Wednesday, September 11, 2019

NEVER FORGET!





 Police Officer Maurice Barry - PATH Emergency Service Unit - P.O. Shield #1038

A Port Authority officer for 16 years, Maurice "Moe" Barry, 48, was assigned to the PATH commuter train system. The resident of Rutherford, NJ, upon hearing the reports of the terrorist attacks, was one of the first on scene when he rushed from Jersey City to Lower Manhattan and then into the North Tower to help in the rescue efforts. As thousands fled the searing flames and smoke of the Towers, Officer Barry was attempting to reach trapped and frightened workers on the upper floors. The last time he was seen, he was on his way to the higher floors to get people out.
.
Moe had a history of heroism - he was involved in rescue efforts during an airplane crash at La Guardia airport; he once climbed a bridge to retrieve the body of a person electrocuted there; he was involved in the rescue effort during the 1993 bombing of the World Trade Center; and he rescued a woman from her home, by boat, during Hurricane Floyd. Moe was also a volunteer for the Rutherford Ambulance Corps.
























Tuesday, September 10, 2019

NO BUZZ TODAY


No BUZZ of any consequence to report.

I just want to share Kay Bell’s post “Ways to help Bahamas' residents recover from Dorian” from DON’T MESS WITH TAXES.

TTFN

Wednesday, September 4, 2019

WHEN CHOOSING A BUSINESS ENTITY DON’T FORGET FICA TAXES


An often-overlooked issue when deciding on the type of entity to choose to operate your one-person or closely-held business is the FICA or FICA-equivalent tax (self-employment tax).

If you operate as a sole-proprietor, filing a Schedule C, (or as a partnership) your FICA-equivalent self-employment tax is calculated on net earnings from self-employment BEFORE deducting health insurance premiums and retirement plan contributions.

The net amount on your Schedule C is $100,000.  You also deduct $24,000 in self-employed health insurance and a $15,000 contribution to your SEP retirement plan as adjustments to income.  So, your net “out of pocket” is $61,000.  Your self-employment tax is $14,130 - $100,000 x .9235 = $92,350 x 15.3% = $14,130.  The Schedule C filer is entitled to a tax deduction, as an “adjustment to income”, of $7,065 for half of the self-employment tax.

If you operate as a corporation and take $55,000 as a salary your FICA tax is $4,207.50 - $55,000 x 7.65% = $4,207.50.  The corporation matches this and also pays $4,207.50, so the total cost is $8,415.  As a corporation you are $3,000 -$5,000 less (the $5,715 in reduced FICA tax less the tax savings you would have received from the self-employment tax adjustment to income) out of pocket.

If the business has a $100,000 net gain, as per the Schedule C, and pays out $55,000 in wages, $39,000 in employee benefits (the owner’s health insurance premiums and pension contribution) and $4,208 in FICA tax the net taxable income of the corporation is $1,792.  The federal corporate income tax if a “C” corporation is $376.  If it is an “S” corporation the taxpayer may be allowed an additional $358 “Section 199a” deduction and pay federal income tax as an individual on $1,434 - $315 for a taxpayer in the 22% bracket.

Clearly the Schedule C filer pays substantially less in FICA-equivalent taxes than the corporation pays in FICA taxes.

However, regarding the 20% Section 199a deduction – for a “C” corporation there is no deduction allowed, for the “S” corporation the deduction is on the net business income reported on K-1 and does NOT include the sole-shareholder’s wages, but for a sole-proprietorship filing a Schedule C the deduction is allowed on the net amount reported on Schedule C less the adjustments to income for self-employment tax, self-employed health insurance and retirement income contributions.  In the above example the taxpayer’s “Qualified Business Income” (QBI) eligible for the 20% deduction is $53,935 - $100,000 less $24,000 less $15,000 less $7,065 = 53,935 – which could result in a deduction that reduces net taxable income by $10,787.

So, a Schedule C filer could pay less federal income tax on his or her net “in pocket”.

Obviously, the payroll tax cost, or the QBI deduction, is not the only consideration to be reviewed when choosing a business entity.  There are additional filing and administrative costs associated with operating as a corporation – when creating the corporation, during its operation, and when terminating/dissolving it.  There will probably be additional state payroll tax costs – unemployment, disability and/or family leave insurance contributions – and may be required worker’s compensation insurance premiums for the owner being paid as an employee that would not exist for a sole-proprietor.  And the management and administration of a corporation is more time consuming and requires more detailed recordkeeping and federal, state and local government filings.

As a point of information – operating as a corporation provides the owner with “limited liability”, but so does registering your Schedule C sole-proprietorship as a “Limited Liability Company” (LLC).  And if you are an LLC you can file your taxes as either a sole proprietor on Schedule C (or as a partnership if more than own owner) or a corporation, either “C” or “S”.

In terms of the Social Security component of the FICA payroll tax, paying the tax on a lower earnings base may affect the benefits you receive when you begin to collect.  In the above example the Social Security earnings for the Schedule C filer is $92,350, but is only $55,000 for the corporate employee.  Social security benefits are based on your 40 highest-earning years.  FYI - there is a maximum wage/earnings cap on the Social Security component of FICA tax, which applies to both wages and net earnings from self-employment.

What I am saying is that choosing a business entity is a serious and complicated matter involving many important issues – both tax and non-tax.  There is no “one size fits all” answer – regardless of what a lawyer may tell you.  When deciding on the entity you should consider the difference in payroll tax costs, and now under the GOP Tax Act the potential savings from the Section 199a QBI deduction.  Do multiple calculations based on various amounts of anticipated income.

And consult a tax professional BEFORE you consult an attorney!

TTFN












Tuesday, September 3, 2019

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’?


*  An interesting development.  Kelly Phillips Erb reports “Charitable Donation Deductions Plummet After Tax Reform” at FORBES.COM.

According to the most recent data available from the Internal Revenue Service (IRS), just 12,177,779 taxpayers claimed the charitable donation deduction for the 2018 tax year, totaling $102.7 billion. That compares to 33,629,985 taxpayers who claimed the charitable donation deduction for the 2017 tax year, totaling $160 billion. That’s a difference of 21,452,206 taxpayers claiming nearly $37 billion less in donations.”

If I may be allowed one correction – it should read “After GOP Tax Act” and not “After Tax Reform”.  The GOP Tax Act was, as its official title identifies, a tax cut and NOT tax reform.

This news does not necessarily mean that Americans are actually donating less to charity – it just means that they are claiming less tax deductions for charitable giving.  In order to deduct a charitable contribution, one must itemize, and the GOP Tax Act resulted in a substantial decrease in the number of taxpayers who itemize.  While being able to deduct one’s contributions is a plus – the tax savings from itemized deductions is pennies on the dollar.  Giving $100 to charity may put $22 back in your pocket via an itemized deduction, but you are still out of pocket $78 – so I doubt very much that people give to charity only to get a tax deduction. 

However, it may mean that the taxpayer in the above example will only donate $78 to the charity instead of $100 if they are unable to benefit from itemizing.  In a tweet responding to a comment on the post KPE tells us studies suggest that actual contributions are also down.

And let’s be honest.  While the issue is not as bad as it had been these past few years - a result of the more stringent documentation requirements - the amount of charitable contributions reported on Schedule A does not necessarily accurately reflect the actual amount of charitable contributions made.  This category has historically been the one where taxpayers have truly been “generous” in their estimations (i.e. – “same as last year” or “whatever I am allowed”).

* Yesterday’s post at BOBSERVATIONS talked about “Found Money” – how I found it and how you can, too.

* In light of Hurricane Dorian Kay Bell explains “IRS and other government resources can help you deal with a natural disaster” at DON’T MESS WITH TAXES.

* And Kay reminds us not to forget about our four-legged “children” during a disaster with “7 tips to ensure your pets' safety during a disaster”.


* Just got the word from NATP -

The General Services Administration (GSA) has released the federal domestic per diem rates for 2020. The IRS permits taxpayers to use these rates to substantiate business expenses for lodging, meals and incidental expenses incurred while traveling away from home.”

The new rates are effective October 1, 2019. Click here to access them.

THE FINAL WORD

Cutting taxes is not the answer to all of our problems.  Taxing the rich, merely because they can afford it, is not the answer to all of our problems. 

We must understand and acknowledge that the one and only purpose of the US Tax Code is to raise the money necessary to run the government – and should not be used for social engineering, to redistribute income or wealth or to deliver social welfare and other government benefits.

The Tax Code must not punish ambition, entrepreneurship or success.  While it can be used to encourage savings, investment, and growth, it must not encourage or discourage specific economic decisions, or provide exclusive benefits for specific industries, business activities, or classes of taxpayers.

TTFN











Monday, September 2, 2019

TAX FORMS, SCHEDULES AND WORKSHEETS FOR THE SELF EMPLOYED


HAPPY LABOR DAY!

No holiday for me (no rest for the wicked) - I am laboring away today on a GDE.

Speaking of laboring, here is a question for my self-employed readers.  Are you keeping good records of your business tax deductions?

In addition to my compilation of TAX PROFESSIONAL FORMS, SCHEDULES AND WORKSHEETS I have also compiled a special package of forms, schedules and worksheets especially for self-employed taxpayers, which I am offering for only $6.95!

You can use these unique forms, logs and worksheets to help document your business tax deductions and to help organize and gather the tax information needed to give to your tax professional.

Please be aware that this is copyrighted material and for your internal use only.

This compilation includes –

In “Portrait” Format:

• BUSINESS MILEAGE LOG
• AUTOMOBILE EXPENSE LOG
• AUTOMOBILE EXPENSE SUMMARY
• CONFERENCES, CONVENTIONS AND EDUCATION
• BUSINESS TRAVEL RECORD
• COMPUTER USE LOG 
• HOME OFFICE DEDUCTION
• ALLOCATING BUSINESS EXPENSES TO SCHEDULE C
• RECORD OF CLIENT MEALS AND ENTERTAINMENT
• SECTION 199a QBI DEDUCTION WORKSHEET 
• EMPLOYEE TIME CARD 
• LISTING OF DEDUCTIBLE BUSINESS EXPENSES

In “Landscape” Format:

• ANALYSIS OF BUSINESS EXPENSES 
• DEPRECIATION SCHEDULE 

The package will be sent as 2 separate “word document” email attachments (portrait format and landscape format), so you may edit and revise them as you see fit to personalize and adopt them for your business and to update the forms for annual COLAs or tax law changes.

BTW – I also have a compilation of forms, schedules and worksheets for taxpayers to record income, Schedule A and Schedule E deductions and other things, for only $6.95.  Click here for more information.  You can order BOTH forms compilations for $9.95.

Send your check or money order for $6.95, or $9.95, payable to TAXES AND ACCOUNTANTS, INC, and your email address to –

TAXES AND ACCOUNTING, INC
BUSINESS TAX FORMS COMPILATION
POST OFFICE BOX A
HAWLEY PA 18428
 .
TTFN










Friday, August 30, 2019

THE VALUE OF A TAX DEDUCTION - MORE THAN YOU MAY THINK


An interesting development worth discussing.  This is something that should be considered when doing year-end tax planning in a year you had qualifying dividend and capital gain income.

A client had substantial capital gains for 2018 which were taxable at the lower capital gains rates.  A portion of the capital gains were taxed at 0% while most was taxed at 15%.  The client’s “ordinary” income was taxed at the 12% marginal tax rate.  If we disregard the capital gain income – if all his income had been taxed as ordinary income - the client would have been in the 24% marginal bracket.

After I had done an initial write up and tax calculation the client told me about an additional $350 non-cash contribution to the Salvation Army he had failed to include when sending me his stuff.

This additional $350 reduced his net taxable income and therefore reduced his “ordinary” income tax by $42 - $350 x 12%. 

But the $350 reduction in net taxable income also allowed an additional $350 of his capital gains to be eligible for the 0% rate, so $350 less in capital gain income was taxed at 15%.  He reduced his tax liability by another $52.50 - $350 x 15%. 

The bottom line - the additional $350 deduction saved him $94.50 – or 27% - in federal income tax.

As we can see, because of the different rates for different types of income the savings from a tax deduction can be more than the ordinary marginal tax rate.  In the above example the savings was more than twice this rate.

This example involved a “below the line” tax deduction, the “line” being AGI.  Deductions allowed “above the line” can generate even more savings by reducing the amount of other deductions or credits that are phased-out based on AGI and reducing the amount of taxable Social Security or Railroad Retirement benefits.

This is something that should be considered when doing year-end tax planning in a year you had qualifying dividend and capital gain income.

TTFN










Wednesday, August 28, 2019

RECORDKEEPING FOR COLLEGE


If you have a child beginning college this fall be sure to have him or her save and give to you the receipts for all textbook purchases.  If purchased online have them print hard copies of the receipts.  The American Opportunity Credit, available for the first 4 calendar years of undergraduate education, allows you to include the cost of books with tuition and fees in calculating the credit.

You should also save, again in hard copy, the bills, receipts and “Bursar’s Statements” that itemize the individual charges for tuition, fees, room and board, and other items and amounts and sources of payments.  You should receive a Form 1098-T from the school in January of 2020, but these forms do not always provide all the information you may need.

If you are paying separately for off-campus lodging for your student while away from home at college keep track of these payments also. 

In addition to claiming an American Opportunity Credit, or a Lifetime Learning Credit, if you have used withdrawals from a Section 529 Qualified Tuition Program to pay for all or some of the college expenses the detailed information of expenses and payments will be needed.

If your level of income turns out to be too high to claim a full American Opportunity Credit your student child may be able to claim a credit on his or her tax return if they have sufficient income to have to pay tax.

TTFN














Tuesday, August 27, 2019

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’?




* Kay Bell answers “7 common 401(k) FAQs” at DON’T MESS WITH TAXES.


* In yesterday’s BOBSERVATIONS post I told you how I lost 90 lbs. in 9 months.  Click here.

* Kelly Phillips Erb responds to the suggestion of a “payroll tax cut” with “As Rumors Swirl, Here’s What A Payroll Tax Cut Might Look Like” at FORBES.COM.

I strongly doubt there will be a payroll tax cut.  I strongly doubt that any substantive legislation on anything will be passed by Congress while moron Trump is in office - due to the excessive polarization and the fact that Republicans control the Senate and the Democrats control the House.

* And KPE shares “IRS Issues Warning On New Email Tax Scam”.

THE FINAL WORD

Come on - it is impossible for anyone with a brain to listen to Trump's constant spewing of nonsense and outright lies and not acknowledge the obvious fact that he is a total moron.

No national politician in my lifetime has been as totally clueless about everything than idiot Trump.


No intelligent person with any concern about the future of America, the American people or the world could possibly support and defend Trump and his continuation as President. It is not possible!

TTFN









Tuesday, August 20, 2019

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’?


Not much tax news this week.  But as I always say, some BUZZ is better than no BUZZ.

* FORBES.COM’s Tax Girl Kelly Phillips Erb reports “Reality TV Stars Todd & Julie Chrisley Hit With Multiple Charges, Including Tax Evasion”.

No surprise here.  Nobody ever said reality tv “stars” had any morals, ethics, honesty, or even intelligence.  Actually, a lack of these qualities appears to be a requirement for the “position”.

Ever since ads for “Chrisley Knows Best”, which Kelly’s post proves to be an untrue title statement, first appeared I have been asking who this self-absorbed moron Chrisley was and why anyone would give a rat’s hind quarters about him or his family.  Kelly’s piece does nothing to answer my questions.

Will a subsequent season of idiot Chrisley’s tv show be filmed in prison? 

Want to know what I think about what is erroneously referred to as “reality tv”?  Check out my BOBSERVATIONS post “Reality (TV) Sucks”.

* Speaking of my BOBSERVATIONS blog, I have a new post about remembering Woodstock on its 50th anniversary.  Click here to check it out – and please share with your friends and family.

* The TAX FOUNDATION asks, and answers, the question “Does Your State Have a Marriage Penalty?”.

New Jersey = yes (it is very often better for married couples to file a separate NJ state income tax return)

Pennsylvania = no (all income is taxed at a flat rate and there are no exemptions)

New York = yes

THE FINAL WORD

When will people understand that abortion rights, or same-sex marriage, is NOT a conservative issue – it is a religious issue.

Conservative philosophy believes that the government should have minimal involvement in the personal and business life of the individual citizen. A major tenant of conservatism is to protect & maximize individual rights. The religious right and so-called “evangelicals” want the government to tell individuals how to live their lives by legislating the specific religious beliefs of a specific sect or Christianity.


Evangelicals and the religious right are NOT conservatives.

TTFN










Friday, August 16, 2019

RELIEF FOR TAXPAYERS WHO WERE VICTIM OF THE IRS WITHHOLDING FU




The big tax news of the week is “IRS axes estimated tax penalties for 400,000 taxpayers”, as Michael Cohn reported at TAXPRO TODAY.

The announcement was made in IR-2019-144.

In his article Michael explains (highlights are mine) -

Earlier this year, in response to complaints from taxpayers who discovered they hadn’t withheld enough from their paychecks last year after passage of the 2017 tax overhaul and ended up with high tax bills, the IRS lowered the usual 90 percent penalty threshold to 80 percent to help taxpayers whose withholding and estimated tax payments fell short of their total 2018 tax liability. The agency also removed the requirement that estimated tax payments be made in four equal installments, as long as they were all made by Jan. 15, 2019.  The 90 percent threshold was initially lowered to 85 percent on Jan 16 and, after further complaints from lawmakers, it was lowered once more to 80 percent on March 22.

The IRS said it would apply the waiver automatically to the tax accounts of all eligible taxpayers, so there’s no need to contact the IRS to apply for or request the waiver. The automatic waiver will be given to any individual taxpayer who has paid at least 80 percent of their total tax liability through federal income tax withholding or quarterly estimated tax payments but didn’t claim the special waiver available to them when they filed their 2018 return earlier this year.”

Previous to this announcement, despite the changes to the policy for calculating the penalty for underpayment of estimated taxes, the IRS had been sending out notices to taxpayers assessing the penalty based on the previous 90% threshold and equal quarterly payment requirement.  The IRS has said that any taxpayer who had paid the erroneously calculated penalty will receive a refund check for the overpayment in a few months.  

Michael also explains –

For those taxpayers who haven’t filed their 2018 taxes yet, such as those who asked for an extension until Oct. 15, the IRS is urging every eligible taxpayer to claim the waiver on their tax return when they do file.”

The way to claim the waiver on a manually prepared return is by attaching IRS Form 2210 to the tax return.

This announcement reminds us that you should never automatically pay any penalty or balance due notice you have received from the IRS or a state tax agency.  In my experience over half, more like 2/3, of all such notices are wrong. 

Whenever you receive any correspondence about a tax return give it to your tax professional immediately.  If you “self-prepared” the return, manually or using a “box”, read the notice carefully and verify the calculation of any penalty.  Better yet, consult a tax professional.

TTFN











Wednesday, August 14, 2019

JUST WHO IS THIS ROBERT D FLACH?






I am currently working on a book that I hope to have published "traditionally" (not "self-published").  At the beginning of the book I introduce myself to the readers.

Here, for those of you who are unfamiliar with me, is what I have written -

My name is Robert D. (for David) Flach. 

I was born, in November of 1953, and raised, and lived most of my life, in metropolitan Jersey City, New Jersey, across the river from “the big apple”, county seat of Hudson County, once the “poster child” for political corruption (think Frank Hague and John V Kenny and the infamous Democratic Party political machine, where it was almost illegal not to vote Democrat, early and often, every year on Column A of the election ballot).  I also lived for relatively brief periods in Milburn, Summit, Stirling, and Watchung New Jersey.  In 2012 I moved to rural Hawley in Northeast Pennsylvania, about an hour from Scranton.

I have been preparing income tax returns for individuals in all walks of life since February of 1972. 

My first encounter with income taxes came when I was in a freshman at a local Jesuit college.  I had taken the first half of Accounting 101, but had not taken any tax classes.  I had no experience with or education in any aspect of income taxes.  I had never even prepared my own simple returns. 

My uncle’s tax professional, James P. Gill, hired college students during the tax season as “apprentice” preparers.  During his annual visit to have his return prepared, on February 12th (he would always go on Lincoln’s birthday), my uncle happened to mention that I had taken my first accounting course and that I was helping him with the books for the non-profit organization for which he worked.  Jim told my uncle to send me in to see about a job – and the rest is history.

On my initial visit to Jim’s office just off Journal Square in Jersey City (where the “Jersey Bounce” started) he took me to a desk, gave me a copy of a client’s previous year’s tax return and a briefcase full of papers that constituted the current year’s tax “stuff”, and told me to “jump in and swim”.
 
If I had a question, I would ask my JP, who would take the time to explain the answer or send me to find the answer in his CCH tax library.   So, I was self-taught via on-the-job training.  I learned how to prepare income tax returns in the very best way possible – by preparing income tax returns.  Back then there was no software – so I learned by preparing returns manually.  I firmly believe the best way to learn how to prepare returns is by preparing them manually.   

In my 47+ years in “the business” I have never prepared a 1040, or any other tax return, using flawed and expensive commercial tax preparation software.  When asked what software I use I simply say “my brain”.  I am truly the last of the dinosaurs, one of a handful, if not the only, tax professional who still prepares all my 1040s manually.

The closest I came to using software was during my brief tenure as a “para-professional” for the then big-eight CPA firm of Deloitte Haskins + Sells back in the late 1970s.  I would fill-in an “input sheet” for a Form 1040 which was generated using Computax.  My reaction back then was that by the time I finished filling in the input sheet I could have actually prepared the return manually.

At a CPE session in San Antonio MANY years ago, conducted by legendary veteran tax pro and former director of the IRS Office of National Public Liaison (a division of the agency that serves as a link to tax professionals, business associations, taxpayer assistance groups, and federal agencies) Beanna Whitlock.  She asked the participants if anyone still prepared 1040s manually.  Of course, my hand was the only one that went up.  Beanna said she wanted to shake my hand - because I was the only one in the room who really knew how to prepare 1040s!

I do use commercial general ledger software, currently QuickBooks.  One thing I learned in transitioning from manual accounting to software back in the 90s – when paying bills manually for clients

I am an “unenrolled” preparer.  I am neither a CPA nor an EA.  I have never had any desire to audit financial statements, so I did not become a CPA.  And I have never had any desire to represent taxpayers before the IRS, so I did not become an EA.  And I have chosen not to enroll in the IRS voluntary Annual Filing Season Program (AFSP).

I currently work out of a home office in my condo in Hawley and am winding down my practice, planning to officially retire after having completed 50 tax filing seasons.  For your information, I no longer accept any new clients.  This book is not being written as a way to attract new 1040 preparation business.  If you need a tax professional please don’t contact me – my answer would in every case most definitely be “no”.     

I am also a writer.  I have written extensively about federal income tax planning and preparation, mostly aimed at the average middle-class taxpayer. 

I have been writing the popular tax blog THE WANDERING TAX PRO (http://wanderingtaxpro.blogspot.com) consistently, except for an annual February through mid-April tax season hiatus, since July of 2001, after learning about blogging at that year’s annual conference of the National Association of Tax Professionals (I have been a member for over 30 years).  I also write the non-tax blogs BOBSERVTIONS (https://bobflach.blogspot.com) and TRUMP MUST GO (http://denouncetrump.blogspot.com). 

I have created and write the content for the websites FIND A TAX PROFESSIONAL (https://www.findataxprofessional.com) and A TAX PROFESSIONAL FOR TAX REFORM (https://taxprosfortaxreform-com.webs.com).  I have also written articles and commentaries for the publications of the National Association of Tax Professionals and the newsletter of the NJ chapter and for the online portals THE STREET, TAXPRO TODAY, ACCOUNTING TODAY, and MEDIA FEED.  And I have written several books, guides and reports on tax planning and preparation and the tax preparation business.  You can find information on these writings at http://robertdflach.blogspot.com.   

After the tax filing season, I enjoy travel, domestic and international, via all methods (car, bus, train, boat, airplane), hence my title as the “wandering” tax pro (also because my mind tends to wander), musical theatre, and watching British, Canadian and Australian tv mysteries on Acorn.tv.

Any questions?

TTFN