2015 NEW JERSEY FORMS AND INSTRUCTIONS

The 2015 New Jersey State tax forms and instructions are now available on the NJDOT website.  Click here.

There is no change to the NJ-1040 – it is the same as the 2014 return.  Once again homeowners are asked to enter Block, Lot and, if applicable, Qualifier number on the bottom of Page 2.

According to the introductory letter from the previous Acting Director of NJDOT the only changes for 2015 are -

·      Alternative Business Calculation Adjustment. The percentage used to calculate the Alternative Business Calculation Adjustment on Schedule NJ-BUS-2 increases to 40 percent for 2015 as part of a five-year phase-in. If you have losses in certain business-related income categories, you will use this percentage to calculate an adjustment to your taxable income. See page 28 for more information.

·      Earned Income Tax Credit. The New Jersey Earned Income Tax Credit increases to 30% of the Federal benefit for 2015.

·      Charitable Funds. There are six new charitable funds to which you can contribute when filing your New Jersey return:

Homeless Veterans Grant Fund,

Leukemia & Lymphoma Society – New Jersey Fund,

Northern New Jersey Veterans Memorial Cemetery Development Fund,

New Jersey Farm to School and School Garden Fund,

Local Library Support Fund, and

ALS Association Support Fund.  

The NJ WebFile system for 2015 is not up yet, so I do not know if it will be available for more taxpayers this year.  I use this system to electronically submit all NJ returns possible, unless the client specifically chooses to opt-out.  We are told the NJ WebFile application will be available for filing 2015 NJ Tax Returns on or about January 20, 2016.

 

 

 

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

Another short, but sweet, BUZZ.

* Attention fellow tax pros – join me in my crusade to reform the US Tax Code by signing the petition – click here.

* Just a reminder – time to start looking for a professional tax preparer for your 2015 returns.  Don’t rely on a “box” or Henry and Richard - you should totally ignore the ridiculous Turbo Tax and H&R Block television ads.  Begin your search at FIND A TAX PROFESSIONAL.

* Over at DON’T MESS WITH TAXES Kay Bell reminds us “Final 2015 Estimated Tax Payment is Due Friday, Jan. 15”.  Hey – that is today!  

* Jason Dinesen’s series on “Glossary” at DINESEN TAX TIMES briefly describes the “Social Security Wage Base”.    

* The PATH Act did not extend all of the “tax extenders”.  The TAX FOUNDATION answers the question “Which Tax Extenders are Left?” by providing a list of the “extenders” that will expire on December 31, 2016.

If you ask me none of these “extenders” should be extended past 12/31/16.  The Tax Foundation suggests (the highlight is mine, to show agreement) –

“Looking over the list below of remaining tax extenders, none of them seem like ‘must-pass’ policies. As a result, the pressure is off of Congress to renew all of the tax extenders as a package. Instead, Congress should take the time to evaluate the remaining tax extenders one by one, making the good provisions permanent and letting the bad ones expire. Temporary tax policy is bad tax policy, and it’s about time that Congress laid the ritual of tax extenders to rest once and for all.”

* While the State of the Union address was light on tax talk, Michael Cohn of ACCOUNTING TODAY tells us that in the speech “Obama Proposes to Expand Tax Cuts for Childless Workers”.

And –

“Obama began the speech Tuesday night, the last of his presidency, by praising the new Speaker of the House, Paul Ryan, R-Wis., for helping shepherd the tax extenders legislation through Congress last month.”

 

Let us hope this rare example of cooperation and positive action by the idiots in Congress is a sign of things to come - but don't hold your breath (after all, they are idiots).

What BO is referring to in the item’s title is expansion of the Earned Income Tax Credit, a potentially refundable credit, for taxpayers with no children.  But instead of expanding the credit, the EITC should be removed from the Tax Code!

THE FINAL WORD -  

The “great unwashed” do not seem to understand that the issue with Donald Trump as a candidate for President really has nothing to do with what he saying or proposing as a candidate, however weird and inappropriate it may be.  The problem with Trump is the character, personality, nature, disposition, temperament, mentality, and makeup of the man Donald Trump.

Donald Trump is a self-absorbed, self-important narcissist.  His only motivation for doing anything is to feed his excessively, and undeservedly, enormous ego.  While he “is” a character, he “has” no character (definition = moral or ethical quality).  He is all ego and no character.  And he is totally incapable of responding to criticism and challenges like a mature adult.  This is why he is not Presidential material.

Even if some of what Trump was saying and proposing as a candidate actually made sense, or if you support some or all of what he is saying and proposing, he would still never be “Presidential” because he is Donald Trump. 

A truly savvy and intelligent billionaire businessman would want to be a “king maker”, but would never want to be the actual “king”.    

If we, and the press, had ignored Trump from the beginning, and treated him as the joke he is, he would have soon lost interest and dropped out.

TTFN

A NEW GIMMICK

Have you seen H&R Block’s latest television commercial?  It once again “stars” the bow-tied buffoon from past years’ ads (is he supposed to be Henry or Richard?).  And, as usual, it makes no mention of H&R’s actual ability to competently prepare tax returns. 

H&R cannot get its clients the way competent and qualified independent prepares do, via word-of-mouth referrals from satisfied existing clients (neither my mentor nor I ever had to take out an ad of any kind to get clients).  It must rely on gimmicky ads.

This year’s nonsense has a new gimmick – Henry and Richard are giving away $1,000 to 1,000 customers each and every day!

$1,000 x 1,000 = $1 Million!  If you actually believe the company is going to give away $1 Million each day of the 3-month tax season, where do you think the money is going to come from?  Obviously it must come out of the fees charged to its “victims”. 

So not only does the fee for having your tax return prepared by H&R include the cost of the constant ridiculous ads, it now also must also cover $90 Million in prize money.  No wonder, as I have been telling you for years, Henry and Richard ain’t cheap.

Just because you are getting “fast food” service at the H&R offices does not mean you will be charged “fast food” prices.

You will certainly get better, more personalized service, and very likely pay less, if you have an independent tax professional prepare your returns.

 

SCREWED AGAIN!

Once more the IRS, this time thanks to the idiots in Congress, is thrusting added responsibilities upon tax preparers.  We are to continue to function as Social Workers by verifying if taxpayers qualify for additional federal benefit programs.  We must already wear the Social Worker hat for Earned Income Credit claims.

Effective for tax years beginning after December 31, 2015, The Protecting Americans from Tax Hike Act of 2015 (aka the PATH Act) requires tax return preparers to meet due diligence requirements similar to those applicable to returns claiming an EITC if they prepare federal income tax returns on which a child (or additional child) tax credit is claimed or on which the American opportunity tax credit is claimed.

I am not quite sure exactly what additional due diligence will be required, but I expect there will be additional forms like the Form 8867 for EIC claims, with appropriate checklists and requirements for checking documents.

This will result in additional fees to taxpayers who qualify for these programs.  So qualified lower income individuals will be forced to pay to apply for federal welfare and tuition assistance benefits.  And, of course, more wasted time for tax preparers during the tax filing season, when time truly is a precious.

If the tax preparation industry had a national “lobby”, as I have been suggesting for years now, perhaps this would not have been included in the PATH Act.  Unfortunately it appears that we preparers must just “grin and bear it”.

The IRS and the idiots in Congress are rightfully concerned about the excessive tax fraud resulting from claims for refundable tax credits.  Of course the blame for this fraud lies squarely with the idiots in Congress for putting the distribution of federal social welfare program benefits in the Tax Code, and creating refundable tax credits, in the first place.

The obvious proper action is to remove refundable tax credits, and the distribution of federal social welfare program benefits, from the Tax Code, and to distribute these benefits through “normal” channels with the appropriate checks and balances.

As I have said many times before –

The benefits provided by the Earned Income Tax Credit and the refundable Child Tax Credit should be distributed via existing federal welfare programs for Aid to Families with Dependent Children. The benefits provided by the education tax credits and deduction for tuition and fees should be distributed via existing federal programs for providing direct student financial aid. The benefits provided by the Premium Tax Credit, the energy credits, and other such personal and business credits should be distributed via direct discount payments to the appropriate vendors or direct rebate programs, similar to the successful Cash for Clunkers program of a few years ago, funded by the budget of the appropriate Cabinet departments.

Distributing the benefits in this manner is much better than the current method for many reasons:

1. It would be easier for the government to verify that the recipient of the subsidy, discount or rebate actually qualified for the money, greatly reducing fraud. And tax preparers, and the IRS, would no longer need to take on the added responsibility of having to verify that a person qualifies for government benefits.

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 percent” would still be receiving government benefits, but it would not be done through the income tax system, so they would actually be paying federal income tax.

4. We could measure the true cost of education, housing, health, energy and welfare programs in the federal budget because benefit payments would be properly allocated to the appropriate departments.

Fellow tax pros - your thoughts? 

TTFN

 

 

THE FAMOUS STATE TAX SEMINAR

Every year on the second Saturday in January I attend the NJ chapter of the National Association of Tax Professionals’ “Famous State Tax Seminar” at the hotel formerly known as the Woodbridge Hilton (now the APA Hotel Woodbridge) in Iselin NJ.  I think I have only missed it twice in the 20+ years it has been offered, and only because of excessive snow.

I have always said that this seminar is a “must attend” for any tax professional who prepares NJ state returns.

The purpose of the seminar is to familiarize NJ tax professionals with NJ, and often NY and PA, state tax issues and changes in the areas of individual and corporate income tax, sales tax, payroll tax, property tax relief programs, and, occasionally, inheritance and estate taxes.  Over the years additional topics have been thrown in, some federal, some state, and some non-tax related, but the major focus is on state taxes.

This year’s offering concentrated on NJ and NY taxes, with a brief overview of the new PATH Act added at the end.

After finding a good seat I was personally welcomed by new chapter President Tom Watkins, who is apparently a fan of my writings.   I was also greeted by fellow fan and also chapter Board member Josh Mellum.

 

As has been the custom each year, the supposed “keynote” speaker is the current Director of the NJ Division of Taxation, and this is usually the first presentation of the day.  This year we met the newly appointed, currently “Acting” while awaiting official confirmation by the State Senate, Director John J Ficara, a lawyer and a CPA with a Master’s degree in tax law.  Like his predecessor, he is a tax professional from the private sector.  However the actual “keynote” presentation was made by former Acting Director Dennis Schilling, who has returned to his prior position as Deputy Director.

While it was nice to meet the new Director, and to note his acknowledgement of the importance of tax professionals to state tax administration by his attendance, this presentation was, as has been the case for many years now, not of any true substantive value and, in my opinion, really a waste of time.  The presentation does not deal with any of the real issues of NJ state tax administration or tell us anything new that is not also covered by the state tax updates, and there is no Q+A.

The keynote presentation was followed by a good and helpful line-by-line tutorial on the NJ-1040, an abbreviated version of the chapter’s previous half-day seminar, by former chapter President and a national NATP Member of the Year Marilyn Ayers and long-time chapter Board member, and also former President, Sherril Diamond.  Some items of interest mentioned by the duo included –

ü NJ taxable wages, reported in Box 16 of Form W-2, includes employer contributions to a SIMPLE, SEP, and SARSEP pension plan.

ü There is no NJ state treatment of “statutory wages” similar to the federal treatment.  The full amount of the wages are reported as such on the NJ-1040 without any allowance for applicable deductions (the IRS permits statutory wages, and related deductions, to be reported as self-employment income on Schedule C).

ü Actually a federal issue - you should open a ROTH IRA account with something, perhaps just $500, the first year possible, i.e. the first year you have earned income, even if you do not make any subsequent contributions for a long time, to begin the start of the “5-year rule”.  The 5-year waiting period before you can take qualified distributions from a ROTH account begins on the first day of the first year for which ROTH contributions are made.

ü The federal exclusion from tax for income received from renting your personal residence for less than 15 days during the year does not apply for NJ state tax purposes.  This income is fully taxed on the NJ-1040.

Next up were 4 separate presentations by representatives of the NJ Division of Taxation’s “Taxation University” on NJ state sales tax, general updates, projects and notices, and property tax relief programs, with an excellent buffet lunch midway between the sessions.

“University” head Jake Foy, a popular former regular speaker at the annual seminars (originally part of what I called the always excellent and informative “Jim and Jake Show”), returned to the podium to start the presentations with a review of sales tax laws.  New speakers Abra Watson covered Tax Updates and Mike Kovacs covered projects and notices, and returning Alexis DeRosa talked about the property tax relief programs (the NJ Homestead Benefit and the Property Tax Reimbursement).

There was really nothing new in NJ state taxes for 2015, but the speakers did a good job explaining what little there was.  All were truly well-informed on their topics and good speakers.  I have been a consistent critic of the competence of the NJ Division of Taxation, but the “University” representatives have always been truly knowledgeable, competent, and genuinely concerned, and have successfully helped me and other NJ practitioners with individual client issues during the year.

There was a brief discussion of the delays in processing refunds on state returns, with Dennis Schilling providing an “assist” to speaker Abra.  There will continue to be some delays with 2015 refunds, as the Division continues to take additional steps to verify taxpayer identity in an attempt to avoid fraud and theft.  I personally did not experience any serious delays with my clients’ 2014 NJ refunds – the serious problems involved federal refunds and were, in my opinion, more a result of IRS budget cuts and mismanagement than additional identity verification.

Two new item – Electronically filed NJ-1040s will request the taxpayer’s driver’s license number, but this is an optional (for now) entry and returns will still be normally processed if this information is not provided.  And NJ corporate income tax returns (CBT) prepared by a tax pro must now be filed electronically (which is going to be a problem for me).

The other items worth reporting involve the Property Tax Reimbursement (aka “Senior Freeze”) program –

ü The 2015 PTR income threshold is $87,007, although there is no guarantee that this will once again drop to $70,000 at budget time.  The PTR-1 or PTR-2 applications should, nevertheless, be completed and submitted as long as 2015 income, which is different that the NJ Gross Income reported on the NJ-1040 and used for the Homestead Benefit application, is within this threshold.   

ü You can check the “base year” amount for the PTR-2 application online at the NJDOT website.

ü If a qualified NJ homeowner is already in “the system” with a base year and moves to a new residence they can file a PTR-1-C to re-establish a new base year after 2 years.

ü A qualified NJ homeowner who should have been receiving reimbursements for prior years, but never submitted an application in the past, can “retroactively” establish an initial base year by going back and filing a PTR-1, and verifying payment of real estate taxes, for every missed year (each year must be a PTR-1 and not PTR-2).  The homeowner will not receive the appropriate reimbursements for past year property tax increases, but will establish a base year from the first PTR-1 filed for use going forward.  The PTR-1 forms for past years are available on the NJDOT website.

Issues were raised about the filing process for each of the property tax relief programs by attendees. 

NJ Homestead Benefit – the application for this benefit, previously known as the Homestead Rebate, had originally, and for many years, been a part of the NJ-1040 filing, with the application eventually becoming form Page 4 of the NJ-1040 known as HR-1040.  However, for the past several years the application has become a separate filing, with the separate application package not mailed out until May.  An audience member felt, as I have for years now, that the application should be returned to a component of the NJ-1040 filing.  This would save the Division tons of money, as it would not need to do two separate mailings and processings, and would assure that all qualified homeowners properly applied, as the information, already available on the NJ-1040, would be entered at the time of the NJ-1040 filing by the preparer, paid or otherwise.  In addition, it would not require additional work for tax professionals after the end of the tax filing season.  Alexis promised to take this suggestion back to the “office”.  

Property Tax Reimbursement – the initial deadline for filing this application has always been June 1^st, but historically this deadline has consistently been extended each year to eventually October 15^th or 31^st.  While tax preparers are aware of, and expect, the annual filing deadline extension, in the back of our minds is always the possibility the the deadline will not be extended one year and many qualified homeowners will be royally screwed (something the State of NJ often does to its taxpayers).  An attendee asked why the initial deadline is not officially changed to October 31^st.  The answer is apparently that the June 1^st deadline is part of the statute that created the program (with a provision that the deadline may be extended by the Treasury Department), and the law itself must be changed to permanently change the initial filing deadline.

This suggests two actions that NJ-NATP Board should formerly undertake –

(1)  Write to the NJ Division of Taxation, or the Treasurer and/or Governor, and request, on behalf of the 1100+ members, that the application for the Homestead Benefit be reinstated as a component of the NJ-1040 filing, perhaps on an expanded NJ-1040-H.

(2)  Write to the appropriate state legislators and request, again on behalf of the 1100+ members, that the Property Tax Reimbursement statute be revised by the legislature to permanently change the initial filing deadline for the PTR-1 and PTR-2 to October 31^st.

Noticeably missing from the NJDOT line-up was a speaker who I had often referred to as the “comic relief” in my past reviews – John Kelly.  John was also a truly knowledgeable, competent, and genuinely concerned speaker, providing valuable information each year but in a somewhat comic fashion.  I learned that John had retired from the Division, but that he was present at the seminar in the audience as a participant NATP member.  It was John who told us that the PTR deadline was part of the statute, and suggested that NJ-NATP write to legislators to request the permanent change.  So, although not an official representative any more, he still contributed valuable information to the presentation.

The day ended - after the also “famous” desert break, which this year included sugar-free cookies for us diabetics (thanks, no doubt, to the efforts of Marc Standig) - with a presentation by frequent popular contributor Kathryn Keane from New York, who spoke first on NJ state tax updates and ended the seminar with the brief overview of PATH.

There was nothing much new for NY as well, except for –

ü The IT-2 and IT-1099-R filing requirement is back for paper returns.  These are separate returns that manual filers must waste time completing instead of merely attaching state copies of W-2s and 1099-Rs with state tax withholding to the returns.

ü Prior year NY returns must now be electronically filed (unless you are exempt, like me, for not using flawed and expensive tax preparation software) and amended NY returns can now electronically filed.  

ü The State of New York is going overboard on required additional due diligence and recordkeeping for Earned Income Credit applications, making tax preparers Social Worker duties even more excessive and time-wasting.

As usual the NJ-NATP “Famous State Tax Seminar” was an excellent offering, and the chapter Board and Education Committee deserve kudos for a job well done.

FYI – the NJ chapter is offering a half-day ACA Update and Review workshop on January 21^st, also at the APA Hotel Woodbridge.  The seminar is presented by former fellow tax blogger, and online buddy, John Sheeley, an excellent and knowledgeable presenter.  Click here for more information.   

TTFN

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

Not much BUZZ today – but, as I always say, some BUZZ is better than no BUZZ.

* Tax Pros – are there any of you out there who have not yet seen the premiere issue of THE TAX PROFESSIONAL or the January 1 issue of TAXPRO BUZZ?

* And, tax pros, I have revised somewhat the TAX PROFESSIONALS FOR TAX REFORM page and membership application. 

* Need help finding a tax preparer?  Start your search at my website FIND A TAX PROFESSIONAL.

* Jim Blankenship explains “The Top Income Tax Myth That Can Hold You Back” at GETTING YOUR FINANCIAL DUCKS IN A ROW.

Financially speaking, Jim in correct –

“There are many myths about income taxes that are just plain wrong. But there is one income tax myth that is likely the most hurtful to you financially – and that is the idea that a big refund should be your goal. The actual goal, counterintuitive as it may sound, should be to owe some tax when you file your return.”

As Jim goes on to say –

“When you have a big refund every year, you’re effectively loaning money to the government throughout the year, and getting nothing for it.”

In Jim’s example a $2000 refund means that you gave Sam $166.67 each month unnecessarily.  I agree with Jim that if you took this additional $166.67 and automatically invested it in an IRA or other savings vehicle you would most certainly come out ahead.

I do, however, realize that if many taxpayers got an extra $167.67 in their paycheck each month, or $41.67 per week, they would spend the money – and the increased withholding becomes a kind of forced savings.  This is what many of my clients do.

My alternative is not to get the additional money in your take-home pay.  If you company allows withholding for transfers to a credit union or other savings account you will not have the money “in your pocket” to spend perhaps improperly.  Or you can set up a myRA account and fund it with automatic weekly or other payroll deductions.  To set up a myRA account go to www.myRA.gov.

BTW – I debunked a dozen urban tax myths at MAINSTREET.COM back in 2010.  Click here to read my article.

* News from Washington DC – “IRS Provides Tax Relief to Mississippi Storm Victims; Tax Deadline Extended to May 16”.

 

* Russ Fox reminds small business owners that it is now “1099 Time for 2016”.

THE FINAL WORD - 

Henry and Richard have started running their 2016 television ads.  They are particularly stupid this year, as they have been the past few years.  And they still “star” the bow-tied fool.

I can’t recall any H&R Block ad ever actually saying that they are qualified and competent tax preparers who will help you to make sure you pay the absolute least amount of federal and state tax legally possible.  It is always come in and get a check – whether via their thankfully done away with usurious refund anticipation loans or now by winning a $1,000 prize.

Do yourself a favor – avoid Henry and Richard like the proverbial plague and go to a competent independent tax professional instead.  You can start your search for a tax preparer at FIND A TAX PROFESSIONAL.

 

TTFN

  

 

 

 

 

FINDING A TAX PROFESSIONAL

About 60% of taxpayers turn to professional tax preparers for help in filing their federal and state income tax returns each year.

While some attempt to use a “box” to prepare their tax returns, it is important to understand that no software package, or online filing service, is a substitute for knowledge of the Tax Code.  And no tax software package, or online filing service, is a substitute for a competent, experienced tax professional.

Don’t listen to the ads that appear at tax time and tell you that using a particular tax preparation software package is “easy”. Let’s face it – taxes ain’t easy. If they were there would not be close to a million professional preparers out there. To say that using a specific tax software package makes a complicated subject easy is nonsense!

As with any software program the rule is "garbage in - garbage out". If you don't know how to enter the information, or what information to enter, you will not get the best, or even a correct, answer.

IRS statistics indicate that taxpayers using do-it-yourself tax software spend an average of between 6 and 10+ hours longer preparing their tax returns (depending on the number of worksheets and schedules) than taxpayers who do manual calculations. Further, the IRS estimates that do-it-yourself software users spend an average of 10 to over 20 hours longer on the return than if they used a paid tax preparer, again depending on the returns’ complexity.

When the IRS comes after you for errors on your tax return you can’t blame it on the software (unless you are a government official). The US Tax Court has on several occasions rejected the "Turbo-Tax Defense" when a taxpayer attempted to blame tax preparation software for a negligent tax return.

You don’t save any time or get any added guarantees of accuracy.  Paying a competent tax professional to do your return is ultimately much cheaper than taking a chance with a tax software package or an online service!

If you need to find a qualified and competent tax professional to prepare your 2015 tax returns you can begin your search at my website FIND A TAX PROFESSIONAL.

The site includes many articles with advice and information on choosing a tax pro, including –

ALPHABET SOUP - What do all the initials mean?

DON'T ASSUME - A CPA is not automatically a 1040 tax expert, and Henry and Richard Ain't Cheap!

CHOOSING A TAX PROFESSIONAL - What to avoid.

WHAT TO ASK A PREPARER - Questions to ask a potential tax preparer.

THE COST OF TAX PREPARATION - How much will a tax preparer charge?

It also includes links to some databases of tax professionals.

Once you have found a tax pro there is information on –

WHAT TO GIVE YOUR TAX PROFESSIONAL - Make sure you provide your tax pro with everything he/she needs to properly prepare your return.

YOU ARE RESPONSIBLE! - Regardless of who prepares your return you are responsible for everything on it.

WHEN TO CONTACT YOUR TAX PRO - Call your tax pro if any of these events happen.

The site also contains details on online and print tax planning and preparation resources.

So go to FIND A TAX PROFESSIONAL now – and good luck with your search.

TTFN

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

Another “meaty” BUZZ!

* This bears frequent repeating – DON’T LISTEN TO THE RIDICULOUS TURBO TAX TV ADS!

* Sarah Brenner lists “Six 2016 Retirement Account Rule Changes You Need to Know” at THE SLOTT REPORT.

* Another list with some really good and important stuff (bloggers love lists) – “10 Things You Absolutely Need To Know About Taxes” from Kelly Phillips Erb at FORBES.COM.

It appears that many of the FORBES.COM bloggers are posting “10 Things You Absolutely Need To Know” lists, part of a combined “100 Things You Absolutely Need To Know About Money Before You're 35”.

* And the list of lists continues – the Landmark Tax Group TAX TIPS provides “7 Steps to Avoid a Tax Audit”.  Good stuff here, too.

 

* Enough with lists.  Are there any tax pros out there who have not seen the premiere issue of my new quarterly e-magazine for tax preparers THE TAX PROFESSIONAL yet? 

* Oi Vey!  WGN reports “No Illinois Tax Refunds Until After March 1”!

“The Illinois Department of Revenue says taxpayers will have to wait until after March 1 to receive income tax refunds.

The (Springfield) State Journal-Register reports the department says the delay is because of efforts to stop fraud. The department says it’s not because of the state budget impasse.”

* Bill Perez goes into detail on the dreaded “Alternative Minimum Tax” at ABOUT.COM.

The existence of the dreaded AMT is a prime example of the laziness of the idiots in Congress – going as far back as the late 1960s.

The dreaded AMT, which should more appropriately be called the Mandatory Maximum Tax, was originally enacted in 1969 in response to testimony by the Secretary of the Treasury that 155 individuals with Adjusted Gross Income of more than $200,000 (over $1 Million in today’s dollars) paid “0” tax on their 1967 tax returns. Congress received more letters that year on the Secretary’s testimony than they did on the Vietnam War!

Of course Congress being idiots, rather than responding by acting logically and eliminating the loopholes in the tax code that allowed the high income individuals to avoid paying tax the fools reacted and created a complicated alternative tax system.

When, or if, the Tax Code is seriously reformed the dreaded AMT must be destroyed.

* And Bill also tackles “Adjusting Tax Withholding from Your Paycheck: How to Accurately Calculate Your Withholding for Federal Income Taxes”.

He correctly describes a federal withholding allowance in the simplest terms -

“A withholding allowance represents your total tax deductions divided by the personal exemption amount.”

* Bill’s fellow ABOUT.COM tax blogger, Jean Murray, reminds us that it is “January is W-2 and 1099-MISC Prep Time” in her newsletter.  I am about 75% finished with typing W-2s and 1099s.

* ICYI – the latest TAX FOUNDATION map shows “Which States Rely the Most on Federal Aid?” for Fiscal Year 2013.

“Mississippi, for instance, relied on federal assistance for 42.9 percent of its revenue in FY 2013, the largest share in the country. Also on the high end are Louisiana (41.9 percent), Tennessee (39.5 percent), South Dakota (39.0 percent), and Missouri (38.2 percent).”  

 

New Jersey is #41 on the list.  NY is #34 and PA is #29.  North Dakota is #50, relying on federal assistance the least of the 50 states – only 19% of its total revenue for FY 2013 came from Washington.

* Renu Zaretsky takes a look at “The Case of Tax Scams, Private Debt Collectors, and Wishful Thinking” at the Tax Policy Center’s TAX VOX blog.

The members of Congress have once again proven themselves idiots with this move.  As Renu explains –

“ . . .this is the third time in the past two decades that Congress has ordered the IRS to use private collection agencies, or PCAs. And the past results have been less than stellar.”  

The bottom line of this post correctly identifies the solution to many of the current problems with our tax system –

“There is one way Congress could make tax compliance and collection easier and tax avoidance harder, while improving the public’s perception of the IRS. It could simplify the tax code. Unfortunately, that’s a call Congress has not chosen to make.”

* Prof Jim Maule talks about one of the basic problems with the current mucking fess that is our Tax Code in “Same Term, Different Definitions?” at MAULED AGAIN.  The post concerns the differing definitions of “qualified education expenses” for the various education tax benefits.

Jim also points out that “in addition to the differences, small and technical as they are, in the definitions of qualified tuition and related expenses, there also is a difference in what qualifies as an educational institution.”

His bottom line gets to the heart of the matter -

“Would it not make sense to have one definition and simplify the rules? The answer is easy. Of course it would. But it’s not the sort of thing we’ve come to expect from Congress.”

The members of Congress certainly are idiots.

THE FINAL WORD-

I miss Dick Clark!

I haven’t gone out on New Year’s Eve for at least 35 years (there is a story there – perhaps another time).  I did a couple of years at Times Square in NYC back in the mid-1970s, so I can say “been there, done that”. 

I spend the evening watching television, mostly flipping back and forth between the celebrations on 4, 5, 7, CNN, and, surprisingly, FOX NEWS.  This year these programs were especially disappointing. 

For one thing I had never heard of most of the performers, much more than in prior years.  And FOX NEWS, whose only saving grace in the past had been its choice of performers, did not seem to have any during my “visits”.  They actually had buffoon Donald Trump on close to midnight – and I promptly changed the channel once I saw him on screen.  

The attempts at humor by the roundtable of unknown (at least to me) comics, while discussing the highlights of 2015 with Carson Daly on NBC after the 11PM news, failed miserably.  They were not funny at all.  And Kathy Griffin’s rants and ramblings on CNN get tired quickly.

I did enjoy a few black and white episodes of Jack Benny and Burns and Allen on Antennae TV.  Unfortunately I forgot about the rerun of last year’s “Michael Feinstein New Year's Eve at the Rainbow Room” on PBS, which I wish would become an annual event.

I was asleep by 12:30!

BTW - I always used to know where one of my 1040 clients was on New Year’s Eve. 

He is now retired, but for many years he was the person who operated the machine that dropped the ball on top of One Times Square at midnight.

TTFN

 

 

2015 TAX FORMS

Most of the 2015 federal forms and schedules are now available to download at the IRS website – including Form 1040 and 1040A and the instruction booklet.

There appears to be no changes to the 1040, 1040A or the Schedules. Except for the obvious changes for identifying the year and the COLA adjustments for the Standard Deduction and personal exemption amounts, the 2015 versions are exactly the same as the 2014 versions.

The 2015 NJ, NY, and PA forms are not yet available, although the NY 2015 instructions for IT-201 and IT-203 are.

NY once again requires the IT-2 and IT-1099-R forms instead of attaching W-2 and 1099-R copies, which will waste additional valuable time during the tax season for me.

I do not anticipate any changes to the NJ-1040.

MY ANNUAL POST FOR JOURNALISTS AND BLOGGERS

This post is for all of the journalists and bloggers out there.

When writing about taxes this filing season DO NOT advise your clients to ask, consult, contact, or talk to your CPA or a CPA!

The correct advice is – ask, consult, contact, or talk to your or a tax professional.

The mere existence of the initials “CPA” after a person’s name does not in any way, shape, or form indicate that he or she knows his or her arse from a hole in the ground when it comes to preparing 1040s.

A particular CPA may indeed be competent and experienced in preparing 1040s, and many are, but it is only because of the education, training, experience, and other factors that are unique to that specific individual, and has nothing whatsoever to do with the initials “CPA”. 

 

And that specific individual is just one of your many choices among tax professionals.

Got it?

TTFN

THE PATH ACT OF 2015 AND TAX PLANNING FOR 2016

Now that the “tax extenders” have been extended, many of them permanently, via the PATH ACT OF 2015, here are some of these benefits that you should keep in mind from a tax planning point of view during tax year 2016.

STATE AND LOCAL SALES TAX (PERMANENT) -

You can elect to deduct state and local sales tax paid instead of deducting state and local income tax paid. If you deduct state and local income tax on Schedule A you cannot also deduct state and local sales tax, and vice versa. 

For this purpose state and local income tax includes the deductible unemployment (SUI), disability (SDI), and/or family leave (FLI) contributions withheld in certain states.  If you elect to deduct sales tax you cannot also deduct state unemployment, disability, and/or family leave taxes.

You have two options for claiming a sales tax deduction – the actual amount paid for the year, per receipts, or the amount taken from the IRS-generated Optional State Sales Tax Tables, with an additional amount allowed if you also pay local sales tax, plus the tax paid on the purchase of “big-ticket” items such as a car, motorcycle, truck, van, recreational vehicle, sport utility vehicle, off-road vehicle, boat, airplane, motor home, home, and home building materials, and any sales tax paid on the lease of a motor vehicle.

The amount you can deduct if you use the IRS tables is based on your “total available income”, your state of residence, and the number of exemptions you claim. Your “total available income” includes your Adjusted Gross Income plus any nontaxable receipts, such as –

·      tax-exempt interest,

·      Veteran’s benefits,

·      nontaxable combat pay,

·      Workers’ Compensation benefits,

·      the non-taxable portion of Social Security and Railroad benefits,

·      the non-taxable portion of IRA, pension or annuity distributions (not amounts that are “rolled-over”), and

·      public assistance payments.

If a couple files separately, and both spouses elect to deduct state and local sales tax, and one spouse elects to use the sales tax tables instead of actual sales tax paid, the other spouse must also use the tables to determine the state and local sales tax deduction on his/her separate Schedule A.

You should keep track of all of the sales tax you pay during the year by saving, in a small box or a manila envelope, all purchase receipts that indicate an amount of sales tax paid.  In January of next year add up all of the sales tax amounts on these receipts and see if the total exceeds both the amount of state income tax, if any, that you can deduct and the sales tax deduction allowed from the IRS-generated Optional State Sales Tax Tables.

You may want to do a preliminary comparison as part of your year-end tax planning in November.  If you have enough in sales tax to provide a better tax benefit, or are “close to the edge”, and you were planning to purchase a new car or other big item(s) early in the New Year, considering making the purchase at the end of December to get the increased tax deduction for 2016.

When doing your comparisons keep in mind if you deduct the total amount of state income tax withheld on Schedule A for 2016 you may have to claim any refund received as taxable income on your 2017 tax return.

QUALIFIED CHARITABLE DISTRIBUTION (PERMANENT) -

A Qualified Charitable Distribution (QCD) allows IRA owners age 70½ and older to directly transfer up to $100,000 from an IRA account to a qualified charity, tax-free, as part (or all) of their Required Minimum Distribution (RMD) for the year.

Any portion of an RMD that represents a QCD is not included in gross taxable income reported on Line 15(b) “Taxable amount” of “IRA distributions”) on Page 1 of Form 1040.  If your total Required Minimum Distribution from your IRA investments for the year is $50,000, and you have made a QCD of $40,000, you only report $10,000 as a taxable distribution.  If the entire $50,000 was used as a QCD you have “0” taxable income to report.

By reducing the amount of the RMD that must be included in gross income you also reduce your Adjusted Gross Income (AGI), and, by doing so, you can also potentially reduce the taxable portion of Social Security or Railroad Retirement benefits and increase the multitude of deductions and credits that are reduced or phased out as AGI rises. 

You are not allowed to claim a charitable deduction for the amount of the QCD on Schedule A – the “deduction” has already been claimed by reducing the taxable portion of your RMD. 

RESIDENTIAL ENERGY TAX CREDIT (FOR 2016 ONLY) -

The credit allowed is 10% of the cost of qualifying energy-efficient purchases and improvements, up to a lifetime maximum of $500.  Some items are limited to a credit from $50 to $300.  The qualifying purchase or improvement must be for an existing home that is your principal residence.

If you claimed at least $500 in energy tax credits on your 2006 through 2015 returns, you are not eligible for a credit for 2016. If you claimed $300 in energy credits over the years, the most you can claim in 2016 is $200.

The credit is available for –

• Biomass Stoves

• Heating, Ventilating, Air Conditioning (Advanced Main Air Circulating Fan, Air Source Heat Pumps, Central Air Conditioning, Gas, Propane, or Oil Hot Water Boiler, and Natural Gas, Propane or Oil Furnace)

• Insulation

• Roofs (Metal and Asphalt)

• Water Heaters (Gas, Propane or Oil Water Heater, and Electric Heat Pump Water Heater)

 

• Windows and Doors

The individual limitations on the credit for specific items are -

·   $50 for an advanced main air circulating fan,

·   $150 for a qualified natural gas, propane, or oil furnace or hot water boiler, 

·   $300 for an item of energy efficient building property, and

·   $200 lifetime limit for windows.

Not every new window, door, boiler, heater, or furnace will qualify. There are very specific "energy efficiency" requirements for each of the qualifying items. You can go to the Energy Star website to find out what the specific qualifications are for individual items.  

When giving your tax pro your “stuff” next February or March do not just include a copy of the bill for one of the listed items, or a note that you spent $800 for a new hot water heater, and expect him/her to waste his/her valuable time attempting to determine if the purchase qualifies for the credit. Do the homework and determine if your purchase qualifies before contacting your tax pro.  When you purchase any of the listed items ask the person selling it for a “Manufacturer’s Certification Statement” - a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit.

My standard final word of advice – before acting on anything you have read here contact your tax professional.

TTFN