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.
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?
another year comes to an end.Time to
look back and reflect.
The year in
taxes 2016 was truly uneventful – from a tax point of view.
the big story of the year was the Presidential election.The absolute worst that could happen did
indeed happen – unfortunately for the country and the world, despite receiving
almost 3 million less votes than Democrat Hillary Clinton, dangerous,
deplorable and despicable narcissist Donald Trump, the truly surprising
Republican candidate, will be the 45th President of the United States!
beginning of the primary season I said that the most disturbing political development
in my lifetime - I was 62 at the time - is the fact that dangerous, unstable,
irresponsible, and irrational realty television cartoon clown Donald Trump is being
taken seriously as a candidate for the office of President of the United
States.I since revised that statement
twice – first to say “is the official nominee of the Republican Party” and
finally to say “will be the President of the United States”.
post is about the year in taxes.
tax season (only 5 more to go) started off without any problems and went very
smoothly. There were no weather,
equipment, computer, or other issues.The idiots in Congress passed the PATH Act in mid-December last year,
which, in a rare show of intelligence, made permanent many of the more
appropriate “extenders”.So there was no
delays in the beginning of tax return processing or the availability of IRS
forms.I was able to begin my tax season
as always on February 1st.
consumer service and return processing reached historic lows in 2015 – due to
the continual reduction of the IRS budget Congress and continued IRS
mismanagement.I heard from more clients
about seriously delayed refunds and processing FUs last year than in all the
years before combined – including one client who was told by the IRS that his
refund could not be processed because he was dead.But there were no similar FUs or delays that
I was made aware of this season.I only
heard from two clients whose NJ refunds appeared to be a bit late.I expect this is because the states, and the
IRS, was taking a bit longer to process returns in attempts to avoid identity
basis reporting requirements become “older”, more and more investment
transactions are becoming “covered”, which increased filing efficiency.And there is now more uniformity in 1099-B
reporting by brokerage and mutual fund houses.While there were still corrected Year-End Tax Reporting Statements
issued by brokerages, there seemed to be less corrections (not more than one
per account), and they were issued earlier in the season than past years.
the first year that Obamacare Forms 1095-B and 1095-C were required.The IRS delayed the filing deadline for these
forms until mid-March – and we learned late in 2016 that this will continue
during the 2017 filing season as well. Most arrived after I had already prepared a
client’s return.I got tons of emails in
late March with attachments of 1095-Bs and Cs, which wasted some valuable
time.In most cases, as I have been
telling clients when they ask about these forms, they are just additional
wasted government paperwork and I really do not need these to determine if
clients are covered by “appropriate” insurance.All I need is the client’s representation that all applicable family
members were adequately covered for the entire year. Thankfully the few 1095-As I needed were all
issued in early February.
none of my clients had to pay the Obamacare “shared responsibility” penalty,
the very few without insurance were exempt due to “affordability”, and only a
handful of returns involved the advance premium credit reconciliation.
discover an issue involving the “second lowest cost silver plan” numbers that
are included in the calculation of the allowable credit.In one case the numbers provided for 2015
were substantially different, higher (and therefore resulting in a lower
allowable credit amount), than the numbers given for 2014 for the same family
situation.When I went to the
Marketplace website tool to search for the SLCSP numbers for 2015 using the
family’s information I came up with different, lower, numbers.I used the lower online amount in the
reconciliation, with an attached statement of explanation, which resulted in a
smaller credit payback.
state side – I was extremely pleased with New York’s new “enhanced” online Form
IT-201 and IT-203 “fill-in” (but manually filed) forms.The “enhancement” automatically did the math
and actually calculated the tax – saving valuable time.I used the new enhanced process for all of
the 20+ New York returns I prepared – and continued to add to my invoice a
$5.00 “New York State Tax Preparer Extortion Fee Surcharge” for all clients
with NY state returns.
to use NJWebFile to electronically submit NJ-1040s directly to Trenton, free of
charge and without a “middleman” (I wish the IRS would initiate a similar
program), whenever possible (unless specifically forbidden by the client’s
request).However there are still too
many situations where this option is not available.When I had to manually prepare the return for
the client to mail I used the online “Fill-In” Form 1040, which did some math
but did not automatically calculate the tax.I did not encounter any issues with NJ returns.
apparently especially efficient this season - I ended it with slightly less
than half the number of GD extensions than last year, only 24, and most because
of late receipt of client “stuff”.This
may be the least amount of GDEs since I began keeping track of season-end
GDEs!To pat myself on the back, all returns that
were in my hands by the deadline of March 19th that I announced to clients in
my annual January mailing were dealt with during the “season”.
I do think
the delayed filing deadline – April 18 instead of April 15 this year – and the
additional day provided by being a leap year did help somewhat in reducing
season-ending GDEs.As usual the tax
season ended for me not on April 18th but on April 17th.
Jersey residents.You are paying too much
New Jersey state income tax – and it’s nobody’s fault but your own!
Most NJ taxpayers concentrate on their federal tax
return and spend minimal time on their NJ return, simply taking numbers from
the 1040 and putting them on the NJ-1040.As a result they are paying more NJ state tax than necessary, often
paying tax on income that is not even taxed by NJ.
By becoming informed on NJ state tax law and using
proper tax planning you can make sure that you pay the absolute least amount of NJ Gross Income Tax possible for your
I just finished preparing the January 2017 issue of
my unique newsletter for NJ taxpayers – THE
I have been preparing NJ-1040s for as long as there
has been a NJ-1040, and federal income tax returns for even longer.I created THE NJ-1040 LETTER to share
my knowledge and experience from over 40 years as a professional tax preparer
to help you experience the joy of avoiding NJ state taxes.
Published 6 times a year (January, February, March,
April, July, and October), each issue will contain valuable NJ state tax-saving
advice and information, updates on NJ state tax law, NJDOT rules and
regulations, court cases, and the special NJ property tax relief programs, and
links to online resources to help you in planning for an preparing your
NJ-1040.Also included in each issue
will be special forms, schedules, and worksheets to help you during the year
and at tax time.
This is the only
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preparation advice for the NJ-1040.
A one-year subscription to THE NJ-1040 LETTER
delivered as a pdf email attachment is only $11.95.A print edition sent via postal mail is also
available for $24.95.Subscribers will be offered special discounts
on other tax-saving reports throughout the year.
As a New Year Special – if your order is postmarked
in January 2017 you can receive a one-year email-delivered subscription for only $8.95!
You can check out a free copy of the premiere July
2016 issue by clicking here.
To order your subscription send your check or money
order payable to TAXES AND ACCOUNTING, INC for $8.95 or $24.95, and your email
or postal address, to –
2017 – a quarterly newsletter of my TAX INSIGHTS.In it I will discuss in detail ways and means
to allow you to pay the absolute least amount of federal income tax legally
possible, and provide helpful forms, schedules, worksheets and other resources.
I have just
“gone to press” with the premiere issue.In it I discuss –
THE YEAR OFF RIGHT
TRACK OF YOUR CHARITABLE CONTRIBUTIONS
TRACK OF INVESTMENT COST BASIS
some TAX PLANNING INSIGHTS and end with some FINAL ADVICE FOR PREPARING YOUR
2016 TAX RETURN.
also includes two special worksheets for subscribers to use to keep proper
separate track of acquisition debt and home equity debt, along with a detailed
example of how to use these worksheets.
The cost of
a one year (4 issue) subscription to ROBERT D FLACH’S TAX INSIGHTS is only $7.95(delivered as a “pdf” email attachment).A print version sent via postal mail is
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send your check or money order payable to TAXES AND ACCOUNTING, INC for $7.95
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Trump is not only President-elect, but he is also the hands-down winner of Tax
Vox’s Lump of Coal Award for the worst tax policy ideas of 2016.”
Donald Trump is the hands-down winner of every “Lump of Coal” and every “Worst
of 2016” list!And if not properly kept
in check he will be at the top of every “Worst of” list through 2020.
Also of note on Howard’s list, with my
agreement of their coal lump-ness, are –
#7 - Donald Trump’s refusal to disclose his
tax returns (should have been much higher on the list).
#4 - Olympic Medal Dross – “After years of trying, Congress voted to
exempt Olympic medalists from federal income tax on the value of their swag and
cash bonuses. The exemption is a windfall for professional athletes but does
little or nothing for struggling amateurs.”
#3 - Hillary Clinton’s proposed tax
increases on the rich – “It was no
surprise that Clinton wanted high-income households to pay higher taxes. The
problem was her penchant for making them so complicated.”My regular readers know that I oppose the
policy of punishing success and entrepreneurship and to “tax the rich” merely
because they can afford it.
Trump also made #2, earning him a trifecta,
with his 15% business tax, which “would
tax sole proprietors at 15 percent and wage earners at a top rate of 33 percent”,
another typically bad and poorly thought out Trump idea (did he have any that
Now we just have to wait to find out who
will be Russ Fox’s “2016 Tax Offender of the Year”.I would not be surprised if it was Trump.
* Jason Dinesen asks the question “Form 8976 — What is It?” at DINESEN TAX TIMES.I must admit I had to read the post to find out the answer.If you want to know what Form 8976 is you, too,
will have to read the post.
Need some stocking stuffers? Each of these tax-saving reports are only $1.00 each (sent as a pdf email attachment)or $2.00 for the print edition (sent via postal mail).
INTRODUCTION TO INCOME TAXES – A discussion to the very basic concepts of income tax.The first lesson of Tax 101, if you will.It is a perfect primer for the high-school student, or anyone, who is filing an income tax return for the first time.It includes 2016 basic tax information and a history of the federal income tax.
TAX PLANNING ALERT – A TAX-DEDUCTIBLE VACATION – This report explains in detail how to make your next vacation tax deductible by attending a job or business related conference or convention, and includes worksheets to help you keep track of your deductible expenses.
TAX PLANNING ALERT – REPORTING GAMBLING WINNINGS AND LOSSES - It has always been important for frequent gamblers to keep detailed “contemporaneous” records of gambling activity to minimize the tax cost of winnings, but recent developments have made this even more vital.This report explains the basics of the taxation of gambling activity and how keeping a gambling log for your casino visits can save you tons of taxes and includes valuable worksheets.
TAX PLANNING ALERT – TAX ASPECTS OF DIVORCE – It is vital that individuals involved in a divorce proceeding have the agreement carefully reviewed by a tax professional before it is finalized.Most divorce lawyers are clueless when it comes to taxes.Tax consequences, both current and future, must be considered and factored into many aspects of the divorce agreement and property settlement.This report provides basic information on the tax treatment of various divorce-related topics and discusses some of the tax considerations related to divorce decisions.
TAX PLANNING ALERT – FORMING AN LLC -The LLC, or Limited Liability Company, is the new entity of choice for both experienced entrepreneurs and new start-ups.An LLC combines the liability protection of a corporation with the flexibility and ease of filing as a sole proprietorship.Every sole proprietorship, whether a part-time sideline business or a full-time activity, should register with their state as an LLC – assuming the costs are not prohibitive. This report introduces you to the LLC, tells you how to register, and discusses what to do once you have created an LLC.
FYI - the worksheets contained in these reports are copyrighted material and for your personal use only. Order any of the above reports and I will also send you free of charge MY BEST TAX ADVICE!
Send your check or money order payable to TAXES AND ACCOUNTING, INC for $1.00 or $2.00 per report, and your email or postal address to –
Before I begin an FYI – the 2016 Form 1040
is now available to download.It is,
line-for-line, exactly the same as the 2015 Form 1040, except for the changes
in the standard deduction and personal exemption amounts.
I totally agree with the 7 items of
“craziness” that RWW identifies.While I
do admit I am not really very familiar with the “carried interest” item, I
expect from its constant criticism across the tax blogosphere that it should be
on the list.
And I most certainly also agree with the
“bottom line” of the post (highlight is mine) -
are only a few provisions, mind you. There
are thousands of pages of tax law needing reform. Although some parts of
our tax law make sense, many do not or lead to abuses. Besides, they inject a
level of complexity that no one would wish upon anyone. We need a better, simpler, fairer and flatter tax system.”
I discuss principles of tax reform at A TAX PROFESSIONAL FOR TAX REFORM.I also
explain why I believe that a simpler tax system will not adversely affect my
business at this site.
As an aside - I would replace the word
“Trump” with the word “Congress” in the title – idiot Trump can’t change any
laws, only Congress can.
I certainly do not advocate running out in
the next two weeks to buy a car just so you can get a sales tax deduction.But if you need a new car, or have been
thinking about purchasing a new car, doing it before the end of the year might
be a good move.
Currently you have the option of deducting
either state and local income tax or state and local sales tax if you are able
to itemize on your 2016 Schedule A.
First you must do a comparison to see which
type of tax will provide the greater tax deduction.In high state tax locations – New Jersey, New
York, California, etc – there is no contest, deducting state income taxes is
“more better”.But if you live in a
state with low or no state income tax, or your age or sources of income result
in low or no state tax liability, you should take a look.
You can deduct sales tax based on an amount
in an IRS-generated table – to which you can add the sales tax paid on “big
ticket” items like an automobile.The
2016 IRS state sales tax table has not yet been published (that I can
find).You can go here and use the
calculator for 2015 to get an idea of what you will be allowed.
Some words of wisdom from Jason (highlights
are his) –
will accept whatever you put into it.
If you don’t know what you’re doing,
your bookkeeping system can turn into a massive trainwreck!”
“Should You Keep Your Own Books?
only if you feel comfortable and you know what you’re doing. Know your
limits and when to ask for help.
Being able to plug numbers into
Quickbooks does not make you an accounting or bookkeeping expert.”
* The NATP recently sent me the following
information on tax relief for the victims of Hurricane Matthew -
of Hurricane Matthew, which took place beginning on October 4, 2016, in parts
of North Carolina, may qualify for tax relief. The declaration permits the IRS
to postpone certain deadlines for taxpayers who reside or have a business in
the disaster area.
areas that currently qualify include Beaufort, Bladen, Columbus, Cumberland,
Edgecombe, Hoke, Lenoir, Nash, Pitt and Robeson counties. Continue to check the
Tax Relief in Disaster Situations page to stay up-to-date on eligible areas and
updated deadlines. The IRS expects additional states to be included in the
deadlines falling on or after October 4, 2016, and on or before March 15, 2017,
have been postponed to March 15, 2017. This includes the 2015 individual returns
on extension originally due on October 17 and the January 17, 2017, deadline
for making quarterly estimated tax payments. Also included are the October 31
and January 31 deadlines for quarterly payroll and excise tax returns.
IRS automatically identifies taxpayers located in the covered disaster area and
applies automatic filing and payment relief. But affected taxpayers and their
tax preparers who reside or have a business located outside the covered
disaster area must call the IRS disaster hotline at 866.562.5227 to request
this tax relief.”
* FYI – I have updated my “What’s New In Taxes For 2017” compilation to include the newly announced 2017 standard
mileage allowance numbers.Click here to
NO tax software
package, or online filing service, is a substitute for knowledge of the Tax
Code, and NO tax software package, or online filing service, is a substitute
for a competent, experienced tax professional.
Do you need to find a qualified and competent tax