WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

Enough already!

I am sure you are getting tired of “listening” to me whine about the idiots in Congress.  Just as I am getting tired of calling the idiots out.  It really accomplishes nothing.

We all know that it is a proven fact that the members of Congress are incompetent and ineffective idiots with no concern for the American public who are incapable of compromise or of independent thought.  Saying it over and over ain’t going to make it not so.

The voting public knows all this – and yet still re-elected the cafones for two or six more years of doing nothing.

So I promise to say as little as possible about these fools from now on – here in the BUZZ or in “regular” posts.

* Check out the Tax Foundation’s weekly map of “AMT Filers by State”.

I moved from the #1 state – New Jersey, with 6.41% of residents falling victim – to the #10 state (Wash DC is included in the top 10 locations, though not a state) – Pennsylvania, with 2.57%. 

* The “IRS Warns Consumers of Possible Scams Relating to Hurricane Sandy Relief” -

“Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Such fraudulent schemes may involve contact by telephone, social media, email or in-person solicitations.”

The Service provides the following good advice –

• Donate to recognized charities (i.e. Red Cross, Salvation Army, etc – and a special word of warning based on a local scam here in PA, the Salvation Army does not solicit donations door-to-door or via telephone; do not give money for SANDY relief to any person who rings your doorbell).

• Be wary of charities with names that are similar to familiar or nationally known organizations.    

• Don’t give out personal financial information — such as Social Security numbers or credit card and bank account numbers and passwords — to anyone who solicits a contribution from you.  

• And most important - Don’t give or send cash.  Contribute by check or credit card only to provide documentation of the gift (you will need the documentation in order to claim a tax deduction).

* And on Veteran’s Day the IRS “tweeted” about its page of “Tax Information forMembers of the Military”. 

As I have said before – whatever you think of the IRS, its website is chock-a-block with good information and resources.

* The Tax Foundation has published “The Fiscal Cliff: A Primer”, a Special Report that outlines what will happen January 1, 2013, if Congress does nothing (I am tempted – but will resist).

* Dan Bottner of the Bond Beebe accounting firm reports at the firm’s blog that “Virginia Announces Changes to Issuing Tax Refunds” –

“Virginia will begin to issue tax refunds via debit card or direct deposit only starting with refunds issued in 2013 for the 2012 tax year.  Virginia is making the change in hopes of saving money by reducing check printing and mailing costs.”

This is actually a good idea.  Many states offer the direct deposit option, which I encourage my clients to take advantage of.  It saves the state money and gets the refund to the taxpayer faster.

In New York, if you do not elect direct deposit it will take months for a paper check to arrive (the refund is purposefully delayed). 

Unfortunately in New Jersey the direct deposit option is only available if you use the online NJWebFile system, which I encourage clients to let me use, or file electronically (for which flawed and expensive tax preparation software is required).  NJ taxpayers who file paper returns cannot elect direct deposit, which is a costly mistake on the part of NJ.

* Joe Arsenault continues the ongoing discussion of Long Term Care Insurance that I have included in various BUZZ installments by answering “Five Questions About Long-Term Care” at the Arbor Retirement Solutions, PLLC blog.

* Kay Bell tells of the tons of money wasted in the recent election in her post “SuperPAC Donations: $1.3 Billion, American Crossroads Winners: 0, Snarky Donald Trump: Priceless” at DON’T MESS WITH TAXES.

And Kay, an astute judge of character, came up with something that seems almost impossible (highlight is mine) –

“One such dubious PAC observer is the jackass provocateur jackass Donald Trump, who for some reason got overly political in 2012.

I never thought I'd find anything the New York loudmouth had to say worthwhile, much less worth repeating, but it's been that kind of election year.

And tRump nailed it when, via Twitter, he called out Karl Rove and his Crossroads GPS group the day after the election:

‘Congrats to @KarlRove on blowing 400 million this cycle. Every place @CrossroadsGPS ran ads in, the Republicans lost. What a waste of money.’”

Believe me Trump knows a waste of money when he sees one.  He fills his pockets via a total waste of money - the pile of excrement titled “The Apprentice” (hey - I never said I would stop bitching about so-called “reality tv”).

* TaxGirl Kelly Phillips Erb teaches a class in Taxes 101 in “Making Sense of Income and Tax Terms” at FORBES.COM, explaining the various tax terms.

* At ABOUT.COM Bill Perez gives us the word that “TIGTA Reveals Cause of Refund Delays that Occurred in Early 2012” –

“•The IRS experienced problems with its identity fraud detection filters, and

•The IRS experienced problems with the ability of its Modernized E-File system to create properly-formatted data files.”

There will be a different reason for the possible delay in refunds in early 2013.

TTFN

LET'S DO SOMETHING RIGHT FOR A CHANGE

There has been a lot of talk lately about “tax expenditures” and the 47% of Americans who either pay absolutely no federal income tax or actually make a profit by filing a tax return (thanks to “refundable” tax credits). 

Over the years the idiots in Congress have created a mucking fess of the Tax Code by making it the method of delivery for various social welfare benefits and to encourage certain beneficial purchases, which has created the 47%.  This is certainly not the best, nor the most efficient, way to deliver or distribute these benefits – but it is easy.  And, as we all know, the idiots in Congress are all for choosing the quickest and easiest way to do things rather than actually having to sit down and think.

While there are many “tax expenditures” that should be completely done away with, many of the social and societal benefit programs run through the Code are actually good and have merit.  But they should be delivered and distributed separately out of the budget of the appropriate cabinet department – and not on the 1040.

As I have posted here before, doing this is much “more better” for many reasons -

(1) It would be easier for the government to verify that the recipient of the subsidy or hand-out actually qualified for the money, greatly reducing fraud. And tax preparers would no longer need to take on the added responsibility of having to verify if a person qualified for government funds.

(2) The qualifying individual(s) would get the money at the “point of purchase”, when it is really needed, and not have to go “out of pocket” up front and wait to be reimbursed when they file their tax return.

(3) We would be able to calculate the true income tax burden of individuals.  Many of the current 47% would still be receiving government hand-outs, but it would not be tied into the income tax system so they would actually be paying federal income tax.

(4) We could measure the true cost of education, housing, health, welfare, etc programs in the federal budget because the various subsidies would be properly allocated to the appropriate departments and not be reported as a part of net income collected via income tax.

(5) The Tax Code would be much less complicated, the cost to the public for preparing a tax return would be reduced, and the IRS would have much less to process and to audit.   

Item (2) is a very important one.  A major problem with using the Tax Code to distribute government benefits via tax deductions and credits is that the benefits are provided “after-the-fact” and not at the “point of purchase”.

Let’s look at the deductions and credits for tuition and fees.  In order to claim these tax benefits the student, or more likely his/her parents, must spend the money for tuition and fees and then wait until they file their tax return to get the “student financial aid” from the government.

These students, and parents, need the money when the tuition and fees are due.  If they do not have it at the point of purchase they often turn to borrowing, placing themselves further in debt.   

There is currently in place a process for providing student financial aid at the point of purchase.  And this aid is based on student and family income, using information from tax returns.  Instead of giving those who qualify a tax deduction or credit on their Form 1040 a year or more later, why not give the same benefit, based on the same income formula, as part of the existing student financial aid system.  This way the student, or parents, gets the money upfront to pay for college expenses or, better yet, the money is distributed directly to the college - and there is no need for additional borrowing.

In the past there have been credits for purchasing energy-efficient products and improvements, and some still exist.  But again, the money is provided after-the-fact – as much as a year or more after the purchase.  I would think more individuals would be encouraged to purchase these items if the money was provided upfront as a point of purchase discount.  Again individuals who want to take advantage of the eventual tax credit may be forced to borrow money to make the qualifying purchase, creating more debt.

The “Cash for Clunkers” program of a few years back proves that this can be done relatively efficiently. 

And, as I have said over and over again, the Earned Income Tax Credit, refundable and otherwise, and refundable Child Tax Credit, which, if you call a spade a shovel, are really forms of welfare, would be better distributed via the Aid to Families with Dependent Children program – and with substantially less fraud.

Unfortunately, with BO re-elected and the members of Congress being the idiots they are, don’t expect any changes in the current system any time soon.

TTFN

A SIMPLE FIX

The Washington Post article “Middle Class Faces Quick Impact from Fiscal Cliff in Form of Alternative Minimum Tax” explains (highlight is mine) -

“Unless Congress acts by the end of the year, more than 26 million households will for the first time face the AMT, which threatens to tack $3,700, on average, onto taxpayers’ bills for the current tax year. Because those people have never paid the AMT, they have no idea they are in its crosshairs — put there by a broader stalemate over tax policy that has kept Congress from limiting the AMT’s reach.

Forget about the much-publicized tax hikes set to take effect for 2013 — if you have a couple of children and annual income over $75,000, chances are good that your taxes are on track to go up substantially for 2012.

Residents of high-cost urban areas, including Washington, would be hit hardest, with about 2 million households in Maryland, Virginia and the District in line to face the AMT for the first time, by official estimates.

Unlike most tax increases in the fiscal cliff, including the expiration of the George W. Bush-era income tax cuts, the AMT bill would come due almost immediately. And tax experts say it would be extremely disruptive to try to fix the AMT after the 2012 tax year closes Dec. 31.”

It appears that both the Democrats and the Republicans support extending the dreaded Alternative Minimum Tax (AMT) patch –

“Lobbyists and aides in both parties say it is hard to imagine Congress letting the new year arrive without legislation to restrict the AMT.”

It seems easy to fix.  All the idiots in Congress have to do is draft a bill to do nothing more than extend the AMT patch through at least December 31, 2012.  Period.  And have it passed by both houses.  Simple.  It can be done in one or two days, and in time for the IRS to be able to adjust its software and “go to press” with the appropriate forms and instructions before year-end.

But of course the members of Congress are incompetent and ineffective idiots who have absolutely no concern for the American taxpayer.  So don’t hold your breath. 

TTFN

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

 

* Just as I was about to “go to press” with this installment of the BUZZ, Christopher Rowland of BOSTON.COM told us “House Speaker John Boehner is Calling for a One-Year Delay in Fiscal Cliff; Obama to Speak Friday Afternoon” –

“Speaking just two hours before President Obama was scheduled to issue remarks on the subject from the White House, House Speaker John Boehner convened a press conference Friday to say he would prefer extending all Bush-era tax cuts until 2013, including cuts for the wealthy.

That would give lawmakers enough time to develop a comprehensive tax overhaul and deficit-reduction plan, the Republican speaker said.”

I wholeheartedly agree.  And not only the so-called “Bush” tax cuts, but also the AMT patch and perhaps the other “extenders”. 

Of course the second paragraph of the quote is of vital importance – the idiots in Congress MUST get off their arses and “develop a comprehensive tax overhaul” plan in 2013!

* Unfortunately, according to “Obama: Americans Agree With My Approach On Deficit” at YAHOO NEWS, BO said in his Friday afternoon address that “he won't accept any approach to federal deficit reduction that doesn't ask the wealthy to pay more in taxes”.

 

So the battle begins - or rather continues!

* More SANDY relief from the IRS - “IRS Expedites Charity Applications and Urges Use of Existing Charities”.

“As part of the administration’s efforts to bring all available resources to bear to support state and local partners impacted by Hurricane Sandy, the Treasury Department and the Internal Revenue Service today announced an expedited review and approval process will be offered for organizations seeking tax-exempt status in order to provide relief for victims of Hurricane Sandy.  The IRS also continues to encourage people to use existing organizations currently working on immediate aid efforts.”

* Read the “Prepared Remarks of IRS Commissioner Doug Shulman Before the AICPA, Washington, DC” as he says farewell on the day after the election.

* The TAX FOUNDATION gives us the word on the success or failure of various state tax-related ballot initiatives and questions.  Click here.

* Sterling Raskie provides “A Nifty Little Trick to Increase Savings” in a guest post at GETTING YOUR FINANCIAL DUCKS IN A ROW -

“ . . . once a debt is paid off, still treat that payment as a bill – but now direct that bill payment to your bank account, IRA, or employer sponsored plan.”

* USATODAY tells us that “Fiscal Cliff Spurs Early Dividend Payment” by at least one company so far –

“Leggett & Platt said Thursday it would pay out its fourth-quarter dividend to shareholders in December instead of January. The reason: they want to spare their investors from having a bigger bite of their dividend income eaten up by taxes, which are slated to rise next year from 15% to the higher individual tax rates unless Congress votes to extend the Bush-era tax cuts.”

Chances are other companies may also decide to do this.

* Also at USATODAY, Rhonda Abrams’ list of “8 Ways Obama Can Help Small Businesses” includes a truly horrible idea that I have not heard proposed before –

“A self-employment standard deduction. Instead of having to keep piles of receipts and track every expense, set a sliding scale of standard deductions that sole proprietors can take based on business income up to a set amount, say $75,000 or $100,000.

That would get rid of a lot of paperwork.”

A terrible idea indeed!  Small business owners should NOT be discouraged from keeping receipts and tracking expenses.  It is often hard enough to get them to do so as it is.  Small business owners MUST keep records and track expenses for a variety of very important reasons – preparing their tax return is only one, and not the most important one at that.

* Michael Townsend of CHARLES SCHWAB speculates on the results of the election in “Election 2012: Takeaways for Investors”.

The item’s introduction indicates that perhaps the members of Congress are not the only idiots in America (highlight is mine) -

“The election seemingly did nothing to change the balance of power in Washington: President Obama was reelected, Democrats retained control of the Senate and Republicans maintained control of the House of Representatives. So, despite all evidence that Americans are frustrated with policymakers' inability to come together and solve problems, the election produced the outcome least likely to change that—the same polarized dynamic that has tied Washington in knots for the last two years is likely to continue.”

He indicates what many, myself included, agree will most likely happen (again, highlights are mine) –

“Congress returns to Washington November 13, but most of the energy that week will be devoted to leadership elections, orientation for newly elected members and practical things like allocating office space for the new Congress. Lawmakers will then return home the week of Thanksgiving and reconvene on November 27, which is when the serious discussions will likely begin. It may be the third week of December before we see a resolution.

And despite negotiations, we don't think there will be any ‘grand bargain’ before the end of the year. There is neither the time nor the inclination in Washington to try to forge any kind of broad agreement on taxes, spending and entitlement reform in the coming weeks. Instead, we think the debate in Washington through the end of the year will focus on ways to put off as much of the fiscal cliff as possible into 2013.”

One result of the election is that the upcoming 2013 tax filing season will certainly be FU-ed.

* The internet’s TaxMama “tweeted” a great suggestion -

“If legislators cannot legislate, why should the people pay them? Let their parties pay their wages and pensions.”

It has my support.

* Martin Sullivan suggests some principles for tax reform in “Tax Reform 2.0” at TAX.COM.

While all of his principles are good – his third one is, in my opinion, perhaps the most important -

“Third -- and perhaps I am the one being naïve here -- we need to constantly place simplification at the forefront. Get rid of the AMT. Simplify rules for pensions and retirement saving. Simplify education incentives. And in our effort to maintain distributional neutrality, don't reinstate the Pease provision and personal exemption phaseout (as proposed by Obama). And don't install new phaseouts of itemized deductions (as suggested by Romney).”

THE LAST WORD –

Regular visitors to TWTP know that I do not think David Lettermen’s late-night show, or his lame “bits”, are funny, with the possible exception of the occasional Top Ten List.

But Letterman hit the nail on the head with the following observation on Wednesday night (I heard this in a promo – I do not watch the show) –

“President Obama defeated the Republicans.  You know what that means - four more years of partisan gridlock!”

TTFN

RETIRE A MILLIONAIRE!

A “tweet” from GETTING YOUR FINANCIAL DUCKS IN A ROW author Jim Blankenship, an Enrolled Agent, led me to his post “How To Turn $5,000 A Year Into a $33 Million Legacy” from August of 2009.

Forget about the $33 Million.  Let us look at the beginning of the example he uses (the highlights are mine) -

“Once upon a time, there was this guy named Joe.  He was 20 years old, working part-time making decent money, finishing up college, just generally living large (by a 20-year-old’s definition).  On the advice of his father (yes, some 20-year-olds listen to their fathers!), he opened up a Roth IRA, funding it with $5,000.  The account was invested in a fixed 5% yield instrument of some sort (not important what the investment is, just assume a 5% annual yield).

Using the Roth IRA is advantageous to Joe because his tax rate is very low at this stage of his life – presumably tax rates will be increasing for him in the future.  Any growth on this account is tax-deferred and most likely tax-free, as long as any future distributions are for qualified purposes.

Each year thereafter, Joe contributes an additional $5,000 to the Roth account.  After he completes college, he starts working at an entry-level job.  Not long after, he marries his high school sweetheart Jane, and they settle into their life.  As life goes, they soon have children in their household, and even though money is tight, Joe continues to contribute the $5,000 each year into his Roth IRA.  This goes on for a while.

And then… 20 years pass

At age 40, Joe launches his own business.  During this time in his life, tax deductibility becomes more important to him since he’s making a lot more money and is in a higher tax bracket – and so he stops contributing to the Roth IRA.

All this time, his investments in the Roth account have been steadily growing at that fixed 5% rate – and the balance is now up to $165,329 – on 20 years’ worth of $5,000 investments, for a total of $100,000 contributed.  Pretty nice, right?

Joe just sets the Roth account aside at this point, forgetting about it altogether for quite a while (other than those pesky quarterly statements).  Not much happens here for a long, long time, other than compounding interest, time passing, and continued tax deferral.

… and another 50 years pass

Joe is now age 90.  His business has flourished through the years, and now his children are reaping the benefits of having worked there, and now retiring.  His grandchildren have taken over the business, and he and Jane are enjoying their great-grandchildren.  A couple of years later, little Jolene is born, and this great-granddaughter quickly becomes the apple of Joe’s eye.

It is along this time that Joe remembers that long lost Roth IRA account.  To this point it has grown to over $2 million – from that original series of $5,000 contributions that amounted to a total of $100,000.”  

This is a great example of the effects of tax-free compounding.  Joe has built up $2 Million that he can pass along to his beneficiaries income tax free.

Think what the account would be worth if he had continued to make the maximum annual contribution (including catch-up amounts when he turned 50) from age 40 to age 65, then retired and began to take tax-free distributions from the account.  He would have a humungous retirement nest-egg for him and Jane to enjoy in their “golden years”, and still have a substantial tax-free legacy to leave to the children and grand-children.

Parents take note – when your children begin to have part-time after-school and summer jobs - if you can afford to do so - open a ROTH account for them and deposit the maximum allowed.  Continue through their first few years of full-time employment after graduation until they can begin to make the maximum payments themselves.

Of course the story of Joe assumes that the idiots in Congress do not FU the ROTH IRA in the future. 

TTFN 

DEDUCTING SANDY

Hurricane Sandy was the most devastating and expensive natural disaster to hit the East Coast. 

It has been estimated that Sandy will end up causing about $20 billion in property damages and $10 billion to $30 billion more in lost business.  At least 56 people in the U.S. were killed.  More than 4 million people were without power for more than a week. 

While I was lucky to escape the effects of Sandy, just about every one of my New Jersey friends and clients, no matter where they live in the Garden State, was, or still is effected in some way.

If you are a victim of Sandy, you may be able to deduct losses as an itemized deduction on your Schedule A.  Worth repeating – you must be able to itemize to claim any tax deduction for your losses.

Casualty losses are reported on Form 4684 (PDF), Casualties and Thefts, before being transferred to Schedule A.

A casualty is damage, destruction or loss of property that results from an identifiable sudden, unexpected or unusual event – such as a car accident, earthquake, fire, flood, hurricane, storm, tornado, and the like.

Your loss is the lessor of –

•  the adjusted basis of the property before the casualty or theft, or

•  the decrease in fair market value of the property as a result of the casualty or theft.

You cannot deduct the “replacement cost” of an item totally destroyed in a casualty.  If you lost an item that originally cost you $500, but will now cost $700 to replace, your deduction for that item is NOT $700 – it is $500.  The “adjusted basis” of a personal item is generally its original cost.

You must first reduce the loss by any insurance or other reimbursement you receive, or expect to receive. 

If your reimbursement is more than your allowable loss you may have taxable income.  If you receive an unexpected reimbursement in a subsequent year, or if a reimbursement received after your return claiming the loss has been filed is not what you had expected when calculating the allowable deduction, you may need to make an adjustment on a subsequent Form 1040.

Next you reduce the resulting net amount by $100.  This $100 reduction is per incident.  If there is only one casualty or theft during the year the reduction is $100.  If there are two separate incidents, one casualty and one theft, the total reduction is $200.

The total amount of all net casualty and theft losses for the year, after subtracting actual or anticipated reimbursements and the $100 per incident, is then reduced by 10% of your Adjusted Gross Income (AGI).  The remaining amount is what can be deducted.

If the total amount of net casualty and theft losses for 2012 is $9,500 and your AGI is $105,000, you get no deduction ($9,500 - $10,500 = $0).  

If you have a deductible casualty loss in a disaster area, as would be the case with Sandy, you have the option of claiming the loss on the return for the year in which the casualty occurs – your 2012 Form 1040 - or the previous year.  This means that you do not have to wait until next year to get the refund generated by the casualty loss – you can amend your 2011 Form 1040 and get a refund now, when you need the money to replace and repair.

In the past the idiots in Congress have passed special tax breaks related to victims, and those who provide help to victims, of high-profile natural disasters.  While the idiots in our current Congress could not act properly and timely on the expired and expiring tax breaks, they may enact some Sandy relief before year-end, which could alter the rules discussed above. 

Perhaps they will address the “extenders” in the Sandy relief legislation?

On the income side, BUSINESS INSIDER tells us that “There Are Some Hidden Tax Benefits for Hurricane Sandy Victims” –

·   “Storm-related workers compensation: Workers who receive storm-related compensation from their employers won’t face a tax liability. The payments include a number of expenses such as funeral costs.

·   Payments from charities and state programs: Payments from charities, state programs and the Federal Emergency Management Agency (FEMA) will also be tax-exempt, according to the IRS.

·   401(k) loans: Taxpayers will be allowed to borrow funds from their 401(k) retirement savings in to make storm repairs, or under other specific circumstances, without the usual penalties.”

Of course if you were a victim of Sandy you should contact your tax professional for more information and advice.

TTFN

GOOD LUCK, MR PRESIDENT

In his acceptance speech BO said –

“You elected us to focus on your jobs, not ours.  And in the coming weeks and months, I am looking forward to reaching out and working with leaders of both parties to meet the challenges we can only solve together: reducing our deficit, reforming our Tax Code, fixing our immigration system, freeing ourselves from foreign oil. We’ve got more work to do.”

Let us hope that the President was telling the truth.  And let us hope that when he says “reforming our Tax Code” he means real substantive reform.

The problem is that, even if Obama is truly sincere about “reaching out and working with leaders of both parties”, and I have no reason to doubt he is, the leaders of both parties may not be as ready to “reach out” and work together. 

The leaders of both parties that the President speaks about are the same idiots who have been leading the worst and most incompetent and ineffective Congress in history for the past four years.  And, with most incumbents being re-elected, there is no indication that Congress will not continue to be incompetent and ineffective, and that the idiots on Capitol Hill will not continue to be incapable of compromise or independent thought.

I wish you luck, Mr. President.  But I expect you already know that you will need lots of it when dealing with the idiots in Congress.

TTFN

 

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

It is finally over!  By now you know that BO has won re-election.  So gone is any hope for substantive tax reform for another four years. 

And despite the horrible job done by Congress, and historical public dissatisfaction with the idiots, it looks like most incumbent Congresspersons were re-elected so they can continue to accomplish nothing.

I voted for the first time as a PA resident yesterday.  It was different from voting in NJ – no machines (I mean voting machines and not the Hudson County Democratic “machine”).  My first paper ballot.

* I am sorry I missed this interview on 60 Minutes.  Check out “An Exasperating Interview with Senate Leaders”

* “Robert D. Flach's take on the DOMA same-sex marriage issue” was included in “In the Blogs” (weekly roundup of the best of posts from the tax blogs), TAXPRO TODAY’s version of the BUZZ!

* The RED CROSS has advice for victims of SANDY with “Recovering Financially”.

I will be posting about deducting a casualty loss here at TWTP tomorrow.  This tip from the item will help you with your tax filing as well as with your insurance claims –

“Prepare a list of damaged or lost items and provide receipts if possible. Consider photographing or videotaping the damage where it occurred for further documentation to support your claim.”

* New Jersey has announced some tax relief for victims of SANDY –

“Taxpayers who cannot meet normal filing and payment deadlines because of the storm now have until November 7, 2012, to file returns and tax payments that would have been due October 30 and 31.

Filings and payments covered by the state extension include Form NJ-927, Employer’s Quarterly Report; Form DSF-100, Domestic Security Fee Quarterly Return; and Form TMF-10, Transporter of Motor Fuels Report.”

Click here to read the press release.

As for Pennsylvania, I found the following from a general release –

“In general, Pennsylvania will follow Internal Revenue Service rules outlined in recent news releases ( IR-2012-82) that extended federal tax deadlines to Nov. 7.

The 2012 Pennsylvania disaster recovery deadline extension generally applies to inheritance tax, employer withholding and motor carrier road tax/IFTA tax filings and payments with due dates between Oct. 29 and Oct. 31. The deadline extension also applies to unemployment compensation tax filings for third quarter 2012 that were due Oct. 31. Such filings may now be filed as late as Nov. 7.”

And this from the PA Dept of Labor and Industry website -

“Employers covered by Pennsylvania UC Law are required to file reports and remit contributions for the third quarter of 2012 by Oct. 31, 2012. The Department of Labor & Industry is granting employers an extension until Nov. 7, 2012 to file reports and remit contributions normally due on October 31 to allow additional time for employers affected by Hurricane Sandy to file and remit timely payments.”

* Robert W Woods’ post on “Key Facts about Donating Cars to Charity” at FORBES.COM includes a tip that did not occur to me in my writings on the subject -

“Charities and fundraisers are subject to state law on transfers of title. Generally, state charity officials suggest that the donor transfers title himself to terminate his liability. In most states, this involves filing a form with the state DMV. To help avoid liability, donors should also remove license plates before the donation, unless state law requires otherwise.”

* Jason Dinesen continues with his tale of “Taxpayer Identity Theft” with Part 9 and Part 10 at DINESEN TAX TIMES.

* The EQUIFAX FINANCE BLOG looks at the question “Long-Term Care Insurance—Is It Worth The Cost?” and seems to come to the same conclusion I did, as per an item in a previous BUZZ installment –

“’You can really look at long-term care as a form of asset protection and not health care,’ said Sandy Praeger, Kansas insurance commissioner and chair of the National Association of Insurance Commissioners’ Health Insurance and Managed Care Committee.

‘Long-term care insurance is really for people who have assets to protect,” Praeger said. “If you have fewer than $100,000 or $50,000 in assets, you wouldn’t want to be paying the premium.’”

I did added that you do not necessarily need LTCI if you do not have a spouse or children to leave your assets to.

* Kay Bell got “Tax Carnival #108: Election 2012” up at DON’T MESS WITH TAXES before the polls closed.  My post on “Evaluating Tax Rates” is included.

TTFN

VOTE!

Be sure to vote today.

If tax policy were the only issue of importance the choice for President in this election would be clear.  A vote for Obama is unfortunately a vote for maintaining the complexity of the Tax Code and making it even more of a mucking fess.  Tax reform takes leadership from the top, and the only chance for any kind of substantive tax reform is if Romney is elected.   

However, it is not that easy.  You should not choose a Presidential candidate based solely on a single limited issue.

What is clear, and I don’t mean to sound obsessed on the subject, is that the current members of Congress are, for lack of a better word, idiots.  They are incompetent, ineffective, and unproductive.  They are incapable of compromise or of independent thought.

In the “real world” such an incompetent employee would be fired and replaced.

We, the American public, are the “employer” of the idiots in Congress.  We should “fire” them by voting out any current member who is running for re-election today.

But be sure not to vote in a “worse” idiot than the one you are voting out.  I strongly and sincerely believe that you should NOT vote for any candidate who is a member or supporter of the Tea Party movement!

TTFN

TOP TEN LIST ADDENDUM

Here is an addendum to my list of top ten facts to make it a baker’s dozen -

 

(1)  It is bad advice to tell ALL taxpayers who have a Schedule C business to incorporate. There is no tax advice that applies to all businesses, or all taxpayers, in all situations (except don’t cheat).  The appropriateness of a tax planning strategy or technique depends on the specific facts and circumstances or your individual situation.

(2)  More than half of the balance due notices that are sent out by the Internal Revenue Service and state tax agencies are incorrect.  If you receive such a notice send it to your tax professional ASAP.

(3)  The Internal Revenue Service will NEVER initiate contact with a taxpayer via email.  If you receive an email that claims to be the IRS do not respond, do not open any links, and forward it immediately to phishing@irs.gov.    

And a bonus fact -

The programs of the genre that has become erroneously known as “reality television”, which includes the likes of The Jersey Shore, The Real World, The Bachelor and Bachelorette, and anything with Kardashians, are steaming piles of excrement.  These shows possess absolutely no “redeeming social value”, and are actually dangerous to society.

TTFN

SANDY TAX RELIEF UPDATE

The latest word from the IRS on relief for victims of SANDY -

“Following recent disaster declarations for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in Connecticut, New Jersey and New York will receive tax relief. Other locations may be added in coming days based on additional damage assessments by FEMA.

The tax relief postpones various tax filing and payment deadlines that occurred starting in late October. As a result, affected individuals and businesses will have until Feb. 1, 2013 to file these returns and pay any taxes due. This includes the fourth quarter individual estimated tax payment, normally due Jan. 15, 2013. It also includes payroll and excise tax returns and accompanying payments for the third and fourth quarters, normally due on Oct. 31, 2012 and Jan. 31, 2013 respectively. It also applies to tax-exempt organizations required to file Form 990 series returns with an original or extended deadline falling during this period. 

The IRS will abate any interest, late-payment or late-filing penalty that would otherwise apply. The IRS automatically provides this relief to any taxpayer located in the disaster area. Taxpayers need not contact the IRS to get this relief.

Beyond the relief provided by law to taxpayers in the FEMA-designated counties, the IRS will work with any taxpayer who resides outside the disaster area but whose books, records or tax professional are located in the areas affected by Hurricane Sandy. All workers assisting the relief activities in the covered disaster areas who are affiliated with a recognized government or philanthropic organization are eligible for relief.  Taxpayers who live outside of the impacted area and think they may qualify for this relief need to contact the IRS at 866-562-5227.

In addition, the IRS is waiving failure-to-deposit penalties for federal payroll and excise tax deposits normally due on or after the disaster area start date and before Nov. 26, if the deposits are made by Nov. 26, 2012. Details on available relief can be found on the disaster relief page on IRS.gov.

So far, IRS filing and payment relief applies to the following localities:

In Connecticut (starting Oct. 27): Fairfield, Middlesex, New Haven, and New London Counties and the Mashantucket Pequot Tribal Nation and Mohegan Tribal Nation located within New London County;

In New Jersey (starting Oct. 26): Atlantic, Bergen, Cape May, Essex, Hudson, Middlesex, Monmouth, Ocean, Somerset and Union;

In New York (starting Oct. 27): Bronx, Kings, Nassau, New York, Queens, Richmond, Rockland, Suffolk and Westchester.”

TTFN

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ - SPECIAL FRIDAY EDITION

SANDY has created a mucking fess in New Jersey to rival the Tax Code.  Many of my friends and clients all over the Garden State, including my sister in Hudson County, were, or as of this writing still are, without power.  In my new hometown in Northeast PA only 16 PPL customers were without power, and I was not one of them.   

However, SANDY has not affected the tax BUZZ.  Lots to talk about – and I can again provide a special Friday installment.

* TAXGIRL Kelly Phillips Erb gives us some advice on “Helping Out After Hurricane Sandy”.

Especially good advice for those who want to help by donating money -

“Be wary of personal solicitations on your doorstep or over the phone. Make sure that your gifts made by checks or credit card gifts are secure.”

And -

“Check out the credentials of a potential donee/charitable organization before you make a donation.”

And -

“The rules for charitable giving still apply even in situations that feel chaotic. That means that only contributions to qualified tax-exempt charitable organizations are deductible – donations to individuals don’t count. Be sure to document your gifts and get receipts.”

* Jason Dinesen continues the saga with “Tax Identity Theft – Part 8” at DINESEN TAX TIMES.

I echo what fellow tax blogger Joe Kristan has “tweeted” to Jason –

“You've done a great job putting a face on the identity theft epidemic.”

* Click here to download the Tax Foundation’s 198-page report “Location Matters: A Comparative Analysis of State Tax Costs on Business”.

* Say what you will about the IRS, the Service’s website certainly provides great resources for tax information – including over 150 videos.  Click here for the IRS video page.

* Eva Rosenberg, the internet’s TAX MAMA (is there a Tax Papa?) talks about “Reverse Mortgages”, which have become more popular lately via celebrity-fronted tv ads.

“Mama” explains that there is no current mortgage interest deduction for a reverse mortgage –

“In a reverse mortgage, the homeowner isn’t paying any interest.  They are receiving loan draws on a monthly basis. All the interest is deducted at the end, when the mortgage is paid off. 

Remember, a cash-basis taxpayer only gets deductions when s/he PAYS a bill.”

And warns –

“These loans are not a benign and helpful as they seem to be. They can cost the senior borrower their home, if they are not careful – even though the big print says they can stay in the home until they die. It’s not exactly true.”   

* Joshua Wilson reminds us why it is important that you should “Reconcile  Your Bank Accounts: Business & Personal”.  

* The Tax Foundation has a “MyTaxBurden” Tax Policy Calculator.

“This calculator gives you an estimate of your federal tax burden under a variety of scenarios. The three default scenarios are: full expiration of all Bush-era and Obama tax cuts, the Republican plan to extend the Bush-era tax cuts (H.R. 8, the Job Protection and Recession Prevention Act of 2012), and President Obama's plan to partially extend these cuts for families making under $250,000 per year ($200,000 for single filers) as well as extending tax cuts in the 2009 stimulus bill.”

* Kristine McKinley has an online article that details “Social Security's Gift to Married Couples: The Spousal Benefit”.

* On Halloween Kay Bell of DON’T MESS WITH TAXES listed “6 Tax Terrors and How to Overcome Them” at her BANKRATE.COM blog.

It is very simple to avoid these “tax terrors”.  Hire a competent tax professional, either an Enrolled Agent (EA) or a Registered Tax Return Preparer (RTRP), give that person all the information he/she asks for, and be honest. 

One word of warning.  Kay suggests – “If your tax situation is not overly complicated, computer software might be enough to help you file with a bit more confidence”.  Sorry, Kay, but this is simply not true.  No tax preparation software package is a substitute for knowledge of the Tax Code, and no tax preparation software is a substitute for a competent tax professional.

* The Mercatus Center of George Mason University in Arlington VA has published new study “A Trillion Little Subsidies: The Economic Impact of Tax Expenditures in the Federal Income Tax Code”.

“(The) study looks at the ten largest tax expenditures for individuals and corporations and weighs the economic impact of each. The study also reviews the intended-vs-actual beneficiaries and outcomes of particular tax expenditures and considers the economic and political implications of eliminating all expenditures in a single swipe.”  

THE FINAL WORD

As long as you are going to send out Christmas cards this holiday season why not purchase them from a charity.

I have been sending out Christmas cards from the American Humane Association for years now. 

Click here to visit the Association’s Holiday Card Center.

TTFN

A YEAR-END TAX PLANNING RERUN - AVOIDING AN UNDERPAYMENT PENALTY

{Here is a “rerun” of a post on a year-end tax planning technique to avoid being victim of the penalty for underpayment of estimated tax.)

The Internal Revenue Service wants you to have 90% of your current year’s tax liability, or either 100% or 110% of the prior year’s tax liability (depending on the amount of your prior year’s Adjusted Gross Income), paid in during the year via withholding or quarterly estimated tax payments.  If you owe too much when your file your 1040 you could be hit with a penalty for “underpayment of estimated tax”.

There is a special year-end strategy you can use to avoid such a penalty.

First some background:

Timing is important when it comes to paying your taxes.  The underpayment penalty is calculated based on quarterly payments.

Withholding is assumed to be made evenly throughout the year.  Even if you have all your federal income tax withheld in December it is treated as being paid in equally over the 4 quarters for purposes of determining underpayment.  If you had $10,000 withheld in December it is assumed that $2,500 was paid in for each of the 4 quarters.

Estimated taxes are applied in the calculation when actually paid. If you discover you need to pay $10,000 in estimated tax for the year and you make the payment in December you will still be penalized for underpayment for the first 3 quarters.

There is an exception.  If the reason you will owe the additional $10,000 is because you sold a vacation home in November for a substantial gain you can make the payment as late as mid-January and avoid the penalty by "annualizing” your income.

Now for the strategy:

Suppose in the course of preparing your "preliminary" 2012 tax return you discover you did not have enough federal income tax withheld from your paycheck and you will owe Uncle Sam at least another $10,000 because of additional income received at various times during the year.  Instead of making a 4th quarter estimated tax payment, and risking a penalty for underpayment of estimated taxes, you can –

(1)  Take a $10,000 distribution from an IRA in December and elect to have 100% of the distribution ($10,000) withheld for federal income taxes, and

(2)  Within 60 days deposit $10,000 to another IRA, or back into the same IRA (you shouldn't wait the full 60 days – do the rollover ASAP). Make sure that you rollover the $10,000 on time - or else you will be hit with additional tax and another, more expensive, penalty!

Because federal income tax withholding, from whatever source, is assumed to be made evenly throughout the year, regardless of the date of the actual withholding, your $10,000 will be treated as 4 equal quarterly payments of $2,500 and you will avoid the penalty for underpayment of estimated tax.

This strategy may also work for state income tax underwithholding.

TTFN