Thursday, May 23, 2019


Last November I turned 65.  A milestone, and significant for many reasons.  I can now get a senior discount at stores, movies theatres and restaurants. 

Mark Twain told us, “Age is an issue of mind over matter. If you don't mind, it doesn't matter.”  However, when it comes to taxes ages does matter.

I ask for the date of birth of all my 1040 clients, as well as that of their spouses and dependent children.  Why?  Not because I am nosey.  And I do not send out birthday cards to all my clients.  There are several federal and state tax benefits and applications that take effect, or disappear, at specific ages.

+ Taxpayers age 65 or older receive an increased Standard Deduction

+ You can take a distribution from a retirement account - like an IRA, SEP, or 401(k) plan – without having to pay a 10% penalty once you reach age 59½.  And some distributions from a qualified retirement plan (not an IRA) are penalty free once you reach age 55 or age 50.  In these cases, the actual date of birth, and not just the year, are important.

I remember when a person turning age 65 would get an additional personal exemption, something that no longer exists under the GOP Tax Act.  (FYI, some states, including NJ, still provide an additional personal exemption for a person age 65 or legally blind).

One day back in the late 1980's, when I was still working occasionally with my mentor James P Gill at his storefront office in Jersey City during the tax season, while in the course of preparing the return for a woman Jim happened to say-

“Now be sure to tell us when you reach age 65.”

The client blushed, giggled, and told Jim –

“I’m 70.”

The very next morning we hung a sign in the waiting area of the office that read “PLEASE TELL US WHEN YOU ARE AGE 65”.

It is important to know the date of birth of dependent children because –

+ To be considered your “qualifying child”, and qualify as a dependent for several additional tax benefits, the “child” must be under age 19 at the end of the year, or under age 24 at the end of the year and a full-time student during any part of 5 months during the year.

+ The Credit for Child and Dependent Care Expenses, and the pre-tax treatment of Child Care FSA payments, apply only to a dependent under age 13.  Here, too, the actual date of birth is important, as the credit or exemption can be claimed on expenses incurred prior to the child’s 13th birthday.

+ The Child Tax Credit applies to dependent children under age 17 at the end of the year, and the new Other Dependent Credit applies to dependent children age 17 and older.

+ The "Kiddie Tax" on "unearned income" applies if your child is under age 19, or under age 24 and a full-time student, the same rules for a "qualifying child".  

States also have certain age-based tax benefits.  A NJ taxpayer who was 62 or older on the last day of the tax year may be able to claim a Pension Exclusion or Other Retirement Income Exclusion on the state return.  And NJ allows an additional personal exemption for a dependent child under age 22 at the end of the year who is a full-time student at “an accredited college or post-secondary institution”.  NY has an age-based “Pension and annuity income exclusion”.   NJ requires that you enter the year of birth for all dependents on the NJ-1040, and NY requires the actual date of birth for all dependents.

The date of birth is also necessary to access needed state information online.  NJ asks for one’s date of birth to submit a return directly to the NJ Division of Taxation online, without using tax preparation software or a third-party, via the NJWebFile system, to download a Form 1099-G for state income tax refunds, to find out the amount of the NJ Homestead Benefit issued to a qualified homeowner, and to access a record of estimated tax payments.

So be sure that your tax professional knows your date of birth, the date of birth of your spouse, and the dates of birth of all of your dependents.


Tuesday, May 21, 2019


According to the Mayo Clinic –

Narcissistic personality disorder is a mental disorder in which people have an inflated sense of their own importance, a deep need for admiration and a lack of empathy for others. But behind this mask of ultra confidence lies a fragile self-esteem that's vulnerable to the slightest criticism.

A narcissistic personality disorder causes problems in many areas of life, such as relationships, work, school or financial affairs. You may be generally unhappy and disappointed when you're not given the special favors or admiration you believe you deserve. Others may not enjoy being around you, and you may find your relationships unfulfilling.

Narcissistic personality disorder is one of several types of personality disorders. Personality disorders are conditions in which people have traits that cause them to feel and behave in socially distressing ways, limiting their ability to function in relationships and other areas of their life, such as work or school.

If you have narcissistic personality disorder, you may come across as conceited, boastful or pretentious. You often monopolize conversations. You may belittle or look down on people you perceive as inferior. You may feel a sense of entitlement — and when you don't receive special treatment, you may become impatient or angry. You may insist on having "the best" of everything — for instance, the best car, athletic club or medical care.

At the same time, you have trouble handling anything that may be perceived as criticism. You may have secret feelings of insecurity, shame, vulnerability and humiliation. To feel better, you may react with rage or contempt and try to belittle the other person to make yourself appear superior. Or you may feel depressed and moody because you fall short of perfection.

Many experts use the criteria in the Diagnostic and Statistical Manual of Mental Disorders (DSM-5), published by the American Psychiatric Association, to diagnose mental conditions. This manual is also used by insurance companies to reimburse for treatment.

DSM-5 criteria for narcissistic personality disorder include these features:

Having an exaggerated sense of self-importance

•Expecting to be recognized as superior even without achievements that warrant it

•Exaggerating your achievements and talents

•Being preoccupied with fantasies about success, power, brilliance, beauty or the perfect mate

•Believing that you are superior and can only be understood by or associate with equally special people

•Requiring constant admiration

•Having a sense of entitlement

•Expecting special favors and unquestioning compliance with your expectations

•Taking advantage of others to get what you want

•Having an inability or unwillingness to recognize the needs and feelings of others

•Being envious of others and believing others envy you

Behaving in an arrogant or haughty manner

Although some features of narcissistic personality disorder may seem like having confidence, it's not the same. Narcissistic personality disorder crosses the border of healthy confidence into thinking so highly of yourself that you put yourself on a pedestal and value yourself more than you value others.”

This mental disorder makes Trump incapable of intelligent and rational action, and incapable of dealing with criticism and challenges like a mature adult.
And also according to the Mayo Clinic -

Antisocial personality disorder, sometimes called sociopathy, is a mental condition in which a person consistently shows no regard for right and wrong and ignores the rights and feelings of others. People with antisocial personality disorder tend to antagonize, manipulate or treat others harshly or with callous indifference. They show no guilt or remorse for their behavior.”

Among the symptoms of this disorder include -

Persistent lying or deceit to exploit others.

Being callous, cynical and disrespectful of others.

Arrogance, a sense of superiority and being extremely opinionated.

Lack of empathy for others and lack of remorse about harming others.

Failure to consider the negative consequences of behavior or learn from them.

Trump is clearly a narcissist and a sociopath.

Trump is clearly the worst President in the history of the United States.

Trump is clearly the most ignorant and the most incompetent President in the history of the United States.  

Trump is the only President in the history of the United States who has absolutely no interest in learning anything about anything.  He thinks he knows everything about everything when the truth is he knows nothing about anything.

Trump is clearly totally devoid of humanity and integrity.

Trump clearly doesn’t care about anyone or anything but himself and the "roar of the crowd" from his cult of ignorant racists at his rallies.

There is no issue more important to the future of America, American democracy, the American people, and the world than removing Trump from the White House.



Monday, May 20, 2019


* In an item from last December that was recently referenced on Twitter the TAX FOUNDATION explains “The Economic and Distributional Impact of the Trump Administration’sTariff Actions”.

Key findings –

The Trump administration has imposed $42 billion worth of new taxes on Americans by levying tariffs on thousands of products.”

For taxpayers in the middle quintile, this represents a decrease of $146 in after-tax income.”

So much for moron Trump saying "China has been paying tariffs to the USA".  It is American companies and ultimately the consumer who actually pays the tariffs.  Clearly Trump doesn’t know his ass from a hole in the ground about anything.

* In response to the news of the arrival of the royal baby Kay Bell identifies “5 tax breaks to help offset child-rearing costs” at DON’T MESS WITH TAXES.

* Congratulations to Prof Annette Nellen on the 12th Anniversary of 21st CENTURY TAXATION!

* Michael Cohn tells us “IRS fixes worksheet that miscalculated capital gains taxes” at ACCOUNTING TODAY.

The Internal Revenue Service has posted a revised 2018 Schedule D Tax Worksheet in the instructions for Schedule D (Form 1040) after finding out that it contained an error that ended up calculating higher taxes for many investors.”

The item quotes the IRS as saying –

Affected taxpayers need not file an amended return with the IRS or call the IRS.  The IRS is reviewing returns submitted prior to May 16; more information will be provided about this review later.”

It also suggests –

Those taxpayers who might be potentially affected can always try to recalculate their regular tax using the new worksheet to see if it changes.”

The majority of my clients, and I expect the majority of taxpayers in general, used the “Qualified Dividends and Capital Gain Tax Worksheet” if applicable and not the Schedule D Tax Worksheet.  The Schedule D worksheet would only be used if a taxpayer had an entry on lines 18 and/or 19 on Page 2 of the 2018 Schedule D. 

* FORBES.COM’s “TaxGirl” Kelly Phillips Erb reports “IRS Offers Filing Relief For Taxpayers Affected BySoftware Outage”.

None of my clients were affected by software outage.  The tax preparation software I use is my brain.  In 48 tax seasons I have never personally used flawed and expensive tax preparation software to prepare a federal income tax return.

* Once again, like Oliver Twist the state of New Jersey is last on the list.

The list in question is the TAX FOUNDATION’s “2019 State Business Tax Climate Index”.

New Jersey, for example, is hampered by some of the highest property tax burdens in the country, recently implemented the second highest-rate corporate income tax in the country, levies an inheritance tax, and maintains some of the nation’s worst-structured individual income taxes.”

The 10 best states in this year’s Index are:

  1. Wyoming
  2. Alaska
  3. South Dakota
  4. Florida
  5. Montana
  6. New Hampshire
  7. Oregon
  8. Utah
  9. Nevada
10. Indiana

The 10 lowest-ranked, or worst, states in this year’s Index are:

41. Vermont
42. Ohio
43. Minnesota
44. Louisiana
45. Iowa
46. Arkansas
47. Connecticut
48. New York
49. California
50. New Jersey

My current home state of PA is #34.


Tuesday, May 14, 2019


A tax preparer is a person who assists an individual (who I will refer to going forward as “taxpayer” – whether or not he or she actually pays any tax) in preparing a government form – the 1040 and NJ-1040, IT-201, PA-40 or whatever.

In most cases the preparer is trained in the “instructions” for the government form – the US Tax Code is in effect the “instructions” for the 1040 – and has experience in preparing the form.  The information required to properly complete the form is given to the preparer by the taxpayer, and the preparer uses his or her knowledge and experience to enter the information provided by the taxpayer properly on the form.

The taxpayer signs the completed form to attest that the information on the form, which he or she has given to the preparer, is true, correct and complete.  The preparer signs the form to identify himself or herself and to verify that the form was completed using information provided by the taxpayer.

The preparer does not have to personally verify and attest to the veracity of each and every entry on the form – just that all the information on the form was provided by the taxpayer.  It is the responsibility of the government to verify the veracity of the information on the form, with a 1040 via matching and the audit process.

Obviously, the preparer must not willfully, with the intent to defraud, enter false, incorrect or incomplete information on the return.  If the preparer knows, via independent personal knowledge, that information provided by the taxpayer is false he or she must refuse to enter the false information on the form or refuse to complete the form altogether.  If the preparer has questions about the truthfulness, correctness or completeness of any information provided he or she must seek clarification from the taxpayer.

While the government does, and should, have the authority to regulate persons who officially represent the taxpayer in the various levels of the audit process – to “practice” before the IRS – it does not, and should not, have the authority to regulate the preparer.

Of course, the government does have the authority to fine or otherwise penalize a preparer who willfully conspires with a taxpayer to defraud the government by entering knowingly false information on the form.

The above all apply to a person who assists an individual in preparing any government form – a census form, a student financial aid form, etc.  The Form 1040 is just another government form.

The purpose of an income tax is to generate the revenue needed to pay the cost of administering a government and the cost of the services provided by the government.  Period.

An income tax system, and the form used to calculate a tax assessment, should NOT be used to enable “social engineering”, i.e. the redistribution of income, or to distribute or deliver social welfare or other government benefits.

The excessive additional “due diligence” currently forced on tax preparers began as a reaction to the extensive fraud that was a direct result of the erroneous practice by Congress of using the tax system and the 1040 to redistribute wealth and to distribute and deliver government benefits, specifically in the form of “refundable credits”.  Unfortunately, as I said in a previous post, this had gotten way out of hand and now applies to every tax form where a taxpayer claims a dependent.

Since it is the responsibility of the government to verify the veracity of information on the form known as the 1040, the excessive additional due diligence requirements force the preparer to do the job of the government without the compensation given to a government employee.

The bottom line –

(1) The government should NOT have the authority to regulate tax preparers.

(2) The Tax Code should NOT be used to redistribute wealth or to distribute and deliver government benefits.

(3) A tax preparer should NOT be required to personally verify individual items on the 1040 via excessive additional due diligence.


Monday, May 13, 2019


As a result of the GOP Tax Act, for tax years 2018 through 2025, or until new tax legislation is enacted, only mortgage interest on “acquisition debt” – money borrowed to buy, build or substantially improve the residence – is deductible on Schedule A.  Interest on home equity debt interest – money borrowed to buy a car, pay for college, pay down credit card interest, etc. – is not deductible, regardless of the amount.  Period.  And there is no grandfathering of existing home equity debt.

It has always been important for homeowners to keep separate track of acquisition debt and home equity debt, because of the previous $100,000 principal limitation on the deduction for home equity interest and the fact that home equity debt interest was not deductible in calculating the dreaded Alternative Minimum Tax.  However, I do not know of a single homeowner who actually did this.  Even before the hastily written GOP Tax Act was scribblings on a cocktail napkin I had commented that the deduction for mortgage interest, both on Schedule A and Form 6251, was perhaps the area of the Tax Code where proper documentation and strict adherence to the law was the most overlooked (or actually ignored).    

But if the dreaded AMT was not a consideration this wasn’t an issue in most cases because of the $100,000 home equity principal threshold.  Now it is truly vital that his be done, going back to the original purchase mortgage for the property.

I explained this in detail to applicable 1040 clients last tax season when giving them their finished 2017 tax returns.  And I gave these clients worksheets with instructions and a detailed example to use to track the two different types of debt and offered to track the debt for them during the year at a slightly reduced hourly rate.

Nobody contacted me during the year to ask me to do it for them.  And this past tax filing season every single client either (1) assumed that they could not itemize, because I told them so last year and it didn’t matter, or (2) totally ignored the need to differentiate between acquisition debt and home equity debt and, like every other year, merely gave me their 1098s and expected me to either intuitively know the correct amount to claim or pull a number out of the air.

The one good thing about dealing with this issue during the tax filing season is that most clients who consistently itemized in the past can no longer itemize, regardless of the amount of mortgage interest paid, so it did not matter that they did not properly identify the correct amount of deductible interest.

Over the years most homeowners have refinanced their mortgage, often several times, for a variety of reasons, taken out home equity loans or lines of credits, also for a variety of reasons, and consolidated mortgage and equity loans.  In NJ, where most of my clients live, the market value of homes was excessively inflated at various times, creating the potential for additional borrowing.  There were many instances when a homeowner’s mortgage principal exceeded the original purchase price of the property and the cost of subsequent capital improvements.  Unless the homeowner purchased a new home recently, most, if not all, current mortgages include some combination of acquisition debt and home equity debt.

It is the responsibility of the taxpayer, and NOT the tax preparer, to separately track acquisition and home equity debt and properly identify the correct amount of deductible acquisition debt interest.  You can ask your tax pro to do this, or he or she may actually have been doing this on his or her own, but never assume or expect that he or she has been doing it. 

And it is the responsibility of the taxpayer to provide documentation for the amount of mortgage interest deducted if questions by the IRS.

Two important points to know when tracking the debt -

(1) Thankfully, to simply the tracking process, when applying principal payments to the different type of debt in mixed-use mortgages you first reduce home equity debt and any debt you have identified as investment debt.  Acquisition debt is paid down last.

(2) When a homeowner refinances, only that portion of the principal of the new loan that represents the pay-off of the principal on the original mortgage, if it is all acquisition debt, continues to be acquisition debt.  Any closing costs for a refinance that are included in the principal of the new loan is home equity debt.

The first step to determine the amount of current acquisition debt is to go back to the Closing or Settlement Statement for the very first refinance.  Look at the amount of principal of the original mortgage that was paid off in the refinance.  Compare this number to the 1/1/2018 principal balance reported on the Form 1098 for the current mortgage. 

If the pay-off of the initial mortgage is $100,000 and the 1/1/18 principal balance is 150,000 you then need to determine if any of the additional $50,000 was used to pay for capital improvements to the property.  If not, multiply the $100,000 by the rate of interest you are paying on the current mortgage.  If the rate is 3.5% than the Schedule A deduction is $3,500.

If the 1/1/2018 principal balance is $98,500 than all of the interest paid in 2018, and reported on the Form 1098, is fully deductible acquisition debt interest.

Of course, this example assumes you still have the Closing or Settlement Statement for that first refinance.  In discussing how long a taxpayer should keep records I recommend “if you own real estate keep all Closing or Settlement Statements for the purchase and refinancing of the property, and documentation of any capital improvements, for as long as you own the property plus four additional years”. 

For new homeowners going forward, if the limitation of the mortgage interest deduction to acquisition debt interest continues, and I personally believe it should despite the added complication -

(1) If you need to borrow money for home improvements open a separate home equity loan or line of credit and use this ONLY for home improvements that qualify as acquisition debt.  And keep documentation of the improvements. 

(2) If you need to borrow money for anything else - to pay down personal debt, pay for college, buy a car, etc - open a separate home equity loan or line of credit and use this ONLY for non-acquisition purposes.

(3) Never consolidate or combine the three mortgage accounts.  And if you refinance, always pay the closing costs in full with cash, or money from the non-acquisition home equity line of credit, and ONLY refinance the existing principal balance of the original mortgage.

So, homeowners who may still be able to itemize – read and understand this post carefully and either pay your tax professional to separately track your debt before the end of 2019 (and NOT during the 2020 filing season) or do it yourself. 

If you are going to do it yourself and want my worksheets and detailed instructions for doing this order my MORTGAGE INTEREST GUIDE.

Any questions?