Wednesday, December 7, 2016
ANOTHER YEAR-END TAX CLASS
Monday I attended another year-end tax workshop by another tax preparer membership organization – the National Society of Tax Professionals (NSTP). This workshop was held in Carteret NJ.
As with the previous NATP workshops, my only complaint was that the skimpy continental breakfast was not “diabetic-friendly”.
Thankfully this workshop did not include 2 hours of redundant ethics preaching – participants got a full 8 hours (50 minute hours) of actual useable education.
Here are a few items of interest from the day –
· The IRS, and we tax preparers, have had some new things to deal with recently – like Cowdfunding and business activities like Uber. Earlier this year the IRS issued Information Letter 2016-0036 to address the issue of Crowdfunging and the constructive receipt of contributed funds. Click here to download.
· New Internal Revenue Code Section 139F(a) provides an exclusion from gross taxable income for any civil damages, restitution, or other monetary award received by a wrongfully incarcerated individual.
· The IRS has notified tax preparers and taxpayers of fake CP-2000 notices and tax bills related to the Affordable Care Act – aka Obamacare. The notices appear to be issued from an Austin, TX address and instructs “victims” to make checks for payment payable to “I.R.S.” (not United States Treasury) and send them to the “Austin Processing Center” using a post office box. Whenever you receive any notice from the IRS or a state tax agency give it to your tax professional immediately – never send any money unless your tax pro tells you to do so!
· Here I need to use an example from the workshop textbook –
A taxpayer over age 70 ½ has one traditional IRA account that with a balance of $100,000. This $100,000 is made up of $80,000 in deductible contributions and accumulated earnings and $20,000 in nondeductible contributions – referred to as his “basis”. The taxpayer wishes to make a Qualified Charitable Distribution (QCD) – a direct trustee to charity transfer – of $80,000 to a qualifying charitable organization before the end of 2016.
The taxpayer does not have to apply some of the $80,000 to the taxable portion of the account and some to the nontaxable “basis”, as he would if he were merely taking a distribution. A QCD is first applied to taxable income – so the entire $80,000 is treated as taxable income and the entire $80,000 qualifies for QCD treatment – the result being 0 reported as taxable income on Page 1 of the Form 1040 and 0 reported as a charitable contribution on Schedule A.
The $20,000 “basis” is all that remains in the IRA account. If the account grows to $20,500 by mid-2017 and the taxpayer takes a distribution of the entire $20,500, closing the account, only $500 is reported as taxable income.
FYI – I discuss the benefits of a QCD here.
· This was not discussed at the class – but when the instructor was talking about the “advance premium credit” I was reminded of the following –
If you purchased your health insurance policy via the Obamacare Marketplace and received an advance premium credit that was applied to you monthly premium charge to reduce your out of pocket payment, when you reconcile the credit on your 2016 Form 1040 if you discover that you must pay back some or all of the credit this repayment can be claimed as a medical deduction for health insurance premiums on your 2017 Schedule A (subject, of course, to the 10% of AGI exclusion). The credit you received reduced your out of pocket health insurance premium payment – so when you pay back some or all of the credit you are actually increasing your out of pocket deductible health insurance premiums.
If you owe a “shared responsibility” payment for not having proper health insurance coverage on your 2016 Form 1040 this is a penalty and is not deductible.
One more half-day workshop on tax issues for seniors and non-profits offered by the NJ chapter of the National Association of Tax Professionals (tomorrow) and I am done with my tax CPE for 2016!