I TRIED!

I just can’t seem to avoid distractions to take me away from getting the GD extensions done. The obvious solution is no more GD extensions - my goal for next tax season!

Over at the ROTH AND COMPANY TAX UPDATE BLOG Joe Kristan tells us that according to a “Former Tax Policy Chief: Tax System ‘Nearing Collapse’".

Joe quotes from a “sobering speech from Pamela F. Olson, a former Treasury assistant secretary for tax policy” on the mucking fess out federal income tax system has become.

Ms Olson joins Joe, myself, and other tax bloggers in our concerns regarding how the cafones in Washington have totally FU-ed the Tax Code. Her comments certainly bear repeating.

“Congress decided to administer all manner of benefits through the tax code decades ago, but it has become particularly popular to do so in the last 15 years. Somewhere in the 1990s Republicans realized they could enact promised tax cuts with targeted provisions in the tax code, and Democrats realized they could enact promised spending programs with targeted provisions in the tax code.”

She hits the nail on the head with -

“That is unfortunate, because the tax code is a poor delivery vehicle for tuition tax breaks that can't be delivered until long after the tuition check is written, for income support paid on the basis of last year's annual income, or for healthcare for those without employer-provided coverage. It is also a poor delivery mechanism because it fails to provide an incentive for many at the bottom of the income ladder who pay home mortgage interest but cannot deduct the interest, who set aside money in savings accounts but do not qualify for the savers credit, whose employers don't provide a retirement savings plan.”

Her bottom line –

“In the tax world, instead of simplifying to increase productivity in compliance and administration, we keep adding complexity -- more rules, more limitations, more terms, more conditions, more qualifiers, more provisos, and more exceptions. The result is that our system gets slower and slower and more inefficient.”

.

Right on, sister!

As I have said in an August 2009 post “There Has Got To Be A Better Way” (which also bears repeating) –

“So why, then, could not the U.S. Department of Education automatically apply the American Opportunity Credit, or the HOPE or Lifetime Learning Credit, towards the price of tuition, with the possibility of any remaining available credit being applied at the college book store? Then the government would be assured that the money is actually spent on continuing education. If the student “drops out” the unused portion of the “government subsidy” would be returned to the Department of Education.

And why, then, could not the First Time Homebuyer Credit be applied to the purchase of a qualifying home at the actual closing? Then the government would be sure that a primary personal residence was actually being purchased by a “first-time” homebuyer. A “Statement of Qualification” could be added to the papers filed with the purchase on which the purchaser(s) would certify, under penalty of perjury, that he/she/they qualify for the $8,000 payment.

If there are credits to be provided to cover health insurance premium purchases in any upcoming Health Care Reform bill, why not have the U.S. Department of Health and Human Services credit the amount to the price of the actual premiums? Then the government would be sure that the money is actually spent on health care coverage.

Perhaps the amount of Retirement Savings Credit allowed could be actually deposited by the government into the individual’s IRA or other retirement savings account. Then the money would actually add to and help to grow retirement savings.

And in the case of the Earned Income Credit, why not just provide the qualifying individual or family with a supplemental welfare check, perhaps through the SSI system?

Doing things in this way would be beneficial in many ways.

(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 actually measure the true income tax burden of individuals. No longer would about half of the American population either pay absolutely no federal income tax or actually make a profit from filing a tax return. These people 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.

(3) 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.

(4) 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.”

TTFN

NO TIME FOR POSTINGS

Like Winsocki I must “buckle down”.

.

This is the last week in May. If I will be moving on July 1st, as I am hoping, I will need most of June devoted to organizing and packing. So, since wishing won’t make them go away, I must spend this week plugging away on the GD extensions.

So I must take a hiatus from posts this week – with the exception of perhaps a Wednesday BUZZ or if there is breaking tax news that will not wait.

.

New Jersey taxpayers may want to check out today's post at my NJ TAX PRACTICE BLOG.

Thanks for your patience. “Talk” to you next week.

TTFN

ANYTHING BUT TAXES - THE SPA!

During my entire career I have been preparing 1040s to the tune of “American Popular Standards”. I find that I cannot work properly without background music. It began with New York’s WRFM in the early 70s, which was playing constantly in my mentor’s office at Journal Square in Jersey City. It went on to include WNEW-AM and other NY based stations.

While Jonathan Schwartz broadcasts from the local NYC public radio station on week-ends, I know of no New York or New Jersey based station (which I can get on the radio here in Jersey City) that plays APS round-the-clock. There is WOBM 1160 AM – which plays APS from mid-morning to mid-afternoon – but it cannot be heard outside of Monmouth and Ocean counties. There are plenty of NY and NJ “oldies” stations, to which I listen on occasion, but none playing the music of Francis Albert and friends.

I have turned to the internet, listening to stations originating throughout the US. Unfortunately, as formats change and stations give-up live online streaming, I must often find new stations. To do so I turn to RadioLocator.com – which identifies by format and links to stations from all over the US.

My latest find is KFSD 1450 AM “The SPA” from Escondido CA – Southern California’s Contemporary Standards. The SPA blends the enduring standards of timeless artists with bold new interpretations from the younger vanguard. From Frank Sinatra, Dean Martin, Sammy Davis Jr., Barbra Streisand, Harry Belafonte, Ella Fitzgerald, Perry Como, Andy Williams, Petula Clark, and Nat King Cole, to Diana Krall, John Pizzarelli, Harry Connick Jr., Diane Schuur, Michael Bublé, Rod Stewart, Karrin Allyson, and Natalie Cole.

Why not check it out.

Let’s hope they continue to stream APS online for years to come.

TTFN

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

* I was represented at MAINSTREET.COM this week with “Planning A Deductible Vacation – Part 2”.

* Joe tells us about the “Revised 941 for 2010 2nd Qtr” at his CAFETAX blog.

* Another Joe, Mr Kristan of the ROTH AND COMPANY TAX UPDATE BLOG, tells us that his earlier post, mentioned in this past Wednesday’s BUZZ installment, was premature in “Estate Tax Deal? Not So Fast”.

As Joe excellently puts it - “Well, Congress has been botching the estate tax for almost ten years now; why should they start getting anything right now?”

* Joe makes up for his “prematurity” with the post “Oh, THAT $658,447”, which talks about a taxpayer who failed to report a huge capital gain because he had repurchased the stock which was sold for a gain and thought the “wash sale” rule applied.

Joe properly points out that – “There is no 'wash sale' rule for stock gains. While wash sale rules disallow stock losses if you buy the stock back within 30 days before or after the loss sale, you normally can't undo gains.”

And, perhaps more importantly, “Oh, and if you omit 98.6% of your gross income from your 1040, don't expect to pin the whole blame on your preparer.”

* Kelly Phillips Erb, the internet’s TAX GIRL, brings us some great news in “H&R Block Takes Hit, Announces Lay-Offs”.

Kelly reports – “Overall, H&R Block reported a decline in tax preparations at its tax offices. The number of returns prepared fell by 6.6% while tax preparation fees decreased 5.5%.”

What has caused this drop. Kelly says – “High unemployment rates and fewer numbers of taxpayers who owe have translated into more than just headaches for IRS: many tax preparers across the country saw a dip in 2010.”

I have personally not seen a dip in business this past filing season. While I have lost clients due to death, I doubt few, if any, of my clients decided to try preparing their own return this year. I have always said that my profession is inflation-proof. People will always need to, if not actually pay taxes (thanks to GWB and BO), at least tile tax returns. The Tax Code does not get any less complicated during times of economic downturn – probably the opposite.

I can only hope that Henry and Richard’s drop in income is the result of taxpayers realizing that these guys charge gourmet restaurant prices for fast food service (again apologies to fast food chains – I have found good service and true value at Burger King and McDonalds locations that does not exist at H+R Block).

* Some good advice from Michael Rozbruch at the TAX RESOLUTION UNIVERSITY blog – “Taxpayers Must Beware of Tax Relief Firms That Misrepresent Their Ability to Resolve IRS Problems”.

Remember – NOBODY can guarantee to resolve your tax debt for pennies on the dollar, and any firm that suggests this is possible is full of reality tv (we all know what word reality tv is a synonym for)!

* Jean Murray discusses taxes and bartering in “6 Things to Consider About Barter Transactions” at JEAN'S BUSINESS LAW / TAXES: U.S. BLOG.

As Jean says – “While barter is a legal way to do business, barter is considered taxable by the IRS. The IRS says: ‘Barter dollars or trade dollars are identical to real dollars for tax reporting’."

* Kelly, the TAX GIRL, also touches on the topic of barter in “Ask the taxgirl: Swaps and Payments”.

* Ben Harris suggests “An Alternative to the Alternative Minimum Tax” at TAXVOX, the blog of the Tax Policy Center.

“Congress could improve the current system by creating a true "minimum tax": Adjusted-gross income (AGI) above a certain threshold—perhaps the $200,000 for single filers and $250,000 for married filers that President Obama favors—would be subject to a minimum tax rate. High-income taxpayers would lose the benefits of various deductions and credits if their average tax bill on AGI above the threshold fell below the minimum rate.”

If we must have a minimum tax this is certainly “more better” and less convoluted than the current dreaded AMT, which, as Ben points out, “isn’t a minimum tax at all; it’s simply a parallel tax”. But why have any kind of minimum tax, alternative or otherwise? Just fix the damned Tax Code!

I still say there should be a true “minimum” tax – every single American citizen who is over the age of 18 and not a full-time student should be required to pay a minimum tax of $100.00. This way there would be no more “non-taxpayers”.

TTFN

AS THE CONGRESS TURNS

I am taking a break from the IRA series to bring you up to date on the “extenders” bill.

Ways and Means Committee Chairman Sander Levin and Senate Finance Committee Chairman Max Baucus have introduced the American Jobs and Closing Tax Loopholes Act. Click here to download a 29-page summary of the Act.

According to the official press release, included in the legislation are provisions to –

• “Provide tax relief to businesses and State and local governments to help them invest and create jobs;
• Provide important tax cuts to put money back in the pockets of working families;
• Help restore the flow of credit to enable small businesses to expand and hire new workers by extending small business loan programs;
• Expand career training programs for Americans who are looking for work;
• Extend eligibility for unemployment insurance benefits, COBRA health care tax credits and other critical programs that families and communities depend on through December 31, 2010;
• Endure that seniors, military service members and Americans with disabilities continue to have access to doctors they know and trust; and
• Close tax loopholes for wealthy investment fund managers and foreign operations of multi-national companies.”

Gee – it does everything but grow hair!

The bill will extend for one year - through December 31, 2010 only – the following popular tax benefits:

• the option to deduct state and local sales tax instead of state and local income tax,

• the additional $500 or $1,000 standard deduction for real estate taxes paid,

• the “above-the-line” adjustment to income for qualified tuition and fees,

• the “above the line” adjustment to income for educator expenses, and

• the ability to make a tax-free transfer of up to $100,000 directly from an IRA to a qualified charity.

You will note, as I have highlighted above, that these items are extended for 2010 only. As fellow tax blogger Kay Bell says – “We’ll have to do this all again in seven or so months”.

When will the idiots in Washington stop this nonsense? If a tax deduction is appropriate make it permanent. It can always be repealed in the future. This annual ritual of passing an extender bill is ridiculous.

The bill would be paid for by closing a multitude of foreign loopholes, making owners of S corporations engaged in a “professional service business” pay full FICA (Social Security and Medicare) tax on all net income (they will no longer be able to take a nominal salary and avoid payroll taxes by receiving the rest of the income as pass-through dividends), and preventing “investment fund managers from paying taxes at capital gains rate on investment management services income received as carried interest in an investment fund”.

Conspicuously missing from the Act is any mention of the annual AMT patch!

TTFN

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

TAX GIRL Kelly Phillips Erb sets a bride-to-be straight on the rules for determining filing status in “Ask the taxgirl: Filing Single When You’re Married”.

I can’t imagine where this college student heard some of the stuff she mentions in the course of submitting her question to Kelly. BTW – I assume that the questioner is not an English major.

* An interesting report from the US Census Bureau – “Census Bureau Reports Nearly Half of U.S. Residents Live in Households Receiving Government Benefits”.

According to the report –

“In the third quarter of 2008, approximately 45 percent of U.S. residents lived in households in which at least one individual received government benefits, according to data released today by the U.S. Census Bureau.”

Unfortunately I am not among the blessed 45%. What am I doing wrong?

* I had previously reported that April 9th was Tax Freedom Day (OOPS- did I forget to post on Tax Freedom Day 2010?). Now Kay Bell tells us that this past Monday was “Tax Freedom Day Sequel: Deficit Day” at DON’T MESS WITH TAXES. This year’s “D-Day” was “the second latest deficit-inclusive Tax Freedom Day since World War II”.

Kay’s post provides an interesting statistic – “This creates a per-household deficit of $13,158”.

This item seems to be an excellent “companion” to the previous one on the extent of Americans “on the tit”.

FYI, New Jersey’s Tax Freedom Day was April 25th. NJ was #2 (no jokes now) on the list – only 2 days before Connecticut.

* It seems that someone actually reads these tax blogs – in addition to other tax bloggers.

The blog posts of absolutely fabulous Joe Kristan (ROTH AND COMPANY TAX UPDATE BLOG) and Kelly Phillips Erb (TAX GIRL) are quoted by Bill Toland in the Pittsburgh Post-Gazette article “Some Find Pennsylvania's Tax Amnesty Ads Too Scary”.

For more info on PA’s Tax Amnesty Program click here.

* Speaking of Joe Kristan, he reports that “the Senate Finance Committee may be nearing an estate tax agreement” in “Estate Tax: 35% Rate, $5 Million Exemption?” at the ROTH AND COMPANY TAX UPDATE BLOG.

* The IRS HITMAN provides some good “More Hard Truths on Tax Debt”.

TTFN

FROM THE MAILBAG

* Here is a comment from a fellow blogger on my WHERE THE FAKAWI post -

“I wish you all the luck. I felt extremely luck as far as GDE’s in that I only have two this year to deal with. One I expect around mid-June, the other (a fruit-loop that owns a roofing company) I expect around the first of October.

I am expanding my services and have been out of touch with everyone. I have spent my time learning new software and re-learning all the new rules as pertaining to same. I am trying to get back into the groove with everyone but doing so softly. Still learning new stuff.

I like the new car.

Bruce – the Missouri Tax Guy”
.
Thanks!

I would be in heaven if I only had 2 GDEs to deal with – and none workload related!

I see that “fruit-loops” are not limited to the NY-NJ metropolitan area.

I look forward to your returning to the “groove” – and to your return to posting at THE MISSOURI TAX GUY.

* I tell my clients that if they receive any correspondence from “Sam” of any other “uncle” they should send it to me immediately. Don’t call or email first – just put it in the mail.

{As an aside many clients waste lots of valuable time trying to call me to tell me they got a notice instead of just automatically mailing it to me. If they ever did get me on the phone the first thing I would say would be, “mail it to me”.}

I recently received a copy of a CP12 notice that the IRS sent to clients (a married couple). This notice indicates that the taxpayers will receive a refund of $3,226.00. It tells them – “We are writing to you because there is an error on your 2009 Federal Income Tax Return.”

The notice goes on to say – “We changed the refund amount on Line 73a or the amount you owe on Line 75 of your Form 1040 because the amount entered on your tax return was computed incorrectly.”

FYI – Line 73a of the original Form 1040 that I prepared for the clients indicates a refund of $3,226.00. This is the exact same amount of refund the notice said they were getting.

The back of the notice includes an analysis showing “Line Item on Your Return”, “Your Figures” (the amounts reported on the originally filed return) and “IRS Figures”. The “Your Figures” and the “IRS Figures” were exactly the same.

Why the cafones at the IRS sent this notice to my clients is totally beyond me. I do suspect that it had something to do with BO’s “Making Work Pay” credit – further confusion on the part of the IRS.

The couple are both over age 65 and both collected Social Security for the entire year. The husband continues to work and earned more than enough to qualify for the full $800.00 MWP credit. However, because they each received a $250.00 ERP (economic “recovery” payment) the amount of credit claimed on Schedule M was $300.00. This is correct.

Another example of your tax dollars at work!

TTFN

ANYTHING BUT TAXES - LAW AND ORDER BITES DUST

It has been a while since I wrote an “Anything But Taxes” post. Here goes -

I just heard that “Law and Order” has been cancelled.

A fellow tax professional twit has told me that “Law and Order” will tie “Gunsmoke” for the longest-running television show – with 20 seasons each. He tells me that in terms of number of episodes “Gunsmoke” beats L and O – with about 200 more over the 20-year period. But from 1955-1961 “Gunsmoke” was a 30-minute show, expanding to an hour in Sept, 1961 – so when it comes to hours of episodes the race is closer.

Creator Dick Wolfe explained how the concept of the original “Law and Order” – first half “law” (police capturing the “perp”) and second half “order” (the trial) - came to be in a tv interview a while back.

Successful broadcast television shows can make lots of money in “syndication”, often more than the original production. Some shows have been known to operate at a loss on the initial broadcast episodes (they cost more to make than the network pays for airing) just to be able to create a sufficient syndication “inventory”. As one online explanation of the process put it – “If you can get a television show in syndication, you can live off that money for the rest of your life.”

Some 20+ years ago it was easier, and probably more profitable, to syndicate a half-hour series than it was an hour-long program. But the networks were looking for hour-long drama series. The “Law and Order” format – basically a half hour of police and a half hour of lawyers - was essentially created so it could be run as two-part half-hour episodes in syndication.

Dick and company had toyed with several such two-part shows, with names like Night and Day.

As it turns out DW did not have to worry about creating half-hour segments for syndication. I expect that the L+O franchise is the most syndicated in history, and that every hour of every day an episode of L+O or one of its spin-offs is running somewhere in the world.

Actually the idea of half police procedural and half courtroom drama was not new to television. “Arrest and Trial” was a 90-minute series that aired one season on ABC, airing Sundays from 8:30-10:00 pm during the 1963-64 season.

According to Wikipedia –

“Each week's program was actually two 45-minute segments. The first segment followed Sgt. Nick Anderson (Ben Gazzara) of the LAPD as he tracked down and apprehended a criminal. The person Anderson arrested was defended in the second half of the show by criminal attorney John Egan (Chuck Connors).”

You will note that it differed from L+O in that it took place in LA and the trial portion was presented from the defense point of view and not the prosecution.

Episodes of A+T are available on DVD. I watched several earlier this year via my Netflix subscription.

Coincidently, Dick Wolfe used the title “Arrest and Trial” for a short-lived 30-minute syndicated “docudrama” hosted by Brian Dennehy in 2000. The show followed individual criminal cases (commission, police investigation, and actual trial) via a combination of reenactments and real trial footage.

As a bit of side trivia - "Arrest and Trial" became the first American import to be broadcast on the UK's BBC2. And along the same lines - apparently there is also a "Law & Order: UK" hands across the water spin-off - the first US drama television series to be adapted for British television.

TTFN

WHERE THE FAKAWI?

It has been one full month till the official end of the tax filing season – although the filing deadline was extended from April 15 to May 11th for residents of some New Jersey Counties.

I realize that it sounds strange, and is not logical, but after April 15th I, and I would expect other tax pros in similar situations, experience something that is not unlike “postpartum depression”.

After doing almost nothing but 1040s (and 1040As) for 12+ hours a day, 7 days a week for some 10 weeks it is truly difficult to get motivated to continue to deal with 1040s once the pressure of the April 15th deadline has come and gone. I cannot bring myself to do more than 1, or on occasion 2, GD extensions a day.

I have been told by a fellow tax professional – an EA practicing in NYC – that, “It's a law of physics that if you complete more than 3 tax returns any day after April 15, the universe collapses upon itself”. I certainly do not want to be the cause of the end of days.

As of this writing there are 20 GDEs in the “to be done” box and 7 that have been “red-filed” (need more – or any – information to begin or continue). From this count I have made a good dent in the GDEs – for which I am very pleased – but there are still too many left.

I am too distracted by apartment and car shopping (mission accomplished on that item on Friday!), getting ready to make my move to Monmouth County, hopefully on July 1, and possible “wanderings” and theatre outings.

And I want to get back to regular 6-day a-week blogging and to writing items for MainStreet.com.

Looking to the future I no longer want more than at most 10 workload-related or late-receipt GD extensions in the box on April 15th. I would be the proverbial pig in you-know-what if there were no workload-related GD extensions. I long for the “good old days” when it was really over on April 15th.

I don’t mind a handful of GDE for clients who are not yet ready to file – and who will get me their “stuff” in the summer. A small number of returns, prepared at a leisurely pace with no pressure, would be ok during the off season.

To reach this goal I must strictly enforce “read my lips – no new clients”, reduce distractions and non-productive activities during the filing season, thin the herd, or refuse to accept new work not in my hands by the third week of March – or more likely a combination of the four.

Today and tomorrow (Saturday and Sunday) I will be devoting to GDEs – and I will tempt the laws of physics by trying to get as many done as possible.

I will be working on the NJ Property Tax Reimbursement applications (PTR-1 and PTR-2) early next week. The initial filing deadline is June 1st. In the past this deadline has consistently been eventually extended to October – but considering the State’s financial situation I do not feel safe assuming the same will be done this year. Once those are in the mail I will return to the GDEs – at 1 or 2 a day – with the hopes of getting all those that can be completed done and in the mail by month’s end.

Wish me luck!

TTFN

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

* Have you seen my latest tax tips at MainStreet.com – “Open A ROTH IRA for Your Child” and “Plan a Deductible Summer Vacation”?

* It seems that many of my tax columns from MainStreet.com also showed up at Consumerist.com – where I am referred to as “Tax Cat’s Smarter Cousin”.

* Over at the CAFETAX blog Joseph Arsenault talks about the penalty for early withdrawal from annuity and retirement distributions issued before the age of 59 1/2 “Myth Busted 10% Penalty”.

His bottom line is the best advice that anyone can give regarding not just retirement distributions but any tax issue –

“Of course never make any assumptions before taking retirement distributions. Always consult with a professional about your unique situation.”

* COMPLETE PAYROLL INC reports that “President’s Budget Proposal Calls for Quarterly W-2 Reporting”.

Everything old is new again! I seem to recall that when I first began doing payroll back in the mid-1970s we had to list the name and earnings for each employee on the quarterly Form 941, with the total needing to reconcile to gross wages for the quarter reported on the form.

* The IRS tells us that “Kentucky Severe Storm and Flooding Victims Have Until June 30 to File Their Tax Returns” – similar to the recent relief for certain NJ residents that gave me some extra time to timely file federal and state returns.

* Roni Deutch reports on what to do if “you attended jury duty last year {or this year – rdf} and had an employer who continued to pay your salary but required you to forfeit fees that the court would have paid you for serving on the jury” in her post “Tax Deduction of the Week: Jury Pay Paid to an Employer” at her TAX HELP BLOG.

* Kay Bell discusses something else Congress is thinking about taxing in “Tax Proposed on Carry-on Bag Fees” at DON’T MESS WITH TAXES. The post also provides some insight as to why the airlines are charging for individual items like carry-ons, food, blankets and pillows instead of just raising the price of the ticket.

* Happy 3rd Birthday to the 21st CENTURY TAXATION blog. Here’s to many more!

TTFN

LEARNING FROM YOUR 1040 - PART TWO

Back in January or February when you were getting your tax “stuff” together to prepare your 2009 Form 1040, or to give to your tax professional, did you find that your recordkeeping was less than adequate, and that you had to make estimates of many of your potentially deductible expenses?

If you answered “yes” to this question you should resolve to be more efficient and effective in documenting your deductions for 2010.

You MUST keep good, contemporaneous records of all of your income and deductions in the manner prescribed by the IRS and the Tax Code. This is even more important with certain deductions that require special recordkeeping or additional information, such as business meals and entertainment, business use of "listed property" such as automobiles, cell phones and computers, gambling losses, and charitable donations.

Keep records during the year as if you are going to be audited by the IRS. In the rare case your return is selected for review you will be ready. If you are not audited you will at least be assured that you did not miss any deductions or credits to which you were entitled.

Even if you use a tax professional the more information you provide him/her at tax time the more accurate your return will be, and the easier it will be to properly prepare. And your preparation fee should be reduced.

I have developed a package of advice, information and forms, schedules and worksheets to help make sure that you pay the absolute least amount of federal and state income tax for 2001 - “Documenting 2010 Deductions”.

Click on the above link to learn more about this package.

TTFN

FROM THE MAILBAG

I received the following email from a reader:

“Sort of a comment ---

When are any of the tax pros going to start complaining about the lack of the passage of the expected increase in the ALTERNATIVE MINIMUM TAX EXEMPTION AMOUNT FOR 2010.

The year is almost half over and millions will be hit by it. Contacting senators and Congressional reps does NOTHING!!!!

Unless the tax pros start highlighting the fact that nothing has been done, nothing will get done!!!!!!!!!!!!

This is serious money to middle class taxpayers in high tax states such as NY, NJ and CA.

Thanks!!!!!!!!!

Sincerely,

Virginia Fogarty”

As a tax pro and tax blogger I have been complaining about the existence of the dreaded Alternative Minimum Tax for years now – but it is still with us.

While I certainly believe that the primary goal/motivation of any politician is getting re-elected and not properly administering the government, and that his/her loyalty to “the Party” certainly trumps any loyalty to constituents – I do not believe that contacting senators and representatives does nothing. It was a deluge of letters to Congress that caused the creation of the damned minimum tax in the first place.

Taxpayers should indeed continue to write to their representatives in Washington demanding for relief from the dreaded AMT.

It is not the specific responsibility of a tax professional to call to task the Congress any more than it is the responsibility of every citizen. Countless posts about abolishing the dreaded AMT by a multitude of blogging tax professionals have certainly not produced the intended result.

Congress is aware of the problem with the dreaded AMT. But their response, as one would expect, has been the lazy one of putting off real action by regularly passing a one or two year patch.

I do expect the cafones in Washington to pass another at least one-year patch for 2010, along with continuing the ridiculous policy of annual extensions of the popular “extender” tax benefits.

Fellow tax blogger Kay Bell has just written about the extenders in the post “Ways To Pay for Tax Extenders Grows” at DON’T MESS WITH TAXES.

Kay tells us –

“One thing Senators and Representatives they can agree on, though, is that they want the extenders done by the end of May.

“The official combined bill is now called the Promoting American Jobs and Closing Tax Loopholes Act and Ways and Means Committee Chair Sander M. Levin (D-Mich.) is aiming for a House vote on it next week.”

While her post does not say that the annual dreaded AMT patch is a part of the bill, and I did not find anything substantial on the contents of the bill in an online search, if it is not I do expect that Congress will pass the patch at sometime in the year. Hey, it is still early in the year. In the past the cafones have waited until the last minute to pass extenders.

Instead of passing the annual fixes they should take the time to fix the Tax Code itself.

To explain what Virginia is talking about – as of this writing the dreaded Alternative Minimum Tax exemptions for 2010 are:

• $33,750 for single and head of household filers,
• $45,000 for married people filing jointly and for qualifying widows or widowers, and
• $22,500 for married people filing separately.

The 2009 exemptions were:

• $46,700 for single and head of household filers,
• $70,950 for married people filing jointly and for qualifying widows or widowers, and
• $35,475 for married people filing separately.

At the current lower exemptions millions more taxpayer will become victims of this ridiculous tax – which is neither an alternative nor minimum. Someone said it should more appropriately be called the Mandatory Maximum Tax.

So, as a tax professional, a taxpayer, and a citizen I do call upon Congress to promptly deal with the dreaded Alternative Minimum Tax. I hope you will join me.

TTFN

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

* The Treasury Inspector General for Tax Administration (TIGTA) has discovered widespread noncompliance regarding Individual Retirement Accounts (IRA).

“In the report released today [A Service-wide Strategy Is Needed to Address Growing Noncompliance With Individual Retirement Account Contribution and Distribution Requirements (2010-40-043)], TIGTA found that 295,141 individuals made more than $1.5 billion in excess contributions to their IRAs in 2006 and 2007, resulting in an estimated loss of $94 million in excise tax and $17 million in income tax. In addition, TIGTA found that 255,498 individuals did not take the required minimum distributions totaling $348 million during that time, resulting in an estimated tax revenue loss of $174 million.”

I have been working on what will be a week-long post series on just about everything you need to know about IRAs, which should be up next week.

*Dennis Cauchon, writing in USA Today, tells us that “Tax Bills in 2009 at Lowest Level Since 1950”!

According to the item – “Amid complaints about high taxes and calls for a smaller government, Americans paid their lowest level of taxes last year since Harry Truman's presidency, a USA TODAY analysis of federal data found”.

Cauchon also tells us – “Taxes paid have fallen much faster than income in this recession. Personal income fell 2% last year. Taxes paid {excluding Social Security tax – rdf} dropped 23%.”

One of the main reasons (highlight is mine) – “Presidents Clinton and Bush pushed through a series of tax changes — credits, lower rates, higher exemptions — that slashed income taxes for poor and middle-class families. A drop in income now can trigger big tax breaks and sharply lower rates, sometimes falling to zero.”

And refundable credits, an open call for tax fraud, can often cause “non-taxpayers” to actually “make a profit” by filing a tax return.

* TAX GIRL Kelly Phillips Erb takes the words out of my mouth with the excellent advice in her answer to the question posed in her post “Ask the Taxgirl: Filing Late Tax Returns”.

* Trish McIntire talks about the difference between “may” and “can” when it comes to taxes in her post “Can or May? Casualty Losses” at OUR TAXING TIMES.

She correctly points out -“There are a lot of IRS Code sections where the taxpayer gets a surprise. They have the government's permission to make a specific deduction (may) but once the rules are applied to the issue, they can't deduct much or anything.” Her post provides one example – casualty losses.

There are many examples where an item “may be deducted but it can't always help you on your taxes”. May I deduct the contribution of a used car to charity? Yes you may. But can I? To begin with - only if you itemize.

* Yesterday’s (May 11) second news item at the Small Business Taxes and Management uses a Tax Court example to make an excellent point - “Recordkeeping can spell the difference between securing a deduction and losing it”.

* Monday’s AccountantsWorld.com daily headline news email took me to an update from BNA on the Registered Preparer designation titled “IRS Says No Registered Preparer Designation Without Competency Test”.

According to the update –

+ Registered tax professionals “will not be given their registration papers with IRS until they have passed a test to determine their competency”. IRS Electronic Tax Administration Director David Williams stated, “People who come in [early] will have three years before they have to take the competency exam,” he said. “Once you pass the test, we propose to call you an IRS registered tax preparer. We will give folks a certificate that says that.”

+ “IRS is working now on setting the user fee.”

+ Williams said the competency exam “is expected to be available in May 2011”.

+ “It will be several years before a database is up and running that will allow taxpayers to check to see what tests their preparer has passed.”

TTFN

CLAIMING THE RESIDENTIAL ENERGY CREDIT

Quite a few clients included with their tax “stuff” this past season bills for the purchase and installation of storm windows and doors, a new roof, and new furnaces, boilers and air conditioners - expecting to receive the 30% Residential Energy Credit. However only a couple actually provided me with a Manufacturer’s Certification that verifies the item’s eligibility for the credit.

In my client letter I specifically stated – “If you purchased energy-efficient windows or exterior doors, insulation, a central air conditioner, a water heater, a natural gas, propane or oil furnace or boiler, or a pigmented metal roof in 2009 be sure to give me the receipt and the ‘manufacturer’s certification’”.

In almost all the cases where the eligibility of the item was in question – which was all cases where I was not provided a manufacturer’s certification – I went to the “Federal Tax Credits for Consumer Energy Efficiency” page at www.energystar.gov before claiming a credit.

This is a great resource. It provides the very specific requirements for eligibility of each individual item – i.e. Heating, Ventilating, Air Conditioning (HVAC), Insulation, Roofs (Metal and Asphalt), Water Heaters, Windows and Doors, etc. – as well as links to lists of specific manufacturers and products that qualify.

In several instances the client, while not providing a manufacturer’s certification, did send or give me a descriptive brochure on the item purchased, which listed the product’s specifications, and I was able to determine eligibility by matching the product specifications to the requirements listed on the website. Where I just received a copy of a bill I emailed the client with the specific requirements and asked them to verify that the item they purchased matched the requirements.

This credit is still available for 2010. If you are purchasing an item that qualifies for the credit be sure to get a manufacturer’s certification – and be sure to include it with the “stuff” you give your tax professional next year!

If you do not receive a certification, or, more better, prior to making the actual purchase, check out the specific requirements at the Energy Star web page and make sure what you are buying does qualify. When sending me, or your tax professional, your 2010 “stuff” include a note or print-out that indicates that the specifications of your purchase meets the IRS requirements.

FYI – installation costs are included in the amount eligible for the credit for:

• HVAC systems
• Biomass Stoves
• Water Heaters (including solar)
• Solar Panels
• Geothermal Heat Pumps
• Wind Energy Systems
• Fuel Cells

Installations costs for windows, doors, insulation, and roofs are not eligible for the credit.

TTFN

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

* Elizabeth P. Rosen provides an excellent post titled “Buying vs. Renting: Tax Benefits” at the US TAX CENTER blog.

She begins the post with the following –

“If you’re considering buying a home, ask yourself these questions first:

1. Are you financially prepared?
2. Can you commit to living in one place for at least 5 years?
3. Is it the right time to buy?
4. Are you psychologically prepared?”

If more Americans had asked themselves these questions, or reviewed Elizabeth’s “bad reasons to buy a house” at the end of the post, before buying a home our economy would not be in the mucking fess that it is today!

* I do not agree that one should “never say never” – and have posted about some tax-related “nevers” in the past.

The IRS HITMAN gives us his “Top 3 Thing You Should NEVER Do With Your Taxes”. I agree with all of them.

* The specific example discussed in the third item of a recent “A Little This-A . . .” post at my NJ TAX PRACTICE BLOG underscores important advice for taxpayers who receive a balance due notice from the NJ Division of Taxation, or, for that matter, the IRS or any other state tax authority –

“If you receive any kind of notice from the NJ Division of Taxation it is more likely than not that it is erroneous. Do not be scared or intimidated by the notice and automatically pay the balance requested. Check it out. Send a copy of the notice to your tax professional immediately.”

This falls under my list of tax “nevers” –

“3. NEVER assume that a notice you receive from the Internal Revenue Service or a state tax authority is correct. More often than not it is wrong. To repeat, when you get a letter or notice from “Sam” or any of your other “Uncles” give it to your tax professional immediately.”

* CNNMONEY.COM reports on “Health Care Law's Massive, Hidden Tax Change”.

“Section 9006 of the health care bill -- just a few lines buried in the 2,409-page document -- mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.”

We have never been required to issue 1099s to corporations in the past – and also never had to issue 1099s for purchases of goods. This creates a lot of additional work for small businesses.

* First there was “Cash for Clunkers” (the clunkers referred to were automobiles and not members of Congress). Now CNNMONEY.COM reports that “House Approves $6 Billion 'Cash for Caulkers'”.

But this is not law yet – “The Senate is expected to take up the legislation this summer and determine how to pay for the program, which is likely to be controversial.”

* Did you see my item on “Teens, Summer Jobs, and Taxes” at MAINSTREET.COM?

* While I truly believe that fellow tax blogger Joe Kristan of THE ROTH AND COMPANY TAX UPDATE BLOG is sincere in his objection to the new tax preparer regulation regime, I continue to be skeptical about the AICPA’s official opposition, as discussed in Joe’s post “Pushing Back at the IRS Preparer Regulation Plan”.

Joe tells us that the AICPA feels “regulation beyond assigning preparer ID numbers is not needed”.

The real reason that the AICPA is against creating a certified or licensed tax professional “credential” is that CPAs will then no longer “own” tax preparation – as they have told one of their own they feel they currently do. That is to say CPAs will no longer be erroneously thought by the public to be tax experts by virtue of their initials – and taxpayers will go to previously unenrolled but newly licensed tax preparers instead of CPAs for tax preparation.

The newly licensed preparers will have demonstrated via testing and required CPE in taxation that they are true tax experts, while possession of the CPA “credential” has absolutely nothing to do with one’s knowledge of or experience with federal individual income taxes.

TTFN

JUST ONE MORE THING . . . HE SAID COLUMBO-LIKE

Oops!

I forgot to mention in this morning’s post on Making Work Pay that you can find out if you did indeed get a $250.00 Economic Recovery Payment at the IRS website.

Click here.

MAKING WORK PAY MAKES MORE WORK

As I mentioned in my tax season review this year’s tax “gimmick” was BO’s “Making Work Pay” credit – a variation of Dubya’s economic “stimulus” rebate checks.

To his credit, no pun intended, BO did avoid the exorbitant expense and general debacle that was W’s rebate checks. However, like the checks, this credit caused great confusion.

The credit was based on 6.2% of earned income – W-2 wages and net earnings from self-employment – up to a maximum of $400.00, or $800.00 for a married couple filing jointly. The 6.2% rate is equal to the Social Security tax.

The original idea, put forth by the Democrats before Congress decided on the first set rebate checks, was a “payroll tax holiday”. The first, if $400.00 was the goal, $6,452 of wages paid to an employee during the year would be exempt from at least the employee share of Social Security tax. This would increase workers’ take-home pay by the intended $400.00. Doing it this way would result in minimal cost to the government. All the work would be done by the employer – and it would not impact the 1040 at all. All that needed to be done was to revise the quarterly Form 941.

Instead BO chose to make it an advance on a Form 1040 credit and issue it by FU-ing with the federal income tax withholding tables. As a result many retirees ended up being under-withheld, as pensions also use these tables to determine withholding. So did taxpayers with more than one job, married couples in general, and working dependents who did not qualify for the credit.

To be perfectly honest, I still don’t know how BO expected an additional $15.00 per week or so in take-home pay was going to save the economy.

The credit was calculated not on a worksheet in the instructions that would be kept with the taxpayer’s records but on a brand new tax form – Schedule M. Making more work for tax preparers and causing the death of more trees.

There has been much confusion regarding the MWP credit – both by taxpayers and the IRS. According to the Treasury Inspector General for Tax Administration – “TIGTA auditors analyzed 2010 filing season results as of the first week of March, 2010. As of that time, the IRS had paid some $24.2 million in erroneous Making Work Pay and Government Retiree Credits”.

Much of the confusion involved BO’s $250.00 “Economic Recovery Payment” send to Social Security and Railroad Retirement recipients. The MWP credit available to a taxpayer or couple is reduced by any ERP received.

John and Mary are both retired and receiving Social Security. Mary has a part time job in 2009, earning $10,000. Because the couple files a joint return they are entitled to a $620.00 MWP credit ($10,000 x 6.2%). However, because they each received a $250.00 ERP in May of 2009 the credit they will get is only $120.00 - $620.00 less $500.00.

A few of my clients had their requested refunds reduced by $250.00 – which was attributed to the MWP credit and the ERP. Any such reduced check should be followed by a notice explaining the reduction. If your refund is reduced review the explanatory notice carefully – or, more better, send the notice to your tax professional immediately. As with any other notice from the IRS, more often then not it is wrong.

TTFN

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

* The IRS HITMAN provides a list of celebrities who owe Uncle Sam in "The IRS-Hitman Celebrity Hit List”

* I have come across a new, to me at least, tax blog via a “tweet”. FreeTaxPro.com provides free tax advice. A recent example is “Tax Aspects of Providing Foster Care”.

* I just heard that “The Internal Revenue Service will host a special nationwide Open House on Saturday May 15 to help small businesses and individuals solve tax problems”.

According to the Service, “Approximately 200 IRS offices, at least one in every state, will be open May 15 from 9 a.m. to 2 p.m. local time. IRS staff will be available on site or by telephone to help taxpayers work through their problems and walk out with solutions.”

Click here to read the IRS press release and find the locations of the participating IRS offices.

* Kay Bell tells us that the “Estate Tax is Still Dead, But Dual Options for Heirs Being Considered” at DON’T MESS WITH TAXES.

* And speaking of Kay - be sure to check out her “Tax Carnival #70: May Day”. Nothing from me this time, but I will be sure to be included in the next one.

* The April 30th issue of THE KIPLINGER TAX LETTER closes with some good news. According to the Kiplinger Washington Editors – “Recent talk about imposing a value-added-tax is just that: Talk”.

Kiplinger thinks that “there’s no way Congress will pass it in the next few years”.

I assume you have guessed that I am against a VAT in the US.

* BTW, Brian O’Connell discusses the VAT in detail at “What a Value-Added Tax Means” over at MAINSTREET.COM.

* And speaking of MAINSTREET.COM – check out my tax tip “Get Tax Credits for Summer Camps”.

* Dr Jean Murray has begun a series of posts on Starting A Business over at JEAN’S BUSINESS LAW/TAXES: US BLOG. She begins with “First Step in Starting a Business - Select Your Business Name”.

* The NEW YORK TIMES reports on an interesting tax deduction in “Tax Break for Erotica? A Museum Favors It”.

TTFN

SOME NEW JERSEY ITEMS

+ Each year the State of New Jersey usually sends out the green NJ Homestead Rebate application to seniors and the disabled in May. This will not be happen this year. Here is the word from the NJ Division of Taxation -

“The proposed State Budget for FY 2011 contains modifications to the Homestead Rebate Program. In years past, rebate applications were sent to senior and disabled homeowners in May. However, until the proposed modifications to the Rebate Program become State Law, no rebate applications will be sent out or accepted by the Division of Taxation. To repeat, THE DIVISION DOES NOT EXPECT TO SEND OUT REBATE APPLICATIONS IN MAY.

The Governor has proposed that 2009 rebates be paid in quarterly installments as credits on the homeowner’s property tax bill. Homeowners would receive the first quarterly credit in May of 2011. Tenants would no longer receive the rebate.

Under the proposal, eligibility requirements and rebate amounts for the 2009 homeowner rebate remain the same as last year. The eligibility criteria used last year for the 2008 homeowner rebate are as follows:

* Domicile (permanent legal residence) is in New Jersey.

* Own and occupy a home in New Jersey that was the applicant’s principal residence on October 1, 2008.

* The home must be subject to local property taxes, and 2008 property taxes must have been paid. However, the State Budget mandates that the 2008 rebate be calculated using 2006 property taxes.

* New Jersey gross income for 2008 does not exceed certain limits. For homeowners age 65 or older and/or disabled on December 31, 2008, the income limit was $150,000 or less. For homeowners under age 65 and not disabled on December 31, 2008, the income limit was $75,000 or less.

Information about the proposed changes to the Homestead Rebate Program is contained in the Governor’s FY 2011 Budget in Brief. AGAIN, as a result of the proposed changes, rebate applications for homeowners will not be mailed in May as they had in past years.”

+ Thankfully the federal and state income tax return filing deadline for residents of Atlantic, Bergen, Cape May, Essex, Gloucester, Mercer, Middlesex, Monmouth, Morris, Passaic, Somerset and Union counties in New Jersey has been extended from April 15th to May 11th because of recent flooding.

.

I have several GD extensions for residents of these counties, and, while none of them were directly affected by the flooding, it is nice to have the extra time so as to avoid penalty and interest on extended returns which will have a balance due to Sam or Chris. However it does create another deadline for me to deal with.

.

Obviously extended returns for residents of these counties with an anticipated balance due will be given priority over returns with anticipated refunds, regardless of when the returns actually arrived in my hand.

Here is the official word from the NJ Division of Taxation -

“Taxpayers affected by the storms now have until May 11, 2010 to file their New Jersey tax returns such as individual income tax, corporation business tax, sales tax, inheritance tax, estate tax, partnership and other business taxes administered by the Division of Taxation and to submit payments for any return and/or payment, including estimated payments which have either an original or extended due date occurring on or after March 12, 2010 and on or before May 11, 2010.

.

If the IRS further extends the filing deadline for federal tax purposes, the deadline for New Jersey returns and payments will also be extended.”

TTFN

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

* TAXGIRL Kelly Phillips Erb wants to know your thoughts on a federal tax amnesty program in her latest “Fix the Tax Code Friday” entry.

I strongly support a federal amnesty. Check out my post “Tax Amnesty” from September 2008.

.
*Speaking of amnesty programs, Kay Bell provides a “Tax Amnesty Alert: Massachusetts, Nevada and Pennsylvania” over at DON’T MESS WITH TAXES.

* And the “yellow rose of taxes” also brings us up-to-date on the status of the expired “extenders” in “Extenders Outlook from W&M Chair”.

Kay tells us that the goal, according to Ways and Means Chairman Sander Levin (successor to tax cheat Chuck Rangel), “is to complete work on extenders by the Memorial Day break”.

The need to annually, or every other year, renew a tax benefit is ridiculous. It is a continued reminder of the utter laziness of Congress. If a deduction is appropriate it should be permanent. If Congress changes its mind about the need for the deduction in the future it can always repeal it.

* Trish McIntire discusses a recent tax “simplification” proposal in her post “Tax Simplification – My. . . Eye” at OUR TAXING TIMES.

Her bottom line on the bill –

“If you want to simplify the tax code, simplify the confusing theory and not the forms. All you are doing is using smoke and mirrors to cover the increase in confusion you will be causing.”

* No BUZZ would be complete without an item from Joe Kristan of the ROTH AND COMPANY TAX UPDATE BLOG.

In “Taking Your Money and Giving It To Me = Tax Cut!” Joe points out that most of BO’s “tax cuts” were “tax subsidies for preferred constituencies”. As he explains, “That's the government grabbing your wallet, taking $20 out of it, giving five bucks to a bum, and then bragging about its generosity”.

* They like me! They really like me! Or so says Cate Newton in the following email –

“I’m writing to inform you that THE WANDERING TAX PRO has been featured on Guide to Online MBA’s Top Personal Finance Blogs list found here. We’ve gone through and hand-picked a list of our favorite personal finance blogs and outlined the unique reasons why we like them. We chose to add your blog to our list because it lots of advice, tips and resources on tax items, as well as tax information specific to the state of New Jersey.”

I am included under “The Ins and Outs of Taxes” category.

* And while I am tootin’ my own horn, Tax-Mama style, let me refer you to my tax tip at MainStreet.com titled “Hold On To Those Tax Records”.

TTFN