Tuesday, September 30, 2014
I am off to Lancaster PA to learn how to prepare my PA corporation’s state income tax return. I will return with a Friday BUZZ.
* The October “issue” of THE TAX PROFESSIONAL will be up early tomorrow morning. It has some more food for thought for tax preparers, and I would appreciate hearing your comments on the topics discussed. You can email them to email@example.com with “THE TAX PROFESSIONAL” in the “subject line”.
I am also interested in your comments on topics discussed in previous “issues”.
* KIPLINGER.COM warns “Retirees, Watch Out for the State Tax Bite”.
The item looks “at three primary categories: state tax treatment of pensions and retirement income, Social Security, and estates and inheritances.”
* That reality show idiot “The Situation” is claiming stupidity as his defense for cheating on his taxes. In this case it is a credible defense – the fool certainly is stupid.
Actually he is blaming the FU on his brother, who, in turn, is blaming everything on their accountant. So TMZ (a truly rare source for a BUZZ item) tells us in “The Situation Clueless on Tax Filings ...Mi Familia Screwed It Up”.
* Kay Bell is a much better source of reliable information on the tax indiscretions of the brain-dead reality tv show “star”. In her BANKRATE.COM post “Bad Tax ‘Situation’ for Reality TV Star” Kay tells us –
“The feds charge that the Sorrentino brothers knowingly provided their accounting firm with false information, which was used unbeknownst to the paid preparers, to file incorrect tax returns.”
In this “situation” I tend to believe the Feds regarding the paid preparers.
* And at her DON’T MESS WITH TAXES blog Kay continues the discussion of the reality show fool’s tax FUs and correctly advises “Lying to Your Tax Pro Could Result in a Bad Tax Situation” –
“We all know the old adage used when discussing tax-filing software: Garbage in, garbage out.
It also applies to taxpayer-tax preparer relationships. If a taxpayer isn't honest or forthcoming about his or her tax circumstances when working with a tax pro, then that preparer is going to complete and submit a 1040 that's flat-out wrong.
And that creates problems for both the taxpayer and the tax preparer.”
* Strange but true. “The IRS Says I’m Not Authorized to Speak On My Own Behalf”. So says Jason Dinesen at DINESEN TAX TIMES. Oi vey!
* At TAXPRO TODAY Jeff Stimpson’s piece “IRS to Send EITC Due Diligence Warnings” explains one of the reasons why the Earned Income Credit does not belong on the 1040 –
“The IRS estimates that from 22 percent to 26 percent of all EITC claims contain ‘some type of mistake’ that altogether cost the government a total of $13.3 billion to $15.6 billion in 2013.”
Friday, September 26, 2014
* Manasa Nadig talks about “Back-To-School Blues & Tax Credits To Go With It!!” at THE BUZZ ABOUT TAXES.
* Kay Bell reports “Real Tax Trouble for RHONJ Stars” at her BANKRATE.COM blog.
It seems that one of the Unreal Skanks of New Jersey, and her husband, were –
“. . . named in a 41-count federal indictment that charges them with, among other things, lending fraud involving fake W-2 forms, false income amounts and hidden assets. Joe also was charged with failure to file federal tax returns. The pair also faces a variety of New Jersey state charges.”
If they go to the slammer (my fingers are crossed) it will be no great loss.
* And another so-called “reality tv” participant, one of the brain-dead “stars” of the steaming pile of excrement that was known as “The Jersey Shore”, is also in tax trouble in New Jersey.
According to NJ.COM “Jersey Shore's Mike 'The Situation' Sorrentino, Brother Indicted on Tax Fraud Charges” -
“Former ‘Jersey Shore’ cast member Mike Sorrentino has been accused of not properly paying taxes on $8.9 million in income, authorities said.
Sorrentino and his brother, Marc, are due in federal court in Newark this afternoon after being indicted on charged they filed false income tax returns from 2010-2012, U.S. Attorney for New Jersey Paul J. Fishman announced.”
It seems stupidity is a Sorrentino family trait. “The Situation” was on a reality tv show – so we know he had minimal intelligence.
Perhaps the biggest crime in this “situation” if the fact that the fool had $8.9 million in income! It appears that you do not have to contribute a single thing to society, or have any real value, to become a millionaire - you just have to act like the idiot you are on television.
* Julian Block gets a head start on year-end tax planning at ACCOUNTING WEB by explaining “How to Time Itemized Deductions”.
Julian correctly begins –
“Savvy tax planning is about more than knowing what to write off. Just as essential is knowing when to take deductions. Choosing to stuff deductions into one tax year as opposed to another bears directly on how much winds up with the IRS. Advancing or postponing those payments by only a day at yearend can save plenty of moola.”
* Jim Blankenship reminds us that “the best laid schemes o’ mice an’ men Gang aft agley” when telling us “Paper Social Security Statements are Back” at GETTING YOUR FINANCIAL DUCKS IN A ROW -
“Apparently a very small percentage of folks actually took advantage of the online version of these statements (primarily my client base, I’m guessing). As a result of this and apparent feedback from customers, advocates and Congress, Social Security is resuming the physical delivery of paper Social Security Statements.”
Jim adds –
“You can still receive a Social Security statement from the online system at any time, as often as you wish. This is accomplished by going to the address www.socialsecurity.gov/myaccount. Just keep in mind that you will not receive a mailed paper Social Security statement thereafter once you’ve signed up.”
* Having you been following the “Back To School” post series from Kelly Phillips Erb, FORBES.COM’s TaxGirl? Click here. You could win a prize!
* TIGTA (the Treasury Inspector General for Tax Administration) has issued a new report titled “Fiscal Year 2014 Statutory Review of Restrictions on Directly Contacting Taxpayers”.
The Highlights section of the report state -
“The direct contact provisions of Internal Revenue Code Section 7521 generally require IRS personnel to stop a taxpayer interview whenever a taxpayer requests to consult with a representative, and prohibits IRS personnel from bypassing a qualified representative without supervisory approval once a taxpayer authorizes one to act on his or her behalf and informs the IRS of that authorization.”
“TIGTA recommended that the IRS ensure that consistent guidance is provided in the Examination sections of the Internal Revenue Manual, detailing the procedures for allowing taxpayers adequate time to obtain representation and for documenting case actions.”
* The DEMOCRAT AND CHRONICAL gives us the word that “NY Tax Rebate Checks in the Mail” –
“Checks worth $350 are being mailed out this week to more than 1 million residents who have kids and should hit mailboxes in the coming days, the state Department of Taxation and Finance confirmed Wednesday.
The $350 checks will go to people who had a child under 17 as of 2012 and with household adjusted gross incomes between $40,000 and $300,000. The checks should hit mailboxes within a week, the state said.”
And a “second check for property taxpayers will go out throughout October. It will refund residents for this year's growth in school property taxes if a district stayed within the property-tax cap, which limited the growth to less than 2 percent. School taxes were due this month.”
Wednesday, September 24, 2014
As it does every year at this time, the IRS has issued the special “per diem rates” for meals and incidental expenses and lodging to use in lieu of claiming actual expenses when deducting, or being reimbursed for, the costs of an overnight business trip for the fiscal period October 1, 2014 – September 30, 2015. There appears to be no change from the prior period rates.
Under IRS Rev Proc 2007-63 self-employed taxpayers and employees claiming unreimbursed employee expenses cannot use the per diem for lodging. They can only use the meal and/or incidental expense per diems, and must claim actual lodging expenses. The lodging per diem is only for employers reimbursing employees for business travel.
The minimum per diem for “meals and incidental expenses”, for all locations without specified rates, remains at $46.00.
Business travelers who do not incur meal expenses on business trips can continue to deduct $5 per day for “incidental” expenses only. This rate applies for any CONUS or OCONUS locality of travel. Incidental expenses include fees and tips to porters, baggage handlers, and hotel staff. Transportation to meals, laundry, lodging taxes, and telephone calls are not included in incidental expenses and can be deducted separately.
These per diem rates are based on the city where you “lay your head” at night. If your business meeting is in New York City, but you stay overnight at a hotel in New Jersey to get a lower room rate, you would use the city or county in New Jersey to determine the appropriate per diem amount.
You can choose to deduct either the actual expenses or the government per diem rate. You can decide whether to deduct actual expenses or the per diem allowance on a trip-by-trip basis, but you must use the same method for all days within a single business trip. If you elect to use the per-diem allowance you can claim 75% of the per diem amount on the first and last day of the trip.
I recently attended the NATP Tax Forum in Atlantic City NJ. The per diem for Atlantic City is, and remains, $66.00. I kept track of my actual meal expenses during the trip, which totaled less than $200.00, and I did not incur any “incidental” expenses. I arrived in AC on Tuesday and left on Friday. 3½ days (Wednesday and Thursday = 2 days, and Tuesday and Friday = 2 days @ 75% = 1½ days) at the per diem rate of $66.00 is $231.00. Obviously I will claim the per diem rate. As an added bonus, by doing this I do not have to save receipts for my meals.
Click here to find the appropriate rate for your locality of travel.
The special meal and incidental expense per diem rate for taxpayers in the transportation industry - employees or self-employed taxpayers whose work directly involves moving people or goods by airplane, barge, bus, ship, train, or truck and requires the worker to travel away from home to areas with different federal per diem rates during any one trip - remains $59 for any locality of travel in the continental United States (CONUS) and $65 for any locality of travel outside the continental United States (OCONUS). If a transportation worker elects to use these special per diem rates they must be used for the entire calendar year.
Of course only 50% of qualifying business meals (including the per diem for meals and incidental expenses) are deductible, regardless of which method you choose.
Tuesday, September 23, 2014
* I am working on the content for the October issue of THE TAX PROFESSIONAL. Have you seen the September issue yet? Why not?
* Philip Bump tells us “Americans Think 51 Percent of Every Tax Dollar is Wasted. Come On, Guys” at the Washington Post’s THE FIX blog.
While Philip points out examples of substantial federal government waste, he thinks that 51% is a ridiculously high number.
I don’t know about federal spending, but having lived in Hudson County NJ for most of my life I don’t think the number is too high for local and state waste (at least in NJ).
* Jean Murray deals with the frequently asked question “How Does a Sole Proprietor Get Paid?” at ABOUT.COM.
* And Jean’s ABOUT.COM colleague William Perez tackles “Taxable Refunds: Reporting Taxable Refunds on Form 1040”.
Bill points out –
“If you itemized your deductions on your federal tax return last year and you claimed a deduction for State and Local Taxes, then you need to figure the taxable portion of your state refund.”
“However, if you claimed the standard deduction on your federal tax return last year, your state tax refund is not taxable. State refunds are also not taxable if you deducted state and local sales tax instead of state income tax on last year's federal return.”
* Kay Bell tells us about “Energy-Related Tax Holidays in Florida, Georgia & Virginia” at DON’T MESS WITH TAXES.
It’s too late now for Florida, but the Georgia and Virginia events are in October.
* Oi vey! A milestone. Professor Paul Caron tells us that The IRS Scandal has reached “Day 500” at the TAXPROF BLOG. Paul quotes from an article on IRS Commissioner John Koskinen.
* Over at ROLL CALL Matt Fuller reports “Boehner Lists Tax Reform Among House GOP’s Top Prioritiesfor 2015”.
The item quotes Boehner as saying -
“Our tax code is terrible. Nobody understands it — not even the IRS.”
What we can gather from this is that, as expected, absolutely nothing will be done regarding any kind of “tax reform” in 2014. As for 2015 – don’t hold your breath.
It appears Boner did not mention the “extenders” in the speech discussed in the item, as he was addressing the goals of the next (114th) Congress.
* A post by Jim Blankenship at GETTING YOUR FINANCIAL DUCKS IN A ROW from January explains “Why Watching the Stock Market Can Make You Sick”.
I have always said that (unless you are a legitimate day trader) if you need to check the stock market every day to see if it went up or down you should not be in the stock market. I have a client who had stock-market based annuities and used to check the market every day and moan about losing money every time it went down a few points. Luckily she got out of annuities and I eventually hooked her up with a good honest broker.
* Jeffrey Levine of THE SLOTT REPORT, the go-to site for IRA information, advises “New Guidance Opens the Door to Tax-free Roth IRA Conversions of Certain Retirement Funds”.
The answer to the question “If someone has a 401(k) with pre and post-tax money, can they take a distribution and roll (convert) just the post-tax money to a Roth IRA tax-free, while rolling the remaining pre-tax money over to a traditional IRA?” is now YES.
* And, also at SLOTT, Beverly DeVeny responds to the question “Multiple Retirement Accounts and RMDs: Can I Take the Required Distribution From One Account?”
The answer, no surprise here, is “It depends”.
Monday, September 22, 2014
A new amnesty-like program for delinquent taxes in New Jersey reminded me of a recommendation I made back in 2008.
The Internal Revenue Service often cannot collect outstanding liabilities because taxpayers can't afford to pay them. Taxpayers cannot afford to pay the balances because of the substantial accrual of penalty and interest. An initial outstanding tax liability of $5,000 could easily mushroom to $15,000 over a period of years. The result in many cases is that the IRS ends up writing off most or all of the amount due after the 10-year collection period has passed.
Obviously the IRS cannot permanently remove penalties and interest. If they did taxpayers would have no motivation to file and pay their taxes on time.
The answer lies in a one-time temporary Federal Tax Amnesty, similar to state tax amnesty programs that have been highly successful in the past (a 2013 Tax Amnesty Program in Connecticut generated between $175 -$180 Million in collections). Such a program would –
· generate millions, if not billions, of dollars for the government,
· allow taxpayers to get rid of the IRS cloud from over their heads,
· permit the IRS to "close the books" on overdue accounts, and
· encourage the filing of delinquent returns.
So everyone wins!
Here is how a Federal Tax Amnesty Program would work -
The amnesty would apply to all federal tax liabilities from, say, tax year 2001 through the current year –
* Individual income taxes, the Alternative Minimum Tax, and the various "other taxes", such as self-employment tax, included on the Federal 1040.
* Corporate income taxes and the corporate AMT.
* Payroll Taxes.
The IRS would begin with the original outstanding tax liability only - no accrued interest and penalties would be included - on all previously filed federal tax returns that are not currently part of a criminal prosecution. From this they would apply all appropriate amounts to date from direct taxpayer payments, “garnishments” of wages, bank accounts, and federal and state tax refunds and rebates, other federal offsets, etc. against the open liability. None of these payments would be applied against previously assessed penalty and interest; they would all be used to reduce the original “principal”.
Taxpayers would have 3 to 6 months from the date of the initiation of the Amnesty program to pay the net outstanding tax liability, or perhaps to set up an installment payment agreement, without any penalties or interest.
At the same time individuals, corporations and other businesses who have not filed certain income, payroll or other tax returns could do so during the amnesty period and pay only the tax due, with no penalty or interest assessment. So if you did not file your 2009 (or 2005 for that matter) Form 1040 (or appropriate business or payroll return) at all because you owed $2,000, you could do so now and pay only $2,000.
The IRS would mail to all delinquent taxpayers an itemized “bill” for the outstanding tax due under Amnesty based on their records, so it would be clear just what needed to be paid. Taxpayers would have the opportunity to dispute the amount of the bill if they felt it is incorrect.
If an open tax liability is not satisfied in full or a delinquent return is not filed during the Amnesty period, or if the taxpayer defaults on an agreed upon installment payment arrangement permitted under the Amnesty, a higher penalty and/or interest rate would apply to the remaining outstanding balance – a further incentive to pay up during the program.
This would be a one-time only offer. The legislation creating the Federal Tax Amnesty Program could so state by forbidding any future Amnesty programs. Or it could state that the federal government would not be able to institute another Amnesty Program during the twenty years after the end of the current amnesty period.
The idiots in Congress have considered a Federal Tax Amnesty Program in the past. But a Congressional Joint Committee on Taxation report concluded that amnesty would ultimately hinder tax collection and reduce net revenue. The report suggested individuals would become less likely to pay their taxes in future years because of expectations that government would once again write off interest and penalty fees under another Amnesty.
I don’t agree. The concerns expressed by the JCOT regarding reduced payment in anticipation of a future amnesty have not proven to be a problem with past state programs. And this would be advertised as a one-time only offer, as per the text of the legislation.
IRS collection activity would not cease or slack off once the initial program has completed in anticipation of future amnesties. If anything the Service should be more aggressive in its collection efforts after the amnesty period ends as there would be substantially less “targets”.
Tax Amnesty is aimed less at tax cheats and more at honest Americans who have been so overwhelmed by the accrual of interest and penalties that they walk away from their tax debt altogether. And it will help to bring taxpayers who have, for one reason or another, not filed past returns back in the system and become current.
So what do you think?
Sunday, September 21, 2014
I live on US Route 6 (aka the Grand Army of the Republic Highway) in Northeast PA. And many of the places to which I go for business and personal errands in Pike and Wayne counties are on Route 6.
I learned last year that Route 6 runs the entire length of the State of Pennsylvania, beginning at the New York border in Matamoras and ending at the Ohio border in Meadville. And while on my recent trip I learned that Route 6 actually runs coast to coast, from Bishop CA to Provincetown MA, and at one time was the longest highway in the US. It covers about 400 miles in PA and 3,200+ miles cross-country.
Last year I decided that I would travel the length of Route 6 in PA and visit the various sites along the way. The route has mile-markers throughout its PA run, beginning at 00 at the Ohio border and ending at 400 at the NY border. I live just before mile marker 368. Earlier this year I visited Scranton (near mile marker 332), and last week I visited Wellsboro (near marker 221). I chose Wellsboro because the Grand Canyon of PA.
I set out on Route 6 West Saturday morning, having just returned from Atlantic City on Friday afternoon. Unfortunately it rained during the entire trip, stopping just before I arrived at my destination, the Penn Wells Hotel on gas-lit Main Street in downtown Wellsboro (bigger than downtown Hawley but smaller than downtown Honesdale), so I could not partake of the beauty of the scenery on the way out. Luckily the sky was bright and clear, and traffic was minimal, on my ride home on Tuesday, so I was then able to take in and appreciate the beauty of nature driving through the mountains of northern PA.
Just a few feet off Route 6, on PA Routes 660 and 287, the Penn Wells Hotel, one of Wellsboro’s most historic landmarks originally built in 1869, is truly an “old-fashioned” venue, which is why I chose it. The current building, restored in the 1920s, has 73 character-filled guest rooms of varying sizes and types. I had a cozy but comfortable room on the first floor (actually the second - above the lobby). There is free high-speed wifi in all of the guest rooms.
Off the lobby are the Mary Wells Room open for lunch and dinner Monday through Saturday and brunch (with live piano music) and dinner on Sunday, and the Penn Wills Lounge. I was surprised to find that there was a public pay phone in the lobby (a true rarity these days).
Guests receive a complimentary full hot breakfast Monday through Sunday in the dining room, and a discount on the Sunday brunch charge. I had all my meals (except Saturday night on the train – see below – and lunch Saturday across the street at Café 1905 located inside Dunham’s Department Store) at the hotel - the food and service was impeccable.
Hotel guests are also welcome to use the indoor pool and fitness center, travel market, business center and guest laundry facilities of the more modern 89-room Penn Wells Lodge, two blocks down Main Street and actually on Route 6.
Wellsboro was founded in 1806 as the county seat of Tioga County, and “incorporated” in 1830. It is named for Mary Wells (no relation, I expect), wife of Benjamin Morris, who purchased the land on which the town was built in 1802.
I did it right this time, and booked my activities in advance online, except for Monday’s which I booked online while at the hotel.
Saturday night was the dinner ride on the Tioga Central Railroad’s Broadway Limited – an extended excursion through the PA countryside from Wellsboro Junction (3 miles north of downtown Wellsboro on RT 287) past Hammond Lake to Tioga and back. We left at 6:00 PM and returned about 8:15 PM. I chose the turkey dinner and strawberry shortcake, which was delicious. The stuffing was especially good, and the chef gave my table companions, a couple from nearby upstate NY, his special recipe while walking through the dining car after dinner gathering praise. The cost of the all-inclusive dinner was included in the price, with only beer and wine being extra.
The railroad was built in 1872 to carry coal. It still maintains regular freight service between Wellsboro and Corning NY. Tioga Central Railroad offers several excursion options from the end of May through October, with a special Santa Express in November and December.
Sunday’s activity was a matinee performance of A R Gurney’s THE DINING ROOM by Hamilton-Gibson Productions, a community performing arts organization that began in 1991, at the Warehouse Theatre, on Central Avenue just off Main Street two blocks from the hotel. The show, and cast, was great.
Prior to the show I read my mystery book sitting in the public square known as “The Green” (where I also found a public pay phone) across the street from the county courthouse,
Monday I had planned to visit Pine Creek Gorge, aka the Grand Canyon of Pennsylvania, which stretches for over 45 miles with depths of nearly 1500 feet. It is part of the Tioga State Forest. I originally intended to drive to the gorge and the various scenic vantage points (I am not a hiker), but learned about “Ole Covered Wagon Tours” via a brochure from the display rack in the hotel lobby and booked the 12:30 horse-drawn wagon ride through the canyon.
The 2-hour round trip ride, with an Amish driver (very few others are still trained in “driving” horse-drawn vehicles) began at a family-run farm in Ansonia and took the eight of us along the Pine Creek Rail Trail and back, with colorful commentary on the history of the area and its logging days from our guide. The guide pointed out that every component of the trip was made in America, except for the public-address system on the wagon, which was made in China. It was the only thing that did not work properly.
I am sorry now that I did not schedule being in the area on a Wednesday, as "Ole Covered Wagon Tours" offers a longer "Wednesday Waterfall Ride" to Little Four Mile Falls.
It was a wonderful, practically perfect, trip, with many of my favorite vacation components – a scenic drive (and rides), an historic old-fashioned hotel, theatre, a train ride, relaxation, and great food and drink. I look forward to another trip along Route 6 in PA next year.
Friday, September 19, 2014
I had a great trip to Wellsboro PA (about 160 miles away on Route 6W) earlier this week. I will post about it on Anything But Taxes Sunday.
Today’s BUZZ is rather meaty – to make up for Monday’s abbreviated installment.
* Are there still tax pros out there who have not yet read the September “issue” of THE TAX PROFESSIONAL? I am waiting to hear your comments on the items discussed in this issue!
* Jason Dinesen asks the question “Will Software Really Replace Accountants?” at DINESEN TAX TIMES.
I agree with Jason’s answer - “there will ALWAYS be a need for tax preparers and accountants”.
Jason correctly points out -
“Anyone can prepare their own taxes. Businesses can, too. The software will accept whatever the user puts into it … but it doesn’t mean it’s done correctly.”
“. . . business owners can keep their own books but it doesn’t mean they’re doing it right.”
Remember – garbage in, garbage out.
And more important, when it comes to a business owner doing his/her own bookkeeping using software –
“. . . once a business reaches a certain size, keeping the books will become a big drag on the owner. No software solution can overcome the crunch of time.”
I do not, however, share Jason’s concerns for the “tax-preparation business that relied on preparing a high volume of simple tax returns”.
Regardless of how easy it may become to submit a basic tax return, there will always be taxpayers who don’t want to be bothered doing it. And, of course, those who want to make sure they do not miss anything.
I have always said that if I did nothing but 1040As all day during the tax season, I would make more money, experience less agita, and substantially reduce the number of extensions.
* Joshua D. McCaherty reports on “The Cost of Tax Compliance” at the Tax Foundation’s TAX POLICY BLOG.
“According to the IRS, filing taxes will take taxpayers an average of 8 hours and cost $120 for each nonbusiness return.”
The post also points out that the number of pages in the CCH Standard Federal Tax Reporter has more than tripled (almost quadrupled) since I began preparing 1040s in 1972 for 1971 – from less than 20,000 to more than 70,000!
Josh’s obvious bottom line –
“A simpler, transparent tax system can greatly reduce the cost of compliance for U.S. taxpayers. A complicated tax system creates not only a huge time and money expenditure for taxpayers, but also for government officials verifying returns, which can lead to higher tax burdens later.”
* Ever wonder “How the Government Became ‘Uncle Sam’”? Find out at the USA.GOV blog.
* Take a “Quiz: 7 Surprising 2014 Tax Facts” at CNN MONEY.
One interesting fact -
“15 states and the District of Columbia impose an estate tax. New Jersey exempts the lowest level of money from estate taxes ($675,000) while Washington imposes the highest estate tax rate (19%). Both New Jersey and Maryland also impose an inheritance tax.”
So don’t die in New Jersey.
* Speaking of NJ and death taxes, Ashlea Ebeling tells us about the “Renewed Push To Kill New Jersey Estate Tax” at FORBES.COM.
* This week’s ABOUT BUSINESS LAW / TAXES: US newsletter from Jean Murray focuses on her most asked questions about business travel.
* JK LASSER in a double-play. First it answers the question “I inherited HH bonds and want to redeem them now. Will I owe any taxes?” (hint - the answer is “it depends” – what else?).
* And “he” lists “7 Deadly Tax Sins” – “actions to always avoid”.
I would add another action to always avoid – using Henry and Richard or another fast-food tax preparation chain to prepare your tax returns.
* “You Borrowed From Your 401(k) for What?” Matthias Rieker shows the reasons why employees borrow from their plan – and why this is not a good idea – at the Wall Street Journal’s TOTAL RETURN blog.
Borrowing from a 401(k) is better than taking an actual distribution – but it can be treated as one if you do not pay it back in time.
* It appears the State of NJ is offering what they call an “Easy and Convenient Way to Resolve Unpaid Tax Liabilities”.
“The Division of Taxation will send letters to individuals and businesses who have unpaid New Jersey tax liabilities from tax periods 2005 through 2013. The Division is offering interested taxpayers an easy way to resolve those outstanding tax liabilities and reduce or even eliminate their accumulated penalties and fees — if they pay the full amount due by Nov.17, 2014.”
If you do not receive a letter you can visit a Regional Office or call the DOT to discuss reduced payments.
* BARBARA’S BLOG asks “What Does the IRS Have Against Food?”. The post does a good job of summarizing many of the rules for businesses concerning deducting meals as a tax-free benefit to employees.
* The Tax Foundation addresses the question “How High Are Sales Taxes in Your State?”.
I am a bit confused. The map shows the NJ sales tax as 6.97% when it is actually 7%, and the PA tax as 6.34% when it is actually 6%. I am not aware of any local sales tax in PA.
THE FINAL WORD:
I have received many “friend” requests over the past few months from clients, colleagues, actual friends, and readers. I have not accepted any.
This does not mean I do not want to be your “friend”. I do not want to be anyone’s “friend”. Please do not be hurt or offended by my rejection of your request.
I once vowed that I would never join MY FACE or SPACEBOOK or any other such “social media” site (other than TWITTER). I did not, and still do not, see the need to make my personal life and details available to the great unwashed. If I want to share updates, stories, and pictures with friends and family I will send them an email. You will notice that there is absolutely no personal information on my SPACEBOOK page, other than a picture of my cat.
Since I no longer solicit, or accept, any new tax clients I do not need to use SPACEBOOK as a marketing tool.
The one and only reason I joined SPACEBOOK was to be able to participate in a closed “group” consisting of members of the NJ chapter of the National Association of Tax Professionals.
Wednesday, September 17, 2014
Here are some items of interest or note that were discussed in the educational sessions at last week’s NATP Tax Forum in Atlantic City.
· THE AFFORDABLE CARE ACT – INDIVIDUALS AND BUSINESS
These 2 sessions were the most popular of the Forum. They were probably attended by every registrant. Perhaps they should have been offered together in one “general session” on the first day.
If there was ever any question these sessions verified the fact that, while the basic concept of “Obamacare” – attempting universal health insurance coverage without resorting to UK-like “socialized medicine – is sound, the Affordable Care Act (ACA) is without a doubt a complex and convoluted mucking fess. Like the Earned Income Credit, and the distribution of other government social benefits, the administration and enforcement of ACA does NOT belong in the US Tax Code! Like the excessive due diligence requirements for claiming the EIC, the ACA causes tax preparers to become Social Workers.
The “individual mandate” for health insurance coverage took effect in 2014. If you and your family did not have “ACA-compliant” health insurance coverage, via either an employer-provided plan or direct purchase, for all of 2014 you may be subject to a penalty. This penalty is not easy to calculate and could be expensive.
However many taxpayers who were not properly covered for all of 2014 may be exempt from the penalty under the “individuals who cannot afford coverage“ exemption. This exemption applies of the cost of “ACA-compliant” health insurance is more than 8% of the modified Adjusted Gross Income of the “household”.
Individuals who acquired insurance via the Obamacare Marketplace and were granted an “advance premium credit” to reduce the monthly out-of-pocket premium payment will be issued new IRS Form 1095-A. Related IRS Forms 1095-B, issued by insurance providers, and 1095-C, issued by employers, are not required to be sent to taxpayers for 2014. But the instructor believed that many insurance providers will be issuing Form 1095-Bs for 2014.
And only those who acquired insurance through the Obamacare Marketplace, and receive a 2014 Form 1095-A, will be eligible for a “premium tax credit”. The amount of the advance credit applied to the premiums, which was based on anticipated 2014 income, will be reconciled to the credit to which the taxpayer is entitled using actual 2014 income on the 2014 Form 1040, and excess advances are paid back, any additional credit is applied to tax liability and can be “refundable”, or one can “break even”.
The “employer mandate” does not take effect until 2015 or 2016, depending on the total number of employees.
· NEW DEVELOPMENTS – INDIVIDUALS AND BUSINESS
There was a separate session for each. However, with the exception of the ACA-related items, discussed in more detail in separate sessions (see above), there have been no new developments.
The 2 “New Development” sessions listed the various temporary tax items that expired on December 31, 2013, and have not yet been extended. Many items, in both categories, will probably be extended, but not until after the November elections. So, once again, there will no doubt be delays in the 2015 start date for IRS processing of 2014 income tax returns.
One of the business items that is currently in limbo concerns pre-tax treatment of employer-provided mass transit employee benefits. There is a good chance this will be extended at year end, and I expect that I will need to once again deal with a few corrected W-2s sent to clients in late spring, resulting in amended returns, as I did a year or so ago.
In the Individuals session we were told that a net Schedule D loss can be used to reduce net investment income subject to the Net Investment Income Tax (NIIT). Apparently when the NIIT was taught by NATP last year it was stated that this could not be done.
· PARTNERSHIPS: SELF-EMPLOYMENT TAX AND GUARANTEED PAYMENTS
A partner, whether general or limited, can NEVER also be an employee of a partnership entity. A partner should NEVER receive both a K-1 AND a W-2 from the same partnership entity. A partner NEVER receives a salary; he/she may receive a “guaranteed payment” from the partnership, regardless of the amount of profit or loss, in exchange for services provided to the partnership, which is a deductible item for the partnership (and reduces net taxable income or increases the net deductible loss passed through to partners) and reported on the Form K-1 of the partner receiving the payment.
In the past I have on at least two occasions had a client give me a K-1 and a W-2 from the same partnership entity. On these rare occasions the Form 1065, and Form K-1, for the partnership and the W-2 were prepared by a CPA firm.
Included in the guaranteed payment to a partner reported on Form K-1 can be health insurance premiums paid by the partnership for the partner’s individual or family coverage. This is included in the income of the partner reported on Schedule E Page 2, and is deducted out as a “self-employed health insurance deduction” adjustment to income on the bottom portion of Page 1 of Form 1040. So for income tax purposes it is a wash. However, because the insurance premium payment is included in “guaranteed payments” it is subject to self-employment tax.
This is different to the treatment of health insurance premiums paid for a more than % owner of a sub-S corporation who is also an employee. The premium payments are included in Box 1 or Form W-2 and deducted as an adjustment to income. However these payments are NOT subject to FICA tax and are not included in wages reported in Box 3 or Box 5 on the W-2.
· HELPING DELINQUENT TAXPAYERS
If you owe a substantial amount of back taxes to the IRS or state tax authorities NEVER contact an agency that advertises on television, whether or not the ad actually says they can get you “off the hook” for “pennies on the dollar”. Contact an independent tax professional. If they do not personally deal with collection issues they can refer you to a legitimate source that does. To be honest, this is my personal advice and not that of the seminar leader.
· NET INVESTMENT INCOME TAX (NIIT)
The session attempted to make the attendees “NIIT wits”.
This component of ACA began with 2013 returns, and had impacted a few of my clients. Luckily the investment income of these clients was limited to interest, dividends, and investment-related capital gains so the income subject to the tax was easily identified.
The NIIT is a “surtax” because it is a tax on income that has already been taxed. It is a tax that is in addition to the regular income tax and the dreaded Alternative Minimum Tax (AMT). It has no impact whatsoever in the calculation of the dreaded AMT.
The actual legislation creating the NIIT was only 2 pages long, but those 2 pages have generated about 270 pages of IRS regulations so far, most of which was first published on 12/13/13. Because of the “newness” of the tax there is much of its application that has not yet been decided by the IRS and areas of it are subject to interpretation.
The NIIT income thresholds at which the surtax kicks in - $200,000 if “unmarried”, $250,000 if married filing jointly, and $125,000 if married filing separately - are fixed and are not indexed for inflation. So it will affect more and more taxpayers each successive year as incomes grow.