Friday, December 31, 2010

TAX BLOGOSPHERE BUDDIES - PETER REILLY

Today we meet Peter Reilly of Shrewsbury MA, a CPA with over 30 years experience “who still has a sense of humor”. Peter, who works with real estate transactions, partnerships and high net worth individuals, writes PASSIVE ACTIVITIES AND OTHER OXYMORONS – “a slightly quirky look at recent tax developments”. Peter explains, “my goal in this blog is to highlight tax developments either because they are interesting, practical or funny”. He is a frequent “commenter” on my TWTP posts, and I always look forward to what he has to add.

(1) How did you become interested/involved in preparing tax returns or teaching taxes?

I majored in history at the College of the Holy Cross. After graduation I went into VISTA and form there to the University of Chicago in history. While at Holy Cross I knew quite a few Economics/Accounting g majors (a major I think unique to Holy Cross). There was always this sense that accounting didn’t belong in a liberal arts college. At any rate they were getting good jobs and didn’t really seem all that bright so I conceived of accounting as a back-up plan. After abandoning history I got a second bachelors degree in Accounting while working as a hotel night auditor and an internal accountant for a travel agency. A headhunter asked me if I was willing to try public accounting and I said what the heck which ended me up at Joseph Cohan and Associates a 50 person firm in Worcester. We did everything, so I learned to prepare individual returns on the job. Mainly it was a matter of reading the instructions. If the instructions referenced a regulation I read that. The constant change in the early 80’s made my penchant for actually looking things up into a real virtue

(2) How were you educated/trained in preparing tax returns?

On-the-job training and reading the instructions. As we automated I always insisted on reviewing actual returns rather than just input. Since the 1990’s thought I have gotten pretty decent at profx.

(3) When and why did you decide to write a blog on tax issues?

December 2009. I stopped for a while due to firm concerns but finally worked out something making it clear that the firm was not responsible for the blog. I was given an eight week sabbatical and started blogging in earnest while I drove all around the country. It is a creative outlet for me. I always reviewed original source material and now I have a more disciplined approach

(4) How has blogging helped your business?

Nothing I can identify so far

(5) What do you consider the “best tax advice” you can give anyone?

Sometimes you should just pay the taxes.

(6) Do you think the regulation of tax return preparers is a good thing?

Yes

(7) Do you think CPAs and attorneys should be exempt from testing and required CPEs in taxation?

I think attorneys should be banned from preparing returns (LOL). CPA’s have a 40 hour CPE requirement and ethical constraints on doing work that they are not qualified to do. Somehow that should get integrated into any regulation the IRS lays on.

(8) What is your favorite Broadway musical – and why?

Guys and Dolls – Sky Masterson’s speech on getting cider in his ear and Sit Down You’re Rocking the Boat.

Good tax advice, and an excellent choice of favorite musical. I produced a benefit of G+D for a local charity on whose Board I sat many years ago, and can still probably sing the entire score. “The Biltmore Garage wants a grand – but we ain’t got a grand on hand. . .

As for the issue of exempting CPAs from the tax return regulation regime – methinks he has somewhat avoided the question.

Next week we visit with TAX GIRL Kelly Phillips Erb.

- - - - -

Tonight I will be celebrating the end of the year at home (I have not been out on New Years Eve for 30+ years) with Jack (Daniels) and Dick (Clark) and some thick cigars, after spending the day typing more W-2s, as is my annual tradition.

Best wishes for a successful, and less taxing, 2011!
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TTFTY!

Wednesday, December 29, 2010

GREAT MINDS THINK ALIKE!

From the “I couldn’t have said it better myself” file.

In discussing “2010 In Review: Television” USA TODAY TV critic Robert Bianco identifies the “Worst Unscripted Show” –

Jersey Shore (MTV): Jersey can take care of itself, but what has the poor defenseless shore ever done to us that we should allow it to be linked with this low-rent, sand-for-brains crew? We’d better hope nature isn’t planning its revenge.”

‘Nuff said.

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

Welcome to the last BUZZ of 2010!

* Better late than never! MAINSTREET.COM finally ran my item “Your 2010 Year-End Tax Checklist”.

* Kay Bell provides similar year-end advice in her “12 Tax Tips for Christmas 2010” at DON’T MESS WITH TAXES.

* And fellow animal-lover Kay tells us how the State of Indiana has “Caponed” some “commercial dog-breeding operations that put profits before animal welfare” in “Puppy Mills Target of Indiana Tax Officials”.

* Kelly Phillips Erb answers a timely question in “Ask the taxgirl: Cookies at Christmas”.

* And Kelly handles another timely question with “Ask the taxgirl: Gifts in the Workplace”.

* Kelly finishes a trifecta with “H&R Block Announces Glitch in RALs for 2011”.

Let us hope that H+R Block will have one less way to screw its clients by not being able to offer RALs on 2010 returns.

* At BARGAINEERING Jim explains “Why You Shouldn't Cheat On Your Taxes".

The first reason is the most obvious one, tax evasion is illegal. Remember Wesley Snipes? He’s in jail right now for three years after being convicted for tax evasion.”

* Does your business need to file a Form 1099 for 2010? Check out “1099 Rules and Regulations” at THE MISSOURI TAX GUY.

FYI, this post discusses the rules for issuing 1099s for calendar year 2010 – they do not cover the new rules that the idiots in Congress did not repeal in the recent Tax Act.

* There was no “Week in Perspective” from THE MISSOURI TAX GUY this past Sunday, but he did have a good guest post titled “Personal Finances – Get Better at Money-Control” by Jonny Pean

* Prof Mary O’Keeffe gives us a double-dose of basic tax education in two great posts at BED BUFFALOES IN YOUR TAX CODE – “Schematic Big Picture of the US Income Tax” and “Who Gets to Claim Johnny on the Tax Return”.

* THE HILL reports that “Six Institutions Pay Back TARP Loans; Government Makes Slight Profit”.

The government made $13.7 million in profits on dividends from each of the investments, which totaled $2.7 billion.”

I was not a fan of government “bail-outs”, but I stand corrected.

* Peter Reilly celebrates the coming of 100 posts in “PAOO Reaches 100 - Merry Christmas”. Congratulation to PR on the milestone. You can read more about Peter at TWTP this coming Friday (New Year’s Eve).

* A “tweet” led me to the BLOOMBERG.COM item “Accountant to Entertainers Accused of Bilking Clients”.

Many years ago I took a cruise from San Francisco to Alaska and back. Among my fellow travelers were the aunt and uncle of actor Elliot Gould, whom I had seen in my youth on Broadway in the musical “I Can Get It For You Wholesale” (which was the Broadway debut of Gould’s then future wife Barbra Streisand). When I told them of my profession they commented that accountants had robbed Elliot practically blind over the years.

* Nothing really new here from the ASBURY PARK PRESS website – “Are Jerseyans Overtaxed For Everything? Pretty Much, Rankings Show

While there are a few individual taxes in New Jersey that are relatively low or average, there's no arguing that the total tax burden New Jerseyans face is as steep as it comes.”

* A recent National Society of Accountants survey, as discussed at ACCOUNTING WEB, shows that, like income and deductions, “Tax Return Preparation Fees Vary by Type of Return, Geographic Region”.

The NSA's biennial survey of nearly 8,000 tax preparers showed the average tax preparation fee for an itemized Form 1040 with Schedule A and a state tax return is only $229. Rates for non-itemized returns are even lower – the average cost to prepare a Form 1040 and state return without itemized deductions is only $129.”

I hope my clients are reading this.

* I recently heard from Brad Polizzano, an tax attorney in New York who represents taxpayers under audit by the IRS and NYS, about his new tax blog POKER AND TAXES BY TAXDOOD.

According to Brad, the new blog is “focused primarily on how the code treats gambling winnings. There are many young people who play online poker, and for the first time in their lives, are earning substantial amounts of income. The idea is to provide general guidance to these people with respect to properly reporting the income.”

Check it out when you get a chance.

The next installment of the BUZZ, the first of 2011, will appear on Wednesday, January 5th. Don’t forget to read my mini-interview with Peter Reilly on Friday.

TTFN

Tuesday, December 28, 2010

GETTING READY TO PREPARE YOUR 2010 FORM 1040

Just a reminder -

I have prepared a new comprehensive special report that discusses just about everything that is, and is not, deductible on the 2010 Schedule A.
.
In it I discuss –

· Deducting Medical Expenses,
· Deducting Taxes,
· Deducting Interest,
· Deducting Contributions,
· Deducting Casualty and Theft Losses, and
· Deducting Miscellaneous Deductions.
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It includes a special section on Keeping Track of Business Expenses and a baker’s dozen of forms, schedules and worksheets to help document and summarize and your 2010 itemized deductions.

I will also send you separately, via email, an update on changes to Schedule A for 2011 when the information becomes available.

Use this report to help prepare your 2010 Form 1040 - or to help get your 2010 “stuff” in order to give to your tax professional.

The cost is only $6.35, plus 1.98 postage and handling.
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Order before the end of January and I will include a special report listing ONLINE TAX PLANNING AND PREPARATION RESOURCES.
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Send your check or money order for $8.33, payable to TAXPRO SERVICES CORPORATION, and your name, postal address, and email address to –
.
TAXPRO SERVICES CORPORATION
ITEMIZED DEDUCTIONS
SUITE 304
72 VAN REIPEN AVENUE
JERSEY CITY NJ 07306-2806

TTFN

Monday, December 27, 2010

BETTER LATE THAN NEVER!

An item titled “Your End-of-the-Year Tax Checklist for 2010” that I wrote for MAINSTREET.COM at the end of October (but which it did not yet publish) was picked up by YAHOO Finance and run as a home page featured item yesterday (Sunday).

Regardless of the timing it still has some good year-end tax advice. Check it out!

FYI, I am extremely busy this last week of 2010 and my posts will be limited to Wednesday’s BUZZ installment, the last of 2010, and Friday’s TAX BLOGOSPHERE BUDDY entry.

TTFN

Saturday, December 25, 2010

Friday, December 24, 2010

IRS NEWS

Here is some information recently released by the Internal Revenue Service -

(1) The start of the 2011 tax filing season will begin in January, as usual, for most taxpayers. However, because of last week’s Tax Act, with several provisions that affect 2010, the IRS will need time to reprogram its processing systems.

Returns that include the state and local sales tax deduction, adjustments to income for higher education tuition and fees and educator expenses, and itemized deductions on Schedule A will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February. The IRS will notify us when their systems are ready.

We have the irresponsible idiots in Congress to thank for these delays.

(2) The IRS has announced minor COLA adjustments to some items for 2011.

• The 2011 personal exemption is $3,700, up $50 from 2010.

• The 2011 Standard Deduction is $11,600 for married couples filing a joint return, up $200, $5,800 for Single filers and married individuals filing separately, up $100, and $8,500 for Head of Household, also up $100. The additional standard deduction for blind people and senior citizens is $1,150 for married individuals, up $50, and $1,450 for singles and heads of household, also up $50.

• Cost of living adjustments have been made to the Earned Income Credit. For 2011 the maximum investment income allowed under EIC is $3,150, up $50 from $3,100.

• For 2011 the Modified Adjusted Gross Income (MAGI) threshold for phase-out of the Lifetime Learning credit begins at $102,000 for joint filers, up from $100,000, and $51,000 for singles and heads of household, up from $50,000.

TAX BLOGOSPHERE BUDDIES – RUSS FOX

While I am carrying on my Christmas Eve tradition of typing W-2s why don’t you get acquainted with Russ Fox, EA of Clayton Financial and Tax in Irvine CA, author of the TAXABLE TALK blog. Russ has been in private practice since 1999, specializing in small companies, typically Subchapter S Corporations and LLCs, fiduciary returns, and gambling.

TAXABLE TALK posts often deal with tax cheats who have been caught – proving that tax crime doesn’t pay. Russ’s discussions of recent changes in the way gambling winnings and losses are reported on the 1040 has kept me up-to-date on the topic.

(1) How did you become interested/involved in preparing tax returns or teaching taxes?

I fell into it by accident. Playing poker, someone asked me if I could do his return. I said yes, and it grew into a profession.

(2) How were you educated/trained in preparing tax returns?

MBA in Finance and Accounting; SEE prep course (offered by OCEA); and then on-the-job training. I didn’t do many returns at first, and this allowed me to research each issue slowly. I also specialize in an area that I understood very well - gambling.

(3) When and why did you decide to write a blog on tax issues?

I started a blog to help my books (not this blog), and it did. I then read Hugh Hewitt’s Blog and I was convinced that a blog would be a good means for publicity and help me attract clients in the areas I practice. I wrote about my reasons in my second blog post, and not much has changed.

(4) How has blogging helped your business?

Yes. I’ve gotten business directly from the blog, and it’s a way for potential clients to see that I understand issues that concern them.

(5) What do you consider the “best tax advice” you can give anyone?

Document, document, document. Keep good records.

(6) Do you think the regulation of tax return preparers is a good thing?

Neither good nor bad. Some of the low-hanging bad preparers will be put out of business, but it’s going to create a new bureaucracy. In California, all return preparers have been required to be licensed for years and we have numerous preparers who have done everything from telling clients that anyone can take an education credit, anyone can take a mortgage interest deduction, even if you don’t have a mortgage, etc.

(7) Do you think CPAs and attorneys should be exempt from testing and required CPEs in taxation?

CPAs and attorneys who currently specialize in tax should be exempt from testing but should be required to obtain CPE in tax. Likewise, attorneys and CPAs who have no desire to prepare tax returns should be exempt from testing and CPE. I’d prefer to see CPAs and attorneys who choose to specialize in tax to, in the future, show demonstrated knowledge in the field. That said, this would face fierce opposition from the AICPA and the ABA.

(8) What is your favorite Broadway musical – and why?

I live quite a distance from Broadway. I’ve seen one Broadway musical live - The Producers.

Russ’s BTA is good advice indeed!

I do agree that CPAs and attorneys who currently specialize in tax should be exempt from testing – as should all experienced previously unenrolled preparers as well – under a grandfathering system. But it appears that this is not going to happen. And I certainly agree that CPAs and attorneys who want to prepare 1040s should be required to obtain CPE in tax. Attorneys and CPAs who have no desire to prepare tax returns should not register for PTINs at all, and therefore would not have to deal with testing and CPE in taxation. They would also not be permitted to prepare 1040s for a fee.

If Russ had to see only one musical The Producers is a good choice. Matthew Broderick was singing for me in the number “I Want To Be A Producer”.

Next week – on New Year’s Eve – we talk to Peter Reilly of PASSIVE ACTIVITIES AND OTHER OXYMORONS fame.

TTFN

Thursday, December 23, 2010

2010 NJ RETURN UPDATE

Just wanted to let you know that the 2010 NJ tax forms are now available to view and download at the NJ Division of Taxation website.

There appears to be no major changes to the 2010 NJ-1040. The question on Page 2 about both spouses occupying the same residence has been deleted, and a new line has been added to Page 3 to report excess Family Leave Insurance contributions from Form NJ-2450.
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FYI - "Tax booklets and forms are scheduled to be mailed during the week of December 27, 2010, to every New Jersey household that filed paper returns without using tax preparation software last year."

WHAT’S NEW FOR NEW JERSEY TAXES FOR 2010

The Winter 2010 edition of the “New Jersey State Tax News”, available online only at the NJ Division of Taxation website, has just been released. The top item is “What’s New for Tax Year 2010”.

I have checked and the 2010 NJ-1040 is not yet up at the DOT website. However I thought I would let you know what is new for New Jersey for 2010, as per the State Tax News item.

* Taking a cue from New York, New Jersey will no longer mail out paper 1099-Gs to report the amount of state income tax refund issued in 2010. Of course NJ will still send the information to “Sam”, who will match the info to what is reported on 1040s. Like with NY refunds, you will be able to view and print the 1099-G information somewhere at the NJ Division of Taxation website.

* The maximum property tax deduction of $10,000 was limited on the 2009 NJ-1040 based on level of income. This was a temporary provision for 2009 returns only. For 2010 the full deduction (100% of real estate taxes paid on your principal personal residence or 18% of rent paid), up to the normal $10,000 maximum, will be allowed regardless of income.

• The TR-1040, which had previously been Page 4 of the NJ-1040, is replaced by Form NJ-1040-H (Property Tax Credit Application). This form is to be used by qualifying residents eligible for the property tax credit who do not need to file a NJ-1040.

According to the item –

Filers can use Form NJ-1040-H only if they:

1. Were 65 years of ago or older, blind, or disabled on December 31, 2010, and

2. Had New Jersey gross income for 2010 of $10,000 or less ($10,000 or less if filing status is single or married/CU partner filing separate return), and

3. Have not filed and will not file a 2010 New Jersey resident income tax return, and

4. Were not a New Jersey homeowner on October 1, 2010.

That is a lot of “ands”.

Residents who meet the requirements in 1-3 of above who owned and lived in a principal residence in NJ on October 1, 2010 should not file a Form NJ-1040-H. NJ promised that “the property tax credit for these homeowners will automatically be included with their homestead benefit, provided they file a homestead benefit application”.

* The NJ Earned Income Credit is equal to 20% of the filer’s federal Earned Income Credit.

*The 2010 Form NJ-2450 has been revised to include excess Family Leave Insurance contributions – so you can now claim a refund of excess FLI contributions, along with excess SUI and SDI contributions, on the 2010 NJ-1040. You will not have to file a separate return. So Trenton will not be screwing you out of excess FLI payments as it did for 2009.

* New Jersey will follow the federal Form 1040 with regards to reporting of ROTH conversions made in 2010. If you make the federal election to report ROTH conversion income in equal amounts in 2011 and 2012 you “must report the amount that is taxable for New Jersey in equal installments in 2011 and 2012”. If you elect to report the entire amount on your 2010 Form 1040, you must also report the total amount taxable for NJ purposes on the 2010 NJ-1040.

* As I had previously reported, New Jersey will also follow the federal government on the due date of 2010 returns. “The due date is April 18, 2011, for calendar year taxpayers instead of April 15 because of the Emancipation Day holiday in the District of Columbia.”

The item also tells us that for the Property Tax Reimbursement Program (the “senior freeze”) the income threshold for 2010 is $80,000, which is the same as for 2009.

And “information about the 2010 Homestead Benefit (Rebate) Program is not yet available”.

Once the 2010 NJ-1040 and supplements are available at the NJDOT website I will check them out and report on actual changes to the form.

TTFN

Wednesday, December 22, 2010

THE WORD ON THE EXTENSION OF THE ENERGY CREDIT

Thanks to the NATP and other sources I think I now understand the extension of the residential energy credit in the compromise Tax Act.

In my initial post explaining the provisions of the Tax Hike Prevention Act of 2010 I mentioned that the residential energy credit was extended through 2011 only at “its pre-2009 Recovery Act parameters”.

The percentage has been scaled back from 30% to only 10%, and the maximum credit is reduced to only $500. The $500 limit is reduced by any credits claimed in 2006 through 2010, and the following additional limits apply (based on the “old” law) -

• $ 50.00 for each advanced main air circulating fan,
• $150.00 for each qualified natural gas, propane, or oil furnace or hot water heater,
• $ 200.00 for window components, and
• $300.00 for each item of energy-efficient building property (i.e. central air, heat pumps, water heaters).

For 2011 a natural gas, propane, or oil furnace or hot water boiler must have an “annual fuel utilization efficiency rate” of 95 or more, and a biomass fuel stove must have a thermal efficiency rating of at least 75%.

I think that is it. Do any of my fellow tax pros have anything to add?

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

* Scott Hodge of the Tax Foundation hits the nail on the head with his comments on the recently passed Tax Act in his comments as part of the news release “Tax Foundation Experts on Passage of Obama Tax Package”. The highlight is mine.

The passage of the compromise tax plan hardly warrants Champagne and balloons. To be sure, taxpayers were spared a massive tax increase, but all that lawmakers have done is effectively locked in the status quo for another two years. Except for the temporary two percent payroll tax cut, taxpayers will wake up on January 1st no better off than they are today. Indeed, the tax code will remain as complicated and Byzantine as it has ever been.

The worst aspect of the deal is that it guarantees that taxes will continue to be a political football for the next two years. Starting a year from now, when the temporary payroll tax cut expires, we’ll have another debate over preventing a “tax hike” on working families. This will be followed by the 2012 debate over extending the Obama tax compromise plan.

The best outcome of this compromise deal is that it spurs an honest debate over fundamental tax reform. I hope President Obama is sincere in his recent comments about overhauling the tax code. As Ronald Reagan showed in 1986, substantive tax reform is impossible without presidential leadership
.”

* Joe Kristan’s “Digging to the Bottom of the Stocking” provides links, BUZZ-like, to the tax blogosphere coverage of the recent Tax Act over at THE ROTH AND COMPANY TAX UPDATE BLOG.

* And TAX PRO Paul Caron gives lots of more links in “President Obama Signs Tax Package Into Law”.

* TAX GIRL Kelly Phillips Erb tells us “Poll Suggests Most Americans Happy With Tax Deal”. According to a CNN poll three in four of those polled said that they favored the bill.

* Have you been following Kelly’s “12 Days of Charitable Giving” series? One charity that deserves your support is the Canine Adoption and Rescue League.

* I must add Rob Tueber’s “Friday's Tax Quote - December 17, 2010” from his TAX LAW FORUM blog to my list of tax quotes –

People don’t complain about taxes because they are selfish or stingy. They complain because they simply don’t believe they’re getting their money’s worth.” - Zell Miller

* Russ Fox, who I profile this coming Friday, tells us “Nominations Due for 2010 Tax Offender of the Year” over at TAXABLE TALK.

To be considered for the Tax Offender of the Year award, the individual must do more than cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions.”

Go to Russ’ post to make your nomination.

* Lots of good stuff at Bruce’s “Week in Perspective” at THE MISSOURI TAX GUY, as usual. This is the last WIP for 2010.

* YAHOO FINANCE brings us “The 10 Worst States for Retirees” – and, of course, New Jersey is on the list at #5.

Illinois, California, New York, Rhode Island, New Jersey, Ohio, Wisconsin, Massachusetts, Connecticut and Nevada are the ten worst, according to TopRetirement.com, “because of three factors: fiscal health, taxation, climate”.

* Kay Bell talks about a unique new website in her post “IRS Doghouse Let’s Taxpayers Bite Back” at DON’T MESS WITH TAXES.

The website bills itself as "the world's first and only database of anonymously publicly generated reviews of IRS personnel."

* Some good news, as NPR reports “New Chairman Of House Tax Panel Seeks Spending Cuts”.

The incoming chairman of the House committee {Republican David Camp – rdf} that oversees the nation's tax laws says government spending must be reduced as part of efforts to reform the tax code.”

According to Camp - "I think we have to reform our complex, burdensome tax code. It's 10 times the size of the Bible with none of the good news."

There will be no BUZZ on Saturday – Christmas Day. BUZZ will return next Wednesday.

TTFN

Tuesday, December 21, 2010

THE TAX HIKE PREVENTION ACT OF 2010 - THE ESTATE AND GIFT TAXES

Like the “Bush” tax cuts, the federal Estate Tax has only been extended through December 31, 2012 by The Tax Hike Prevention Act of 2010. However the extension begins with decedents who go to their final audit after December 31, 2009 – thereby reinstating the Estate Tax for 2010.

The Estate Tax exemption is increased to $5 Million and the top rate is reduced to 35%.

The Act also provides for “portability” of the $5 Million exemption between spouses beginning in 2011. This means that a surviving spouse can elect (on a timely filed Estate Tax Return) to add the unused portion of the deceased spouse’s exemption to their $5 Million exemption – allowing married couples to take full advantage of $10 Million in exemptions.

In his post “Bush-Rate Extension Passes; What It Means” Joe Kristan quotes Estate planning attorney Wayne Reames on the impact of this “portability” –

As we think about it, portability is going to create more work, not less. First, portability only applies if the first-to-die files an estate tax return. Thus, we’ll have to file returns for all these people with less than $5M.”

So if a surviving spouse wants to be able to take advantage of the unused exemption of a deceased spouse, a federal Estate Tax return will have to be filed for the first spouse to pass, regardless of whether or not one is required.

With the return of the federal Estate Tax also comes the return of unlimited “step-up” in basis for all inherited property. Thank the Lord!

The estates of decedents who passed in calendar year 2010 have a choice -

* The estate can elect not to be covered by the new Estate Tax rules (treated as if there was no Estate Tax), with stepped-up basis limited to $1.3 Million in assets. Or

* The estate can elect to be covered under the new Estate Tax regime, with a $5 Million exclusion, 35% top rate, and unlimited step-up in basis.

How and when the choice is made is to be determined by the Internal Revenue Service.

Thankfully, beginning with taxable gifts made after 2010, the federal Gift Tax is once again matched to the Estate Tax, with a “lifetime exclusion” of $5 Million, the same as the Estate Tax exemption, and a top rate of 35%. For gifts made in 2010 the top rate is 35%, but the lifetime exclusion is only $1 Million.

Unlike the Democrats (I do not consider myself either a Democrat or a Republican, as the elected officials of both parties, following the written scripts of their party, have proven to be, for the most part, idiots) I have no problem with this new Estate Tax. I have only one client couple who could actually have a taxable estate, although maybe not when the portability between spouses is considered. I am delighted that once again there is an unlimited step-up in basis for inherited property, and the Gift Tax lifetime exclusion matches the Estate Tax exemption.

TTFN

Monday, December 20, 2010

THE TAX HIKE PREVENTION ACT OF 2010 - SO WHAT'S THE STORY?

The fat lady has sung (BO has signed the bill into law) and I have done my homework. So here is what it looks like The Tax Hike Prevention Act of 2010 has done for 1040 filers.

(1) The “Bush” tax cuts have been extended through December 31, 2012, avoiding a massive tax increase for probably every single American taxpayer. This means –

• The individual tax rates remain at 10%, 15%, 25%, 33% and 35% for the next two years, and so does the special capital gain rates of 0% and 15% for qualified dividends and long-term capital gains.

• “PEP and Pease” – what I have dubbed the “read my lips” taxes – are gone. For 2011 and 2012 you will not have to reduce your total itemized deductions or personal exemptions based on AGI – they are fully deductible regardless of income. This has nothing to do with the 7½% and 2% exclusions for medical and miscellaneous deductions; they remain in place.

• Partial relief from the “marriage penalty” tax continues through 2012. The standard deduction for a married couple will continue to be twice that for Single filers, and the lower tax brackets for marrieds will be continue to be twice that of those filing as Single.

• The maximum Child Tax Credit remains at $1,000 for 2011 and 2012.

• The enhancements to the Earned Income Credit, such as the additional table for individuals with 3 or more qualifying children, will remain intact through 2012.

• The maximum amount of qualifying expenses eligible for the Child and Dependent Care Credit will continue to be $3,000 for one child and $6,000 for more than one child, as will the increased maximum credit of 35%, for 2011 and 2012.

• The rules for claiming an above-the-line deduction for student loan interest that was in effect for 2010 will remain in effect for 2011 and 2012.

• The maximum annual contribution to a Coverdell Education Savings Account stays at $2,000 for another two years, and expenses for K-12 education will continue to be considered qualified expenses.

(2) An Alternative Minimum Tax (AMT) “patch” is extended for 2010 and 2011. The exemption amounts for 2010 are –

Single and Head of Household = $47,450
Married Filing Joint and Qualifying Widow(er) = $72,450
Married Filing Separate = $36,225

The 2011 exemption amounts are –

Single and Head of Household = $48,460
Married Filing Joint and Qualifying Widow(er) = $74,450
Married Filing Separate = $37,225

And the following personal tax credits continue to reduce the Alternative Minimum Tax for the two years –

• Child Tax Credit
• Hope Scholarship, Lifetime Learning, and American Opportunity education tax credits
• Child and Dependent Care Credit
• Adoption Credit
• Retirement Saver’s Credit
• Energy Credit for qualified energy-saving purchases and repairs
• Credit for The Elderly of the Disabled

(3) The following items, which expired on December 31, 2009, are extended through December 31, 2011 –

• the above-the-line deduction of up to $250.00 for educator expenses,
• the above-the-line deduction for post-secondary tuition and fees,
• the option to deduct state and local sales tax instead of state and local income tax, and
• the ability to make a tax-free transfer of up to $100,000 directly from an IRA to a qualified charity.

Unfortunately for many of my senior citizen clients the additional Standard Deduction of $500 or $1,000 for real estate taxes paid has not been extended, and cannot be claimed on the 2010 Form 1040 or 1040A.

(4) Certain tax benefits that were scheduled to expire on December 31, 2010 have been extended for one or two years -

• The itemized deduction for mortgage insurance premiums under the Interest category is extended for 2011 only. I still contend that there is absolutely no legitimate reason for the existence of this deduction, other than as a way for Congress to repay the mortgage insurance lobby for gifts and bribes.

• BO’s American Opportunity Credit for college expenses, 40% of which is refundable, is continued through December 31, 2012.

• The Energy Credit for qualified purchases for and repairs to your primary personal residence is extended for calendar year 2011. However it seems that the amount of the credit is returned to “its pre-2009 Recovery Act parameters”. I am not quite sure just exactly how the extended credit would work - is the $1,500 maximum credit returnd to $500? I will try to do some more research and let you know what I find in a future post. In the meantime – do any of my fellow tax bloggers or tax pros have more details on this?
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(5) The employee share of the Social Security portion of FICA tax – the amount withheld from employee wages - is reduced from 6.2% to 4.2% on the first $106,800 of wages paid in calendar year 2011. Similarly the Social Security portion of the self-employment tax is reduced from 12.4% to 10.4% on the first $106,800 of net earnings from self-employment (less any Social Security wages as reported on Form W-2).

So employees will be able to see an increase in take-home pay beginning with the first pay check of 2011 – assuming that the payroll software has been properly updated.

Many business tax breaks have also been extended – and I will report on the business tax provisions of the Act that affect Schedule C filers in the January 2011 issue of my print newsletter THE SCHEDULE C REPORT, which is available by subscription only.

One of the more controversial aspects of the Act concerns the federal Estate Tax. I will talk about this in detail in a subsequent post – maybe tomorrow.

Unfortunately the Act does not deal with the expanded Form 1099 reporting requirements – truly a missed opportunity. But then, as I have said time and again, the members of Congress are idiots.

I trust my fellow tax pros will let me know if there are any FUs in the above information.

TTFN

Sunday, December 19, 2010

WHERE THE FAKAWI

I have completed my first phase of apartment cleaning, and the pile of basura that has been accumulating for the past 3 or 4 months has been hauled away to the dump.

My Christmas cards are all done and in the mail.

I have written and “scheduled” all of my TWTP blog posts through Christmas Day, except, of course, for Wednesday’s BUZZ installment (no BUZZ on Christmas Day).

I have received the information necessary to prepare the 2010 W-2s and W-3 for all but one of my remaining business clients – and will continue my annual tradition of typing W-2s from Christmas Eve through New Year’s Eve, perhaps starting a bit earlier this year.

So what is left?

I have a 3-year 1040 project (2007, 2008, and 2009), some amended returns, and a corporate GDE to complete. And before I can start the W-2s I must prepare/submit the 4th quarter payroll tax returns.

The last two weeks of the year will be very busy!

TTFN

Saturday, December 18, 2010

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

As I reported yesterday, the tax extenders bill, which includes the AMT “patch”, has been passed – which was discussed by just about every tax blog and news outlet. Because of the extensive coverage given the extenders bill there is less BUZZ than usual this Saturday.

FYI, I discuss the provisions of the 2010 Act that affect 1040 filers in Monday’s post here at TWTP.

* Joe Kristan quotes my comment on murderous CPAs from Wednesday’s BUZZ in his post “Pain Relief” at THE ROTH AND COMPANY TAX UPDATE BLOG, which also links to a January 2009 item by Joe at GOING CONCERN about a tax preparer who killed and dismembered a client.

As I commented to Joe, there have been times over the past 39 tax seasons that I have considered dismembering a client, but I have always suppressed the urge. I dared Joe to say that the thought never crossed his mind.

I wonder if the life of the tax client victim in Joe’s GC item would have been spared if the killer had attended 2 hours of ethics CPE each year.

* TAX PROF Paul Caron makes a good suggestion if you are thinking of giving your tax professional a Christmas gift in his post “Christmas Gifts for that Special Tax Person”.

This gift is especially appropriate when one considers the large percentage of our tax dollars that the idiots in Congress flush town the toilet each year.

* As we approach the end of the year the “. . .est of 2010” lists are beginning to appear. Here is one with a tax theme – “Weirdest Tax Laws of 2010” – from ACCOUNTING TODAY.

* The NATP weekly email newsletter reported on something about which I had not heard before -

President Signs Claims Resolution Act

On December 8, President Obama signed the Claims Resolution Act of 2010 [HR 4783]. Primarily, the new law deals with restitution payments relating to various claims by American Indians, and final settlement of claims from certain African American farmers' discrimination litigation. Such payments are not included in income and not treated as tax-exempt income that must be considered under other code provisions (i.e., determining taxable social security benefits, etc.).

The Act also makes §6402(f) permanent which allows the IRS to offset an individual's federal refund and pay it over to the state where there has been erroneously paid unemployment compensation or a failure to contribute to a state's unemployment fund
.”

The TAXPRO Weekly email newsletter is just one of the many benefits of membership in the National Association of Tax Professionals. If you are a tax preparer and are not a member of NATP you should be – especially now with the new regulation regime. If you are interested in more info on membership please email me at rdftaxpro@yahoo.com with “NATP membership” in the Subject Line.

* For years I have been saying that, for tax purposes, you should get married early in the year and have children late in the year. Children born before midnight on December 31, 2010 can be claimed as dependents on the 2010 Form 1040 (or 1040A) and the parent(s) will receive the same tax benefit that the parent(s) of a child born on January 1, 2010 would receive.

Professor Mary O’Keefe investigates in depth “How Much Are Those New Year's Eve babies Worth?” at BED BUFFALOES IN YOUR TAX CODE.

* Don’t forget to check out Bruce McFarland’s “Week In Perspective” at THE MISSOURI TAX GUY tomorrow (Sunday) morning.

TTFN

Friday, December 17, 2010

FINALLY!

I was awakened this morning at an early hour by a delivery from Sleepy’s. I next did what I usually do upon waking and getting my coffee each morning – I went online to check my email. It was then that I learned that just before midnight last night the House passed BO’s tax compromise package by a vote of 277-148.

Apparently nothing else needs to be done, and BO is expected to sign into law The Tax Hike Prevention Act of 2010 this afternoon.

What fools these members of Congress be! What totally irresponsible fools!

There is absolutely no excuse whatsoever for the behavior of Congress when it comes to the tax situation.

I have totally lost what very little respect that still remained for our elected representatives in Washington.

As I have pointed out several times before, these fools have known that the “Bush” tax cuts would expire on December 31, 2010 for TEN FULL YEARS! Yet they waited until the very last month of the very last year to take any action – or rather to postpone any real action.

If these cafones had any brains, or more on point, any real concern for the country they were elected to govern or for the American public that elected them, at the very latest they should have begun a serious high priority discussion of the Tax Code in January of 2009.
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Now the IRS can finally get to work printing the 2010 tax forms - two months late!
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I will take a closer look at the Act over the week-end and report in detail on Monday just what it means to the 1040 filer.

Now that the idiots have resolved the tax issue maybe the damned Republicans will cease their unconscionable filibuster of The James Zadroga 9/11 Health and Compensation Act, would pay health care costs and provide compensation to sick and dying 9/11 first responders by closing a corporate tax loophole, so that it can be passed.

I don’t want to hear any more nonsense about “disrespecting the holiday”. The Senate should be forced to remain in session until the Zadroga bill is passed!

TAX BLOGOSPHERE BUDDIES - PROF JAMES MAULE

Next up in my weekly Friday series of mini-interviews with fellow tax bloggers is Professor James Maule of MAULED AGAIN. A fellow “Wandering Traveler in the Internet Wilderness”, Jim has been a professor at Villanova University School of Law in Pennsylvania since 1983, and has been blogging since 2004. I enjoy reading Jim’s, appropriate for his profession, scholarly posts on tax policy. We have both made the extreme error of disagreeing with a certain multi-initialed blogger.

(1) How did you become interested/involved in preparing tax returns or teaching taxes?

I first met tax return preparation observing my father doing my parents’ returns at the kitchen table when I was a youngster. I became more interested after I started working while in high school and insisted on doing my own returns. When I was in college, I worked for an accounting firm that prepared returns, and shortly after being hired I was assigned not only to prepare returns but to review prepared returns. I also worked for H&R Block.

(2) How were you educated/trained in preparing tax returns?

Pretty much I taught myself. When I was hired by the accounting firm, I read the CCH US Master Tax Guide cover to cover twice. H&R Block provided some training materials.

(3) When and why did you decide to write a blog on tax issues?

The then dean of the law school where I teach, Villanova, started the Mirror of Justice blog and wondered why I, known for my attachment to digital technology, did not have a blog. So one could say I was encouraged, or shamed into, starting MauledAgain.

(4) How has blogging helped your business?

There’s no business as such to help, but the blog has brought me and Villanova’s law school visibility in several segments of the professional tax world.

(5) What do you consider the “best tax advice” you can give anyone?

If you are unsure, make sure, by checking with someone who can provide certainty or confirm that the answer is uncertain. Be honest, be diligent, be careful, be sensible.

(6) Do you think the regulation of tax return preparers is a good thing?

Yes. I have seen, and I have been shown, too many tax returns that are improperly prepared, with significant errors, by preparers who don’t seem to know and understand what they need to know and understand to prepare returns properly.

(7) Do you think CPAs and attorneys should be exempt from testing and required CPEs in taxation?

No. Having a law degree does not translate into having good tax return preparation skills. There are lawyers who never took a tax course, and even one tax course is woefully insufficient. Having a CPA certificate is more valuable in this respect, but the tax law is ever-changing and there are tax issues not within the scope of the taxation portion of the CPA exam. Everyone in every profession should be required to demonstrate that he or she is up-to-date with developments affecting the profession.

(8) What is your favorite Broadway musical – and why?

I don’t have a favorite. There are too many that I like, and I’ve never tried to single out one for the top of the list, because there is no list.

Next week I will feature Russ Fox of TAXABLE TALK.

TTFN

Wednesday, December 15, 2010

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

I do not plan to provide daily updates on the progress of the tax extender package. To avoid confusion I prefer to wait until the fat lady sings before reporting in any detail. However my fellow tax bloggers have been, and will continue to, bring you day-by-day updates on this debacle.

FYI, as of this writing (Tuesday at noon) it appears that the Senate version will pass easily and the ball will be back in the House court. The clock is ticking!

* A CPA serial killer? Not so far-fetched. ACCOUNTING WEB tells us “Accountant/Serial Killer is the Focus of Stephen King Short Story”.

Hey, CPAs have been murdering 1040s for years.

FYI, many years ago I attended a murder mystery week-end at the Mohonk Mountain House in upstate NY. Famous mystery authors acted out a murder (and also gave lectures as themselves) and teams of us participants had to guess the “perp” and do a presentation on the murder solution. Stephen King and family were there. SK was not one of the authors acting out the mystery – he was just along for the ride with his family, his sons playing along on one of the teams. For a multi-millionaire celebrity SK and his family appeared very down-to-earth and normal.

* Will this idiot ever go away?

Kay Bell reports that “'Survivor' Tax Scofflaw Violates Probation”.

Maybe Richard Hatch just couldn't take some other tax evader **cough, Wesley Snipes, cough** getting all the attention.”

A law should be passed that the press coverage of any idiot who appears on any reality show (and by definition anyone who appears on a reality show is an idiot) must be limited to the “fifteen minutes”.

* Must I remind you to check out Bruce McFarland’s Sunday “Week In Perspective” at THE MISSOURI TAX GUY?

BTW, Bruce was the subject of my Friday TWTP post, the first in a series on “Tax Blogosphere Buddies”. Coming this Friday is Professor James Maule of MAULED AGAIN.

* Bruce’s WIP led me to “5 Money Moves to Make Before Year-End” by LaToya Irby at the blog ALL FREELANCE WRITING (Your Secret for Freelance Writing Success).

LaToya includes “a special move for 2010, only” for the self-employed that is worth repeating here -

Pay your January health insurance premiums in December. This year only, self-employed workers don’t have to pay self-employment taxes on health insurance premiums. We always get to deduct this amount from our Federal income taxes, but this year there’s a special provision to extend the deduction. Paying your January premiums in December lets you get a savings you wouldn’t get if you wait until 2011 to pay that premium.”

* Please let it be so!

According to “Obama: Tax Overhaul Talks Should Start Next Year” at FOXBUSINESS.COM -

Democrats and Republicans should begin a conversation next year about a broad overhaul of the U.S. tax code that would involve lowering rates while eliminating tax breaks for favored groups, President Barack Obama said in an interview broadcast on Friday.”

I would love for Congress to prove me wrong and show America that they are not a bunch of self-interested idiots by actually sitting down and carrying out a serious conversation about substantive tax reform early in 2011. What are the odds that this will happen?

I can dream, can’t I?

* In line with the last item, I came across an editorial in USATODAY titled “After 25 Years, Time Has Come to Clean Up the Tax Code (Again)”.

From the editorial -

In the quarter-century since federal taxes were last simplified, scores of credits, deductions, exclusions and exemptions have attached themselves to the tax code like barnacles on a ship. The instruction booklet for filling out the Form 1040 has swelled to 175 pages, from 52 in 1985.

Now, for the first time since the 1986, the stars might be coming into alignment for sweeping changes that could simultaneously simplify the code and help rein in budget deficits.

It's hard to think of any action — or at least any affordable one — that would please more Americans, or help on as many fronts, economic and political alike.

A rare window is opening to clean up the tax code. The only thing we have to lose is our accountants
.”

As I have said time and again – I do not fear that a much simpler tax system will hurt my tax preparation business. I would very probably make more money, with certainly less potential for agita, if all I did during the tax season was prepare 1040As.

* I recently did some research into the higher Medicare premiums for those Social Security beneficiaries that Dubya considered to be “high income” in response to a request from a client, who received his annual notice from SSA and couldn’t figure out WTF was going on.

Two new items for 2011 -

(1) While “non-high income” beneficiaries cannot, under law, receive an increase in the Medicare Part B premium deducted from their checks - so continuing SS recipients will again pay $96.40 per month for Medicare Part B - first-time Medicare payers and those with “high incomes” will have a “base” Medicare Part B premium of $115.40. And,

(2) for the first time “high income” beneficiaries will also have to pay a surcharge on Medicare Part D drug coverage, whether or not they are actually having Part D premiums withheld from their SS checks (this one thanks to BO and not Dubya– part of the health care “reform” debacle).

Janet Novack does a good job describing the mess in “Higher Income Seniors Hit with Medicare Doctor and Drug Premium Hikes For 2011” at her Forbes.com blog TAXING MATTERS.

* NJ employees and employers should check out my NJ TAX PRACTICE BLOG post “2011 NJ Department of Labor Employee Contributions”.

* TAX GIRL Kelly Phillips Erb answers the question is BO’s “Health Care Bill Unconstitutional?”.

* Kelly also begins her annual “12 Days of Charitable Giving” series with the charity Hardy Girls, Healthy Women.

TTFN

Tuesday, December 14, 2010

A WINTER RERUN

I have decided to leave the idiots in Congress alone for a while till we see if they do what has to be done. Besides, I have been busy with a variety of "stuff" lately, and have not had the time to write. So I thought I would post a "rerun" from last December titled "WHERE YOU INVEST IS AS IMPORTANT AS WHAT YOUR INVEST IN" -
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One of the entries in Kay Bell’s recent Tax Carnival was “Fourteen Tax Management Techniques”, a guest post from Marotta Wealth Management at the FREEMONEYFINANCE blog. As I always say, bloggers love to make lists.

The post does indeed discuss 14 good tax planning techniques. The introduction to the list includes some great words of wisdom - “Don't file your taxes in April and then forget about them for the next 10 months. By investing a little time throughout the year, you can create compounded value.”

I want to call your attention to some especially good advice – item #10 on the list:

Putting investments in the correct investment accounts can also generate significant savings. Fixed-income investments belong in traditional IRA accounts. Interest is taxed at ordinary income tax rates, but the entire value of an IRA account is taxed at ordinary income tax rates anyway upon withdrawal. Appreciating assets should be in taxable investment accounts where the growth will be at a 15% capital gains rate, which is likely much lower than your ordinary income tax rate. Additionally, any foreign tax paid on foreign stock investments is tax deductible in a taxable account. Finally, those investments with the greatest potential for growth belong in Roth accounts where no tax will ever be paid. This tax management alone may boost your after-tax returns by as much as 1% annually.”

You will, as MWM says, increase the net after-tax yield on your investments if you put the correct investments in the correct types of account.

Let’s look at the types of investment accounts available to the average taxpayer.

First there is the currently taxable, liquid investment account. Interest, dividends and capital gains on this type of account are currently taxable, except for statutory tax-exempt securities like municipal bonds or muni bond funds.

You then have “retirement” accounts, traditional and ROTH IRAs and traditional and ROTH 401(k)s, and other types of accounts available to the self-employed. With “traditional” accounts, current earnings are “tax-deferred” until withdrawal. The eventual withdrawals are usually fully taxed in the year the distribution is made. If there is a “basis” in the account from “non-deductible” contributions the distributions will be partially tax free. However the accrued earnings on these accounts are fully taxable. With ROTH accounts the current earnings are exempt, and there is no tax on withdrawals. “Premature” withdrawals from retirement accounts, traditional and ROTH, can result in a 10% tax penalty. Excess contributions are also penalized.

Now let us look at how different types of investment income are taxed.

Interest and dividends are generally taxed as “ordinary income”. The tax on this type of income depends on your regular income tax rate. If you are in the 25% federal tax bracket you will pay $250 in tax on income of $1,000. If you are a victim of the dreaded Alternative Minimum Tax (AMT) you will pay either 26% or 28% tax on this income.

Under current law certain “qualified” dividends are taxed at special “capital gains” tax rates, as are “capital gain distributions” from mutual fund investments. For 2009 {and 2010 - rdf} the special rates are 0% or 15%, depending on your level of income.
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“Long-term capital gain” on the sale of investments are taxed at the special capital gains tax rates. A “long-term” gain is realized if you hold the investment for more than one year – at least a year and a day. Investments that you hole for one year or less are taxed at ordinary income rates.

Qualified dividends, capital gain distributions, and long-term capital gains are also taxed at the special rates under AMT, but the amount of income in these categories do increase net taxable income, and therefore Alternative Minimum Taxable Income, and may cause one to become a victim of the dreaded alternative tax.

And of course earnings (but not capital gains from the sale) from tax-exempt municipal bonds or funds investing in tax-exempt municipal bonds are exempt from federal income tax. However, some otherwise tax-exempt interest and dividends, those from “private activity bonds” may be taxed under the dreaded AMT. And it is possible that the amount of tax-exempt interest can cause more of your Social Security or Railroad Retirement benefits to be taxed at ordinary income rates.

Taxable distributions from retirement accounts, like IRAs and 401(k)s, are taxed at ordinary income rates, regardless of the source of the income that has accumulated within the account. Qualified dividends, capital gain distributions, and long-term capital gains earned within a tax-deferred retirement account are taxed at ordinary income when the money is withdrawn from the account.

So you can see it is important to put the correct types of investments in the correct types of account.

As the post points out, both tax-deferred and tax-exempt retirement accounts (i.e. traditional and ROTH) should, for the most part, contain “fixed income” investments that will generate income that is taxed at ordinary income tax rates. This way you do not lose any tax benefit from reduced tax rates.

There is another good reason to have investments that will not substantially increase in value over the years, like growth stocks, in traditional retirement accounts. Not only do you take full advantage of the tax benefit resulting from the special capital gains tax rates, but your retirement savings will not be hit by economic hard times. If you contribute $200,000 to a retirement account over the years you should have more than $200,000 available at retirement. As we saw in the recent financial mucking fess, retirement account values dropped by as much as 50% and individuals ended up with balances that were less than the amounts they had actually contributed.

Appreciating assets should be in taxable investment accounts”, as should investments that produce “qualified” dividends and capital gain distributions. This way you will be able to take advantage of the special tax benefit provided by the special capital gains tax rates.

Of course you should never invest retirement account money in tax-exempt municipal bonds or mutual funds that invest in tax exempt municipal bonds. This income is, for the most part, exempt from federal income tax, although such earnings accrued within a traditional retirement account will be taxed at ordinary income rates when money is taken out of the retirement account.

You can actually invest ROTH account monies in any type of investment, except muni bonds. Having income totally exempt from tax is better than paying tax at capital gain rates.

I must point out that the above advice is based on tax law as it now exists. There will no doubt be some substantial changes to the Tax Code in 2010 or 2011 {no such luck for 2010 - as for 2011 we can only hope - rdf}. If all dividends once again become taxed at ordinary income rates, or the capital gain tax rates are substantially increased or done away with altogether, then the advice I, and Marotta Wealth Management, have provided may no longer apply.

One final word – it is important to run investment recommendations made by your broker past your tax professional before making decisions. Don’t assume that a broker or a banker knows his arse from a hole in the ground when it comes to the tax law.

TTFN

Monday, December 13, 2010

AND THE WINNER IS

The answer to my latest Broadway Trivia Contest is “You’ve Got to Be Carefully Taught”.

I got one correct answer – from fellow tax blogger and fellow theatre aficionado Trish McIntire of OUR TAXING TIMES.

Even after SOUTH PACIFIC opened the song was highly criticized and, according to Wikipedia, was “judged by some to be too controversial or downright inappropriate for the musical stage”.

Wikipedia goes on –

Rodgers and Hammerstein risked the entire South Pacific venture in light of legislative challenges to its decency or supposed Communist agenda. While on a tour of the Southern United States, lawmakers in Georgia introduced a bill outlawing entertainment containing ‘an underlying philosophy inspired by Moscow’. One legislator said that ‘a song justifying interracial marriage was implicitly a threat to the American way of life’.”

James Michener, author of the book “Tales of The South Pacific” upon which SOUTH PACIFIC was based, explained, "The authors {R+H – rdf} replied stubbornly that this number represented why they had wanted to do this play, and that even if it meant the failure of the production, it was going to stay in."

We’ve come a long way, baby!
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For those of you unfamiliar with the song it is sung by the character Lieutenant Cable and is preceded by Cable saying racism is "not born in you! It happens after you’re born...". Here are the lyrics -
..
You've got to be taught
To hate and fear,
You've got to be taught
From year to year,
It's got to be drummedIn your dear little ear
You've got to be carefully taught.
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You've got to be taught to be afraid
Of people whose eyes are oddly made,
And people whose skin is a diff'rent shade,
You've got to be carefully taught.
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You've got to be taught before it's too late,
Before you are six or seven or eight,
To hate all the people your relatives hate,
You've got to be carefully taught!
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TTFN

Sunday, December 12, 2010

MORE PROOF

COMEDY CENTRAL’s “The Daily Show” with John Stewart will often run a clip montage of various members of Congress from one party, and their media mouthpieces, making comments on an issue using exactly the same wording, phrases and language.

This highlights the fact that members of Congress are incapable of independent thought. They are, for the most part, nothing but company “yes men (and women)” reading from a script written by the party leaders.

Just one more example of the fact that America is being run by idiots.

TTFN

Saturday, December 11, 2010

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



If I may be allowed to begin this installment of the BUZZ with some editorializing,

The tax blogosphere has been a-BUZZ the past few days with postings on the idiots in Congress still arguing over BO’s compromise tax package. The problem appears to be with House Democrats who feel that the new Estate Tax exemption and rate is too generous. Quick answer and easy fix – return the federal estate tax to what it was for 2009 for the same two years as the rest of the “Bush” tax cut extension.

If you are interested you can check out the blogs of Kay, Kelly, Joe K and A, Russ, and others for the specific details of the fight.

The main problem with the idiots fighting over this package now is that they have known about the expiration of the various tax provisions since January 1 of this year. For heaven’s sake - the cafones have know about the expiration since January 1 of 2001! At this point there is no time for politics as usual – just pass the damned package and start the debate up again in January of 2011.

Are all of the items in the compromise good for the country. Perhaps not. Jim Maule deals with each of them in his post “Why the Tax Compromise is a Mistake” and does make some good points. But that is not the issue now. It is December 10th, and Congress will adjourn for the year very soon. The time for debate on this issue was January 1, 2001 through December 31, 2009. As has become a custom, the cafones in Washington have waited to literally the last minute to do anything. If they do not pass the extenders every single American will face a tax increase in 2011. And even if Congress does take some action early in 2011 it will cause the IRS tons of problems, as discussed in Commissioner Shulman’s letter to Congress.

By sitting on their fat arses for this long Congress has given up the right to appear to all of a sudden be concerned about the effects of extensions.

* Need another reason why our elected officials in Washington are self-absorbed idiots with minimal concern, if any, for the American people? In “Outrage Among Staten Island First Responders, Elected Officials Over Defeat of 9/11 'Zadroga Bill'” at STATEN ISLAND LIVE we are told that “the $7.4 billion Zadroga bill failed to advance by a vote of 57-42, short of the 60 votes needed to proceed under Senate rules”.

The bill would “provide $3.2 billion to track and treat illnesses among Ground Zero workers and another $4.2 billion to reopen a victim-compensation fund for those who have become ill or died”.

Why did the bill fail?

Senate Republicans stalled the bill, saying they wouldn't move on it until a separate tax-cut package negotiated by President Barack Obama and congressional Republicans is passed.”

* Have you been following Kay Bell’s “Year-End Money Moves” series over at DON’T MESS WITH TAXES? She starts off “with everybody's favorite topic, taxes”.

* In all my years in “the business” I have never seen a federal income tax issue portrayed correctly on an episode of a tv show, or in a movie. Kay Bell tells us that the same holds true for the federal estate tax in her post “Estate Tax Plot on ‘Raising Hope'”.

TV shows hire military and police advisers, why not a tax advisor. I am available. Or at least have the writers run the idea pass their own tax professional.

* I like Joe Kristan’s post “I Only Lie to the IRS and My CPA, Not to You!” at the ROTH AND COMPANY TAX UPDATE BLOG, which tells one example of a too often true story.

* Bruce, MISSOURI’s TAX GUY, provide an overview of the convoluted health care “reform” bill in his post “Who Benefits from Health Care Reform?".

Bruce correctly points out that -

The majority of Americans without health insurance are the owners or employees of small businesses. For many of these individuals, health insurance has been unaffordable for themselves, their families, and their employees.”

Unfortunately the idiots in Congress (this BUZZ seems to have developed a theme) are not aware of this fact – as, while they allow a tax credit for health insurance provided for employees of small business enterprises for 2010, they do not provide a credit for the business owner! We one-person business operations have to wait a few years until the Health Insurance Exchanges kick-in.

* Tonya Moreno talks about the ways state taxes would be affected – both plus and minus – if the idiots in Congress do not extend the “Bush” tax cuts and we are all faced with a large tax increase in 2011 in her post “Expiration of Bush-Era Tax Cuts Could Increase State Taxes as Well” at ABOUT.COM TAX PLANNING: US.

* Megan Hughes asks the question “Are You Ready For the Big Payroll Tax Deposit Change?” at DIANE KENNEDY’S US TAX AID blog.

What change?

“ . .starting on January 1st, I was no longer able to make manual payroll tax deposits at my bank … or anywhere else for that matter. The IRS has discontinued this service.”

Business now must make their tax deposits via the EFTPS system, either online or by telephone.

This change has been known for a while now – and should not be a surprise to small business owners. I have already registered all my payroll clients (the few that remain) and my own company online at www.eftps.com, and have actually been using the online system for one client for most of 2010 already. I had previously used the telephone EFTPS payment regime for two companies for decades.

It is easy to enroll in EFTPS online, and the online system is easy to use.

Individual taxpayers can also use the online EFTPS system. It is a good way to schedule all of your quarterly estimated tax payments in advance so you do not miss a payment.

I am not against e-filing personal and business returns and payments as long as the government provides a free and easy way to do so online. Unfortunately I cannot comply with the new federal efile mandate for 1040s because the government forces me to purchase unnecessary (for my individual practice), flawed and expensive tax software to be able to efile.

TTFN

Friday, December 10, 2010

TAX BLOGOSPHERE BUDDIES - BRUCE MCFARLAND

Welcome to the first of a weekly series of brief introductory interviews with some of my favorite fellow tax bloggers, which will appear every Friday. Each blogger will be asked the same set of questions.

Everything’s up to date in Grandview, MO at the offices of L&R Tax Preparation, where Bruce McFarland, the internet’s MISSOURI TAX GUY, has been preparing tax returns professionally since 1999. The L and R in the company’s title refer to Bruce’s youngest children.

(1) How did you become interested/involved in preparing tax returns or teaching taxes?

One of my Aunts way back when had just been divorced. She had never filed a return and asked if I could help. How hard could it be - right? So, very young and eager to be a help to her I said “sure”. The intricacies of the plus this and minus that just amazed me. What I thought would take an hour or so took days. The tax return became a big logic puzzle that ultimately made no sense. I was hooked.

(2) How were you educated/trained in preparing tax returns?

There really is no “school” that will teach a person how to prepare a tax return, so one is left to their own devises. All through school I became more familiar with 1040s by way of helping my classmates each year. I took several tax classes from my school and what the local library would sponsor. I interned and was employed by a very large accounting firm working in the tax department. Through the years (going on 24 now I think) since I helped my Aunt, I have indulged myself with home study courses, on-line courses. And in my future I see myself going back to college for a degree in Taxation.

(3) When and why did you decide to write a blog on tax issues?

June 8th, 2008 was the date I published my first blog post – “Stimulus Payments”. Why? Wow, uhmm. I read an article that was in the TAXPRO Journal from NATP where Robert Flach talked about his blogging. From that I found several other bloggers in the tax field and was hooked reading them. The more I read the more I felt I could contribute myself. Finally what broke the proverbial straw that sent me out there to figure out how to get a blog out was all the phone calls and questions I was getting from clients about the Stimulus payments.

(4) How has blogging helped your business?

I really wouldn’t say that blogging helps my business. I am sure it does in some way but I don’t see it that way. My blog isn’t a business commercial but rather a way for my clients and all the other taxpayers to find information that will help them. Here of late I have been trying to pimp my business through my blog, but to date the only thing my blog succeeds in is putting out information; that works because that’s why I do it.

(5) What do you consider the “best tax advice” you can give anyone?

The best tax advice is at best general, as everyone’s return is unique. The “best” advice for one may be worthless to another. Let’s see, if I could generalize advice the best thing I’d tell everyone - it might be time consuming but go through the motions to see if itemizing will help. Even the IRS will tell you that they make millions because people didn’t itemize. So people, go through the motions, at least realistically examine the possibility to see if it will benefit you to file that extra form.

(6) Do you think the regulation of tax return preparers is a good thing?

I do believe it is a good thing, however not in the respects as the government is proclaiming. In a nut shell the government is telling everyone that this will get rid of the unscrupulous prepares out there. It won’t. In my opinion if anything it will cause those “bad” prepares to be harder to find.

I am also under the impression that because of the added rules and cost for this or that that many very qualified prepares will no longer participate. So in essence, it will reduce the number of qualified prepares even further.

(7) Do you think CPAs and attorneys should be exempt from testing and required CPEs in taxation?

Why? I mean why should they be exempt? Nothing in Certified Public Accountant or Attorney at Law says “I know everything about taxes”. In fact nothing from either of those groups says they know anything at all about taxes. I could go crazy here in big long tangent but to simplify things, let’s just go with a very large and resounding NO! They should be required to test in tax prep just like any other preparer.

(8) What is your favorite Broadway musical – and why?

OKLAHOMA. That’s where I am from.

I am proud to have been a part of Bruce’s “inspiration” to blog!

Bruce is doing a more detailed interview series of tax bloggers over at THE MISSOURI TAX GUY – and I will be up on January 3, 2011.

TTFN

Thursday, December 9, 2010

THE CLOCK IS TICKING!

While the speaker at this morning’s NJ-NATP Breakfast Seminar on “New Tax Preparer Requirements – Federal and State” did an excellent job in providing an update on the subject to a too small audience of NJ and NY tax pros, there was really nothing much new to me.

I was pleased to learn that so far only Oregon, California and New York have registration/regulation requirements for tax preparers. The Oregon regime has been around since 1973, and California for some time as well. The New York system just started last year, with the $100 extortion payment, and is evolving. Florida (which has no state income tax) and New Jersey have “toyed” with regulation (NJ has a bill that hasn’t gone anywhere for a few years now), but have taken no action. It appears that the states are waiting to see how the federal regulation reqime works out.

I did learn upon my return home, via the Comcast.net home page, that “House Democrats Reject Tax Plan Unless Changed”.

House Democrats voted Thursday to reject President Barack Obama's tax deal with Republicans in its current form, but it was unclear how significantly the package might need to be changed.

By voice vote in a closed caucus meeting, Democrats passed a resolution saying the tax package should not come to the House floor for consideration as written, even though no formal House bill has been drafted. Rep. Peter DeFazio, D-Ore., introduced the resolution.”

This despite headlines elsewhere like – “Obama Gets Closer to Bush Tax Cut Deal”.

I was correct when I stated in a previous post – “I have absolutely no faith that the idiots in Congress will do what is right.”

So what next?

According to James Clyburn of South Carolina, the No. 3 person in the Democratic leadership - "I don't know. Well wait and see.”

The Democrats are idiots (not that the Republicans aren’t also). The clock is ticking.

BREAKFAST CPE

I am off this morning to a “breakfast seminar” sponsored by the New Jersey chapter of the National Association of Tax Professionals on “New Tax Preparer Requirements- Federal and State”.
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We will be learning about the new IRS regulation regime and the various requirements currently in place in various neighboring states.

If appropriate I will report on any items of interest later today.

The promised "Flach Report on Tax Reform" will be postponed for a while.

TTFN

Wednesday, December 8, 2010

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

* So far this week MAINSTREET.COM published my articles on “How to Save the American Dream” and "IRS Increases Tax Deduction for Drivers".

* You did check out Bruce’s “Week In Perspective” at MISSOURI TAX GUY on Sunday, didn’t you? It was “chock-a-block” this week!

* Bruce also tackles “The Home Office Deduction”.

* Trish McIntire of OUR TAXING TIMES has an excellent way to get the “bunch of bozos” (TM – let’s call a spade a shovel) in Congress to pass the various tax extenders – “Lock ‘Em In”!

Since they have been behaving like children, I say treat them like children.”

Right on, sister!

* TAX GIRL Kelly Phillips Erb, writing for FORBES.COM, gives us “Nine Tips For Tax-Smart Charitable Giving”.

* Kay Bell provides Schedule A filers with an good year-end tax tip in “January House Payment in December Gets You an Extra Mortgage Interest Deduction” at DON’T MESS WITH TAXES.

* And Kay provides a clip from Sunday night’s 60 MINUTES in her post “Fed Chair Bernanke Talks Tax Policy”.

Kay reports Bernanke’s comments/advice -

It's very inefficient {duh – the Tax Code – rdf}, both for individuals and companies, said Bernanke. To improve things, he suggested closing loopholes and lowering tax rates, which would create more incentives for people to invest.”

* Let’s conclude a trifecta of Kay Bell with “Tax Carnival #77: Stocking Stuffers 2010”.

I remembered to submit in time! Kay includes my post on “The Moment of Truth” among some other good reads.

* Peter Reilly takes time from commenting on my TWTP posts to discuss in some detail “bad” tax preparers – “who have been strongly encouraged to pursue other endeavors” – in his post “Tax Business Not For Everybody” at PASSIVE ACTIVITIES AND OTHER OXYMORONS.

TTFN

Tuesday, December 7, 2010

HERE I GO ONE MORE TIME

This message cannot be repeated often enough – so please bear with me if you are tired of seeing or hearing it.

If you receive any notice or correspondence from the Internal Revenue Service or a resident or non-resident state tax agency SEND IT TO YOUR TAX PROFESSIONAL IMMEDIATELY! And preferably send the original via postal mail – to avoid problems with email attachments or faxes that are difficult to read.

Do not waste time attempting to call or email your tax pro first to say, “I got a letter from the IRS. What should I do?”

In every single situation the tax pro is going to say SEND ME THE NOTICE!

So just do it!

‘Nuff said!

THE FIRST STEP

It appears that BO has agreed to a final compromise with the Republicans to “get ‘er done” and temporarily extend the “Bush” tax cuts for two years.

Bill Perez does a good job of describing the contents of the compromise in his post “Tax Deal Would Freeze Tax Rates, Extend Breaks” at WILLIAM’S TAX PLANNING BLOG. Check it out.

While it looks like the compromise includes the AMT patch, a revised Estate Tax (which I can live with), and an extension of BO’s American Opportunity Credit for college costs, I do not see anything about the other “extenders” (i.e. deducting state and local sales tax instead of state and local income tax, etc).

As Bill correctly points out -

The agreement on tax breaks still needs to be introduced as legislation, voted on and sent to the President for signature. So the final legislation could be different than the proposals outlined here or could contain additional changes.”

So I will hold off my celebration until there is a final bill for BO to sign. I have absolutely no faith that the idiots in Congress will do what is right.

MORE ON THE MOMENT OF TRUTH

As discussed in Friday’s post BO’s National Commission on Fiscal Responsibility and Reform’s issued its final report titled “The Moment of Truth”.

It seems that the report will join all the other reports that came before it in gathering dust on a shelf in some government library – despite some good serious work by its writers.

Kay Bell explains in “Deficit Commission Tax Overhaul, Take 2” at DON’T MESS WITH TAXES.

Obama, who appointed the panel, and Bowles and Simpson {Commission Co-Chairmen – rdf} had hoped that the proposals would be a starting point for Congress to examine overhaul of our current convoluted tax system.

No such luck.

While some of the ideas might eventually show up in separate pieces of legislation or amendments to other bills in the upcoming 112th Congress (and beyond), the full report itself is dead on arrival.

The deal was that House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) would bring the deficit recommendations up for a floor vote, but only if the proposal got the support of a supermajority of its members. That meant that 14 of the 18 panelists had to sign off on the report.

It got just 11 "yea" votes.

The main reason for the defeat was that there were too many sitting Members of Congress on the commission. And we all know how loathe those folks are to take a controversial stand
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Kay suggests in her post that Congresscritters are not totally to blame, as “they have to be sure that taxpayers (aka voters) are on board, too”.

One of the tax quotes that appeared in my recent filler “Speaking of Taxes” applies here.

"A tax loophole is something that benefits the other guy. If it benefits you it is tax reform." – Former Senator Russell B Long

The members of Congress are not the only ones who are greedy. American taxpayers are all against “abusive” tax loopholes, calling for their closing, unless the loophole benefits them personally.

I don’t think anyone, including the members of Congress, would disagree with the opening statement of the section of the report that covers Tax Reform –

America’s tax code is broken and must be reformed.”

Yet the idiots in Washington continue to add complexity to the Tax Code each year so that it is more of a mucking fess than it was the year before.

And, however much the American public complains about the complexity of our tax system, as Kay points out, “we still love a lot of those complicated tax breaks”.

She is right when she states (although I do not wish to be included in her “we”) -

We have, in essence, reached a sort of rapprochement with the tax code. We can deal with it as long as it has the tax breaks that apply to us personally.”

However something must be done. The Tax Code is truly broken and must be fixed. The report is correct in observing that it is “fundamentally unfair, far too complex, and long overdue for sweeping reform.”
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TTFN