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.
As happens every year, according to a note on the New Jersey
Division of Taxation website, the – “Filing
deadline for 2016 Senior Freeze (PTR) Applications extended to October 18, 2017”.
Each year the application packages for the State of New
Jersey’s “Property Tax Reimbursement” (PTR) program for senior and disabled
homeowners, sent out at the end of February, states the filing deadline is June
1st.And each year as this
deadline approaches it is extended until at least mid-October.
You might ask, “Why not just make the deadline mid-October
upfront?”It seems, according to fellow
tax pro John Kelly, a former NJDOT employee, the June 1st deadline
is statutory – it is written in the bill that created the program.So to make mid-October the official annual
filing deadline the state legislature would have to pass an amendment to the
I do not actually prepare the PTR application, but I do
assist qualifying existing clients with it by providing the income information
from their tax return and explaining the filing process.While I do not have the time to deal with the
PTR during the tax-filing season, I do fill in the income page of the
application for clients in May.
Even though the deadline has been extended each year, making
the June 1st deadline basically meaningless, I fear that one year
the State will fool us by not
extending the deadline and therefore screwing seniors and the disabled to be
able to keep more money in the Treasury for the politicians in Trenton to waste
on pork and entitlements (for politicians).
While the application lists the income threshold as in
excess of $80,000, in addition to extending the deadline each year the State
also reduces the income threshold for the filing year to $70,000 at the end of
June to balance the budget, screwing many seniors and disabled homeowners out
of a check.No word yet whether or not
this will again happen with the 2016 PTR application – but I would not be
surprised if it does.
Fortunately qualified homeowners with incomes between
$70,000 and the stated threshold do not lose their “base year” and remain in
A point of information – all income is included in
calculating the income threshold, including gross Social Security benefits and
tax-exempt municipal interest and dividends.
* A very sad day in
the tax blogosphere.In THE ROTH AND
COMPANY TAX UPDATE BLOG’s “Last Post” on Friday June 2th author Joe Kristan
told us –
“Since I started blogging here around 2002, I
have had a great time. As we begin a new adventure, I will need to spend extra
time working to make our transition successful, so it’s time to bring the Tax
Update to a close.”
In an online
interview with Joe years ago he told me -
“I blog because I enjoy it, and because I
think it is good for me professionally.I have long started my day reading the tax news, so it wasn't a big leap
to start commenting about it.I think it
helps keep me sharp, and it helps me stay current on the ideas and issues out
there.And, of course, there's the
glamour, fan adulation and women.Well,
ok, none of those things, but there should be.”
I have enjoyed
Joe’s blog posts over the years, and lately used the “Tax Roundups” as my daily
source of tax BUZZ.I especially enjoyed
our occasional online debates and discussions, always respectful, on issues of
importance to tax professionals, and I thank Joe for his continued support of THE
WANDERING TAX PRO over the years.
The blog’s great
information and Joe’s expert commentary and his sense of humor will truly be
“While the move to overhaul the tax system
under the Trump administration’s tax reform proposal and the House GOP
Blueprint may aim to greatly simplify taxes, it won’t mean there will be any
less work for tax preparers.”
Here is what I have
said about why a tax pro wants tax simplification –
“Some people may wonder why a tax
professional is calling for a simpler tax system. Does not each new tax law,
and each complexity added to the code, put money in our pockets? Is not a more
confusing Tax Code better for business?
I believe that a much simpler tax system would not hurt
our business. I sincerely believe 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 needed.
Most clients would not decide to do their own returns
if the tax system was simplified; they would continue to come to us.Most taxpayers who use a tax professional
simply don’t want to be bothered with the task of preparing their tax return,
and want to make sure they do not miss anything.”
And even with a
simpler Tax Code taxpayers will still need us to prepare Schedules C, D, E, and
Fellow tax pros, do
As for the
likelihood of substantial tax reform being passed this year – normally,
considering the fact that the Republicans control both houses, I would expect
this to happen, but when you factor in the current nut job in the White House I
would not bet on it.In any case I do
not think there will be any big changes to the 2017 Form 1040.
It appears that the
American public considers most politicians to be ethically-challenged and of questionable
character, and in many cases this may be to some degree true.
But no American politician or public figure has
ever been as obviously devoid of ethics and character, as self-centered and self-absorbed,
and as just plain stupid, based on a lifetime of words and deeds, as the
current nut job in the White House – Donald J Trump.
And make no mistake
– delusional egomaniac Trump is truly a big loser.In business he has had more losses than wins
– because he sincerely believes that NOBODY can do anything better than he
can.The truth is that ANYBODY can to
ANYTHING better than Trump!
* While I do not
agree with EA Abby Eisenkraft’s view of the 2017 tax-filing season, as
expressed in “Why This Tax Season Was Especially Tough” at ACCOUNTINGWEB.COM –
I found the tax filing season went very smoothly and provided less agita than
past seasons - she does make an excellent statement about the tax preparation
profession that bears repeating and highlighting (mine) –
“Many people think a tax professional’s job
is easy. They think we work two-and-a-half months out of the year, throw some
numbers in boxes, and do something that really anyone could do because their
return is ‘straightforward’. We in the tax trenches know that’s nothing close
to the truth. This is a physically and
mentally demanding job, with punishing hours, dealing with a public that has
been brainwashed by commercials to believe that a refund is something you are
entitled to, and it doesn’t take any training to prepare taxes. Another tax
practitioner said it best when she said that she didn’t think her electrician was a genius, but she still didn’t
want to attempt to wire her own home.”
observation worth repeating -
“As we always do each tax season, my office
fixed many DIY mistakes, as the taxpayers realized they were in over their
heads and needed professional assistance. And most, if not all, of the DIY
returns were done using TurboTax.”
excerpts from the piece (highlights are mine) –
·“To me, none of what he has said or done over
the past four months as president comes as a surprise.”
·“Early on, I recognized that Trump’s sense of
self-worth is forever at risk. When he
feels aggrieved, he reacts impulsively and defensively, constructing a
self-justifying story that doesn’t depend on facts and always directs the blame
·“Trump was equally clear with me that he didn’t value — nor even necessarily
recognize — the qualities that tend to emerge as people grow more secure, such
as empathy, generosity, reflectiveness, the capacity to delay gratification or,
above all, a conscience, an inner sense of right and wrong. Trump simply
didn’t traffic in emotions or interest in others. The life he lived was all
transactional, all the time. Having never expanded his emotional, intellectual
or moral universe, he has his story down, and he’s sticking to it.”
·“A key part of that story is that facts are whatever Trump deems them to be
on any given day. When he is challenged, he instinctively doubles down —
even when what he has just said is demonstrably false. I saw that countless
times, whether it was as trivial as exaggerating the number of floors at Trump
Tower or as consequential as telling me that his casinos were performing well
when they were actually going bankrupt.”
for unquestioning praise and flattery also helps to explain his hostility
to democracy and to a free press — both of which thrive on open dissent.”
The bottom line –
idiot Trump is obviously mentally unstable and unfit to serve as President of
the United States.This true “nut job”
MUST be removed from office ASAP for mental incompetence via the 25th
Amendment to the Constitution.
the years I have seen many clients who have, without first consulting me, taken
money from their 401(k) plans, while still employed, to assist in paying for
excessive medical expenses, college tuition, or a downpayment on a home.
This is a very expensive way to get
money.A loan shark might be cheaper!
taken from a 401(k) plan will be fully taxed on a federal and state level and,
if you are under age 59 ½ when you take the money, as has been the case in most
of what I have seen among clients, you will also be subject to the 10%
premature withdrawal penalty.
most cases 40% or more of the amount
taken from the account will be eaten up by federal and state taxes and
penalties!So if you take $10,000
from your 401(k) you will end up in pocket with less than $6,000.
is similar with premature withdrawals from a traditional IRA, but with an IRA
you might have a “basis” in your traditional IRA investment based on
non-deductible contributions so the entire amount of the withdrawal may not be
taxable.With a ROTH IRA you can
withdraw your contributions at any time without tax or penalty.
are a limited number of exceptions that could allow you to avoid the 10%
premature withdrawal penalty – but you
would still need to pay federal and state income tax on the withdrawal.Some exceptions apply to withdrawals from
both 401(k) plans and traditional IRA accounts, and some apply only to premature IRA distributions.
can avoid the 10% penalty if you take money out of a 401(k) plan, or a
traditional IRA, “to the extent
unreimbursed medical expenses exceed 10% (or 7½% if the lower threshold is
reinstated) of AGI”.So you can
avoid the penalty on the amount of medical expenses that would be deductible on
you take $10,000 from your 401(k) to pay for an excessive medical bill not
fully covered by insurance (this would NOT include elective cosmetic surgery)
and when you sit down to prepare your tax return you determine that your total
allowable medical expenses for the year are $20,000 and your AGI is $110,000,
you can avoid the 10% penalty on $9,000 of the withdrawal ($20,000 – $11,000 =
$9,000).You would still pay $100 in
premature withdrawal penalty.
in most cases of client 401(k) distributions the money has been used either to
pay for college or for a downpayment on a house.Money taken directly from a 401(k) plan for these
purposes will be subject to the full 10% penalty.
money taken from an IRA account and used for either of these two purposes is
exempt from the penalty.In the case of
a downpayment on a home, the exemption is limited to $10,000 withdrawn and only
applies for “first-time” home purchases (no home ownership in prior two
to the IRS, expenses that qualify under the college exception include –
“ . . . tuition, fees, books, supplies, and
equipment required for enrollment or attendance at an eligible educational
institution. They also include expenses for special needs services incurred by
or for special needs students in connection with their enrollment or attendance.In addition, if the student is at least a
half-time student, room and board are qualified education expenses.”
amount of expenses allowed must be reduced by any tax-free educational
if you want to invade your 401(k) plan for college expenses or a home
downpayment first check with the plan to see if you can have the amount of the
withdrawal transferred (rolled over) trustee to trustee from the employer plan
directly to your traditional IRA account.Or take the distribution from the 401(k) and immediately rollover the amount yourself into the IRA account. When that has been done take the amount of the
transfer as a distribution from the IRA account and use the IRA money to make
the college or home purchase payments.
of taking an actual withdrawal from your 401(k) you may be able to take a loan
from the account.Taking a loan from a
401(k) plan is not a taxable event.However be aware that you must pay the money back to the plan, perhaps
with some interest, before you leave the company.If your employment is terminated you must pay
back any outstanding 401(k) plan loan balance within a short period of time or the
unpaid balance will be treated as a distribution, subject to income tax and
penalty at that time.
best advice I can give you is donot take the money from your 401(k) plan,
or second best that if you are thinking
about taking money from your 401(k) plan to pay for anythingtalk to your tax professional first!If my clients had come to me they would
have saved a lot of money.
As it is college
graduation time I thought I would reprint some advice to recent graduates that
I had given in a post from a couple of years back.
Dear Graduate -
1.Claim Single-1, or Single-0, on your Form W-4
for federal and state withholding.Do
NOT claim more than 1 exemption.
2.Participate in your employer’s 401(k) or
403(b) plan.If cash-flow permits,
contribute the maximum, which for 2014 is $17,500.If you cannot contribute the maximum try to
contribute at least enough to qualify for the maximum amount of any employer
matching contribution.If your employer
offers a ROTH 401(k) or 403(b) option choose this option.As an alternative, if you are contributing
the maximum put 50% in a “traditional” account and 50% in a ROTH account.
3.If you contribute toward the cost of
employer-paid group health insurance premiums via payroll deduction, and you
are offered an option, elect to have your contributions be treated as
4.Participate in your employer’s medical
expense Flexible Spending Account (FSA).Be conservative and start with $1,000.You can increase your contribution in subsequent years once you get a
handle on your annual out-of-pocket medical expenses.
5.If you have any cash from graduation gifts
left over open a ROTH IRA account and use this money to fund your 2014
contribution.The maximum you can
contribute to an IRA, “traditional” and ROTH combined, for 2014 is $5,500.
6.Take an empty coffee can, or other form of
“piggy bank”, and put it in your bedroom.Each week put $10, $20, or $50 in this “bank” (if you choose $20, but
$20 in each week).On January 2nd of
2015 take the money that has accumulated in this “bank” and contribute it to
your ROTH IRA for tax year 2015.Continue this practice for 2015 and subsequent years.
And if you are
thinking about becoming a tax preparer I offer my advice in my new book SO YOU
WANT TO BE A TAX PREPARER.
In this book I discuss
in detail -
HOW TO PREPARE TAX RETURNS
PREPARER MEMBERSHIP ORGANIZATIONS
RESPONSIBILITY – ETHICAL PRACTICES
A BLOG TO PROMOTE YOUR TAX PRACTICE
YOUR TAX PRACTICE
The APPENDIX includes
copies of a Code of Ethics, Standards of Professional Conduct, an Engagement
Letter and the TAX PROFESSIONAL’S ONLINE RESOURCE GUIDE.
This book can also
provide help to tax preparers who would like to expand their practice.
The cost of this book
is only $5.45 delivered as a pdf
email attachment, or $9.45 for a print version sent via postal mail.
To order your copy of
this book send your check or money order payable to TAXES AND ACCOUNTING,
INCORPORATED, and your email or postal address, to –
While I, like any tax pro, am interested in
the tax treatment of unique circumstances – and Kay does a good job of
discussing the tax issues here - the
much, much more important questions raised about idiot Trump’s trips are the
excessive unnecessary costs to taxpayers and the resulting blatant lining of
Trump’s and his family’s pockets based on his choices of venue for week-end
Conflict of interest issues aside, Kay
points out that (highlight is mine) –
cost of just Trump's air travel for two weekends in Florida, according to a
recent Wall Street Journal examination, was $1.3 million.”
The post quotes the delusional egomaniac
(excellent and spot on description, SC) as explaining –
reason I am staying in Bedminster, N.J., a beautiful community, is that staying
in NYC is much more expensive and disruptive. Meetings!"
Trump, you arrogant and selfish buffoon, the White House is to be used for
meetings.It is your office!
When discussing the golf outings of the
idiot in the White House I do point out one benefit of these trips - the more time the fool spends playing golf
the less time he has to do damage to the country and the world.
* Once again I ask - have you seen my
latest THE LIBERTY TIMES installment?I
discuss tax reform.I provide more
details on my tax reform proposals and suggestions here.
* Here are some good quotes from an
editorial on the dreaded Alternative Minimum Tax by Roberton C. Williams in
“Caught Again By the AMT” at TAX VOX, the blog of the Tax Policy Center -
“ . .
. the AMT was created nearly 50 years ago after Congress learned that 155
Americans with income over $200,000 paid no federal income tax in 1967. In
1970, fewer than 50,000 filers paid barely $100 million in AMT. For 2016,
nearly five million of us paid AMT averaging about $7,200, raising our
effective tax rates by an average of 1.4 percentage points and boosting federal
revenues by about 1 percent.”
AMT was originally intended to prevent people from taking unfair advantage of
tax preferences to avoid paying income tax. And the recent high-profile example
of President Trump was held out by some as evidence. But in reality, the tax
often fails to meet that goal. In 2013, about 12,000 households with income
over $200,000 paid no federal income tax, despite the AMT.”
objection to the AMT is not that I pay too much tax but rather that it makes
the income tax even more impenetrably complex. It’s hard enough for people to
understand the regular tax without tacking on additional calculations. And
taxpayers won’t trust a system they don't comprehend--or believe raises revenue
in a fair way.”
The initial creation of the Minimum Tax was
an excellent example of the laziness of Congress.Instead of dealing with the loopholes that
permitted the high income individuals to avoid paying taxes they created this
second tax system, which has truly grown into a monster.
One of the good things in idiot Trump’s
cocktail napkin scribblings that he recently presented as his “tax reform plan”
is ending the AMT.Let us hope this ends
up in the actual detailed legislation eventually presented by the Republicans
* Want my 1040 insights in your in
If you make errors on your tax return and
the IRS audits you, you can’t get off the hook by saying “the software made me
Russ’s bottom line –
your tax return has only W-2 income and, say, mortgage interest and property
tax, TurboTax will likely do an excellent job. If you have a divorce settlement
with a restatement of the amount of alimony due, interest tracing, and a Net
Operating Loss carryforward, it might pay to get some expert help.”
My bottom line – no
tax preparation software is a substitute for knowledge of the Tax Code and no
tax preparation software is a substitute for a competent, experienced tax
professional.Remember – garbage in, garbage out.
I also had a client who received a letter
from the IRS telling him that his refund could not be processed because he was
dead – although it is odd that if the IRS thought he was dead why were they
sending him a letter?Check out “You Can’t Make This Stuff Up”.
The Russia issue is an important one and
must be thoroughly investigated.But so is the issue of Trump’s mental
instability.This issue needs as much
press and discussion and investigation as any of the other issues involved with
the Trump Presidency – perhaps more.
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 particular
Whether or not you
use a professional tax preparer, the more you know about NJ taxes the more you
will be able to properly structure your financial transactions during the year
to minimize taxes and the better prepared you will be when giving your “stuff”
to your preparer at tax time.
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 share my
knowledge and experience from over 40 years as a professional tax preparer in
my new book THE JOY OF AVOIDING NEW JERSEY TAXES to help you to learn how to
pay the absolute least amount of NJ Gross Income Tax possible.
In THE JOY OF AVOIDING
NEW JERSEY TAXES I discuss -
+ INTRODUCING THE NEW
JERSEY GROSS INCOME TAX
+ AVOIDING THE NJ
MARRIAGE PENALTY BY FILING SEPARATE RETURNS
+ CLAIMING DEPENDENT
COLLEGE STUDENTS ON THE NJ RETURN
+ RECONCILING FEDERAL
AND STATE WAGES
+ REPORTING INTEREST
AND DIVIDEND INCOME
+ REPORTING NET
PROFITS FROM A SCHEDULE C BUSINESS
+ NJ STATE TAX
PLANNING FOR CAPITAL GAINS
+ TAKING ADVANTAGE OF
THE 3-YEAR RULE FOR PENSION DISTRIBUTIONS
+ CALCULATING TAXABLE
+ REPORTING INCOME
FROM PARTNERSHIPS AND SUB-S CORPORATIONS
PARTNERSHIPS AND THE OTHER RETIREMENT INCOME EXCLUSION
+ MAXIMIZING THE
DEDUCTION FOR MEDICAL EXPENSES
+ CALCULATING THE NJ
PROPERTY TAX DEDUCTION
+ CALCULATING TAXABLE
NEW YORK NON-RESIDENT INCOME
+ AMENDING YOUR
It also contains several valuable schedules and worksheets. As far as I am aware, this is the only book in existence that deals exclusively with tax planning for and preparation of NJ state income taxes.
book is currently in the process of being proofed before publication.I expect it will be available during the
summer.Once I “go to press” the cost of
this valuable resource for NJ taxpayers will be only $9.95delivered
as a pdf email attachment.A print
version sent via postal mail is available for $15.45.
The first 100 people who order this
book before I “go to press” will receive a special “pre-publication” discount of 40%- so the cost is only $5.95 delivered as a pdf email
attachment (once it has been published) or $9.25 for the print version
delivered via postal mail.
order send your check or money order payable to TAXES AND ACCOUNTING, INC, and
your email or postal address, to –
I must remind you that this is NOT a final law – and I expect many
changes to be made to the bill in the Senate.So nothing mentioned in this
article is currently, or may actually become, tax law.
The bill does away with the bad of the
Affordable Care Act - the individual mandate and the employer mandate, retroactively
effective beginning in 2016, the 3.8 percent net investment income tax, the 0.9
percent additional Medicare tax, effective 2023, the higher floor for medical
expense deductions, and the various nickel and dime fees and charges.The current Premium Tax Credit system is
replaced with refundable tax credits, which may have an advance payment
component, effective in 2020.
In her opening paragraph she suggests “the Trump administration released its
highly-anticipated tax reform plan”.What tax reform plan?What the
idiot “released” was the equivalent of notes on a cocktail napkin.
I am sure the Republican Party will soon be
presenting a detailed tax reform plan – certainly more thought out and
substantive than what the idiot in the White House “released” – and I expect it
will affect retirement planning.But I would
wait until the release of the real plan before spending any time in thought.
Only interested in his own ego, Trump wants
to shut down the government to get the nonsense he wants.
The post has one good item of note
regarding the IRS budget -
* . . . the fiscal
year 2017 budget deal keeps the agency's funding at $11.2 billion. That's the
same as last year's level.”
The idiots in Congress had been
consistently reducing the IRS budget while continuing to erroneously give it
additional work related to delivering government benefits via the Tax
Code.At least they have proven, thankfully,
that they are not as stupid as the idiot in the White House (nobody is – except
perhaps for some of his apologists/explainers), and the IRS budget has not been
Now we only need to rewrite the Tax Code,
stop the IRS from being forced to use outside collection agencies, and get some
competent management at the IRS.
my experience, many people form S-corps way, way too soon, and then get mad
because the tax savings end up not being worth the hassles and headaches.”
A benefit of an S-Corp is the ability of
the shareholder avoid the double taxation of “regular” corporation dividends
when taking cash, other than salary and expense reimbursements, out of the
corporation.And there is also a benefit
for new corporations with initial losses – allowing the shareholder to deduct
the losses on his or her personal return.But, as with any other tax option, careful thought must go into the
decision to elect Sub-S status.
THE FINAL WORD
Idiot Trump is truly mentally ill and must
be removed from office before he does real, irreparable damage to the country
and the world.