Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.
Friday, December 30, 2016
THE YEAR IN TAXES 2016 – PART II
the Presidential campaign there was no tax legislation of any substance in
2016.There were a few bills that dealt
with limited tax matters for special situations, but really nothing of
consequence for the 1040.
One bad law
of note was the “US Appreciation for Olympians and Paralympians Act of 2016”,
which excludes from income the value of any Olympic or Paralympic medals or
winnings for certain athletes.As was
pointed out in a list of worst tax developments of 2016, “the exemption is a windfall for professional athletes but does little
or nothing for struggling amateurs”.Why should only Olympic and Paralympic winners be exempt.
good tax provision in the “21st Century Cures Act”.A company with fewer than the equivalent of
50 full-time employees, and therefore a business not subject to the Obamacare
employer mandate to offer insurance coverage to employees, can reimburse
employees' for purchasing individual health insurance as if it were directly
paying the premiums on a group health policy under a qualified small business
health reimbursement arrangement.Previously most employers who did this were subject to a penalty of up
to $100 per day for each employee.
a few non-legislative tax developments of note in 2016.
In the 2015
Year in Taxes post I praised a provision of the PATH Act, explaining –
“Educational institutions are required to report only qualified tuition and related expenses actually paid, rather
than choosing between amounts paid and amounts billed as is currently allowed
(most institutions historically report only amounts billed), on Form 1098-T,
beginning with calendar year 2016.So,
beginning with forms for tax year 2016 issued in January of 2017, the Form
1098-T students receive from colleges will actually provide important and
needed information, and will no longer be as useful as ‘tits on a bull’.”
Unfortunately the week-day daily "Checkpoint Newsstand November 18, 2016" brought
some bad news on my 63rd birthday (highlights are mine) -
“No penalty for 2017 Forms 1098-T. IRS will extend the relief from
penalties under Code Sec. 6721 and Code Sec. 6722, as described in Ann.
2016-17, to 2017 Forms 1098-T. Eligible
educational institutions, therefore, will continue to have the option of reporting
either the amount of payments of qualified tuition and related expenses
received in Box 1 of Form 1098-T or the amount of qualified tuition and related
expenses billed in Box 2 of Form 1098-T for the 2017 calendar year without
being subject to penalties.
relief is limited to 2017 Forms 1098-T
required to be filed by eligible educational institutions by Feb. 28, 2018
(or Apr. 2, 2018, if filed electronically) and furnished to recipients by Jan.
of eligible educational institutions have informed IRS that, despite diligent
efforts, the changes to accounting systems, software, and business practices
that eligible educational institutions must make to implement this law change
cannot be accomplished in time to apply these changes for calendar year 2017.”
So now the bulk of 2017
Form 1098-Ts will continue to be totally worthless.
three other developments, thankfully all good news.
issued final regulations related to the tax treatment of same-sex marriage –
states must recognize a marriage between two people of the same sex when the
marriage was lawfully licensed and performed in a state where such marriage is
legal, regardless of where the couple currently resides.
I will let
other tax writers explain the other two (again highlights are mine) -
“Self-Certification – The New Fix for Late Rollovers
On August 24, 2016, the IRS released
Revenue Procedure 2016-47, which provides a new and cost-free way for you to
complete a late 60-day rollover of retirement funds using a self-certification
procedure. The new self-certification procedure is available for missed
rollover deadlines for both IRAs, including Roth IRAs, SEP IRAs and SIMPLE
IRAs, and company plans. It is a game changer because it will spare many taxpayers from having to go through the costly and
time-consuming process applying for a Private Letter Ruling to get late
“Unmarried co-owners are entitled to separate
home mortgage interest debt limits:
For federal income tax purposes, you
can generally deduct the interest on up to: (1) $1 million of home acquisition
debt (mortgage debt taken out to acquire, build, or improve your principal
residence and one other residence, such as a vacation home) and (2) $100,000 of
home equity debt (mortgage debt that is secured by your principal residence or
one other residence).In a controversial
2012 decision, the U.S. Tax Court concluded that these home mortgage debt
limitations to be shared by unmarried individuals who co-own expensive homes.
In other words, according to the Tax Court, when two unmarried individuals
co-own a principal residence (and maybe a second residence too) the combined
home acquisition debt limit for the two co-owners is only $1 million, and the
combined home equity debt limit is only $100,000--for a total combined debt
limit of only $1.1 million (same as for a married couple).
In contrast, if the debt limits can
be applied on a per-taxpayer basis, each unmarried co-owner would be entitled
to a separate $1 million limit for acquisition debt and a separate $100,000
limit for home equity debt (for a total combined debt limit of $2.2 million for
two unmarried co-owners).
When unmarried folks co-own
expensive homes with big mortgages, this issue is a big deal.So it was good news when the Ninth Circuit Court of Appeals in 2015
reversed the Tax Court’s decision and allowed the two unmarried co-owners in
the case to benefit from separate debt limits. In 2016, the IRS threw in the
towel by accepting the Ninth Circuit’s pro-taxpayer decision. I don’t say
this very often, but thank you IRS!”
As for the
election.With the Republican Party in
charge of the White House (not really – nobody is in charge of Trump but Trump,
and Trump does whatever he wants to do, regardless of what the Republican Party
wants; he will do what is best for Donald Trump and not what is best for the
Republican Party or the country) and controlling both houses of Congress I
expect that there will be tax reform legislation passed relatively early in
2017.We will very likely see lower tax
rates and reduced itemized deductions.And hopefully the end of the dreaded Alternative Minimum Tax and also
possibly the federal estate and gift taxes.
PATH Act made most of the “appropriate” former “tax-extenders” permanent, some
items will expire on Saturday.Congress
adjourned for the year without dealing with theses expiring provisions.However this is appropriate.There was no need to extend the expiring
provisions before the year end when there will be substantive tax reform legislation
proposed early in 2017.
So that was
the year in taxes 2016.Fellow tax pros
- did I forget anything?