Friday, November 17, 2017


Yesterday the House passed the “Tax Cuts and Jobs Act” (H.R. 1) by a vote of 227-205 along party lines.  Not a single Democrat voted for the Act, and 13 Republicans from states with high taxes voted against it – no surprise there. 

While it very obviously is NOT a “massive tax cut for the middle class” as promised by arrogant arsehole Donald T Rump and the Republicans, and serial liar Trump and his family benefit “huuuuugely” from its provisions, it is not all bad.  As I have said elsewhere, like TRA ’86 it is a mixed bag – there is some simplification, yet there is also more ridiculous complication.  I wrote about the House version in several previous posts here at TWTP - click here, here, here, and here.

The Senate will vote on its version after Thanksgiving, and the prospect for passage is actually up in the air.  If the Senate does pass its Act, a conference committee will have to work out the differences.

I will not discuss this Act in detail any further until it is actually signed into law by the idiot in the White House, if that actually does happen.

What I will talk about at this time is what is actually very, very good in the House bill, as I understand what it includes - items which I really, really, really hope will remain in any final bill that is signed into law.

1) It maintains the step-up in basis for inherited assets even after the total repeal of the federal Estate Tax.

(2) It repeals the dreaded Alternative Minimum Tax.

(3) It provides an annual inflation adjustment for the Standard Mileage Allowance amount for charitable driving.

As for everything else, while I support some items and oppose others, I will not be devastated if any of the other items I support do not make it to the final cut.


Tuesday, November 14, 2017


In light of the revelation of the dueling GOP tax Acts I have created my own Flach Tax Plan and a new, much simpler Form 1040.

My new simpler Form 1040 that follows was not created from an economic point of view – how much tax is collected – but from the point of view of simplicity and fairness.

I have actually incorporated some of the GOP proposals in my plan.  But it also contains some unique concepts –

* There is only one tax rate schedule for all taxpayers, regardless of filing status.  The Head of Household filing status is gone.  Married taxpayers can elect to file separately on one return or to file separately on separate returns – and a married person filing separately is treated exactly the same as a Single filer.  The method for calculating the tax liability of married couples filing a joint return does away with the marriage penalty.

* No deduction would be allowed for any business activity on any tax return for the depreciation of real estate or capital improvements thereto.

* The delivery of government social welfare and other program benefits are totally removed from the Tax Code.  There is no Earned Income Credit, refundable Child Tax Credit, deductions or credits for qualified post-secondary education expenses, or Premium Tax Credit on my new Form 1040.  I have not done away with these benefits; they are distributed via more “normal” methods.

* I replace IRA, HSA, MSA, ESA, and Section 529 accounts with an all-inclusive USA (Universal Savings Account).  All taxpayers, without exception, can contribute up to $10,000 per year. 

Distributions made before age 62 for education and medical expenses or to purchase a first home (only one first home per lifetime) would be considered to be qualified withdrawals.  There would be no penalty on non-qualified withdrawals after age 59½, but earnings would be taxed.  All withdrawals after age 62 would be considered to be qualified.  
I also replace all employer and self-employed retirement plans with a RSA (Retirement Savings Account).  Employers can elect to contribute up to 25% of wages annually, all employees can elect contribute up to $20,000 of wages annually.  There would be no requirements for either to contribute.  Self-employed taxpayers can contribute, and deduct, up to 20% of adjusted net self-employment income.

There would be “traditional” (for the USA fully deductible and no tax on earnings for qualitied withdrawals and for the RSA employee contributions would be “pre-tax” on the W-2) and ROTH (contributions non-deductible – qualified withdrawals totally tax free) options for both accounts.

* Contributions to an RSA by a self-employed taxpayer and the deduction for the health insurance premiums paid by a self-employed taxpayer would reduce the net earnings from self-employment that is subject to the self-employment tax.

* Social Security and equivalent Railroad Retirement benefits would be taxed the same as regular employer pensions.  Employee contributions would be recovered by amortizing them over the taxpayer’s life using the, what else, “Simplified Method” to determine the taxable amount of the benefits received.  

* And perhaps most controversial - no charitable deduction would be allowed for contributions to a church or religious organization for religious activity.  Non-religious social and community action programs (soup kitchens, homeless and domestic violence victim shelters, youth centers, day care centers, etc) run by individual churches and religious groups would need to separately organize and request non-profit status to allow contributions to be deductible.  Permitting a deduction for contributions to churches and religious organizations for religious activity results in the government in effect subsidizing religious activity, which, in my opinion, is a violation of the separation of Church and State.


As always, your thoughts and comments on my new Form 1040 are welcomed.  And you are welcome to share the link with, or download and copy the report to distribute to, friends, family, co-workers, and colleagues.


Monday, November 13, 2017


Recent tax buzz continues to be dominated by talk of the proposed GOP tax Act.  I continued my comments on the proposals here and here.   

Check out my TWTP post tomorrow for the Flach Tax Plan and my new, simpler Form 1040.

* Speaking of the GOP tax Act, the Senate has released its version.  The TAX FOUNDATION has a good “cheat sheet” on the “Details of the Senate Version of the Tax Cuts and Jobs Act”.

* And Kay Bell, the yellow rose of taxes, does a good job of comparing the dueling plans in “The great tax reform plan duel of 2017 is on!

* Over at DINESEN TAX TIMES Jason Dinesen answers an oft-asked question – “Can I Claim My Boyfriend/Girlfriend As a Dependent?

Can you guess the answer?  Why “it depends”, of course.

* Today at THE TAX PROFESSIONAL – “Simpler Is Better”.

* At the SLOTT REPORT Sarah Brenner lists “10 Things to Know About the Still-Working Exception” from taking an RMD from an employer plan.  

* For those who are interested – click here to download TAX BUZZ, the new monthly e-newsletter for my 1040 clients.


I do not oppose, nor would I deny, an individual’s right to possess genuine religious beliefs and convictions. I do not, for example, question a person’s right to legitimately be a “devout” Christian, or a “devout” Muslim, and lead their personal lives accordingly.

I may personally disagree with, challenge, or oppose an individual's specific religious beliefs and convictions, and interpretations thereof, and an alleged “devout” person’s hypocrisy in the selective choice of specific beliefs, interpretations and convictions of a religion to support.

But I certainly strongly oppose, and would most certainly deny, an allegedly “devout” religious person’s attempt to force his specific religious beliefs or convictions on me, or any other person, via local, regional or national legislation. If nothing else, the separation of Church and State forbids this.


Wednesday, November 8, 2017


Over at DON’T MESS WITH TAXES earlier this week, Kay Bell suggested “Tax reform could cost charities $13 billion a year”.

I don’t agree that reducing the number of itemizers will so substantially reduce charitable giving.  The post indicates that currently about 1/3 of taxpayers itemize.  But certainly more than 1/3 of taxpayers contribute to charity.  I do not itemize and I contribute to charity.  If I were able to itemize I would not give any more than I normally would just to get a tax deduction.

Taxes are pennies on a dollar.  A $100 charitable contribution may save $15 or $25 or more in federal taxes if you currently itemize.  But, as with any other deductible item, the purpose for spending the money for the item is not just to get a tax deduction – or it SHOULD not be.  That would be stupid.  There is no sense or logic in spending $100 to save $25 – you are still “out of pocket” $75. 

Being able to deduct charitable contributions is just an added benefit to the gift – an additional “thank you” – and not the primary motivating factor.  People who have always given to church and charity are not going to automatically stop just because they can no longer itemize and claim a tax deduction for their gift.

The ability to itemize can affect the timing of the contribution – sooner instead of later – when it comes to year-end tax planning.  For example, many current itemizers who may not be able to itemize in the future under the GOP proposal will “accelerate” their contribution and give money that they were going to give to charity in 2018 in November and December of 2017.

If a $100 donation, which previously only cost $75, will actually now cost $100, perhaps in some cases a person may only give $75 instead.  But I do not think that will happen on a grand scale.

Taxpayers often don’t know if they will be able to itemize until they actually prepare their return.  In 45 years no client has ever called or emailed me before giving to charity to ask if he will be able to itemize, waiting for my answer before making the contribution.


Tuesday, November 7, 2017


 Like the historic Tax Reform Act of 1986, the current proposed Tax Cuts and Jobs Act is a mixed bag.

There is simplification.  Less rates, less deductions and credits, no more Pease phase-out of the remaining itemized deductions, and the repeal of the dreaded Alternative Minimum Tax.

But there is new complexity.  The ridiculous special tax treatment of “pass-through” business income, apparently including sole proprietorships reported on Schedule C, is truly a convoluted mucking fess.  It looks like the computation of pass-through business income will be a nightmare for tax professionals – fortunately, based on my clients, not for me, but definitely for my colleagues.

If we want parity for the tax treatment of pass-through entities here is what I think should happen.

Taxation of pass-through income from Schedule C sole proprietorships should remain the same as current law – taxed as ordinary income subject to SE tax. 

Pass through business income of the “general partners” of a partnership, the equivalent of Schedule C sole proprietors, should also not change – it is taxed as ordinary income subject to SE tax.  Pass through business income of the “limited partners” of a partnership is basically the equivalent of corporate dividends, and should be taxed as such.

Pass through business income of a shareholder in a sub-S corporation is also basically the equivalent of corporate dividends, and should be taxed as such.

The Act maintains the current special tax rates for qualified dividends and long-term capital gains (it also maintains the NIIT and .9% Medicare “Obamacare” surtaxes).  But it appears it also maintains the tax brackets for these rates the same as under current law, and does not just apply the rates directly to the new tax rate brackets – so there will actually be two sets of tax rate brackets.

There are some weird items in the proposal.  Taxpayers would be able to contribute to a 529 Education Saving Plan on behalf of an unborn child - described as “a member of the species homo sapiens, at any stage of development, who is carried in the womb”.  And churches would be allowed to make political statements, and pastors endorse specific political candidates from the pulpit, without losing tax-exempt status.  Just one more example of the Republican Party pitiful pandering, erroneously and certainly contrary to traditional conservative philosophy, to the “religious right”.

In my opinion, from a tax policy point of view, some of what is wrong with the Act, based on my Principles of Tax Reform (click here) is –

It continues to use the Tax Code to distribute federal social welfare and other tax benefits – the Earned Income Tax Credit and the education benefits for example.

It continues to provide refundable credits, which are a magnet for tax fraud.

It continues to phase-out tax deductions and credits based on an AGI income threshold.

I expect the above will NEVER be changed, and the Tax Code will ALWAYS be used, erroneously and inappropriately, to distribute government benefits and provide refundable credits and a “back-door” progressive tax rate increase without the honesty of actually increasing tax rates.  But I can dream, can’t I.

Your thoughts?




Monday, November 6, 2017


Most of the recent BUZZ has been about the final release of the details of the Republican tax reform “framework” – the Tax Cuts and Jobs Act (you notice that the word “Reform” is not in the title). 

Did you see my posts of details and commentary on Friday and Saturday?  More posts will come at TWTP as more is revealed and the debate progresses.

* Professor Annette Nellen posted an updated compilation of “Disaster Relief Tax Links” at 21st CENTURY TAXATION.

* Links in the above referenced post indicate “Louisiana, South Carolina now get hurricane tax relief”, as Kay Bell, the yellow rose of taxes, tells us in detail in a post at DON’T MESS WITH TAXES.  

* Today at THE TAX PROFESSIONAL – “A Holiday Tax Practice Tip”.

And did you see last Wednesday’s TTP post “Watch the IRS Nationwide Tax Forum Sessions for Free!”?

* The week-day daily CHECKPOINT NEWSSTAND email newsletter from last Wednesday announced how the IRS has decided to celebrate my 64th birthday - “E-file for 2016 returns closes on Nov. 18; disaster victims & others must file on paper after that”.

In an Information Release, IRS has reminded taxpayers who want to file a 2016 tax return electronically, including those in disaster areas, to do so by Saturday, Nov. 18, 2017. After that date, paper tax returns must be filed.

New guidance. In IR 2017-183, IRS advises that any taxpayer needing to file a 2016 tax return after Nov. 18 must do so on paper.”

* Robert W Wood of FORBES.COM provides us with “IRS Tax Lessons for Everyone From Paul Manafort Indictment”.


Saturday, November 4, 2017


Here are more details of and commentary on the "Tax Cuts and Jobs Act" as finally revealed – the “fleshing out” of the cocktail napkin scribblings.

As I have said in the past, my interest in and comments on the Act are not from an economic point of view – who pays more and who saves more.  With any tax reform legislation, I look at it in terms of tax policy and of simplification and fairness.

Although I am a tax professional, and in theory my business benefits from continued complication, I strongly believe that tax simplification, even in the extreme, would not result in a loss of clients or of income.  It would only greatly reduce the agita, aggravation and anxiety related to 1040 preparation.

A very important “disclaimer” that I should have included in Friday’s post on the details of the Act.  Everything I posted Friday, and below, is “proposed” tax legislation.  None of it is actual tax law.  Chances are very good that any final bill signed into law will be different, perhaps very different, then what I have identified and discussed then and here.  And it is also possible that no tax Act will actually be passed

* The limited deductions for acquisition debt mortgage interest (on new home purchases) would apply only to your one primary personal residence – the home you live in.  I support the reduction in the acquisition debt threshold, the repeal of the deduction for home equity interest, and limiting the deduction for mortgage interest to one primary residence.

* The limited deduction for real estate taxes, up to a maximum of $10,000, appears to be available for taxes paid on the home you live in and vacation homes.  The $10,000 limitation applies to all homes combined.  I oppose the dollar limitation on the property tax deduction, but I would want the deduction to be limited to your one primary personal residence – the home you live in – like the deduction for acquisition debt interest.

* My Friday post stated that alimony paid would no longer be deductible.  This means that alimony received would no longer be included in taxable income.  I agree that this certainly simplifies the issue – but I don’t know if I support this.  I think the current system is actually “more fair”.  I would perhaps limit the deduction to actual payment of “spousal support” and no longer allow an alimony deduction for expenses paid to a third-party on behalf of the former spouse, such as health insurance.

* Currently a business can deduct 50% of “entertainment” expenses if it “establishes that the item was directly related to the active conduct of the taxpayer’s trade or business”.  An expense is considered directly related if “it is associated with a substantial and bona fide business discussion”.

But under the Act “no deduction would be allowed for entertainment, amusement or recreation activities, facilities, or membership dues relating to such activities or other social purposes”.

Also – “In addition, no deduction would be allowed for transportation fringe benefits, benefits in the form of on-premises gyms and other athletic facilities, or for amenities provided to an employee that are primarily personal in nature and that involve property or services not directly related to the employer’s trade or business, except to the extent that such benefits are treated as taxable compensation to an employee (or includible in gross income of a recipient who is not an employee).”

I have mixed feelings about this change.  I do realize there is much abuse of the entertainment deduction, even at the 50% level, especially by closely-held businesses.  But in many cases business entertaining is as important, and legitimate, an expense as advertising. 

I have always had concerns about the 50% limitation on business meals.  I realize that the employee or business owner has to eat anyway – but there are often more than two clients at a business meal, and even though the employee/owner has to eat anyway, not necessarily at the same level of out of pocket expense.

In general, I don’t support the concept of the government determining what is an “appropriate” business expense – other than to disallow a deduction for expenses that are illegal or discriminatory.  It is one thing if company gyms are available to all employees and another if use is limited to corporate officers and high-level executives.

* While the Act keeps the Child and Dependent Care Tax Credit, the employer-sponsored Flexible Spending Account for child and dependent care, with up to $5,000 of employee contributions treated as “pre-tax”, is repealed.  This often provided a better tax benefit than the Form 1040 credit.    Also gone is the tax-exempt treatment of the first $5,250 of “Employer-Provided Educational Assistance”.  I am not sure if I support either of these changes – although I can live with them. 

* Currently interest on municipal “Private Activity Bonds” are exempt from taxation under the “regular” income tax, but are taxable under the dreaded Alternative Minimum Tax AMT).  The Act does away with the AMT, but interest on all “private activity” municipal bonds issued after 2017 will be fully taxable as ordinary income, the same as the interest on corporate and savings bonds. 

* I am curious to see how the final federal tax law changes will affect state tax returns.  Most state returns, except for at least NJ and PA that I know of, begin with the federal AGI and allow most federal itemized deductions – except for state and local income taxes.  And most state tax returns also allow for the same number of personal exemptions that are claimed on the federal return.  State returns do not always follow the federal Standard Deduction allowance – several have their own lower state Standard Deduction.  If individual state tax laws do not change, and the federal AGI and Schedule A as changed is used, state income taxes, no longer deductible on the federal return, will certainly increase.

In terms of year-end tax planning – the traditional strategies most certainly apply.  Accelerate deductions to be claimed in 2017 - especially deductible medical, job-related and tax preparation expenses and state income and local income or sales taxes.  And postpone the receipt of taxable income until 2018.


Friday, November 3, 2017


I haven’t done deep research on the Tax Cuts and Jobs Act – but based on what I have read here is how it would affect individual taxpayers.

There would be 4 tax rates – 12%, 25%, 35%, and 39.6% - with increased brackets.

Adjustments to Income:

The educator expenses up to $250 per taxpayer, moving expenses, alimony, student loan interest, tuition and fees, and domestic production activities costs would no longer be deductible.

Schedule A:

Medical Expenses – No longer deductible.

Taxes – Up to $10,000 (hey, like the NJ-1040) of real estate (aka property) taxes only.  No deduction for state and local income or sales tax or, presumably, personal property tax or foreign income tax.

Interest – Rules remain unchanged for existing mortgage debt.  For debt incurred after November 2, 2017, only interest on acquisition debt of up to $500,000 in principal is deductible.  Interest on new home equity debt incurred after November 2, 2017 is no longer deductible.

Charity – Rules remain unchanged for the most part (some minor changes appear to be made to more obscure charitable deduction rules).  The standard mileage allowance rate for mileage in the course of providing volunteer services to a qualifying organization would be indexed for inflation.

Casualty and Theft Losses – No longer deductible.

Job Expenses and Certain Miscellaneous Deductions – Unreimbursed employee business expenses and tax preparation fees and costs no longer deductible.  All other miscellaneous deductions subject to the 2% of AGI exclusion are also probably no longer deductible.

Gambling Losses – Losses would still be deductible to the extent of winnings.  It appears that non-loss deduction for “professional gamblers” no longer allowed. 

There would be no more “Pease” reduction of itemized deductions based on AGI.

The standard deduction would be $12,000 for Single filers, $18,000 for Head of Household (so it appears the Head of Household filing status remains), and $24,000 for Married filing jointly.  There would be no additional standard deduction amount for blind or age 65 or older. 

There is no personal exemption.  The Child Tax Credit would be increased from $1,000 to $1,600 per dependent child, with the first $1,000 being refundable, and the phase-out threshold would be increased to $115,000 for single filers and $230,000 for joint filers.  A non-refundable $300 credit would be allowed for the taxpayer, his spouse, and all “non-child” dependents.  The same phase-out threshold would apply to this new $300 credit. 

The Lifetime Learning Credit is gone.  The American Opportunity Credit remains as it is under current law, but would be available for a 5th year of post-secondary education at half the rate that applied for the first 4 years, with up to $500 being refundable.

The exclusion of up to $250,000 ($500,000 on joint return) of gain on the sale of a personal residence remains, but the “2 out of 5” year rule is changed to “5 out of 8”.  You must own and live in a personal residence for at least 5 of the 8 years prior to sale to qualify for the exclusion.

The determination of the tax on “pass-through” business income, including the income of “sole-proprietorships” reported on Schedule C, becomes a convoluted “mucking fess”.  However, a “personal service” business – “businesses involving the performance of services in the fields of law, accounting, consulting, engineering, financial services, or performing arts” – would not necessarily benefit from the lower 25% maximum tax rate.   

The dreaded Alternative Minimum Tax is repealed (hurray!).

It appears that there is no change to the special lower tax rates for qualified dividends and long term capital gains - other than new bracket thresholds for the specific rates.  And the 3.8% Obamacare NIIT apparently remains.

The estate tax exemption is increased to $10 Million, indexed annually for inflation.  The tax is totally repealed after 6 years.  However, it appears a beneficiary’s stepped-up basis in estate property will remain even after the repeal.

It looks like just about everything, except the mortgage deduction for new debt after November 2nd, will take affect beginning with tax year 2018.  So there should be no changes for the 2017 Form 1040.

Speaking of the new mortgage interest rules, limiting the deduction for new debt to acquisition debt – unless 1098 reporting is substantially enhanced this makes the need for taxpayers to keep separate track of acquisition and home equity debt even more important.

There is some good news in the details revealed.  I am pleased that -

* the standard mileage rate for charitable travel is finally indexed for inflation,

* the lower maximum pass-through tax rate rules are not as ridiculous and inequitable as they could have been, although they create much new complexity and I still think the concept is stupid, and

* the step-up in basis for inherited assets remains intact even after total repeal of the Estate tax.

Unfortunately, the Earned Income Credit, including refundability, remains intact.

I am disappointed that the Act does not do away with the Obamacare "individual mandate" and the "shared responsibility" penalty for taxpayers without adequate coverage.

And, in my opinion, the total repeal of the deduction for state and local income or sales tax and limitation of the property tax deduction amount, and the total repeal of the deduction for employee business expenses creates inequities in the tax system.  And the repeal of the casualty loss deduction means that every time there is an excessive natural disaster, like Katrina, Sandy, and the recent hurricanes, Congress will have to pass temporary tax benefits for victims.

I expect more information will be made available in the days to come.  And then the debate will begin and we will see if a law can be passed – despite the ineptitude of arrogant idiot Donald T Rump.


Thursday, November 2, 2017


For New Jersey employers, here is the information on 2018 unemployment, disability and family leave insurance contributions and payments.

For calendar year 2018, the maximum unemployment insurance, temporary disability insurance and workers' compensation benefit rates, the alternative earnings and base week amounts, and the taxable wage base are listed below.

2018 Maximum Workers' Compensation weekly benefit rate: $903
2018 Maximum Unemployment Insurance weekly benefits rate: $681
2018 Maximum Temporary Disability Insurance weekly benefit rate: $637
2018 Alternative earnings test amount for UI and TDI: $8,500
2018 Base week amount: $169
2018 Taxable Wage Base under UI, TDI and FLI: $33,700


January 1, 2018 to December 31, 2018

2018 = 33,700

SUI = 143.23
SDI =   64.03
FLI =    30.33



Wednesday, November 1, 2017


There is no question that tax “reform” is needed.

Not because the middle class is paying too much tax and the “wealthy” are not paying enough tax – which may or may not be true (I tend to lean toward it not being true).  But because the United States Tax Code is truly a convoluted “mucking fess”.

The purpose of the federal income tax is to raise funds to run the country.  Period.  It is not to “redistribute wealth” or to distribute social welfare benefits or to reward campaign contributors and generous lobbyists or to provide specific benefits to specific industries or professions.

The US Tax Code must be reformed to simplify the reporting of income and payment of taxes.  And to remove all the inappropriate “loopholes”, benefits, and “expenditures”.  I have outlined my “Principles of Tax Reform” at my website A TAX PROFESSIONAL FOR TAX REFORM.

If it is thought that the “wealthy” do not pay enough taxes, in proportion to the amount paid by the “un-wealthy”, then the solution is not to punish ambition and success by excessively taxing incremental income but to remove in total from the Tax Code all inappropriate “loopholes”, deductions and credits that cause the wealthy to avoid taxes.

As for whether the “wealthy” are paying their “fair” share of taxes, here is information from IRS reports for tax year 2015 -

Percentages Ranked by AGI

AGI Threshold on Percentiles

Adjusted Gross Income Share (Percentage)

Percentage of Federal Personal Income Tax Paid

Top 1%




Top 5%




Top 10%




Top 25%




Top 50%




Bottom 50%



Obviously, the fairest, and simplest, tax system would assess a single rate – 10% or 15% - on gross income (reporting net capital gain, self-employment and rental income) in excess of a basic Standard Deduction per taxpayer (a base number for Single filers which would be doubled for married taxpayers filing a joint return) and a Personal Exemption amount per dependent that would apply equally to all taxpayers in all levels of income with no other deductions or credits allowed.

The Pennsylvania state income tax, for example, is a flat 3.07% tax on all gross income.  However, it does not allow for net business or net investment losses, a standard deduction, or personal exemptions.

But I expect it would be impossible to enact such a simple federal income tax system.  And certain deductions are appropriate to encourage saving and investment and to, in my opinion, “geographically equalize” income.

What we know of the “cocktail napkin scribblings” that is the Administration “framework” for tax reform touches somewhat on what should be done – but much, much more work needs to be done to properly “reform” the US Tax Code.

Your thoughts?