Wednesday, December 12, 2012


* Looking for stocking stuffers?  Click here and here and here and here.

* 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.”


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.


(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. 


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