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

* Trish McIntire addresses a false “Gambling Rumor” at OUR TAXING TIMES -

“Bottom line, there has been no change to deducting gambling losses on your personal 1040 return that I can find. If I find anything different I will post it here.”

I, too, am not aware of any change in the deductibility of gambling losses.  And I, too, will report here anything I hear to the contrary.

FYI, you can read my article on “Not Keeping Track Turns Gambling Winners Into Tax Losers” at MarketStreet.com.

* IRS FUs keep on coming.  The latest, according to ACCOUNTING TODAY, is “IRS Accidentally Exposed Tens of Thousands of Social Security Numbers”.

“The Internal Revenue Service has reportedly posted the Social Security numbers of tens of thousands of people on the Internet before taking down the information when a whistleblower pointed out the mistake.”

Clearly the IRS must not be allowed to regulate tax return preparers!

* Somebody asked JK LASSER “I’m thinking of cashing in my life insurance policy, which has built up considerable cash value. What happens to it from a tax perspective?”

The answer, correctly provided by JKL -  

“While life insurance proceeds received on the death of the insured are tax free, you may owe taxes when you cash in the policy early. What’s taxable: the excess of the cash surrender value over the premiums you paid. The insurance company can provide you with this information before you take any action.”

* I have been saying this for many years now – “Don’t Toss Your Tax Returns”.  It seems that Kimberly Lankford of KIPLINGERS.COM agrees with me, proving that great minds do think alike.

“. . . there are plenty of reasons to keep your tax returns indefinitely and no reason not to.”

One reason not mentioned by Kimberly – as a record of your personal financial history.

* Interested in the “Vital Statistics on Congress”?  A joint effort from Brookings and the American Enterprise Institute by Norman J. Ornstein, Thomas E. Mann, Michael J. Malbin and Andrew Rugg provides such statistics.

FYI, from the category “Legislative Productivity in Congress & Workload – during the 112^th Congress (2011-2012) 6,845 bills were introduced in the House and 561 were actually passed.  The numbers for the Senate were 3,767 introduced and 364 passed.  This is the lowest number of bills passed by the House since 1947 (when the statistical analysis begins).  The only time the number of bills passed by the Senate were lower was the 111^th Congress – when the number was 176.

* As promised, MO TAXGUY Bruce McFarland’s Tuesday “McTax Hangout” dealt with the “Death of DOMA”.

* A “tweet” introduced me to a new tax blog, coincidently titled “THE BUZZ ABOUT TAXES”, written by Enrolled Agent Manasa Nadig of Canton, Michigan.

The “tweet” touted her post "Charity Begins at Home . . . & Other Thoughts . . .", which provides “some tips on how to be a ‘Smart Giver’”.  

I wonder where she got the name of her blog?

* In an editorial at the WALL STREET JOURNAL ONLINE former Republican senator Phil Gramm suggests “A GOP Game Plan for Tax Reform”.

I agree with much of what he has to say, especially –

“First, under no circumstances should Republicans agree to make the tax system even more progressive than it already is, or to increase the number of people who do not pay income taxes. In 1980, the top 1% and 5% of income earners in America paid 19.1% and 36.9% of total federal income taxes. Today, the top 1% and 5% pay 37.4% and 59.1%. Meanwhile, 41.6% of American earners now pay no federal income taxes.”

* The COMMERCE CLEARNING HOUSE daily headline e-letter reports that in response to the multiple recently discovered IRS FUs “House Panel Proposes $9-Billion Budget for IRS for Fiscal Year 2014” –

“The fiscal year (FY) 2014 budget for the Internal Revenue Service would be cut 24 percent to $9 billion, under legislation set for consideration by the House lawmakers on July 10.”  

* TAXGIRL Kelly Philips Erb introduces us to “Charitable Vacations: Have Your Fun and Deduct it Too” at SHE KNOWS.  

* Just got the word from TAXPRO TODAY that “New York State Works through Tax Refund Backlog” -

“The New York State Department of Taxation and Finance outsourced the responsibility of refunding money to a new contractor this year and many taxpayers who filed paper-based returns still have not received their refunds.”

Can TPT tell me why NJ refunds have been delayed?

TTFN

MY CORRESPONDENCE WITH THE WHITE HOUSE ON TAX REFORM - CONTINUED

For those who are interested, here is the text of the letter I send to BO, which I posted about yesterday -

“Dear President Obama:

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

Our current US Tax Code is, for want of a better description, a mucking fess.  There is no doubt that it needs to be seriously reformed.  In my opinion the Code needs to be totally rewritten.

And, in my opinion, the guiding principles in the rewriting of the Tax Code should be fairness and simplicity.

Before undertaking to rewrite the Code it must be recognized that the only function of the federal income tax is to raise money to run the government.  Our federal tax system should not be used to encourage or discourage behavior, to redistribute wealth, or as a means to distribute social and economic benefits.

I do believe there can be an exception.  The income tax system can be used to encourage saving and investment and charitable giving.

The new Code must be simple.  Simplicity for simplicity’s sake. 

Here is how I would rewrite the federal income tax.

There would be two filing categories – Single and Married – but only one tax rate schedule and tax table.  Dual income married couples would be able to file separately as if they were two Single taxpayers on one tax return.

I do not believe in a “progressive” tax system.  A higher income individual should not be required to pay a higher tax rate simply because they have more income.  This discourages ambition, achievement and entrepreneurship.  I support a flat tax rate.  A person with taxable income of $1 Million paying a 15% tax is certainly paying more tax than a person with taxable income of $10,000, but not disproportionately so.

There would be no exclusions, reductions or phase-outs based on Adjusted Gross Income or Modified AGI.  If a deduction is allowed it would be allowed to all taxpayers at all levels of income.  All deduction limitations would be indexed for inflation.

And, of course, there would be no Alternative Minimum Tax.     

In rewriting the Tax Code I would start from scratch with “everything is taxable” and “nothing is deductible”.  From there I would add in only those exclusions and deductions that are absolutely necessary.

The “pre-tax” treatment of 401(k) and 403(b) plan contributions and employee payments of group health insurance premiums would be allowed, and 401(k) and 403(b) ROTH options would be available.

Dividends, qualified or otherwise, would be taxed as “ordinary income”, the same as interest.  But this is because on the corporate side I would allow a “dividends paid” deduction, so there would be no more double-taxation.  I would keep a reduction in tax for long-term capital gains, but I would return to the capital gains exclusion of the at this point distant past rather than a separate tax rate.

Social Security and Railroad Retirement benefits would be taxed like any other pension, with amortization of employee “after-tax” contributions under the “Simplified Method”.  No longer could $1.00 of additional income cause a Social Security or Railroad Retirement recipient to be taxed on $1.85.

All industry-specific deductions, credits and loopholes would be eliminated on all forms of businesses.  All business activity, including limited partnership investments, would be taxed on net book income.  

The only “Adjustment to Income” would be for contributions to an IRA-like Universal Savings Account, which would be available to all taxpayers regardless of income or employer plan coverage.  It would allow for penalty-free pre-age 59½ withdrawals for medical expenses or post-secondary education.  There would also be a ROTH-like option.

Early withdrawal penalties on savings accounts would be net against interest income on Line 8a.  A self-employed taxpayer’s contributions to a SEP-like Self-Employed Retirement Savings Plan, health insurance premiums, and share of self-employment tax would be deducted on Schedule C, or Form 1065 or 1120-S, and reduce the net-earnings from self-employment subject to the self-employment tax.  There would be a ROTH-like option for the Self-Employed Retirement Savings Plan.

The only allowable itemized deductions would be for state and local income tax, real estate tax on your primary personal residence, acquisition debt mortgage interest on your primary personal residence, charitable contributions, employee business expenses, and certain casualty and theft losses. 

My reason for maintaining the deduction for real estate taxes and acquisition debt mortgage interest on one’s primary personal residence is not to encourage home ownership – but as a form of “geographical equalization”.

Americans are taxed based on income measured in pure dollars.  But the “value” of one’s level of income differs, sometimes greatly, based on one’s geographical location.  A family living in the northeast (New York, New Jersey, Massachusetts, and Connecticut) or California with an income of $150,000 may be just getting by, while a similar family that resides in “middle America” lives like royalty on $150,000. Many components of the Tax Code are indexed for inflation, but nothing is indexed for geography. 

It costs an awful lot to live in the northeast and California. State and local income and property taxes are the highest in the country. The cost of real estate is also excessively high, and so acquisition debt is higher. As a result one must earn a lot more money to be able to live in these states – and so salaries are arbitrarily increased to reflect the higher cost of living.  Since we pay taxes on “net income” after deductions, allowing an itemized deduction for these items would help to somewhat geographically equalize the tax burden.

I would allow a deduction for unreimbursed employee business expenses also as a form of “income equalization”.  Some employees receive a salary and are reimbursed in full for any and all employee business expenses via an “accountable plan”.  Others, generally outside salesmen, receive a base salary and/or commission, and perhaps a flat monthly “expense allowance” which is included in taxable wages, and any and all employee business expenses are truly “out of pocket”. 

Job-related moving expenses would be deductible, using current rules, as an employee business expense.

I would remove the depreciation component of the deduction for business use of an automobile from both the standard mileage allowance and the use of actual expenses.  I use my car extensively for business, but that is not my main reason for owning a car.  

Casualty and Theft Losses would be limited to “out of pocket” casualty losses from Presidentially-declared natural disaster areas and theft losses from Madoff-like Ponzi schemes.

There would be a Standard Deduction and two Personal Exemption amounts – a higher one for a dependent child and one for all others.   

There would be no tax credits – except for the foreign tax credit.  A credit for all foreign taxes deducted from dividends would be allowed in full, regardless of the amount.  Form 1116 would only be required for non-dividend-related foreign taxes.

You will note that the rewritten Tax Code does not include any deductions or credits for education or energy efficient purchases, or the Earned Income Credit.  Many of the social and economic benefit programs that are currently distributed via the Tax Code are 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. 

This is a much better method of distribution 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 qualifies for government funds.

(2) The qualifying individuals 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, and welfare 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. 

Let’s look at the deductions and credits for tuition and fees.  In order to claim these tax benefits the student, or more likely the student’s 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.  More individuals would be encouraged to purchase energy-efficient items if the money was provided upfront as a point of purchase discount.  The “Cash for Clunkers” program of a few years back proves that this can be done effectively and efficiently. 

The Earned Income Tax Credit, refundable and otherwise, and the refundable Child Tax Credit are really forms of welfare, and are magnets for tax fraud.  It would certainly be more efficient and effective to distribute these benefits via the existing Aid to Families with Dependent Children program.

Thank you for the opportunity to present my proposals for tax reform.

Very truly yours,   

Robert D Flach”

Do you agree with me?

TTFN

MY CORRESPONDENCE WITH THE WHITE HOUSE ON TAX REFORM

On May 2nd of this year I sent a 4-page letter to President Barack Obama.  I began by stating –

“Our current US Tax Code is, for want of a better description, a mucking fess.  There is no doubt that it needs to be seriously reformed.  In my opinion the Code needs to be totally rewritten.”

The letter went on to outline in detail how I feel the current Tax Code should be rewritten. I explained that “the guiding principles in the rewriting of the Tax Code should be fairness and simplicity”.

I emphasized - “The new Code must be simple.  Simplicity for simplicity’s sake.” 

This past Friday I received a response, dated July 1, 2013, to my letter.  Unlike the response I had received from a letter to Dubya on a tax-related topic back in 2000, the response was from BO himself, under his signature, and not from a clerical staffer.

The response began –

“Dear Robert:

Thank you for writing.  I understand the strong views many Americans have about taxes, and I appreciate your perspective.”

It then went onto apparently quote a speech on tax reform.  The response did not, in any way, shape, or form, respond to the specific proposals in my letter.

It was obvious that BO did not read my letter.  I wonder if anyone actually did.

However I also doubt that anyone actually read the letter I had written to Dubya.   

While I do appreciate the fact that the reply was allegedly directly from the President, under his signature, it is clear that the reply was a pro-forma with the text of a speech on taxes - as it would have been a pro-forma with the text of a speech on energy or immigration if I had written about either of those topics. 

To be honest, I really did not expect a real response to my proposals.  I have been around long enough, and, especially coming from Hudson County NJ, am cynical enough when it comes to politicians to realize that my time writing to the President was very probably wasted. 

It would have been nice, though, if the letter would have actually been read, and my proposals had actually been acknowledged in the reply.

I also sent the same letter to Max Baucus and, I think, Dave Camp – but have not heard back from either yet.

The body of the letter – the speech that was copied therein – continues to make it clear that President Obama has no clue about, and does not support, true substantive 1040 tax reform.

Oh well. 

TTFN

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’ - TUESDAY EDITION

* I wasn’t following “tweets” on July 4^th, and didn’t learn of Kay Bell’s 7/4-published “Tax Carnival #118: July 4th Tax Fireworks!” until July 5^th.

My post on How Is Social Security Taxed is #2 in the Carnival.

* Hey tax professionals – Taxpro BUZZ is back at THE TAX PROFESSIONAL!

* Fellow “wanderers” – nothing to do with taxes, but Peter j Reilly continues his tale of PA wanderings with “Gettysburg Day 2 - Worst Ground I Ever Seen” at FORBES.COM.

* As Peter’s fellow FORBES.COM tax-blogger Robert W Wood reports “For the beleaguered IRS, the hits just keep on coming”.  RWW tells us of the latest IRS FU in “Many IRS Seizures Are Illegal, Government Report Reveals”.

* A FORBES.COM trifecta – TAXGIRL Kelly Phillips Erb points out “Extreme Weather Serves Up Important Reminders To Taxpayers”.

* Over at PLANTING MONEY SEEDS Miranda Marquit answers the question, which a client had asked me early this year, “Can You Hold Real Estate in Your IRA?”.

* The YOUR MONEY blog of Business Insider reprints a MINT item that explains the problem that we tax professionals have when attempting to complete the newly structured Schedule D - “New Cost Basis Tax Reporting: Short-Term Confusion, Long-Term Simplicity”.

If nothing else, the multiple Form 8949s required to identify “covered and uncovered sales” is time consuming. 

The item is correct when it states -

“While many experts agree the mix of covered and uncovered sales will create some confusion in the coming years, the rule should eventually make reporting easier in the long term.”

Unfortunately, by the time all “noncovered” sales are fully phased in and all sales are “covered” I will be retired!

* A group of financial experts address the question “What's the Biggest Mistake People Make When Financing Their Kids' College Education?” at the WALL STREET JOURNAL.  

A common answer is summed up by Greg McBride – “sacrificing your own retirement or financial stability for the sake of your kids' college education is a mistake”.

* It can be done.  “Deducting IRA Losses”, that is.  Jim Blankenship explains how in an older post at GETTING YOUR FINANCIAL DUCKS IN A ROW.

* I agree with Jason Dinesen – “Yes - Enrolled Agent Do Need More Respect”!

Professor Annette Nellen gives us the word that “Little Noticed Tax Bill Enacted”.

It does not affect the Form 1040.  So why does she post about it?  For one thing –

“A tax bill was passed - and quickly. Not something we see often {lately, that is; any bill being passed lately is rare – rdf}.”

TTFN

THE DFBs!

The clean version is “damned fool bureaucrats”.

Several clients have emailed me lately to complain about late refunds from manually, but timely, filed NJ-1040s.  More so than in past years.

As a point of information – NJ filers can now check on the status of their NJ state tax refund online at the website of the NJ Division of Taxation (NJDOT).  You can click here to begin the process.

The clients whose refunds have been delayed were all expecting paper checks.  This is because NJ taxpayers cannot request direct deposit on manually-filed returns – even though a directly deposited refund is cheaper to process than a paper check.  In order to request direct deposit a NJ taxpayer must file electronically.  To be honest, this makes absolutely no sense.

Since I cannot submit my client returns electronically as I do not, and at this point will not, use flawed and expensive tax preparation software, whenever possible, and when the client does not specifically “opt-out”, I file my client NJ-1040s “electronically” via NJWebFile.  Unlike federal returns, I can submit NJ-1040s for full-year resident taxpayers directly to the NJDOT online via NJWebFile.  Unfortunately, there are many unnecessary limitations on the returns that can be submitted via NJWebFile, and I am forced to manually file a lot of NJ-1040s due to these limitations. 

For example, the software for the NJWebFile program has never been updated to provide for excess Family Leave Insurance employee contributions – NJ taxpayers with two or more employers must file manually in order to get a refund of excess FLI insurance withholding.

The State of New York purposely delays the issuance of paper refund checks.  NY wants taxpayers to request direct deposit of refunds – which can be done on manually filed returns.  But New York has clearly told us that this will happen.  I am not aware of any announced NJDOT policy of purposefully delaying paper refund checks. 

NJDOT has never been known for its competence, or even its honesty.  While the IRS will contact taxpayers, or issue refunds, almost immediately after receiving an overpayment, double payment, or payment that it cannot properly identify – NJDOT, I believe purposely, remains silent, hoping that the taxpayer will not discover the over or double payment and the State can keep the money.

The fairly new Director of the NJDOT, Michael J. Bryan, has proven to be a big disappointment.  Nothing has changed under his leadership.  He did create a NJ version of the IRS Taxpayer Advocate Service, but my correspondence to the NJ Taxpayer Advocate on the systemic problem identified above, and a specific example thereof, has been totally ignored.

 

Have any of the NJ tax pros reading this also experienced excessive delays in the issuance of client paper refund checks?

 

TTFN

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

I trust you had a “successful” 4^th of July.  I spent the day working on GDEs!

* Once again I made it in TAXPRO TODAY’s BUZZ-like “In the Blogs” – “Highlights from some of our favorite tax bloggers this week”. 

I am honored to be among TT’s favorite tax bloggers.

* Just a reminder – don’t try to contact the IRS today.  The Service is closed down as part of the “sequestration” nonsense.

* Over at the Washington Post’s WONKBLOG Lydia DePillis wants to rain on my parade by listing “Six Reasons Why Tax Reform Won’t Happen”.

Lydia actually makes some good points.  Especially the understatement of the decade –

“The Congress of 2013 is a much more polarized place than it was in 1986, weakening the odds of success even further.”

The idiots are much more polarized than any time during my lifetime!

And, of course, the question – “Where’s Obama?”.

* It appears that I am not the only “wandering” tax pro.  For those who are interested, Peter J Reilly talks about his “wanderings” in “Gettysburg Day 1 - Passing Into Legend And History With The Iron Brigade” at FORBES.COM.

* You’ve heard from “the Fonze”, RJ Wagner, and Fred Thompson.  Now hear from someone who is not being paid by a provider.  MONEYSMARTLIFE gives us a lesson in “Reverse Mortgages 101”.

* MISSOURI TAXGUY Bruce McFarland’s latest “McTax Hangout” online tv show covers “Cancellation of Debt”.

* Next Tuesday’s (July 9) “McTax Hangout” (8 AM PST, 10 AM CST, 11 AM EST) will cover the "Death of DOMA". 

Bruce “will be joined by Jason Dinesen and other preparers talking about some of what it means to couples in same-sex marriages who will no longer have to jump through the hoops to meet their tax obligations. We will also be discussing what it means in other issues of tax law as we see it right now.”

* Speaking of Jason Dinsesn, as this is a holiday week Jason gives us a “summer rerun” of one of the Dinesen Tax Greatest Hits at DINESEN TAX TIMES.  He has chosen “Further Thoughts on Preparer Regulation” from January of this year.

* Here is a 2010 post by Jim Blankenship of GETTING YOUR FINANCIAL DUCKS IN A ROW, recently touted by Jim via “tweet”, that is still worth mentioning – “IRA Options for a Surviving Spouse Under Age 59 ½”.

TTFN

HAPPY 4TH OF JULY!

 

HAVE A "SUCCESSFUL" 4th OF JULY HOLIDAY!

 

Think of me as I work on GD Extensions.

 



WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’ - TUESDAY EDITION

* My THE TAX PROFESSIONAL post “My Final Word on CPA vs EA or RTRP” was highlighted in TAXPRO TODAY’s weekly BUZZ-like “In the Blogs”, which provides “Highlights from some of our favorite tax bloggers”.

* Russ Fox hits that nail directly on the head, again, in his TAXABLE TALK post “Licensing Stops All Tax Preparer Fraud…Well, No”.

He is spot on when he says “. . . the idea that by licensing tax professionals no tax professional would commit fraud is laughable. Wherever there is money, there’s temptation to obtain it in the wrong ways.”

Licensure will not make any material dent in tax fraud.  I continue to point out that the authors of the Enron fraud were “licensed” CPAs.  Russ’s post talks about extensive fraud committed by two “licensed tax preparers”. 

Crooked taxpayers will always find crooked tax preparers, and crooked tax preparers will always find crooked, or naïve and gullible, taxpayers.

The main purpose of a credential for “previously unenrolled” tax professionals is to recognize and acknowledge their knowledge, competence, and currency in 1040 preparation to help the taxpaying public in making wise choices when engaging a tax preparer.

National Taxpayer Advocate Nina Olsen, while wrong in calling for mandatory licensure of all paid preparers (except, it seems, CPAs, attorneys, and “supervised” employees thereof), is correct in calling for –

“A comprehensive IRS advertising campaign on how to choose a competent preparer

and to educate taxpayers about the requirement for paid preparers to sign the tax return and provide a copy to the taxpayer”.

* The death of DOMA continues to dominate tax BUZZ.  CCH has published a new Tax Briefing titled “Supreme Court Strikes Down DOMA” that examines the impact of the DOMA ruling.

* And Sharon Malheiro of the Davis Brown Law Firm discusses “What Does the DOMA Ruling Mean for Employers?” at JD SUPRA LAW NEWS.

* BarbaraWeltman gives some advice on “Mid-Year Tax Planning: Do It Now to Save Later” in a guest post at the Small Business Administration THE INDUSTRY WORD blog.

It appears that the SBA has several blogs.  Click here to check them out.

* Trish McIntire gives us a good overview of federal income tax withholding in “The Withholding Myth” at ANSWERS.COM.

* And the beat goes on.  At ACCOUNTING TODAY Teresa Ambord suggests “IRS Contractor Cheated His Way to $500 Million in Questionable Bids”.

“Scandals, scandals everywhere, and not an excuse to make.”

Teresa tells us –

“On June 25, the results of a congressional investigation focused on yet another issue: a technology contractor who won ‘questionable bids’ with the IRS worth up to $500 million.

There's nothing wrong with doing all you can to gain advantages, as long as it's honest and aboveboard. But the investigation revealed there was a lot going on with this contractor, Braulio Castillo, that definitely didn't pass the smell tests.”

* Eva Rosenberg, the internet’s TAX MAMA, lists “6 Tax Tips That All Independent Contractors Must Know”.

Excellent tips all!  

* Just a reminder – Friday, July 5^th is another of the days that the IRS will be closed as part of the “sequester”.  Click here to read the IRS release.

THE FINAL WORD-

Let’s face it – Paula Deen is racist.

Look at the context of the admitted comment.  She did not blurt out “the word” in the heat of anger, or out of personal animus for a specific individual.  Nor was it a “slip of the tongue”.  It was used in the discussion of a catered wedding reception, and “the word” was purposely chosen by Deen in the context.

Here is what she said –

“Well what I would really like is a bunch of little niggers to wear long-sleeve white shirts, black shorts and black bow ties, you know in the Shirley Temple days, they used to tap dance around.  Now that would be a true southern wedding, wouldn’t it?  But we can’t do that because the media would be on me about that.”

And her recent contention that this is the only time she used “the word” is nonsense.

I am not saying that Paula Deen is evil and should be stoned.  And I am not saying that we should all boycott her products.  I believe that her personal racist tendencies are inbred as part of her Southern upbringing. 

I also believe that she would probably use similarly offensive “phraseology” if she were talking about homosexuals, or perhaps even our Jewish brethren, in a similar context.

And I do think that her business affiliates are correct in distancing themselves from her. 

It is odd, although certainly not surprising, that she is receiving support from members of the “religious right”.  Obviously a person of genuine religious conviction should believe in the concept of forgiveness in the face of true contrition (though I am not convinced that PD is truly contrite), but that same person should also be condemning obvious racism. 

It is clear that many members of the “religious right” pick and choose which of “God’s words”, or which Christian concepts, they chose to follow.  

TTFN

USE YOUR DEPENDENT CARE FSA TO PAY FOR SUMMER CAMP

Do you participate in your employer’s Dependent Care Flexible Spending Account?  And will your under age 13 child be attending summer day camp?

You may be able to have the cost of the summer day camp paid by your Dependent Care FSA.

Participants in an employer-sponsored dependent care FSA set aside a specific dollar amount from their salary to pay for qualified child-care during the year. The maximum amount you can set aside for a dependent care plan is $5,000.

Monies set aside in a Flexible Spending Account are considered “pre-tax” for both federal income tax and FICA (Social Security and Medicare) tax purposes. If your annual salary is $50,000 and you set aside, and spend, $5,000 in an FSA, the federal wages reported in Box 1 on your Form W-2, as well as the Social Security and Medicare wages, will be $45,000. If you are in the 25% bracket, this $5,000 will save you $1,633 in federal income and FICA taxes.  So about 33% of the cost of child care paid via this account is “reimbursed” by your Uncle Sam.

If you state also treats Dependent Care FSA contributions as “pre-tax” your overall tax savings will be even greater.  FYI New Jersey does not treat FSA contributions as “pre-tax” on the NJ-1040.  The NJ state wages reported on a Form W-2 will not be reduced by your FSA contributions.

A Dependent Care FSA is a “use it or lose it” plan.  If you set aside $5,000 in the DCFSA, but spend only $4,000 on qualified expenses during the year, you lose $1,000!

If you do not use money from your FSA to pay for summer day camp you can claim a Credit for Child and Dependent Care Expenses of up to $3,000 if you have one child or up to $6,000 if you have two or more qualifying children.

In many cases the FSA provides a greater tax savings than the tax credit.  For most cases the credit is 20% (it can be higher for lower-income taxpayers) - so the maximum credit is usually $600 for one child or $1,200 for more than one.  As stated above, the maximum tax savings from a Dependent Care Flexible Spending Account could be $1,633.  Do the math and calculate your potential tax savings under each option before deciding what to do.

In either case be sure to get the Employer Identification Number of the summer camp.  You will need to enter this number, along with the name and address of the camp, on IRS Form 2441.  

Special rules apply if you are filing your tax return as Married Filing Separately.  MFS filers are limited to a $2,500 exclusion from taxable wages instead of $5,000 on the Form 1040.  And couples filing separately may not be able to claim a tax credit for child care expenses.   

TTFN

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

Lots of BUZZ this installment!

* Check out “My Final Word on CPA vs EA or RTRP" at THE TAX PROFESSIONAL.  And let me know your opinion.  

Joe Kristan, a CPA, commented on my CPA vs EA vs RTRP post, as I expected he would, in his Tuesday “Tax Roundup” at the ROTH AND COMPANY TAX UPDATE BLOG.

Here is some of what Joe said (highlight is mine) -

·   “Robert is correct, though, when he says ‘A CPA is not automatically a 1040 expert, but a specific CPA may be a 1040 expert’.

·   I do think that CPAs who do tax work tend to be very capable, but so are many non-CPA preparers.

·   You should choose your tax preparer not just because of initials; you should find out what kind of work the preparer does.  And check references.”

Peter J Reilly adds the following to the discussion in his FORBES.COM post “Enrolled Agents Deserve More Respect” (again, highlight is mine) –

“He {me – rdf} does have a valid point.  To become an EA you have to show you know quite a bit about federal taxes.  To become a CPA you have to prove you know a bit about federal taxes but also quite a bit about a lot of other stuff.  If, for the rest of your career, you focus on the other stuff, your limited stock of tax knowledge will quickly wither away.”

* And a reminder - Did you know “The Energy Credit is Still Here For 2013”?  I explain at MAINSTREET.COM.

* The big tax news of the week was the Supreme Court decision that the Defense of Marriage Act (DOMA) was unconstitutional.

PARKER TAX PUBLISHING provides a good overview of the decision and what it means taxwise in “DOMA Struck Down - Opening the Floodgates for Amended Tax Returns.”

As PTP points out –

“In the short term, practitioners have an opportunity to begin filing amended returns to obtain income tax refunds for any same-sex clients who were married under state law but precluded from filing a joint federal income tax return. Similarly, for individuals who were in a situation similar to Edith Windsor, refund claims can now be filed for estate taxes paid on property inherited from a same-sex partner to whom the individual was married under state law.”      

 

* At ACCOUNTING TODAY Mira Fine suggests that the “President’s Tax Proposals Seek to Reduce Deficit while Promoting Investment”.

Here are some of BO’s tax proposals -

“The administration wants to raise taxes on the wealthy: by reducing itemized deductions to 28 percent for families in the top three income brackets; by imposing the Buffet Rule where millionaires pay no less than 30 percent of their income in taxes; and capping IRA account values that would provide a 62-year-old person with $205,000 in annual income.

In the estate planning area, the administration wants to, beginning in 2018, return the generation-skipping transfer and gift tax exemption rates to 2009 levels, with a top rate of 45 percent and an exclusion amount of $3.5 million (down from $5.2 million) and $1 million for gift taxes.”  

Bad ideas! 

And further proof that BO has no real interest in enacting true tax reform.  Unfortunately we must rely on the idiots in Congress.

* Along those lines, POLITICO gives us some good news – “Max Baucus and Orrin Hatch Tax Reform Plan: Wipe Slate Clean”.

We are told -

“Committee Chairman Max Baucus (D-Mont.) and Utah Sen. Orrin Hatch, the panel’s top Republican, are preparing to release a tax reform framework on Thursday that essentially starts from a clean slate, according to more than a half-dozen lobbyists familiar with the discussion. That means eliminating virtually all existing deductions, credits and expenditures to dramatically lower corporate and individual tax rates.”

* Back to ACCOUNTING TODAY – where Michael Cohn reports “Trial Date Set for IRS Appeal of Tax Preparer Lawsuit” –

“A federal appeals court in Washington, D.C., has scheduled oral arguments for September 24 to hear the Internal Revenue Service’s appeal of Loving v. IRS, the case in which a trio of independent tax preparers successfully sued the IRS to suspend its mandatory testing and continuing education requirements for tax preparers.”

The absolute worst case scenario is that the IRS wins the appeal.  Given the lateness in the year the IRS would need to set the deadline for RTRP candidates to take and pass the competency test at December 31, 2014 – so I would not have to take the test in order to prepare 2013 tax returns in 2014.  And I would have more than a year to continue to lobby for grandfathering.

But I do believe that the IRS will NOT win its appeal – and the mandatory RTRP program will remain dead.

And, considering the ongoing examples of IRS mismanagement, Congress, despite being composed of idiots, is not going to give the IRS the authority to force licensure.

* Speaking of ongoing examples of IRS mismanagement, here is the latest from Robert W Wood of FORBES.COM – “IRS Using Tax Dollars For Porn, Wine, $100 Lunches?”.

* Two good items of interest from JK LASSER. 

First – the answer to the question “I sold some municipal bonds at a loss. Can I deduct the loss?”

And second – “Five Tax Rules Every Graduate Should Know”.

The second has good bottom line advice for the graduate –

“If 2013 is the first year for which you will have to file a tax return (next April 2014), acquaint yourself now with general income tax rules. This will help you better understand employee fringe benefits as well as your annual tax filing obligations.”

Hey – one way to acquaint yourself with general tax rules is to become a regular visitor to THE WANDERING TAX PRO!

* Miranda Marquit also provides advice to graduates in “College Grads: Avoid these 401(k) Mistakes at Your First Job” at BARGAINEERING.  

* Oi vey! More news on IRS FUs at FORBES.COM.  Kelly Phillips Erb, the internet’s TAXGIRL, tells us “Millions Of Tax Dollars Improperly Refunded To Unauthorized Workers As IRS Insists It's Getting Better”.

 

* Terri Eyden explains “Werfel's Report Outlines IRS Changes to Ensure Accountability and Chart a PathForward” at ACCOUNTING WEB.

* Check out these “Strange & Unusual Taxes throughout History from Around the World” shared by EFILE.COM.

* And last, but certainly not least, this week Bruce McFarland’s weekly Tuesday “McTax Hangout” YouTube “tv show” dealt with “Travel Expenses”.

 

THE FINAL WORD-

Part One -

North West? 

What total idiots!

If the father was a Mr. Kong would the talentless and self-absorbed Kim K have named her child Donkey?

I feel sorry for the child.

Part Two –

I ended my post on the Death of DOMA with the following statement –

“I do believe that television shows like WILL AND GRACE, and MODERN FAMILY {add ELLEN and GLEE} are partially responsible for the widespread acceptance of same-sex marriage and for this decision being possible.  Television can change the world!”

The power of tv to influence society is why “reality tv excrement is dangerous!

TTFN