses. I do not receive a reimbursement for this. I have been told that I can deduct it from my taxes. What amount is deductible - the entire mileage (to and from) for those 4 days, or the difference between the mileage each day and the normal mileage that I use on the one day?
A. First of all as an employee receiving a W-2, which I assume you are, in order to deduct business mileage, or any other unreimbursed “employee business expenses”, you must be able to itemize on Schedule A. If you claim the standard deduction you are out of luck – there is no “above-the-line” deduction for such expenses.

Second, if you do itemize the total of all of your “miscellaneous” deductions (employee business expenses, investment expenses and tax preparation fees) must be more than 2% of your Adjusted Gross Income (AGI) for you to receive any tax benefit. If your AGI is $60,000 you must have more than $1,200 in these types of expenses. If your total deductible unreimbursed employee business, investment and tax preparation expenses are only $1,100 you are out of luck.

The cost of commuting from your home to a regular place of work and back is not deductible. What is deductible is driving between different regular places of work, whether for two or more employers or to multiple job locations or clients for the same employer.

In your case each of the various campuses is a regular place of work. So going from home to the first campus of the day is non-deductible commuting. However if you travel from home to your base office on the main campus first, and then go from the main campus to another campus, the miles from the main campus to the second campus and, if applicable, back to the main campus are deductible.

If you go from home to Campus A, then to Campus B, then to Campus C, then back to Campus A and then home all in one day the driving from Campus A to B and C and back to A is deductible. If you go from home to Campus A, from Campus A to Campus B, and then back home the miles from Campus A to Campus B are deductible.

But if on Monday you go from home to Campus A and back, and on Tuesday you go from home to Campus B and back, and so on, visiting one different campus each day, then it is all commuting and none of it is deductible.

Also, if from home to Campus A, your main office, is 5 miles and from home to Campus B is 8 miles, and you go from home to Campus B and back on Tuesday, you do not deduct 3 miles (8 miles – 5 miles = 3 miles). You deduct 0 miles.

However, if you work for University A, visiting various campuses of that University during the week, and you travel some 250 miles to University B in another state for a special project that will last a month, then your travel from home to University B is deductible. This is because you are traveling to a “temporary” business location (temporary = the assignment will last less than 12 months) that is outside of the area of your tax home.

You can deduct 50.5 cents per mile from January to June and 58.5 cents per mile for July to December for 2008 for business driving – plus any tolls paid in the course of deductible travel. Under certain circumstances you also have the option of deducting a percentage of the actual cost of operating your car, including depreciation.


Tuesday, November 25, 2008


The Internal Revenue Service has announced the 2009 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be:

* 55 cents per mile for business miles driven
* 24 cents per mile driven for medical or moving purposes
* 14 cents per mile driven in service of charitable organizations

As I had expected, the new rates for business, medical and moving purposes are slightly lower than rates for the second half of 2008, raised by a special mid-year adjustment in response to high gas prices. Considering that current gas prices are less than half what they were a few months ago the new standard mileage allowance rates are generous.

The rate for charitable purposes is set by law and remains the same as it has been for several years now, which is something Congress needs to address.

The business mileage rate was 50.5 cents in the first half of 2008 and 58.5 cents in the second half. The medical and moving rate was 19 cents in the first half and 27 cents in the second half.

According to the IRS –

The mileage rates for 2009 reflect generally higher transportation costs compared to a year ago, but the rates also factor in the recent reversal of rising gasoline prices. While gasoline is a significant factor in the mileage rate, other fixed and variable costs, such as depreciation, enter the calculation.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study


The cause of our current economic mucking fess can be explained in one word – GREED.

Let us take a look at one of the ways this greed has manifested itself in today’s economy.

Like New Jersey politicians suck the State Treasury dry with pork, CEO’s and other high-level executives of public corporations have sucked their companies dry with astronomical salaries, bonuses, benefits and entitlements totaling as much as hundreds of millions of dollars per executive, regardless of whether or not the corporation is actually profitable.

Just as the victims of the greed of NJ politicians are the State’s taxpayers, while the politicians continue to grow fat, the victims of the prevalent corporate greed are the shareholders and “normal” employees of the corporations, and ultimately when the company is “bailed out” all American taxpayers, and the CEO beneficiaries continue to grow fat. Even if discharged they walk away with millions.

The Internal Revenue Service often goes after the owners of closely held one-man and family corporations to claim they are receiving “excess compensation”. The IRS can audit such a company, determine that the salary paid to the owner is too high, and reclassify a portion of the payments as dividends. The IRS position is that salaries are excessive so that the owner can avoid the “double-taxation” of dividends.

On the other hand, the IRS can also audit a Sub-Chapter S corporation and say that the compensation is not enough. “Dividends” from Sub-S corporations, which take the form of pass-through of net profits via Form K-1, are not double-taxed, and the IRS claims that S owners take too small a salary to avoid payroll taxes.

Why can’t the IRS determine that the compensation package of the CEO of a publicly-held corporation is excessive?

Actually using the IRS is not the best solution. A law should be passed that requires the compensation package of upper-level corporate executives in excess of a certain base amount, the combination of salary, deferred compensation, bonus, stock options, benefits, etc, be voted on by the corporation’s shareholders at the annual meeting. The law should also indicate that compensation in excess of the base must come from current “earnings and profits” – so a corporation that is losing money cannot pay its CEO $500 Million!

I believe in giving credit where credit is due. Congress is so rarely entitled to credit for smart thinking or action – but they are, at least to some small degree, in the case of the recent “Don’t Call It A Bailout” Act. As reported in an analysis of the Act by NSTP –

The deduction for compensation paid to a ‘covered executive’ of any financial institutions participating in the bailout is limited to $500,000 per year. Deferred compensation and parachute payments are taken into account when applying this limit.” It does not limit the ability to pay more than $500,000 – just the deductibility of excess payments. While too little too late, at least it is something.

So what do you think?


Monday, November 24, 2008


The "Money Hotline" column on the front page of the December issue of BOTTOM LINE WEALTH (formerly TAX HOTLINE) provides some good advice from Seymour Goldberg, Esq, CPA. The third item begins – “Now is an ideal time to convert a traditional IRA to a ROTH IRA”.

Goldberg points out that because of the current mucking fess of an economy the balance in your traditional IRA may be substantially down, and therefore “the amount subject to income tax at the time of the conversion will be lower that it would have been before”. So you will pay less current income tax on the conversion.

As you are taxed on the amount of the conversion (i.e. the value of the traditional IRA account at the time of the transfer) you want to convert, if you can, at the point at which the value of the investments in the traditional IRA account are at their lowest.

To add to what Seymour said, when converting you can invest the ROTH account monies in the exact same investments that had previously existed in your traditional IRA account. It is as if you did not touch the investments – but let them sit and eventually go back up as the market gets better. Of course you can also use the opportunity to change your investments once the money has been transferred to the ROTH.

The column points out that in order to convert a traditional IRA to a ROTH IRA “you must have modified adjusted gross income of $100,000 or less”.

For ROTH contribution or conversion purposes the MAGI begins with your AGI without the conversion amount and adds back any –

* deduction for traditional IRA contributions,
* deduction for student loan interest,
* deduction for qualified tuition and fees,
* deduction for “domestic production activities”,
* exclusion of foreign earned income and foreign housing allowance,
* exclusion of US Savings Bond interest used for education, and
* exclusion of employer-provided adoption benefits.

The FU-ed economy may provide an added hidden bonus by reducing your income such that your MAGI will fall below $100,000 and allow you to convert.


Saturday, November 22, 2008


* Bruce the TAX GUY starts the week off with a comprehensive post on “The Joy of Budgets”.

* It seems the TAX GUY is on a roll. In his next post, on Wednesday, Bruce provides “A Little Straight Talk” on the economic “stimulus” election year bribe and what should be done with this money.

* I love the British! Russ Fox of TAXABLE TALK tells us that the official charge for 13 individuals arrested for working at a brothel in Sheffield, England was "...suspicion of conspiracy to live off immoral earnings" in his post “Bozos and Brothels”.

* Russ has also “turned me on to” a website by George Washington University Law Professor Jon Siegel titled “
Income Tax: Voluntary or Mandatory?”. According to Siegel, “As a small public service, this page explains the error in some popular tax protestor theories”.

* Michael Rozbruch brings us news that professional headline-grabber Rev. Al Sharpton (sort of the black Donald Trump) “is facing financial woes again” in the post “
Rev. Al Sharpton’s Campaign Finance Audit Results in $500,000 Tax Bill” at the TAX RESOLUTION UNIVERSITY blog.

Michael tells us, “Virtually no effort appears to have been made by Sharpton 2004, the candidate, NAN, or Rev-Als. Production Inc. to keep any sort of detailed records demonstrating what payments paid for which travel,” the report found, noting what it called the campaign’s “nearly complete failure to produce any information on this subject in the course of the audit.”

* Kay Bell tells us that, after throwing an expensive party to celebrate its bail-out by the government, now plans to use our money to “pay out $503 million in deferred compensation to some of its top employees” in her post “AIG's Latest 'In Your Face' Bailout Move” at DON’T MESS WITH TAXES.

To quote Kay’s post –

The company says it needs to use the bailout funds to keep valuable workers from exiting the troubled insurance giant, according to the Washington Post.

Uh, are they really that valuable if the company found itself needing gazillions of dollars from Uncle Sam? And just who would want to "steal" the folks who help put a company in such straits?

* As President-Elect Obama considers raising taxes on the “wealthy” reports that “Top Personal Income Tax Rates Falling Around the World - KPMG Survey”.

The article reports, “Top personal income tax rates around the world have fallen by an average of 2.5% in the past six years, according to a new study from KPMG. Thirty-three of the 87 countries surveyed have cut personal taxes in the last six years while only seven have increased their rates.”

* The “Tax Agenda” reported on President-Elect Obama’s transition website still includes “enabling as many as 40 million middle-class Americans to do their own taxes in less than five minutes without an accountant”. So he is still hanging on to the ridiculous idea of sending “post-card” tax returns to low income taxpayers with their tax liability pre-figured so that all they have to do is sign and send, with check if a balance due. This is the absolute worst of all the tax proposals on either side. Check out my post “A Very Bad Idea” from October of 2007 to see why.

BTW, this site no longer provides the opportunity for individuals to submit suggestions and comments on the various items of the Agenda. I sent in detailed suggestions on taxation – but have, as of this writing, received no acknowledgement or reply.

* I realize that this has nothing to do with taxes - but the weekly Jersey City Reporter included an article stating “Council Considers Naming Street for Trump”. Apparently the City Council wants to rename a section of a street “Trump Plaza”. If they want to name a street after “the Donald” how about calling it “Arsehole Avenue”?

* I look forward to Dan Meyer’s naming of his annual “Twelve Blogs of Christmas” for 2009 at TICK MARKS. TWTP was one of the 2008 “Twelve”!

* It looks like Ryan Ellis’s excellent TAX INFO BLOG (the blog formerly known as TAX PLAYA) has bitten the dust. I, for one, will miss it.

* The TIP OF THE DAY on my birthday at the Small Business Taxes and Management site provides excellent advice (the highlights are mine) -

No free lunch--or dinner . . . There's a good chance you may have gotten an invitation to a free dinner or lunch that includes a financial seminar of some sort. You're probably a better candidate for this if you're retired or nearing retirement, own your own business, or have substantial investments. While the lunch (or dinner) may be free, get ready for a high pressure sales pitch. Even if the speaker has great credentials, the talk will almost assuredly be biased. After you've heard the pitch, talk to your tax or investment adviser or your accountant. While not all are scams, enough are that you should be on your guard. And don't be conned into believing that you must act immediately. Very few investments require immediate action, particularly in the current market. And, if the deal was that good they wouldn't have to send out solicitations to a free meal.”

* In his post “What A Nice Way To Be Called ‘Boring’” Joe Kristan of the ROTH AND COMPANY TAX UPDATE BLOG reports that, according to the something called TYPEALIZER, he is a “Duty Fulfiller”.

According to TYPEALIZER this blog, THE WANERING TAX PRO, falls under the category of The Mechanics - ”The independent and problem-solving type”. Cool!

Mechanics ”enjoy adventure and risk such as in driving race cars or working as policemen and firefighters.” I have never had a desire to join NASCAR, and I certainly would not put myself in the same class as policemen and firefighters, but every tax return filed does come with a degree of risk.

To be honest I also consider myself, like Joe, “happy to be let alone and to be able to work in their own pace”. I, too, know what I have to do and how to do it.

* The TAX DOLLARS AND SENSE blog discusses the IRS “Lock-In Letter” in its post “
Can the IRS Require More Taxes From Your Check?”.

The post tells how to avoid the Lock-In Letter - “So keep your withholdings correct, your
returns filed and your taxes paid and you won't have to worry about any IRS interventions on your next paycheck”.

* Another good blog list from Roni Deutch – “10 Ways to Prepare Early for the Upcoming Tax Season “.

* And another example of why “W” has been the worst President of the US in at least a hundred years – this one from Howard Gleckman in his post “Data Matter” at the Tax Policy Center’s TAXVOX blog.

Howard points out that during the GWB administration “Studies that reflected poorly on White House initiatives would not be tolerated. So, the predictable bureaucratic response was to not do them at all.”

* Professor Jim Maule shares a letter from a reader, a frustrated tax preparer, and provides his usual excellent response in the post “Apologizing for the Tax Law Efforts of the Congress” at MAULED AGAIN.

Jim’s ending is priceless - ”In other words, they would be asking ‘What were members of Congress thinking’. And the answer is my favorite response to that sort of question, namely, ‘Why do you assume they were thinking?’”

I will have to remember that answer and use it the next time I am asked the question.


Friday, November 21, 2008


I began the week with a “winter rerun” from my former THE FLACH REPORT blog. It seems only fitting that I end the week the same way.

If you use your car for business you must keep “contemporaneous” records of your business mileage. This means that you should record the information on the day the trip occurs, and not wait until February of the year after, when you are getting your tax “stuff” together to hand to your preparer, to “estimate” your miles for the year.

Record each individual business trip separately and not as a weekly or monthly cumulative amount. Do not enter “Week of January 5-11 - 127 miles visiting clients”. Enter the date, location, business purpose and miles driven for each trip in some kind of diary, account book, or expense log.

I have found that, for me, the best way to keep a mileage log is in my daily appointment book. What I do is make notes on the mileage and other expenses in a pocket notebook and when back in the office transfer the information to my larger bound appointment book. For example I would enter “Barroso (West Windsor) 1040 103 miles” on the page for the date and time that I drove to the Barroso home in West Windsor NJ to pick up and review their tax “stuff”. If you do not have EZ Pass you should also note any toll expenses. In this case I took the NJ Turnpike and, as I no longer have EZ Pass, I would enter the amount of the tolls paid for the round-trip along with the other information. If you do have EZ Pass, identify the trip on the monthly statement.

You would also enter the likes of “Office Depot (Union City) to purchase office supplies 4 miles” or “Wachovia (Union City) to make deposit for client 3 miles”.

I also enter in my appointment book the quarter I put in the parking meter while visiting a client or the cost of using a pay phone to call the client when I am running late (hey – I don’t have a cell phone!) – any expense for which I do not receive an actual paper receipt.

You should start off the year by entering the total miles on your car on the morning of January 1st in your log – and end the year by entering the speedometer reading after your last trip on December 31st. If you sell the car during the year, enter the total miles on the date of sale and enter the beginning mileage on your new car on the day you drive it off the lot. In addition to the business miles driven for the year you will also need to know the total miles driven for the year.

The simplest way to deduct business use of your automobile is by using the “standard mileage rate”. This will also usually provide the biggest tax deduction. For 2007 the standard mileage rate for business travel was 48.5 cents per mile. For 2008 it is 50.5 cents per mile from Jan. 1 - June 30 and 58.5 cents per mile from July 1 - Dec. 31. However you can also elect to claim the business use percentage of the total cost of maintaining your car, including depreciation. You want to use the method that gives you the biggest tax deduction. Be advised that there are special rules for determining what method you can use.

It is a good idea to keep a car maintenance log to record all related expenses for the year – gas, oil changes, tune-ups, repairs, car washes, etc – so you will have the information available to make an informed decision on what method to use. This is especially important for a new car, or for the first year you are deducting business use of a car. Special recordkeeping is also required for business overnight travel and business meals and entertainment. For travel you will need to record:

* The dates you left and returned for each trip and number of days spent on business.
* The destination or area of your travel (name of city, town, or other designation).
* The business purpose of the travel (NATP Annual Conference).
* The cost of each separate expense for travel (airfare, train), lodging, meals, taxis, laundry, tips, etc.

You must have documentary evidence such as receipts, credit card statements, etc. for any expense for lodging and meals while traveling away from home and for any other expense that is $75 or more. For meals and “incidental” expenses (tips given to porters, baggage carriers, bellhops, hotel maids) you can deduct either the actual expenses or elect to use a “per diem” allowance that is determined by the location of the trip. If you're combining business and personal activities on the trip, you must be particularly careful in documenting the business portion.

For business meals and entertaining you must record the time and place, the name(s) and “relationship” (business owner or CFO of “XYZ”) of the person(s) you are entertaining or with whom you are dining, and the business purpose (“discussed my business proposal”, “tax planning”, “audit preparation”). The back of your credit card receipt for the meal or drinks is a good place to record this information.

IRS Publication 463 (Travel, Entertainment, Gift, and Car Expenses) says, “You cannot deduct amounts that you approximate or estimate” (although under the Cohan rule I would think you would be able to). Plus Pub 463 later states “If you do not have complete records to prove an element of an expense, then you must prove the element with:

* Your own written or oral statement containing specific information about the element, and
* Other supporting evidence that is sufficient to establish the element.”

However, I would rather go into an audit armed with detailed documentation than have to negotiate with the IRS to accept your “oral statement”.

IRS Pub 463 also includes an excellent table on “
How To Prove Certain Business Expenses”.

Any questions?


Thursday, November 20, 2008


Over the past 35+ years I have developed many specialized forms, schedules and worksheets for use in my 1040 practice.
Some of my “homemade” forms are given to clients to help them provide me with the information I need to properly prepare their returns. Some are used as “memos” to the client’s copy and my office file copy to back-up items reported on the returns. Others are used as attachments to the returns.These forms, schedules and worksheets have proven helpful to me in my practice, and I believe you will find them helpful in your practice as well.
I am offering a package of 25 of my “homemade” forms, schedules and worksheets, sent as an email “attachment”, for only $5.00! This price is only good for orders postmarked through December 31, 2008.
The package includes forms, schedules and worksheets for itemized deductions, charitable contributions, medical expenses, employee business expenses, Schedule C deductions, rental income and expenses, etc.
The package will be sent as a “word document”. While the contents of the package are copyrighted material and for your internal use only, you may edit and revise the forms, schedules and worksheets as you see fit to personalize them to your firm, to customize them be more relevant to your particular practice or clients or for specific professions, or to update information for annual COLAs or tax law changes.
To order your package send a check or money order payable to ROBERT D FLACH LLC for $5.00 along with your email address to –
PMB 411
JERSEY CITY NJ 07306-2806.
Once you have received the package and reviews the forms, schedules and worksheets I would very much appreciate hearing your comments on the forms, schedules and worksheets included in this package, including any suggestions you may have for improvements or additions.


The first Form 1040 that I did as a paid preparer was the 1971 model (I can actually tell you the name of the taxpayer on the very first 1040 I worked on). There have been tons of changes to the 1040 over the years.

On Page 1 of the 1971 Form 1040 one would indicate name, address and Social Security numbers of the filer(s). In the case of a return for a married couple the names were listed as “Richard and Mary Taxpayer” on one line instead of a separate line for the name of each spouse. The filing status was checked and exemptions were claimed. The taxpayer and spouse could each claim an additional exemption for being 65 or over and blind. The names, but not Social Security numbers, of dependent children were listed, with no indication of whether they “lived with you” or “did not live with you”. The names, but again not Social Security numbers, of “other” dependents were listed on Page 2 of the 1040.

Income was reported on Lines 12 through 18 on Page 1, with lines for wages, dividends (no designation of “qualified”), interest (taxable only – no reporting of tax-exempt interest), and “income other than wages, dividends and interest”, the sub-total, total “adjustments to income” and Adjusted Gross Income. The Line for dividends include (a) for gross dividends and (b) for an exclusion amount. If gross dividends and/or total interest exceeded $100 one would have to complete and attach Schedule B

The net tax liability was reported on Lines 19 through 23. Federal Income Tax withheld, Estimated Tax Payments, and “Other payments” were deducted and a balance due or refund was indicated.

Line 31 of the Form 1040, and not Schedule B, was where the taxpayer was asked about foreign accounts.

Page 2 of the Form 1040 consisted of Part I where other dependents were listed, along with relationship, months live in taxpayer’s home, did dependent have income of $675 or more, amount taxpayer furnished toward support, and amount furnished by all others, including the dependent, but not the dependent(s)’ Social Security number(s).

Specific items of income, adjustments to income, credits, other taxes, other payments, and the actual Tax Computation were reported on Lines 34 through 64 in Parts II through VII.

Social Security, Railroad Retirement, and Unemployment benefits were totally exempt from federal income tax. One could use the “3-year” rule for recovering employee contributions to determine the taxable portion of pensions and annuities. This was calculated on Part I of Schedule E.

Adjustments to income included –

* “sick pay”,
* Moving expense,
* Employee business expense, and
* Payments as a self-employed person to a retirement plan, etc.

The only credits indicated on the 1040 were –

* Retirement income credit,
* Investment credit, and
* Foreign tax credit.

The personal exemption amount was $675. Tax could be calculated by “using Tax Rate Schedule X, Y or Z, or if applicable, the alternative tax from Schedule D, income averaging from Schedule G, or maximum tax from Form 4726”. Other taxes included a line for “Minimum tax”, not yet alternative.

On Schedule A –

* medical and dental expenses were reduced by 3% of Adjusted Gross Income (this was the only item on the Form 1040 that was reduced based on AGI),

* taxes included state and local gasoline tax (from gas tax tables), general sales tax (from sales tax tables) and (not or) state and local income tax, with an additional deduction allowed for sales tax paid on “major purchases”,

* contributions were deductible pretty much as they are now, except there was no strict requirement for documentation,

* interest expense included not only home mortgage interest (fully deductible – no principle restrictions) but also interest on installment purchases and credit cards, and

* miscellaneous deductions were not reduced by a % of AGI; certain employee business expense, as mentioned earlier, were deductible as an “above-the-line” adjustment to income.

Schedule D allowed for a 50% deduction for net long-term capital gain – only half of such gains were included in AGI. So if net long-term capital gain (or net combined long-term and short-term gain if smaller) was $10,000, only $5,000 was reported as income on Page 2 of Form 1040. The maximum net capital loss deduction was $1,000.

The starting tax rate was 14% and the top was 70%, although the rate for “earned income” such as wages was capped at 50% - hence the “Maximum Tax” calculated on Form 4726.

The 1971 standard deduction was $1,050 for both a single person and a married couple. The standard deduction was originally 10% of AGI up to a maximum of $1,000. It wasn’t until 1975 that the standard deduction for married was more than that for single. Click
here for a chart of historical standard deduction amounts for single persons and married couples.

Obviously the 1971 tax returns were prepared by hand. We didn’t even have photocopies back then (at least where I worked). The returns were written, or sometimes typed, on 3-copy carbonized forms purchased from Accountants Supply House in Valley Stream, New York State.

So tax rates were higher back then – but there were a lot more deductions allowed. And one could also use either Income Averaging or 10-Year Averaging to cut thousands off a large tax bill.

How do I remember all this? My memory is good – but not that good. I have a client, originally a client of my mentor Jim Gill, for whom I have a copy of every single Form 1040 filed since 1970 in the file.

So do you think the Tax Code is better now, or was it “more better” back then?


Wednesday, November 19, 2008


Q. I'm a personal tax pro who's having an ongoing discussion with our corporate CPA. She argues that there is a difference in a office which happens to be in the home being "qualified" for the purposes of taking mileage (principal and only place of business, but not exclusive use), and being "qualified" for the purposes of taking Office in the Home deductions (principal place of business and exclusively used).
I'm interpreting IRS Pub 587 (2007), page 3 " Your home office will qualify as your principal place of business if you meet the following requirements. You use it exclusively and regularly...." in showing that exclusive use is a necessary characteristic of "principal place of business".
Who's right?

A. A very interesting question. For once I agree that the CPA may be correct in his/her thinking!

I must point out that this is my personal interpretation.

IRS Publication 463, which deals with issues of deductible mileage, states –

If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business.”

Pub 463 does not state that in order to deduct mileage between a home office and another work location the office in your home must qualify for the home office deduction.

IRS Publication 587, which deals with the home office issue, states –

To qualify to deduct expenses for business use of your home, you must use part of your home:

* Exclusively and regularly as your principal place of business (defined later)

The publication then goes on to describe the three (3) individual tests for “exclusive use”, “regular use”, and “principal place of business” as three separate considerations.

In makes the following statement regarding the “principal place of business” test –

Under the principal place of business test, your home must be your principal place of business for that trade or business. To determine whether your home is your principal place of business, you must consider:

* The relative importance of the activities performed at each place where you conduct business, and

* The amount of time spent at each place where you conduct business

Pub 587 also says, “Your home office will qualify as your principal place of business if you meet the following requirements.

* You use it exclusively and regularly for administrative or management activities of your trade or business.

* You have no other fixed location where you conduct substantial administrative or management activities of your trade or business

I take this to be an alternative test for “principal place of business”, and not as a strict definition of “principal place of business”. The instructions seem to say that if these two conditions are met than you will automatically have a “principal place of business”, but not, in my opinion, that these two conditions must be met in order to have a “principal place of business”.

I recall attending a tax conference years ago with a seminar that addressed this issue. If memory serves me the seminar instructors indicated back then that a home office did not need to qualify for a tax deduction (i.e. exclusive use) in order for one to be able to deduct mileage from the home office to another business location, as long as the home office was the “principal place of business”.
So I would say that you do not necessarily need to be able to deduct a home office in order to be able to deduct the miles from the home office to another business location.
I would be interested in hearing what my fellow tax bloggers have to say on this issue.


Tuesday, November 18, 2008


I am in a couple of Blog Carnivals so far this week –

(1) “11-17-08 Twenty-Something Finances-Carnival” at LIVING ALMOST LARGE, written by "a twenty-something DINK writing about my journey to one day live large".

My post “Keep A Copy” appears.

I recommend Editor’s Pick “Learning About the Fair Debt Collection Practices Act” from FREE DEBT CONSOLIDATION: QUALIFIED FINANCIAL MANAGEMENT.

(2) The premiere edition of the "Carnival of the Road to Financial Independence" at ONE FAMILY”S BLOG written by John about "a family seeking financial independence as quickly as possible and smelling roses on the way”.
My post “That Time of Year Again” is first under the “All Others” category (the last one).

Check out Michael presents the entry “Consumer Debt Worst Offenders: Banks, Advertisers, and Advisors” from Michael of Small Business Blog and “How to Stop Cold Drafts in Your Home and Save On Energy Bills” (hey, I like a cold draft every now and then – and expect to have several tonight at a semi-annual Boys Night Out) from Benjamin of Trees Full of Money, both under “Frugal Living”.

I was supposed to be in the first edition of the Carnival of Money Hawks at, appropriately, MONEY HAWKS, but I could not find my entry. Also I had expected to be in another Carnival on Nov 17th, but I guess it has been postponed.

You will also note that my sitemeter has reached 90,000 visits! I hope to make it to 100,000 by the end of the year.

While I have your attention I just wanted to say congratulations to Mike THE FINANCIAL BLOGGER on the 2-year anniversary of his personal finance blog.

Mike is sponsoring a contest with two (2) $100.00 cash prizes! Check out his post “The Financial Blogger’s 2nd Anniversary Contest – 2 Prizes of $100 Cash To Win”.

One last thing before I go – there was a great political cartoon on the Editorial Page of today’s Star Ledger.

Governor Jon Corzine is sitting at his desk reading the newspaper. The headline on the paper reads, “CHRIS CHRISTIE STEPS DOWN – POSSIBLE RUN FOR GOV?”.

Corzine’s aide says, “Look on the bright side. If Christie runs, you’ll definitely get the corrupt politician vote. That’s huge.”

How true. But I expect Corzine already has the corrupt politician vote sewed up.



{I am working away on the last of the GD extensions and fellow tax blogger Michael Rozbruch, Certified Tax Resolution Specialist (CTRS), licensed CPA, founder of Tax Resolution Services, and author of the TAX RESOLUTION UNIVERSITY BLOG, has stepped in to help me out with another quest post in my recurring series on "Best Tax Advice" with a post on dealing with tax problems – rdf}
by Michael Rozbruch
If you owe payroll taxes, get help quick before it's too late! If you plan to go it alone, know that you will get clobbered, or even worse (lose your freedom), without expert and proper representation. You are way out of your league on this one! You REQUIRE experienced Tax Attorneys and/or a Certified Tax Resolution Specialist who has handled hundreds of these cases.
Generally, owing payroll taxes is the "kiss of death" for many small business owners, whether they operate their entities as a sole proprietorships, corporations ("C" or "S" - doesn't matter) or LLCs. Many lose their businesses.
The penalties add up to about 33% PLUS interest in just 16 days after you have filed the 941 (payroll Tax Return) past the due date and didn't pay!
You can imagine what the debt adds up to if you ignore this for prolonged period of time. There are three major penalties that cause this: The failure to file penalty, the failure to deposit penalty and the failure to pay penalty. The IRS is referring many more of these type of cases to their Criminal Investigation Division and ultimately to the Department of Justice.
Why you ask? If the IRS can prove that you were willful and intentionally (very low thresholds) didn't file and/or pay it may be considered a federal crime. Payroll tax is a "trust" tax, meaning the money (the employees federal withhold tax and the employees share of FICA and Medicare (Social Security) does not belong to the business. The business is supposed to account for, hold, and pay over to the government on a timetable determined by the amount of the company's payroll. Many small business and mid-size businesses use this (the government's) money to pay rent, keep the lights on, pay vendors, net payrolls, etc. This is against the law. In addition, there is something very wrong with the business model of these firms.
Generally, one must make a federal tax deposit (by tax filing service, phone, or in person at a bank) 3 days after the pay date of the pay roll checks.
The IRS is the only creditor on the planet that can "pierce" the corporate veil, if payroll taxes are owed, and go after the owners/shareholders/members individually. They do this by assessing what's commonly referred to as the "Trust Fund Recovery Penalty" (TFRP). However, this phrase is misleading. The "penalty" is the principal amount of tax that should have been paid over to the government; it includes the federal withheld tax from the employees as well as their share of social security. So you see, it really is not a penalty, as generally defined, at all. Normally this amounts to about 60% to 75% of what the corporation is liable for. The IRS also takes a "shot gun" approach in assessing this tax against the shareholders or owners. If there are 4 owners/shareholders and a controller, bookkeeper or even secretary (non-shareholder) who happened to sign pay roll checks, Payroll Tax Returns and/or directed who got paid (ahead of the payroll taxes), they will assess everyone separately and go after them all until they reach the TFRP total amount owed to the IRS.
Some of the options we employ to defend against this include, but are in no way limited to, Payment ("stepped") plans, Offers in Compromise, Computational Abatement of Penalties, Abatement of penalties due to reasonable cause, and analyzing the Statute of limitation to assess. We also advise clients, in certain circumstances, to "walk away" (only if it is a corporation) from their businesses and start over. Starting over means selling (not transferring) "oldco"'s assets. When this is advised, and there are assets involved there needs to be a formal buy/sell agreement between "Oldco" and "Newco" Any monetary consideration, of course, would go toward paying down/off the TFRP. If the new company gets into payroll tax problems you will be pursued by the IRS's Criminal Investigation Division for sure.
The way to think about why the IRS gets so ticked off when it comes to payroll taxes is this: At the end of the year the employer gives the employee a W-2. Included in that W-2 is the amount of federal withheld tax and social security tax that was "paid" (taken out of their check) by the employer. So the employee gets credit for this money and may even wind up with a refund check being issued by the IRS. Meantime, the employer NEVER paid in these amounts that were supposedly credited toward the employee, so the government is out TWICE! Once when they allow the W-2 withholding credits to the employee and again when the IRS gets stiffed from the employer.
For more advice and information on payroll tax debt and how to get professional help if you’re in trouble with the IRS, visit the Tax Resolution Services web site for a free consultation or check out the Tax Resolution University Blog.

{Thanks, Michael, for the good advice! rdf}
FYI - Today is the first day of my 56th year! I began preparing 1040s professionally at age 18.

Monday, November 17, 2008


The November 2008 issue of my FREE online newsletter FROM THE DESK OF ROBERT D FLACH is now available to download.

Click here.

This issue is chock-a-block with links to interesting and helpful blog posts and online articles and resources.

Did I mention that it is FREE?

PLUS you can win a prize!

Answer the following question, found somewhere within the November issue of FROM THE DESK OF ROBERT D FLACH, and receive a free prize!

For whom was the original “Road” picture written? It was not Hope and Crosby.

Email your answer to


Here is a “winter rerun” from the pages of my former blog THE FLACH REPORT.

When it comes to tax deductions - some deductions require special recordkeeping. This is true with what is called “listed property”.

In 1984 Big Brother, via the Tax Reform Act of 1984, decided to restrict the depreciation deduction for the business use of items “lending themselves easily to personal use”, which were labeled “listed property”. Included on the “list” were –

* Passenger automobiles.

* Property of a type generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video recording equipment.

* Computers and related peripheral equipment

Computers and peripherals used 100% for business at a “regular business establishment” are not considered to be “listed property”. This includes a computer used 100% for business in a qualified home office.

In 1989 cellular telephones and “similar telecommunication equipment” were added to this “list” under Internal Revenue Code Section 280F (d)(4)(A)(v).

As a general rule, only “listed property” that is used more than 50% for business will be eligible for Section 179 expensing and “accelerated” depreciation under MACRS (Modified Accelerated Cost Recovery System). Assets with 50% or less business use must be depreciated using “Straight Line” under the ADS (Alternative Depreciation System) “class life”. The “class life” of automobiles, computers and cell phones is five (5) years under both MACRS and ADS.

In a situation where the “business use percentage” of a “listed” asset is more than 50% in the first years, but drops below 51%, or the property is either sold or removed from business use (i.e. converted to 100% personal use), in a subsequent year (before the property’s depreciation “class life” has expired), you must “recapture” the “accelerated” depreciation claimed in the early years.

In the first year that business use of the property falls below 51% you must add to the “ordinary income” of the business (as “Other Income” on Line 6 of the Schedule C) the difference between the actual depreciation, including any Section 179 expensing, claimed in the earlier years and the depreciation that would have been allowed in those years using the “Straight Line” depreciation method. No Section 179 deduction would be allowed for less than 51% business use.

Let’s say you purchased a computer for your business in 2005 for $1,000.00. You determined that you used it 95% for business in 2005 and 2006. You elected to depreciate, rather than expense under Section 179, the computer. Your depreciation deductions for 2005 and 2006 under MACRS would be $190.00 and $304.00, for a total of $494.00. In 2007 you give the computer to your son and purchase a new one for the business. You must claim $209.00 as “other income” on Line 6 of your 2007 Schedule C. Under the “Straight Line” method your depreciation deduction would only be $95.00 and $190.00, for a total of $285.00.

If you had decided to expense the computer under Section 179 in 2005, your 2007 “recapture” income would be $665.00 ($950.00 - $285.00).

Internal Revenue Code Section 274(d) (4) requires that you keep detailed records to document the business use of “listed property”. For automobiles you would keep a mileage log (to be discussed in a future posting).

For computers, cameras, audio/video equipment, etc you should keep a log noting the date, length of time, and purpose for each use of the item. Personal or family use can simply be designated "personal" but business use should show enough detail to enable you to prove the relationship to your work. For example a daily computer log entry could indicate –

1 hour reading and answering business emails.

1 hour word processing for business correspondence to Client A and Client C.

2 hour word processing business proposal for Client E.

1 hour internet research on topic C for business project A.

½ hour reading and answering personal emails.

Total Daily Useage = 5½ hours.

With a cell-phone your log would indicate the date, number called, person called, business purpose (or “personal”), and length of call. If the bill listed each call separately you would indicate the cost for each call on the log. If you pay a flat fee for unlimited minutes you would need to do a calculation for each monthly bill.

My package of SCHEDULE C FORMS AND WORKSHEETS, (available as a “word document” email attachment for only $2.00) includes Auto, Cell Phone and Computer Log forms. Click here to order.

I realize that it is a pain in the arse to have to log your computer and cell-phone use, but this is what you will need to have to substantiate your deduction if audited by “Sam”.

Any questions?


Saturday, November 15, 2008


I just received an email from a long-time client with a warning about a new scam, and though I would pass it along to my readers.

I dialed '0' and asked the operator who confirmed that this was correct so please pass it on. l also checked out This is true, and also applies to cell phones!
I received a telephone call last evening from an individual identifying himself as an AT&T Service Technician (could also be Telus) who was conducting a test on the telephone lines. He stated that to complete the test I should touch nine (9), zero (0), the pound sign (#), and then hang up. Luckily, I was suspicious and refused.
Upon contacting the telephone company, I was informed that by pushing 90#, you give the requesting individual full access to your telephone line, which enables them to place long distance calls billed to your home phone number.
I was further informed that this scam has been originating from many local jails/prisons DO NOT press 90# for ANYONE.
The GTE Security Department requested that I share this information with EVERYONE I KNOW.
After checking with Verizon they also said it was true, so do not dial 90# for anyone!
Thanks, Jim, for spreading the word!


The Carnival of Financial Planning - November 15 2008 Edition compiled by the Skilled Investor is now up. It includes my post “Ask the Tax Pro – Marriage and Form W-4” in the Tax section (the last section in the carnival).

I recommend checking out Wilfrid’s post “Socially Responsible Investing: Go Green And Make Money At The Same Time” from Money Galaxy and “Don’t Stop Retirement Contributions” from Patrick of Cash Money Life. Both offer good advice.


* The TAX DOLLARS AND SENSE blog provides a complimentary post to my offering “What Happens If You Do Not File Your Federal Income Tax Return” with “Help Yourself by Filing Past Due Tax Returns”. The post provides even more reasons why you should always file a federal income tax return.

* “Taxes suck.” So begins the post “5 Infallible Ways to Lower Your Income Taxes” by Jim at BLUEPRINT FOR FINANCIAL PROSPERITY. I suppose one can’t argue with that statement (although taxes do put food on my tray table). However, by the time you finish reading this tongue-in-cheek entry you will be glad you pay taxes – considering what Jim tells to do to avoid them. Check out Jeremy’s comment.

* Professor Jim Maule provides an interesting commentary in his post “Tax, Emotionally”.

Jim points out that “For tax practitioners, tax is a rational subject. So, too, is tax law. Occasionally afflicted by illogical provisions, it nonetheless contains a variety of rules, marked by definitions, computations, and limitations, that can be applied, in most instances, by that most rational thing, the computer. Where objectivity fails, it involves issues such as valuation and purpose, raising questions that can be resolved through objective analysis of facts and circumstances.”

However, “For many taxpayers, tax appears to be an irrational subject, one that triggers emotions in a serious way. The recently concluded presidential campaign demonstrated that tax is no less a hot-button topic as are the several other issues that can polarize discussion and threaten to polarize a nation. Though it may appear that the principal emotion evoked by the mention of tax is anger, the underlying feeling almost certainly is fear.”

I agree with Jim that for those in “the business” tax is a rational subject (but take exception to his implied reliance on tax software). However, because I am in “the business” I find that I, too, can get emotional about taxes at times, as any professional can about his profession.

* You can read what IRS Commissioner Douglas Shulman had to say when addressing the Independent Sector Annual Conference in Philadelphia at “Remarks of Douglas Shulman, Commissioner of Internal Revenue, before Independent Sector, Nov. 10, 2008”.

* Peter Pappas brings us some good news from the recent “Don’t Call it a Bailout” Act for those who owe, or would owe, dreaded ATM on stock options in his post “ReformAMT Group Wins, Get’s Stock Option AMT Relief included in Bailout Bill”.

* Have you seen the new and improved NJ Division of Taxation’s WebSite? It looks good. Even so, I expect some politician’s relative or crony got a nice check for the redesign.

* The IRS will no longer be sending out a special package to employers for ordering bulk copies of 2008 information reporting returns such as W-2s and W-3 and 1099s and 1096, as they have always done in the past. You must order online at the IRS website. Click here to place your order.

It is very easy to order your information returns online. It took me about 5 minutes total. Now I just have to wait and see if my order will be processed promptly and correctly. The order confirmation said “typically orders take 7 to 15 days for delivery".

* For those of you who are interested, the IRS information release IR-2008-127 (“For Individual and Business e-File, 2008 Is a Record Breaker”) reports that “Individual taxpayers e-filed almost 90 million tax returns during 2008, an increase of more than 12 percent over the prior year. Of the 155 million tax returns filed, about 58 percent were filed electronically.” IRS statistics indicate that the % of electronically filed returns has more than doubled since 2000.

None of the returns I prepared during the 2008 tax season are included in the above figures.

The information release also reports that “almost 4.8 million tax returns were filed through Free File, an increase of 24 percent over last year’s total of almost 3.9 million returns” and “the agency made 66 million direct deposit payments in 2008, up 8 percent from 61 million payments at the same time in 2007”. Check out the release for more statistics.

* TAX GIRL Kelly Phillips Erb continues her State Tax Primer from A to W with Alaska.

* Joe Kristan of the ROTH AND COMPANY TAX UPDATE BLOG tells us of a babe with balls in his post “Mozart is Easy; It’s the Taxes That Are Hard” about the Tax Court troubles of a woman who gives piano lessons at home.

Case in point - “Petitioners argue that $2,446 spent for pool supplies and maintenance are related to Mrs. Langer's piano teaching because the parents of the students would sit by the pool while waiting for their children to finish a lesson.”

BTW, thanks, Joe, for the plug!
* The NATP TAXPROWeekly e-newsletter reminds us that –

Recent legislation changed the due date for furnishing Copy B of certain information returns to recipients for returns required to be filed after 2008. The new due date is February 15 of the year following the calendar year for which the return is required to be filed. This change applies to Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, and Form 1099-S, Proceeds From Real Estate Transactions. This change also applies to Form 1099-MISC, Miscellaneous Income, but only if substitute payments in lieu of dividends and tax-exempt interest or payments to attorneys are reported.”

So don’t panic if you do not receive your Form 1099-B or Form 1099-S by February 1st, as had been the case in past years.

* Do you want to work for the Obama administration? TAX PROF Paul Caron discusses the
seven-page, 63-item questionnaire that the Obama transition team is requiring prospective cabinet members and other high-level officials to fill out in his post “There Goes My Job in the Obama Administration”.


Friday, November 14, 2008


A while back I blogged here at TWTP on my “wish list” for changes to the federal income Tax Code.

Here is a “wish list” for my clients – things I wish they would all do:

(1) I wish that when a client receives a letter or notice from the Internal Revenue Service, or a state tax authority, about a tax return they would put it in the mail to me, fax it to me, or include it as a “pdf” format attachment in an email to me IMMEDIATELY.

I still have some clients who insist on trying to call me first to tell me that they got a notice from the IRS. This is a total waste of time. My telephone answering machine is turned off during the “regular” year – it is only on during the tax filing season (January 15 to April 15).

And what would happen if they did manage to reach me by telephone? They would tell me that they got a notice from the IRS or the NJ Division of Taxation or whoever and I would tell them to mail, fax or email it to me!

Here is an example. A client tried repeatedly to call me with no success. So he told his mother to try to call me, which she did for a week or so, again without success. The mother mailed me a note saying that her son was trying to get in touch with me. I mailed a note to the son, along with a self-addressed envelope, telling him to mail me the notice.

The notice, which was from the NJ Division of Taxation, was dated October 1st. I received the notice in the mail from the client, finally, on November 10th. Look at how much time was wasted!

(2) I wish clients would keep track of the cost basis of all their investments and give the information to me at tax time when they have sold investments.

Or at the very least tell - not ask – their brokers to provide them with – or send directly to me - a detailed Profit and Loss Statement showing dates of purchase and cost basis for every investment sold during the tax year.

Some clients do it right. They set up a file folder for each investment at purchase and put the original purchase confirmation in the file.
If dividends are reinvested they put the annual DRP statements in the file each year. If the investment spins-off or merges or whatever they put any related correspondence, notices and statements in the file.

If they purchase real estate they put the Closing/Settlement Statement in the file along with any receipts for expenses involved in the purchase that were not paid through the closing. They also place any receipts for capital improvements in the file each year.

If they receive an investment (including real estate) by gift they ask the giver to provide them with the cost basis of the investment gifted. If they inherit an investment (including real estate) they ask the Executor of the estate to provide them with the market value or appraised value on the date of death that was used in filing the federal estate, if required, and/or state inheritance tax return or filing.

When the investment is sold they put the sale confirmation, or Closing Statement, in the file and give me the file folder with their tax “stuff”.

To be honest, I would prefer a complete and accurate Profit and Loss Statement from the broker, to save me the time of actually determining the gain or loss on each investment. However, the individual file folder system discussed above would provide more complete, and verifiable, information – and I do not always trust that the broker-provided statement is always totally accurate (sometimes a broker will state that a stock was purchased for “25 3/8 per share” on a certain date, and not give me the actual net dollar amount that includes all commissions and fees).

Under the new “Don’t Call It a Bailout” Act this problem will eventually be dealt with to a great degree, at least with stock, bond and mutual fund investments if not real estate – but not completely.

(3) I wish clients would provide me with specific numbers for deductions they are claiming – instead of telling me “claim the maximum” or “whatever I am allowed” or “same as last year”.

The maximum is what you actually paid. You are allowed what you actually paid. It is very rare that an expense or number of miles driven for an activity is exactly the same as it was the previous year.
I need clients to tell me “$1023.50” or “$20.00 per week for 50 weeks” or “4638 miles”!

Each year I include in my January client mailing worksheets that apply to specific clients’ individual situations – for medical expenses, charitable contributions, rental income and expenses, employee business expenses, etc. I wish clients would fill them out completely and accurately – or provide me with a detailed listing of your deductions in any other format.

When clients do not give me the proper information and I have to email or write to you this wastes valuable time and delays the completion of the return.

I want to make sure my clients take advantage of all the deductions and credits to which they are entitled – but I can only do this if I am given complete and accurate information.

(4) I wish clients would make and keep a photocopy of all their Form W-2s for the year before sending me their “stuff” – as I clearly instruct in my annual January client mailing.

Each year during the season I get two or three frantic calls or emails asking me to fax photocopies of the W-2s to a bank, mortgage company or to the client. This is not a big thing, but anything that takes time away from actual 1040 preparation during this time is bad.

(5) My invoices all clearly state “payment due upon receipt”. This means once you receive the invoice and not “30 days net”. I wish my clients would sit down and write my check, and put it in the mail, as soon as they have finished reviewing the finished returns

This is only the beginnings of my client “wish list”. I could probably fill several more posts - and may just do that.

I hope that my clients read this post and take heed. As for the rest of you – I know you will make your own individual tax preparers a lot happier if you make these wishes come true for them as well.


Thursday, November 13, 2008


I do not think it is wise to try to “second guess” President-Elect Obama and Congress concerning 2009 tax law changes when doing 2008 year-end tax planning.

Do you actually believe that what a candidate says he/she will do during a campaign will bear any resemblance to what he/she will actually do once elected?

Having grown up in Hudson County, New Jersey (which spawned a corrupt Democratic political machine that rivaled Tammany Hall and Chicago under the senior Mayor Daley), and having dealt with the great masses – washed and unwashed – for over 35 years, I have turned out more cynical than most, especially when it comes to politics.

I certainly believe that anything said by any politician, whether during a campaign or while in office, should be taken with many grains of salt.

I will admit that I do believe President-Elect Obama has more motivation to “keep his word” than most politicians, and I do not wish to judge him prematurely. So I will grant you that the 2009 tax legislation, at least in its initial presentation, will attempt to remain true to the “spirit” of BO’s campaign promises.

But, however “pure of intention” the tax legislation may start out, once Congress gets through with the thing it will be a conglomeration of special perks for special interests, and not necessarily what is best, or what is perceived by BO to be best, for the country. Like any other legislation it will be a compromise.

I do expect that, to a degree, taxes will be reduced for lower income levels (and more “non-taxpayers” will be added to the already too-high number) and increased for whatever level of income Congress gets around to finally deciding is rich.

So if you are in the lower brackets you should follow traditional year-end strategy – postpone income and accelerate deductions. And if you are in the upper levels you should at least consider the opposite – postpone deductions and accelerate income. However, do consider that deferring the payment of tax until the future does have its benefit even if tax rates will rise slightly.

Investors in the higher brackets, and subject to the 15% special capital gains rate, should consider taking profits during the last two months of 2008 to lock-in the 15% rate. There is a slight possibility that 15% could become 20% in 2009.

That’s what I think. How about you?


Wednesday, November 12, 2008


Now is a good time to review the topic that is raised in this ASK THE TAX PRO question -

Q. We have medical insurance, but in spite of that the costs of my wife's cancer treatments and real estate depreciation deductions resulted in a net loss on our 2006 1040 form. So we ended up not owing any taxes for 2006. We had paid $5000.00 in estimated amounts for 2006, so we applied these 2006 estimated payments to our taxes due in 2007.
We have submitted an automatic extension for our 2007 taxes.
During 2007, we received a payment from previously sold property, so we will probably owe something over $10,000. Our 2006 tax liability was under $150,000.00 and we have already paid in over 100% of our 2006 tax liability.
We conclude that we will not be liable for a penalty for underpayment of estimated tax.

A. Your conclusion is correct.

Because your 2006 federal income tax liability was “0” and you had $5,000 from 2006 applied to 2007 you will not be penalized for “underpayment of estimated tax” for 2007 if you waited until October 15, 2008 to file your 1040 and pay the $5,000 anticipated balance due.

You are covered under what we call the “safe harbor” rule. As long as you had 100% of your prior year tax liability paid in either via withholding or estimated tax you will not be penalized. The alternative is to have 90% of the current year liability paid in.

If your 2007 tax liability was $5,000 and your 2008 tax liability will turn out to be $100,000, as long as you have at least $5,000 withheld during 2008 you can put aside the remaining $95,000 in an interest-bearing account and wait until you file your 2008 return in April of 2009 to send it to “Sam”.

In the case of estimated tax payments the penalty is determined on a quarterly basis. With the above example you would have to pay $1,250 per quarter in estimated tax, for a total of $5,000, to satisfy the safe harbor rule. If you paid the entire $5,000 as your 3rd quarter payment you would be penalized for the first two quarters.

Withholding is automatically treated as being paid evenly throughout the calendar year, regardless of when the money is actually withheld and remitted to “Sam”. You could have no federal tax withheld for the first 11 months of the year and have the entire $5,000 withheld in December and you would avoid the penalty under safe harbor.

Here is a good tip for this time of the year. First pull out your 2007 tax returns. Now get your most recent pay-stub(s) for all your employers and determine the total amount of income tax that has been withheld for the year. Add in any withholding from other sources – pensions, etc. Now compare the total amount withheld-to-date for 2008 to the total tax liability on Line 63 of your 2007 Form 1040 (or Line 37 of a 2007 Form 1040A).

If the 2008 number is already at least as much as the total tax liability for 2007 you are ok. If the 2007 liability is greater, based on your current year pay-stubs estimate the amount of income tax that will be withheld during the rest of 2008. Now see how it compares to the 2007 liability. If you come up short you can have your employer withhold an additional amount from the rest of your 2008 pay checks to cover the shortage. Be aware that it will probably take a week or two for your employer to properly process the additional withholding request – so calculate accordingly.

Make the withholding comparisons for state as well as federal income tax. Most states have a similar “safe harbor” rule.

Of course if you expect your taxable income to be substantially lower for 2008 than it was in 2007 there is no need to meet the “safe harbor” requirement.

If your 2007 Adjusted Gross Income (AGI) is more than $150,000 you must have 110% of the total 2007 tax liability paid in during 2008 to be covered by the safe harbor rule.