*
TAX GIRL Kelly Phillips Erb continues her “12 Days of Charitable Giving 2012” at
FORBES.COM with “Muttville”, a worthy charity indeed.
“Muttville is an organization for dogs with a
very special twist: it focuses on older dogs. Statistically, older dogs are
less likely to be rescued and more likely to be euthanized. Muttville’s mission
is to change the way the world thinks about and treats older dogs and to create
better lives for them through rescue, foster, adoption and hospice.”
*
TAX PROF Paul Caron quoted from the recent NY Times editorial “Keep the State & Local Tax Deduction”.
The
Times is against a cap on itemized deductions, especially the deduction for
state and local income tax and explains the reason for this deduction -
“The theory behind the deduction was that the
amount paid to states in taxes is not really part of an individual’s disposable
income, because it is obligatory and, therefore, should not be taxed twice.”
I
have been saying for some time now that the deductions for state and local
income taxes, real estate taxes, and mortgage interest on acquisition debt for
a primary personal residence are a way of “geographically equalizing” the tax
burden for high-tax states, where earned income is inflated due to higher cost
of living. $200,000 of W-2 income in NY
or NJ is not the same as $200,000 of W-2 income in, for example, Kansas when
one considers the “fixed costs” of living and true “disposable income” in these
areas.
I
do find one comment from the editorial “interesting”. It refers to New Jersey and New York as “states that believe in a strong and active
government”. At least in New Jersey
this description translates to “corrupt and loaded down with pork and
entitlements”.
*
The WALL STREET JOURNAL covers an interesting year-end tax technique in “Deduct Now, and Give Later”.
The
article talks about “donor-advised funds”, which “allow the charitably minded to contribute assets and take a full
deduction for 2012, yet postpone giving decisions”.
Here
is how it works -
“For example, a couple earning $200,000 gives
$20,000 in cash to a charitable fund this year. They take a 2012 deduction for
$20,000, and the money goes into a subaccount in their name at a sponsoring
nonprofit organization.
Once in the
subaccount, the money is invested and can grow tax-free until the couple
designates eligible groups to receive it, at which point there isn't any
deduction. There isn't a required annual payout, so the couple might give
nothing in 2013 and then a large donation in 2014, to one church, charity or
school—or many. The sponsor handles all tax paperwork, and some allow payouts
of as little as $50.”
This
is nothing new. It has been around for
many years now. Mutual fund houses like Fidelity
Investments, Vanguard Group Inc., and Schwab all have such charitable funds,
and there are also regional or community foundations and trusts. When I was accountant for the Art Center in
Summit NJ we received several annual donations through such donor-advised
funds.
*
Kay Bell reports that “Supreme Court to Review Estate Tax Challenge to Defense of Marriage Act” at DON’T MESS WITH TAXES.
The
Court will actually be reviewing 2 DOMA-related cases. The cases will probably be argued in March of
next year and decisions in all the Court's cases should be released by the end
of June.
Will
the decision affect how to file 2012 federal tax returns? Possibly, but I would not make any
assumptions about possible changes when preparing 2012 Form 1040s. If there is a change you can always amend.
*
Jim Blankenship, who wants to help you start GETTING YOUR FINANCIAL DUCKS IN A
ROW, explains “Net Unrealized Appreciation Treatment”, a special provision in
the tax law that may be beneficial to you if you have a 401(k) plan that
contains stock in your company.
*
Peter J Reilly of FORBES.COM covers the new Medicare surcharge for the
“wealthy" starting in 2013 in detail in “Newt Gingrich May Beat The Obamacare 3.8% Tax - Can You?”
While
I am sure that there are many out there like me who would hope never to hear
about or from the hypocritical arsehole (Newt, that is) again, Peter’s
reference to the idiot is appropriate in this context.
*
Peter continues on this topic with “Can Real Estate Professionals Beat The 3.8% Obamacare Tax?”.
*
Similar to what was done after KATRINA, “Federal Tax Breaks Proposed for Sandy Victims”, although the breaks appear to be different –
“Sens. Robert Menendez of New Jersey and
Charles Schumer of New York want to make all repair expenses fully tax
deductible, reducing the tax bite of victims in their returns covering this
year.
The breaks would also
include credits to subsidize home and business repairs and help businesses keep
workers on the payroll.”
While
under current law victims of natural disasters can claim an itemized deduction
for casualty losses, the deduction is for the cost of items lost or reduction
in value of property and not replacement costs, and is reduced by 10% of AGI. See my post “Deducting Sandy”. Businesses can already deduct the cost of
repairs as a normal business expense.
*
Good advice from Dr. Jean Murray at ABOUT.COM – “Commuting vs. Travel - Make Sure You Know the Difference”.
“A recent Tax Court case helps sort out the confusion
between commuting and traveling. Since expenses for commuting are not
deductible, and travel expenses are, it's important to know the difference.”
*
Speaking of deductible travel – JK LASSER lists “10 Things to Know About Deducting Driving Costs”.
*
Oi vey! TAXPRO TODAY warns that Henry
and Richard want to screw you on a year-round basis, and not just at tax time,
in “Block Looks to Int'l and Constant Client Markets”.
According
to H+R Block
“While we want to continue that legacy of
looking at our clients' lives through the tax lens, we see opportunities to
provide additional help to {translate = “soak” – rdf} those clients outside of tax prep on a year-round basis.”
*
Kelley Greene says what I have been saying, and advising, for years now in a
post at the Wall Street Journal’s FAMILY VALUE blog – “It Pays to Stock Kids' IRAs”.
“Consider this example: If a child invests
$2,000 in a Roth IRA each year from ages 13 to 17, that $10,000 could increase
in value to almost $296,000 by age 65, according to research by T. Rowe Price.
That assumes the account earns a 7% annual rate of return. If that panned out,
the account could provide tax-free income of $11,800 a year for 30 years.”
I
realize that a 7% rate of return sounds high, but you get the idea.
Remember,
in order to have a ROTH IRA account a child must have earned income.
*
Joe Kristen quotes an item from TAX ANALYSTS in his Monday “Tax Roundup”
(highlight is his) –
Oh,
Goody: “Taxpayers and
the IRS could be looking at three filing seasons in 2013 if Congress and
President Obama fail to prevent the government from going over the fiscal cliff
at year’s end, according to National Taxpayer Advocate Nina Olson.”
One is enough for me, thank
you.
Joe ends the roundup by quoting,
and agreeing with, another great mind (Robert
D. Flach gets it right in WHY WE NEED TAX REFORM). He adds his own 2 cents (worth a lot more) –
“And to expect the
undertrained and undermotivated members of the shrinking IRS work force to
administer industrial growth, social justice and, oh yeah, the health care
system is folly. And official policy.”
THE FINAL WORD
Here is an idea. Let us pass a federal law that says –
(1) Tax
legislation CANNOT be temporary. Any
legislation that makes a change to the US Tax Code will be permanent, unless
revised or repealed by specific subsequent legislation.
And
(2) Except
for identified natural disasters or an official declaration of war, any tax
legislation passed after September 30th cannot take effect until January 1st of
the next year.
TTFN
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