Thursday, November 30, 2017
It’s here! The 34th annual PNC Christmas Price Index, that is.
The PNC Christmas Price index reports the cost to purchase the gifts included in the classic holiday song “The 12 Days of Christmas”.
PNC tells us “ . . . the 2017 price tag for The PNC Christmas Price Index at $34,558.65, approximately $200 or 0.6 percent more than last year's cost and less than the government's Consumer Price Index, which increased 2.2 percent through September for the past 12 months.”
The only increases in the included items are –
* a 5.2% jump in the cost of the pear tree in which a partridge resides, due to a limited supply of larger more mature trees,
* a 10% increase in the cost of gold rings, due to increased demand and popularity, and
* a 2% pay hike for leaping lords, who apparently have a better union than musicians, milking maids and dancing ladies.
The chief economist of a bank in Philadelphia, which eventually became part of PNC, began estimating the cost of the 12 Christmas gifts in 1984 as a holiday client letter. This year's price is 83 percent higher than the inaugural report 33 years ago.
For those who prefer the convenience of online shopping the Index also calculates the cost of the gifts purchased on the internet. As online costs are higher due to travel and shipping, the total cost is $45,096, $10,538 more than “in store” purchases. The internet Index reflects a $493.90 or 1.1% increase over 2016.
The actual true cost of every gift in the song (with each previous day’s purchases repeated over the 12 days) is $157,558 in store and $204,848.65 online.
Wednesday, November 29, 2017
(1) The Social Security Administration announced on Monday that it has revised the 2018 taxable wage base –
“The new amount for 2018, based on updated wage data reported to Social Security, is $128,400.”
In a press release the SSA explained -
“Based on the wage data Social Security had at the time of the October 13, 2017, announcement, the maximum amount of earnings subject to the Social Security tax (taxable maximum) was to increase to $128,700 in 2018, from $127,200 in 2017.”
“This lower taxable maximum amount is due to corrected W2s provided to Social Security in late October 2017 by a national payroll service provider. Approximately 500,000 corrections for W2s from 2016 resulted in changes for three items based on the national average wage: the 2018 taxable maximum, primary insurance amount bend points--figures used in the computation of Social Security benefits--and family maximum bend points. No other items based on national average wages were affected.
The change to the taxable maximum does not take effect until January 2018, and the updated bend points in the benefit computation only apply to people who initially become eligible for Social Security benefits in calendar year 2018. This does not affect current beneficiaries.”
As a result of this revision, the maximum withholding for Social Security tax in 2018 is now $7,960.80. And for 2018 the self-employment tax imposed on self-employed people is 12.4% Social Security tax on the first $128,400 of self-employment income, for a maximum of $15,921.60, plus 2.9% Medicare tax on the all self-employment income.
(2) I recently received the following email reminder from the New Jersey Division of Taxation.
“Starting January 1, 2018, the Sales and Use Tax rate will decrease from 6.875 to 6.625%.
Please prepare to update your records accordingly. The new tax rates will be:
* Atlantic City Luxury Tax-
12.625% (9% Atlantic City Luxury Tax and 3.625% New Jersey Sales and Use Tax for sales subject to both taxes ‒ other than alcoholic beverages by the drink);
9.625% (3% Atlantic City Luxury Tax and 6.625% New Jersey Sales and Use Tax for alcoholic beverages that are sold by the drink in Atlantic City);
* Boat and Other Vessels Sales Tax ‒ 3.3125% (50% reduced rate);
* Cape May County Tourism Tax ‒ 8.625% (6.625% New Jersey Sales and Use Tax and 2% Tourism Tax for Wildwood, Wildwood Crest, and North Wildwood). This rate is in addition to the 1.85% Tourism Assessment and the 3.15% State Occupancy Fee on hotel occupancies;
* New Jersey Sales and Use Tax ‒ 6.625%;
* Salem County Sales Tax ‒ 3.3125% (50% reduced rate);
* Urban Enterprise Zone Sales Tax ‒ 3.3125% (50% reduced rate).
If you have any questions:
* Visit here for more information about New Jersey Sales and Use Tax or
* Call the Division of Taxation's Customer Service Center at 609-292-6400. We're available Monday, 8:30 a.m. to 5:30 p.m. and Tuesday through Friday, 8:30 a.m. to 4:30 p.m., except State holidays.”
Tuesday, November 28, 2017
The upcoming holiday season is a time for giving. So now seems like a good time to “rerun” a post from last year to review the rules for deducting donations.
You can deduct as a charitable contribution on Schedule A (if you are able to itemize):
* Cash or property (appliances, books, clothing, computer hardware and software, electronics, furniture, household items, toys, videos, etc.) contributed to a qualified tax -exempt organization created or organized in the US or any possession under the laws of the United States or any state or possession.
* Out-of-pocket expenses connected with donations or volunteer service to a qualifying church or charity, such as the cost of the ingredients of homemade cookies or a cake donated to a church bake sale, or the cost and laundering of uniforms for a scoutmaster.
* Travel and transportation expenses incurred while performing a volunteer service for a qualifying church or charity. If you use your car you can deduct 14 cents per mile plus any parking fees and tolls.
* The portion of the cost of a ticket to a fund-raising event that exceeds of the “fair market value” of goods or services received. If you buy a ticket for a fund-raising dinner for $100 and the cost of the dinner is $35 you can deduct $65.
* Rebates earned on credit card purchases that the cardholder elects to have the credit card company give to a qualified charity. These rebates are not taxable income to the cardholder.
The following items are not deductible:
* Contributions made directly to an individual or family, regardless of the recipient’s financial or health status.
* Contributions to an organization created to lobby for changes to federal, state or local laws.
* Contributions to political organizations or election campaigns.
* The value of blood donated.
* The value of your time to perform volunteer services.
* Contributions to non-profit homeowner or condo associations, or social or sports clubs.
* Raffle tickets. These can, however, be deducted as gambling losses if you have any gambling winnings to report.
* The rental value of the use of a vacation property donated to charity for a “vacation auction ”.
If you plan to make donations to a church or charity AND claim a charitable itemized deduction on your 2017 Schedule A you MUST have -
(1) Documentation of your contribution.
(2) A contemporaneous written acknowledgement from the church or charity for any single donation of $250 or more.
Acceptable documentation includes-
* a cancelled check,
* a bank record (i.e. a copy of the front of the check included on your monthly bank statement),
* an entry on a bank or credit card statement indicating a credit or debit card charge,
* a written acknowledge from the church or charity, or
* if you give to the United Way or other charity via payroll deduction a pay stub, Form W-2, or other employer furnished document that sets forth the amount withheld for payment to the charity, along with a pledge card prepared by or at the direction of the charity, will be appropriate documentation.
The written acknowledgement from a church or charity must include the organization’s name and address, the date and amount of the contribution, and indicate whether you were provided any goods or services (other than “intangible religious benefits”) in exchange for the donation. To be able to claim a deduction for the full amount of your contribution the acknowledgement must state - “No goods or services were provided in exchange for the donation”.
To be “contemporaneous” the acknowledgement must be received from the organization before the earlier of the date the original tax return is filed or the extended due date of the tax return.
You can claim a deduction for the “fair market value” of new or used items donated to a qualifying church or charity. According to the IRS, fair market value is the price a “willing, knowledgeable buyer would pay a willing, knowledgeable seller when neither has to buy or sell.” If you contribute new food, toys, clothing, or other items you can deduct the actual cost of the items donated.
You are responsible for determining the fair market value of the items you are donating. The charity to which you make the donation is not required to provide you with a value. The same rule discussed above applies if the total value of “non-cash” items donated to a charity in a single day is more than $250.
Whenever you contribute used items you should always make and keep a detailed listing of what you have donated with the condition and value of each set of items (i.e. 6 pairs of men’s pants, good condition, $60, 5 pairs of men’s shoes, good condition, $75). You cannot deduct the contribution of a used item of clothing or household item unless the item is in at least "good" condition. Donations of clothing and household items with a minimal monetary value, such as used socks or underwear, are also not deductible.
Special rules also apply if you donate a car or marketable securities to a church or charity. I will discuss these rules in a subsequent post.
If you have any questions on charitable giving I suggest your consult your, or a, tax professional.
Monday, November 27, 2017
Not much BUZZ last week, due to the Thanksgiving holiday. But there were a few posts of interest to note.
By the way - did you know that at the annual Trump family Thanksgiving dinner arrogant idiot Donald T Rump goes around the table and has everyone tell why they are thankful for him.
* Kelly Phillips Erb, the FORBES.COM TaxGirl, reminds us “With Year-End on The Way, Don't Forget About Tax Form Due Dates”.
* And KPE also reminds us that it is that time of year again, and tells us to “Get Your Nominations in Now: 12 Days of Charitable Giving”.
* Filling out a trifecta of reminders, Kelly discusses the optional deduction for state and local sales tax in “This Holiday Shopping Season May Be Your Last Chance to Deduct Sales Taxes”.
* Today at THE TAX PROFESSIONAL – "The Third Annual Review of Required CPE for NYS Tax Preparer Registration Renewal".
Did you see last Wednesday’s post on “A National Sales Tax”?
* Kay Bell reports “Trump has filed his 2016 taxes, or so it seems from remarks by former IRS commissioner” at DON’T MESS WITH TAXES.
The question is not whether arrogant idiot Trump filed his 2016 tax return. The question is - did the arsehole actually pay any tax?
* GIBBONS PC Corporate & Finance News provides a good review, and comparison, of the "Business Tax Highlights of the House and Senate Tax Bills".
THE FINAL WORD
How sad that Republican continued support of arrogant demagogue Donald T Rump and Ray Moore makes this satirical post truly believable – “Poll: Majority of Evangelicals Would Support Satan If He Ran As Republican Candidate”.
As for the title - I thought they already did!
Friday, November 24, 2017
I hope you had a successful Thanksgiving.
As today is “Black Friday”, here are some suggestions for Christmas gift purchases -
You can now purchase my book THE JOY OF AVOIDING NEW JERSEY TAXES from AMAZON.COM to read as an e-book on Kindle FOR $9.99. I share my knowledge and experience from 45 years as a professional tax preparer to help you to learn how to pay the absolute least amount of NJ Gross Income Tax possible. This is the only book I know of that deals exclusively with tax planning for and preparation of NJ state income taxes
I have also converted my book AN INTRODUCTION TO SELF-EMPLOYMENT: THE BASICS OF SCHEDULE C to e-book format. It is available from AMAZON.COM for $8.99.
Are you thinking about starting a business – either full-time or part-time? Or will you be starting a business in the near future? This book is an extensive “must-have” guide for the newly self-employed sole proprietor who will be reporting business income and expenses on Schedule C, and also a good source of information and advice for the already existing business. It covers a wide range of topics related to tax planning and preparation for Schedule C filers.
And finally there is SO YOU WANT TO BE A TAX PREPARER, available at AMAZON.COM for $5.99.
I love my profession, and share my advice and comments on the tax preparation business for those who are thinking about becoming a paid tax preparer. This book can also provide help to tax preparers who would like to expand their 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. To read a review of this book click here.
The first two books each have a compilation of forms, schedules and worksheets that are not included in the Kindle e-book version. I will email the compilation to those who purchase this version. Email email@example.com, with KINDLE EBOOK WORKSHEETS in the subject line, and proof or confirmation of purchase “attached”, and I will send you the appropriate forms, schedules and worksheets compilation as a “word document” email attachment.
To order any or all of these e-books go to my AMAZON.COM “Author Page".
For pdf and print editions click here.
Thursday, November 23, 2017
Wednesday, November 22, 2017
As I told you in Monday’s BUZZ introduction, I recently attended the National Association of Tax Professionals’ (NATP) annual year-end tax update class “The Essential 1040”.
I provided a “review” of the class I attended in Parsippany NJ for my fellow tax pros in “The 2017 NATP ‘ESSENTIAL 1040’”.
This class covered the new COLA and inflation-adjusted numbers for tax year 2017 (which I have compiled here), that we preparers will use during the upcoming tax filing season, and new tax law, Tax Court decisions, IRS regulations, and other developments that will affect 2017 returns.
There has not been any substantive new tax legislation, nor any new developments of consequence, and not much of real value of interest to report here.
I did learn that, in addition to the “normal” Standard Mileage Allowance” for business, charitable, medical, and relocation driving, there is also a specific Standard Mileage Allowance for business use of motorcycles and airplanes – for 2017 the amount for motorcycles is 50.5 cents per mile and for airplanes is $1.15 per mile.
A draft copy of the 2017 Form 1040 was included in the workbook, and it appears the only change is to Line 34 on Page 1, previously the line to claim the Tuition and Fees adjustment to income, which now reads “Reserved for future use”.
We were told that the instructions for the 2017 Form 1040 will tell taxpayers who are not requesting direct deposit of their refund to put X’s in all of the boxes at 76b and 76d, where you would enter the bank account information, so crooked IRS employees could not enter their own personal bank information, which, apparently, has been done in the past.
The class included a discussion of the continued concerns of National Taxpayer Advocate Nina Olsen about the use of, and abuse by, outside collection agencies to collect outstanding tax debt, required, despite a history of pervious failures, by the idiots in Congress.
As fellow tax blogger Kelly Phllips Erb, FORBES.COM’s TaxGirl, pointed out in a discussion of this issue when Congress first passed the law that required this nonsense -
“About 20 years ago, the IRS tried their hand at using private debt collectors. That lasted a year and was canned amid complaints about unfair practices and harassment. Congress made another go at private tax debt collectors during the George W. Bush administration as part of the American Jobs Creation Act. It didn’t end happily. That program ‘resulted in a number of complaints, including one case in which a private debt collector made 150 calls to the elderly parents of a taxpayer’ even after the collection agency discovered the taxpayer was no longer at the address.”
“The 1996-1997 program resulted in a $17 million net loss to the government. That second go in the mid-2000s? Another loss of $4.5 million. Those aren’t costs. They’re losses.”
I doubt the third time will be the charm.
My advice to taxpayers who are contacted by a private collection agency about a tax debt has always been this - If you receive an IRS letter stating that your account has been referred to an outside agency, write to the IRS, and the assigned agency, and tell them that you refuse to deal with a private collection agency and will only deal directly with the IRS because of your privacy concerns.
I have always said -
Outside collection agencies don’t give a rat’s hind quarters about the legitimacy of an alleged outstanding tax debt. They only make money if they collect money, whether the money is actually due or not. And they will continue to unethically harass alleged tax delinquents, as they do when collecting alleged private debts, and as they been proven to have done in prior outsourcing programs.
It appears that NATP agrees, and included in the Appendix to the workbook for “The Essential 1040” class the following “Sample Letter For Returning Collection Cases From the Private Debt Collection Agencies to the IRS” –
Dear Agency Name,
I am in receipt of IRS letter CP40 assigning my account to your agency for collection actions. I am enclosing a copy for reference and am copying the IRS office that issued this letter on this correspondence.
Pursuant to the Fair Debt Collection Practices Act, I am instructing you to return my account to the Internal Revenue Service immediately for resolution. I will contact the IRS Collections division to pursue a resolution to this matter.
Please provide a written acknowledgement of receipt of this request confirming that my account is being returned to the IRS for resolution.
I am further requesting you immediately cease all attempts to contact me pursuant to the Fair Debt Collection Practices Act, except for the written acknowledgement that the account is being returned to the IRS.
Great letter, NATP! Thanks for providing this.
Tuesday, November 21, 2017
The House passed tax bill – the Tax Cuts and Jobs Act - is NOT as great as the Republicans say it is, and it is NOT as disastrous as the Democrats say it is.
It is a mixed bag – with good, bad, and ugly. It has some simplification, and also adds unnecessarily to the complication of the Tax Code.
It is most certainly NOT a “massive tax cut for the middle class”. And arrogant idiot Donald T Rump and his family benefit substantially from its provisions.
Whatever tax legislation is finally signed into law, if one is indeed finally signed into law – it will not deal with the practical implementation of the provisions of the Act. The idiots in Congress rarely, if ever, take this into consideration when writing tax law. It will be up to the Internal Revenue Service to establish the rules and regulations for implementation, up to the taxpayer and tax preparer to properly comply, and back to the IRS to verify compliance.
Let us look, for example, at the deduction for mortgage interest.
As I understand it, in the House bill existing mortgage debt is “grandfathered”, keeping the current rules for deduction. For all new mortgage debt incurred after November 2nd, or perhaps the date of enactment, the deduction will be limited to interest on principle of up to $500,000 of acquisition debt only for a taxpayer’s one primary personal residence. Interest on new home equity borrowing will no longer be deductible. I am assuming that additional borrowing for the “substantial improvement” of the primary personal residence will continue to be classified as acquisition debt.
The Senate’s final version keeps the mortgage interest deduction intact (but it does do away completely with all state and local taxes – income, sales personal property, and real estate).
Currently the Form 1098 (Mortgage Interest Statement) – which the IRS matches to deductions for mortgage interest claimed on Schedule A - reports the total amount of all “mortgage interest received from borrowed”, as well as “points paid on purchase of principal residence”. It also indicates the outstanding mortgage principle balance at the beginning of the year, for example 1/1/2017, but does not break down the specific amount of acquisition debt or home equity debt.
The taxpayer is currently responsible for keeping separate track of acquisition and home equity debt – something I truly believe probably 90% of taxpayers do not do, or do not do properly. And, I expect, a similarly substantial percentage of tax preparers do not keep separate track of debt for their clients. If the House provision survives the conference committee and makes it into the final law, and no change is made to the current Form 1098, it will be more important than ever for taxpayers to keep separate track of acquisition debt and home equity debt.
A new Form 1098 should be created to separately report –
1. Total mortgage interest received for the year on all “grandfathered” mortgage debt.
2. Year-beginning principle balance of all “grandfathered” mortgage debt.
3. Total mortgage interest received for the year on “new” acquisition debt on the purchase of, and capital improvement to, the mortgagee’s primary personal residence on up to $500,000 in principle.
4. Points paid on the first $500,000 of principle on the purchase of a primary personal residence.
The form would not report any “new” home equity debt interest.
Mortgage lenders should be required to identify the purpose of the borrowing – acquisition debt or home equity debt – via taxpayer certification, and keep separate internal track of the two types of debt. Perhaps mortgage lenders should create two separate debt instruments and not combine acquisition and home equity debt in the same loan. Going forward, for simplicity sake, the closing costs on the refinancing of “new” acquisition debt, where the borrower does not take additional money for anything other than capital improvements to the residence, should be included in acquisition debt.
Obviously, this would create more work for mortgage lenders. But it would greatly improve compliance and make the job of the IRS, and the tax preparer, much easier. Mortgage lenders would have a full year from final passage of the Act to change their internal accounting systems.
As an aside – one question I have is whether new refinancing of grandfathered debt would be treated as continued grandfathered debt, and deductible under current rules, or as new mortgage debt, and subject to the new limitations.
And as a further aside - I totally support the new treatment of the deduction of mortgage interest as it exists in the recently passed House version of the Act. I would actually go further and limit “grandfathered” debt to mortgages only on a taxpayer’s one primary personal residence – I would no longer allow any itemized deduction for a second or vacation home.
There will certainly be implementation issues with other provisions of any final act that will need to be, hopefully, intelligently dealt with.
So, what do you think?