Tuesday, December 30, 2008


As we approach the end of 2008 it is once again time to look back on the year in taxes.
Congress continued its annual practice of waiting until literally the last minute in 2007 to pass one of the “extender” bills – this time it was the annual one-year dreaded Alternative Minimum Tax (AMT) “patch”. As a result the revised AMT information did not make it on the final 2007 tax returns or in the 2007 tax form instructions.

My January 2008 mailing to clients included a special memo to warn them about the delays in processing 2007 federal tax returns -

The irresponsibility of Congress will cause a serious delay in processing 2007 federal tax returns and, as a result, will cause the mailing of your federal refund checks to be delayed.
It will take the IRS from 7 to 10 weeks to adapt its computer systems for the AMT fix. This is because there are at least 15 forms, 6 publications, and 9 credits that are affected by the AMT. The IRS will be unable to begin processing 2007 income tax returns until at least the middle of February.
So if you do not receive your 2007 federal refund check within the normal 4 to 6 weeks do not call or email me and ask ‘Where’s my check?’

To be honest I did not encounter any problems with processing or refund delays during the tax season. In looking back I also do not recall any special “trends” this season.

Last year’s tax gimmick was the Telephone Excise Tax Refund, which was claimed as a refundable credit on the 2006 federal income tax return. Individuals entitled to the refund who would not normally file a tax return could file a special 1040EZ-T to claim the refund. This year it was the Economic “Stimulus” Rebate. The 2001 rebate checks were such a “success” (I josh, of course) that Congress had to try them again.

Non-taxpayers as well as taxpayers were able to claim a rebate check – as long as they received Social Security, Railroad Retirement or Veterans benefits in 2007. Individuals entitled to the rebate who would not normally file a tax return had to file a 2007 Form 1040A to get their rebate check. I filed about twenty (20) 2007 Form 1040A returns for taxpayers who did not otherwise have to file.

Government Accountability Office (GAO) issued a report on June 19th that reported (the emphasis is mine) - “The costs for implementing the economic stimulus legislation may be up to $862 million. IRS received a supplemental appropriation of $202 million for implementing the economic stimulus legislation. The Social Security Administration received a supplemental of $31 million and the Financial Management Service received a supplemental of $64 million. The reallocation of hundreds of IRS collections staff to answering taxpayer telephone calls will also result in up to $565 million in foregone enforcement revenue, according to IRS estimates.”

As Key Bell of “
Don’t Mess With Taxes” put it in a post on this subject, “administering the stimulus payments is likely to cost the agency, and the U.S. Treasury, much more than all our spending of the checks will recoup.”

At the September 2008 annual meeting of the New Jersey chapter of NATP the head of the NJ office of the IRS Taxpayer Advocate Service told us that the economic “stimulus” rebate check program had “overwhelmed every aspect of the IRS”. He reported that 30,000 cases had already been submitted to the Taxpayer Advocate Service regarding the economic “stimulus” payment (“ESP” as it was referred to by the IRS), and pointed out that because of the rebate checks everything that would normally have taken 60 days would now take 120 days.

As proof of this - just about every inquiry I sent to the IRS in 2008 regarding a client return or issue received as the first response, on average 2 months later, a form letter stating that the IRS needed more time to research the issue and that they would get back to me in 45 days. When the 45 days had passed a second letter arrived saying exactly the same thing!

As I wrote in my guest post “That Was The Economic Stimulus That Was” at the taxguy blog, “I can guarantee that after all is said and done when I write about the affect of the 2008 economic ‘stimulus’ checks I will be once again saying, ‘These checks cost the IRS a fortune, created tons of confusion, and resulted in millions of errors on 2008 tax returns! And it is doubtful that they did anything to stimulate the economy.’”

According to the Tax Foundation, April 23rd was “Tax Freedom Day” 2008. On average Americans had to work 113 days (Leap Day February 29th - not counted) to earn enough money to pay for all federal, state and local taxes. It was three (3) days earlier than the past two years, when Tax Freedom day was April 26th, but the same as 2005. The earlier date was due to a slowdown in the economy and the “stimulus” package passed in early 2008 that included the rebate checks.

2008 was a presidential election year – and both parties presented distinctive tax platforms (see my post “Dueling Tax Planks”). From my point of view as a professional tax preparer the Republicans had the more better proposals.
Obama called for several new refundable tax credits, which would only result in more tax fraud, increased taxes on capital gains, and one very, very, very bad idea - to direct the IRS to send pre-filled tax forms to 40 million workers who take the standard deduction and have a bank account with the income and tax liability already calculated; recipients would simply have to sign and return it with any pre-calculated tax due.

Although Obama won the election it is difficult to predict what tax law changes will be made in 2009 because of the current economic situation.

The economy started out shaky in 2008 to say the least - hence the assumed need for “stimulus” in the form of rebate checks. By the fall it had become a real mucking fess, with banks and brokerages failing left and right and bankruptcy threatening the big three automakers. There were calls for a second “stimulus” package, which Obama is expected to take up as one of his priorities upon taking office next year.

Congress was busy, passing five (5) tax Acts in 2008 –

· Economic Stimulus Act of 2008 (H.R. 5140)
· Food, Conservation, and Energy Act of 2008 (AKA The Farm Bill)
· Heroes Earnings Assistance and Relief Tax Act of 2008 (H.R. 6081)
· Housing Assistance Tax Act of 2008 (H.R. 3221)
· Emergency Economic Stabilization Act of 2008 (H.R. 1424)

The “Emergency Economic Stabilization Act of 2008”, aka the “Don’t Call It A Bailout Bill”, contained everything but the kitchen sink – with many weird items thrown in to win the votes of specific Congress persons. Luckily for taxpayers, tax preparers, and the IRS the Act included the extension of popular expiring tax breaks and the annual one-year Alternative Minimum Tax (AMT) “patch”, and was passed before the IRS had to “go to press” with the 2008 tax forms and instructions.

Another tax season undercover operation, this time conducted by the office of the Treasury Inspector General for Tax Administration, found gross errors on tax returns done by “professional” preparers. Auditors posed as taxpayers in a large metropolitan area and paid to have 28 tax returns prepared at 12 commercial chains and 16 small, independently owned tax return preparation offices. Preparers made substantial errors when completing tax returns and correctly prepared (i.e., the tax returns showed the correct amount of taxes owed or refunds due) only 11 (39 percent) of the 28 tax returns.

Despite the results of the operation there was no further action taken on the issue of registration and regulation (licensure) of all tax return preparers (including “unenrolled preparers” like me). In its latest update on the issue NATP reported that considering the mucking fess that our economy is in “Congress has a lot on its mind” – no cracks about “what mind” – and it appears this does not include the licensing of tax preparers. NATP said, “In view of these problems we feel that registration or licensure efforts are at a standstill from a federal standpoint”.

It is different on the state level. According to NATP, “States are alive and well when it comes to regulating paid preparers”. They reported that, “Regulation of tax professionals was on the agenda in nine states. Maryland actually passed a bill requiring the licensure of all who prepare individual tax returns. Similar or related legislation was entertained in Colorado, Georgia, Hawaii, Minnesota, New Jersey, New York, Oklahoma and South Carolina. We expect there will be more activity at the state level in 2009 than there will be at the federal level.”

Nothing to report of any consequence on the New Jersey tax front. NJ residents continue to vote in the same crooks each year, and they continue to line their pockets at our expense. All the annual reports once again showed that the Garden State is among, if not the, most highly taxed and expensive of the 50 states, and not at all “welcoming” to small business. The only exception is our state gas tax – while the price of a gallon did top $4.00 here in 2008, NJ gas prices were consistently way below the national average. Just be sure to stay away from that Exxon station in Summit.

As for my practice, I ended the season with about the same number of GD extensions as last year. For the first time in 35+ years I did not head off for my annual post-season recuperative trip right away – I worked through the end of April on GD extensions. However it seems that manana disease got the best of me this year. As of this writing there are still a few GD extensions to be completed! I vow that this will not be the case in 2009!

Such was the tax year in review. Did I forget anything important?

I will comment on what we have to look forward to “taxwise” in 2009 in early January.


Monday, December 29, 2008


There is really nothing much new on the actual 2008 Form NJ-1040. There has been no change in the New Jersey Gross Income Tax rates for tax year 2008. And the form is pretty much exactly the same as 2007 – except for two minor changes.

(1) Beginning with tax year 2008, residents must indicate on their New Jersey gross income tax return whether or not each dependent listed on the return has health insurance coverage on the date the return is filed. This is done by checking a box after the normal dependent information reported on Line 13 of Page 1.
(2) There is a minor change in the number of lines on Page 2 (on the form I downloaded from the NJDOT website). The Credit for Income Taxes Paid to Other Jurisdictions is now entered on Page 3.

As far as the actual tax law, the NJDOT website reports the following “Important Changes for 2008”-

Earned Income Tax Credit
For tax year 2008, the amount of the New Jersey earned income tax credit (NJEITC) will be equal to 22.5% of the applicant’s Federal earned income tax credit – up from 20% for 2007.
Federal Economic Stimulus Payments
For New Jersey Gross Income Tax purposes the treatment of the Federal economic stimulus payments to individuals is the same as the federal treatment - these payments are not considered taxable income and should not be reported on the 2008 NJ-1040.
Designated Contribution
The New Jersey Veterans Haven Support Program Fund has been added to the list of organizations to which taxpayers can contribute on the New Jersey tax return. To donate to the new fund, taxpayers must specify code number “08” at the “Other Designated Contribution” line.
Credit for Taxes Paid to Other Jurisdictions
The Philadelphia nonresident wage tax rate for 2008 is .037242 from January 1 to June 30, 2008, and .035392 from July 1 to December 31, 2008.
The method used to apply for the NJ Homestead Rebate has not changed. Tenants who meet the eligibility requirements use Form TR-1040 - Page 4 of the 2008 NJ-1040 - to apply for the rebate. The separate application package for homeowners should be mailed at the end of April, and homeowners will once again apply either online or by phone. I still say it would be much “more better” for all concerned if the homeowner application was also included in the filing of the NJ-1040!
Applications for the Property Tax Reimbursement Program (Forms PTR-1 and PTR-2) are expected to be mailed out in mid to late February. This program (aka Senior Freeze) reimburses eligible senior citizens and disabled homeowners for property tax increases. The deadline for filing the application is stated as June 1, 2009, but this date has always been been pushed back to October 31st in the past.

Legislation approved in December 2008 increased the income eligibility limits for the PTR Program for tax year 2007 and after. Homeowners applying for reimbursements for tax year 2008 must have total annual income of $70,000 or less. The income limitation for 2007 was increased to $60,000. These limits apply regardless of marital/civil union status – there is no longer different limitations for married and single. If an applicant’s status is married/CU couple, combined income of both spouses/CU partners must be reported – an additional “marriage penalty”.

Qualified NJ homeowners who did not file a 2007 PTR application because their income exceeded the limitations in place at the time have until March 31, 2009 to file a 2007 application. The NJDOT will be mailing applications to residents who may be eligible under the new income limits in early January. For more information click here.

There is also nothing much new on the 2008 New York State IT-201 (Resident) or IT-203 (Non-Resident and Part-Year Resident). The forms appeared to be exactly the same as 2007 in my brief review.

Here is what is new for New York for 2008 –

(1) The New York City School Tax Credit has been eliminated for residents with AGI (less any IRA distributions) in excess of $250,000.

(2) The Clean Heating Fuel Credit for bioheat has been reinstated.

(3) The federal deduction for Domestic Production Activities under Internal Revenue Code Section 199 must be added back to federal AGI in calculating New York AGI.

(4) A new subtraction is available for military pay included in federal AGI received for active service as a member of the Armed Services of the US in an area designated as a Combat Zone.

Saturday, December 27, 2008


* We begin the BUZZ, instead of ending it, this week with comic strips from TAX GURU Kerry Kerstetter. Let’s be honest – “No Ponzi Scheme Is Bigger Than Social Security”. It takes the money from new investors to pay benefits to older investors.

* Kerry’s blog has introduced me to a website that provides e-cards for Tax Day (and other obscure holidays). Click here.

My favorite Tax Day e-card message is “
Sorry your self-respect has disintegrated to the point of using H&R Block”! Click here to discover Kerry’s favorite – another good one.

* FYI - President Bush signed the Worker Retiree and Employee Recovery Act of 2008 (HR 7327) into law on December 23.

* Here is one way to deal with an IRS audit – although not the recommended way. A WebCPA article reports, “Man Convicted of Plotting to Kill IRS Agent”.

* FYI the Tax Foundation provides some “Holiday Tax Trivia”. Did you know “Retired schoolteachers in Puerto Rico receive an income-tax-exempt $400 Christmas bonus from the state general fund”?

* A generous gift from Kristine McKinley of EBIZ TAX TIPS - “The Tax Q&A Teleclass Recording is Ready!”. You can download her “teleclass” free!

* An Associated Press study discussed in a Yahoo!News item titled “AP Study Finds $1.6B Went to Bailed-Out Bank Execs” reports -

Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.
The rewards came even at banks where poor results last year foretold the economic crisis that sent them to Washington for a government rescue. Some trimmed their executive compensation due to lagging bank performance, but still forked over multimillion-dollar executive pay packages.
Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.
The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines

* Joe Kristan reminds us that "The Tax Law: It's Not Rocket Science. That Would Be Too Easy” in a post at the ROTH AND COMPANY TAX UPDATE BLOG that discusses a recent Tax Court case that concern a real-life rocket scientist who invested in a tax shelter scam. As Joe points out – “The moral? No matter how smart you are, a flaky tax shelter is a flaky tax shelter.”

* Joe also reminds us that tax planning should considered in all aspects of your life with his post “Extreme Year-End Tax Planning: Tie (or Untie) the Knot”. You should consult your tax professional not just when considering a financial move, but when considering any ‘life event” like marriage or having children (a child born on December 31 provides all the same tax benefits as one born on January 1).

* TAX PROF Paul Caron reports that “IRS Enforcement Fell in 2008”.

*The Winter 2009 issue of the Tax Foundation’s quarterly newsletter TAX WATCH is available to download. Click here. One of the articles warns that a “Small Business Tax Hike May Be on the Way”.

* So the IRS is not really being generous for the holidays. Michael Rozbruch of the TAX RESOLUTION UNIVERSITY blog tells us that the “
IRS Plan To Help Taxpayers Refinance Their Homes Offers Little Relief For Distressed Homeowners”.

* Roni Deutch provides us with another blog list – “Ways to Prevent an Audit“ - at her TAX HELP BLOG. She gives 8 excellent ways to avoid trouble with "Uncle Sam”.

* And finally, before bidding farewell to Christmas 2008 be sure to check out Peter Pappas’ take on the famous holiday poem at THE TAX LAWYER’S BLOG – “‘Twas the Night Before an Obama Christmas”.

Friday, December 26, 2008


I almost forgot – my guest post on TAX PLANNING 101 appears today (December 26) at LIVING ALMOST LARGE. Be sure to check it out.

Thanks LOL for having me!


Wednesday, December 24, 2008


It is Christmas Eve, and as is my annual holiday custom I will be typing W-2s!

Since it is Wednesday here is a quickie ASK THE TAX PRO -
Q. I've been following your blog for some time now, but never had a question to ask that I couldn't find an answer to online. Right now I have a really puzzling one that I can't seem to find an answer for anywhere on the internet.

I understand that a person's ability to contribute to a Roth IRA may be partially or fully restricted due to income limits. I recently read about a Fidelity Retirement Rewards American Express Card that contributes 2% “cash-back” into a Fidelity IRA account for you. Their fine print says that it is up to the cardholder to ensure that they comply with all legal regulations.

Because the contribution is coming from American Express or Fidelity, rather than directly from me, does that mean that those contributions would be allowable in full regardless of income?

A. The IRA contributions are NOT coming from American Express or from Fidelity - they are coming from you!

American Express will pay you a "cash-back" bonus. Instead of sending you a check for the bonus they will directly deposit the bonus into an IRA account in your name at Fidelity.

You still must personally satisfy the AGI income limitations in order to be able to contribute to a ROTH account. If you cannot have a ROTH because of your AGI the "cash-back" bonus would have to be deposited to a "traditional" IRA, and the normal rules would apply to determine if the contributions would be deductible.


Monday, December 22, 2008


It’s here - “Tax Carnival #44: Stocking Stuffers 2008” is now appearing at DON’T MESS WITH TAXES!

It includes my post “Now Here’s A Thought”.

Check it out.


Let’s review what is new for the 2008 Form 1040.

For a change this year Congress extended both the dreaded AMT “patch” and the deductions for educator expenses, tuition and fees, and state and local sales tax before the IRS had to “go to press” with the final 2008 forms and instructions, so all the appropriate lines for these deductions appear on the 1040, 1040A and Schedule A.

While Congress did reinstate the expired residential energy credit, it did so for tax year 2009 only. The cost of energy-efficient improvements to and purchases for a primary residence will not qualify for a tax credit on the 2008 Form 1040 or 1040A.

There is no change to Page 1 of the Form 1040. The changes to the form appear on Page 2.

Line 39c has been added to indicate if the taxpayer is claiming an additional standard deduction for either real estate taxes paid (up to $500, or $1,000 on a joint return) or a net disaster loss. A net disaster loss is the personal casualty losses from a federally declared disaster which is carried over from Form 4684 Line 18a.

There is no separate line item for Residential Energy Credits on the 2008 Form 1040, as there was on the 2007 version. Any credit from 2008 Form 5695 is included, along with credits from Form 8396 and 8839, on Line 53.
The "order of appearance" of the various credits are a bit different on the 2008 Form 1040.
The 2007 Form 1040 had separate line items under “Other Taxes” for Advance Earned Income Credit payments from W-2 Box 9 and Household Employment Taxes from Schedule H. These two items are combined on one line, Line 60, on the 2008 Form 1040.

New lines are added under “Payments” for the new First-Time Homebuyer Credit (see my posts “The Housing Bill and the 1040” and “Updates”) – Line 69 – and the Recovery Rebate Credit – Line 70.

To calculate your refundable Recovery Rebate Credit you would first determine the total amount of the rebate to which you are entitled using the information - income, Child Tax Credit, tax liability, dependents, etc - reported on the 2008 return. From this you would subtract the actual rebate you received that was based on your 2007 information.
If the 2008 amount is more than what you actually received you report the difference as an additional payment on Line 70. If the 2008 amount is less than what you received you do nothing. You do not have to repay any overpayment you received. A special worksheet for calculating the amount of the credit is included in the instruction booklet.

The separate line for the Prior Year AMT Credit, Line 71 on the 2007 Form 1040, does not appear on the new 1040. This credit, from Form 8801, is included on Line 68 along with credits from Forms 2439, 4136 and 8885.

All in all there is one less line item on the 2008 Form 1040 – 76 instead of 77.

Similar revisions have been made to Page 2 of the 2008 Form 1040A.

Tax law changes of note for 2008 include -

* An increased IRA maximum contribution.

* A reduction in the “read my lips” phase-out of personal exemptions and itemized deductions to ½ of that which applied for 2007. The reduction of itemized deductions is now only 1% of AGI in excess of $159,950 (or $79,975 if Married Filing Separate Return) – it had begun as 3% of the excess.
* The special 5% tax rate for qualified dividends, capital gain distributions, and long-term capital gains for taxpayers who fall within the 10% and 15% tax brackets is now 0%.
* Special tax relief for victims of Midwestern and Kansas disaster areas.

* The “Kiddie Tax” rules now apply to dependent children under age 19, or under age 24 if a full-time student.

For more detailed information on the various numbers (deductions, credits, phase-outs, etc) that will apply to 2008 federal income tax returns you can go to the “What’s New for 2008” Page of www.robertdflach.net.

If you need additional information the IRS has published an updated version of its comprehensive tax guide for individuals for use in preparing 2008 tax returns.

The updated on-line version of IRS
Publication 17, Your Federal Income Tax, contains more than 900 interactive links.

As in prior years, Pub 17 includes information on how to file an individual tax return, what to include as income, how to calculate capital gains and losses, how IRAs and other expenses can affect how much income to report, whether to take the standard deduction or itemize, what you can deduct, and how to figure taxes and credits.

As soon as the 2008 NJ-1040 is made available I will let you know what, if anything, is new for that form.


Saturday, December 20, 2008


And so my series of guest posts on Retirement Plans for the Self-Employed at CASH MONEY LIFE has ended. Thanks to Patrick for having me. I hope you have been following the series and found it helpful.

Here is a good companion post to my series, actually written prior to my guest posts, from Patrick himself – “Year-End Retirement Plan Moves”.

Speaking of guest posts, I have one titled “Tax Planning 101” scheduled to appear at LIVING ALMOST LARGE on December 26th. I will remind you when it is up. Be sure to check it out.

Before I go let me thank all the other tax and personal finance bloggers who featured my guest posts on their blogs in 2008, as well as those who provided guest posts for THE WANDERING TAX PRO.

I am always available (well not always – not during the tax season) to provide a guest post or series of posts on a tax topic for your blog, and fellow bloggers are always welcome to submit guest posts on tax topics to me to be considered for TWTP.


* Dan Meyer has named the “final four” of the 2008 12 Blogs of Christmas – the tax blogs. Special congratulations to taxgirl and taxguy!
* Speaking of the taxguy, Bruce starts the week off with a rerun of his post “Avoid a Tax Audit With These Tips”.

I especially want to point out #5-Document Everything:

One of the best ways to prevent mistakes is by having all necessary paperwork handy when you file. This is also your best defense against penalties should the IRS ever come knocking on your door. You see, a lot of deductions really can be a red flag to the IRS. If you can back up each one, however, you are perfectly within your right to claim those tax breaks. Back up everything and keep those documents in a safe, organized place.”

* Bruce ends the week (Friday) with a good general overview of what is, and is not, deductible on Schedule A in “
Let’s See What You Can Itemize One More Time”.

* As if we needed any more proof that New Jersey is one of the, if not the, highest taxed states in the country, the Tax Foundation has issued a press release that tells us “New Census Data: From 2005 to 2007, New York, New Jersey Counties Rank Highest in Property Tax on Homeowners; Louisiana Parishes Rank Lowest”.

* Kelly the taxgirl gives a good lesson on “Babysitter Bonus” in an Ask the taxgirl post.

BTW, I hope you have been following Kelly’s “12 Gifts of Christmas” series, which I started off last Monday.

* Michael Rozbruch of the TAX RESOLUTION UNIVERSITY blog provides what he considers to be “
The Most Important Tax Tip of the Year - File An Accurate Tax Return to Reduce Your Chances of an IRS Audit”.
I agree that it is indeed one of the most important tax tips that one can offer. I will be giving my take on the most important in early January.

*Comcast.net Finance provides “A Primer on Homeowner Tax Breaks” by Bill Bischoff of Smartmoney.com that is really very good. It details “the tax-law catches your realtor probably never told you about” and provides “a more realistic expectation of how homeownership will affect your future tax bills”.

I often must deal with a young couple who has just purchased their first home and who are in total shock that doing so did not result in a humongous tax refund.

* Has BO discovered a secret money tree on the grounds of the White House? USAToday reports in “Obama Looking at $850 Billion Jolt to the Economy” that President-Elect Obama is working on a two-year stimulus package that could cost $850 billion - more than the $600 billion initially envisioned. In addition to additional government spending the package would include tax cuts aimed at middle- and lower-income taxpayers. And aides have said there would be no tax increases for wealthy Americans.

Seriously – where is all this money that Congress is and will be spending come from?

* CCH weighs in on the subject of a “stimulus” package in “
Senate Tax Aide Predicts Congress Will Pass Early Stimulus Bill for Obama to Sign” from its daily tax headlines e-letter.

The item states – “A tax aide to a Republican member of the Senate Finance Committee (SFC) predicted that the new Congress will act quickly in January 2009 to pass stimulus legislation and have it ready for President Barack Obama to sign when he takes office”.

And, thank God, it also states, “The aide believes that a second round of stimulus checks is unlikely”. On the plus side, “there are proposals for a payroll tax holiday.” I have been suggesting this as a better option to rebate checks ever since the first fiasco early in George W’s first term.

* It has been a while since I have bitched about the dreaded Alternative Minimum Tax (AMT). FYI, the word “dreaded” is a permanent part of the term “Alternative Minimum Tax” just as “GD” is a permanent part of the word “extensions”.

Jeff Rose of GOOD FINANCIAL SENSE (“Helping you make ‘cents’ of your investments") provides a good discussion of this despicable tax in his post “The Alternative Minimum Tax — Not Just for the Wealthy”.

Jeff mentions the dreaded AMT exemption amounts for 2007 but fails to mention the numbers for 2008. Here they are – from my “What’s New for 2008” Page:

The Alternative Minimum Tax (AMT) exemption amounts are –

· $46,200 for Single and Head of Household
· $69,950 for Married Filing Joint and Qualifying Widow(er)
· $34,975 for Married Filing Separate

* I hope sincerely hope that President-Elect reads the letter he was recently sent by Ways and Means Chairman Charles Rangel, Oversight Subcommittee Chairman John Lewis and 12 other Ways and Means members urging him to end the private tax collection program – and takes their advice. I have long been against allowing the IRS to use private collection agencies to “dun” delinquent taxpayers.

According to “The Beginning of the End for Private Tax Collection?” at OMB WATCH the letter points out that – “The Committee...[argues] that tax collection is an inherent Government function and that professional IRS agents are more efficient at collecting outstanding tax debt. In 2007, the Committee conducted an investigation into the use of private debt collectors and found that their services often subjected taxpayers to undue harassment and confusion not associated with the use of trained IRS agents”.

* Congress recently suspended RMDs (Required Minimum Distributions from retirement plans for retirees age 70½ and over) for 2009 – but the relief was really needed for 2008. For a while it was thought that the Treasury Department would provide such relief. Kay “The Yellow Rose of Taxes” Bell gives us the word that there will be “No RMD Relief for 2008” at DON’T MESS WITH TAXES.

Kelly reports, “the Treasury Department has decided against granting any relief to folks who were hoping to get a break in 2008 on required withdrawals from their tax-deferred retirement accounts”. She advises, “So if you've been waiting to take your 2008 RMD, contact your account administrator ASAP and make arrangements to make the requisite withdrawal”.

* Cindy the MONEY MENDER is correct when she advises that now is the time to “Update Your Beneficiaries”. To quote Cindy, “Now is a good time to check all your accounts and make sure your beneficiaries and successor (backup) beneficiaries are accurate and up-to-date”.

* Always leave ‘em laughing - I may not always agree with TAX GURU Kerry Kerstetter’s politics, but I do agree that he finds the best tax-related comic strips. Click here for his latest find.



Friday, December 19, 2008


Day 4 of my series on Retirement Plans for the Self-Employed at CASH MONEY LIFE concerns the “grand-daddy” of all self-employed retirement plans – the KEOGH Plan.

Check it out.


Steve Zelin, the Singing CPA (see my post “Some Great Holiday Gifts”), has announced the release of his latest CD just in time for the 2008 Holiday Season titled, "No Accounting for the Holidays."
The CD features 10 parodies of popular holiday favorites. The parodies include "We Wish You A Great Big Refund", “Go Home Ye Weary CPAs”, “Joy to the World (The Clients Paid)” "The Most Deductible Time of the Year" and for those celebrating Hanukkah, "Taxes, Taxes, Taxes" (Dreydl, Dreydl, Dreydl).
Steve also does his own take on “The 12 Days of Taxes”. You can check out mine here.
You can hear samples from the CD and order your copy at CDBaby.com. It costs, appropriately, $10.40. For more information go to Steve’s website.

Thursday, December 18, 2008


Here are 2 new Blog Carnival for me. I am a little late in reporting on them as I was not notified via email of my inclusion, as is usually the case.

(1) “
Working at Home Blog Carnival-115th Edition” at, appropriately, the WORKING AT HOME ON THE INTERNET blog. My post on “Keeping Track of Business Expenses” appears under “Business”.

(2) “123 of Investing and Financial Planning” at THE MONEY MANIAC (Your Investment and Personal Financial Planning Adviser). Here my post “That Time of Year Again” on year-end tax planning appears under “Personal Finance”.


Day 3 of my series of guest posts on Retirement Plans for the Self-Employed at MONEY CASH LIFE.

Today’s post discusses the Single Participant 401(k) Plan.

Check it out.


I have often discussed my “pet peeves” with clients here in the “pages” of THE WANDERING TAX PRO. Today I want to take issue with journalists and others who write about taxes.

From December through April the various media - online, print and broadcast - will bombard you with items that concern income taxes, discussing year-end moves in December and preparing your return from January through April. I can guarantee that more than half of these items will include a variation of the phrase “make sure to check with your CPA first” – instead of “be sure to check with your tax professional first”.

It really burns my toast when writers and reporters assume that only CPAs can prepare 1040s!

As I say each year in my annual post on choosing a tax preparer –

The CPA designation means that a person took a very difficult test at the beginning of his/her career, possibly many, many years ago, only a small part of which dealt with federal income tax. It is no guarantee that he/she is current on federal and state tax law.”
I also state, “Whenever I get a new client I ask to see his or her last three (3) years’ tax returns, to make sure I do not miss any carry forwards and, more important, to see if there are any errors that I could correct on an amended return. In my 35+ years of preparing tax returns I have found more mistakes on 1040s prepared by CPAs than by any other class of preparer, including the taxpayer himself.”

The initials CPA listed after a person’s name means that he/she is permitted by the American Institute of Certified Public Accountants to “certify” that the financial statements of an entity, prepared as a result of an audit of the entity by the CPA, are correct under current “generally accepted accounting principles” that have been published by such authorities as the Financial Accounting Standards Board.

There are CPAs that specialize in individual and/or business taxes, just as there are doctors who specialize in neurology or orthopedics. But not every CPA is automatically a tax expert, and CPAs are not the only category of tax preparers available to the taxpaying public.

To further quote my annual posting –

The only initials that have any meaning when it comes to tax preparation are ‘EA’ - Enrolled Agent. The name is misleading. An EA is not an agent of the Internal Revenue Service, but a private tax professional who is "enrolled" to act as a taxpayer's "agent" in proceedings with the IRS and in Tax Court. To become an Enrolled Agent one must pass a difficult test that is 100% federal tax law. In order to maintain their enrolled status, EAs must have a mandatory number of continuing education credits in taxation each year.”

Your choice of a competent tax professional is not limited to a CPA or an EA. I am what the IRS considers an “unenrolled preparer”. I have not taken any test to verify my tax knowledge and, so far, am not required to register with any federal or state agency. Yet I consider myself to be just as competent a tax professional as any EA, and a more competent and experienced tax professional than many CPAs.

I learned my profession as an “apprentice” to another competent and experienced unenrolled preparer - I learned how to prepare 1040s by preparing 1040s. Each year I attend various conferences, conventions, seminars and workshops conducted my national and state tax preparer membership associations, and the Internal Revenue Service, to keep up-to-date on federal and state tax laws – usually earning an average of 40 CPE credits per year - as well as regularly reading various tax publications and reviewing daily many online tax-related blogs and other resources. There are many unenrolled preparers in private practice who are just like me.

Please be aware that I am not writing this post to solicit your business. I have more 1040 clients than I want and no longer accept any such clients.

I like to tell the following story when discussing CPAs –

A student in one of the tax planning/preparation courses I taught at local suburban adult schools years ago asked me what was the difference between a tax return prepared by a CPA and one prepared by me. My answer at the time was "at least $100.00". To apply today that number needs to be substantially adjusted for inflation!

While it may actually be possible that the best tax preparer, at the best price, for your particular situation is a CPA, this is only because of the education, experience, ability, temperament, and other factors that are specific to that individual preparer, and has nothing to do with the initials that appear after his/her name.

So to journalists and writers who may be reading this – please use the term “tax professional” instead of an automatic “CPA” when referring to a person who prepares tax returns for a living!


Wednesday, December 17, 2008


I have been trying to set up an online link to the December 2008 issue of FROM THE DESK OF ROBERT D FLACH at tripod.com but am not having any success.
My free newletter FROM THE DESK OF ROBERT D FLACH is sort of an expanded WHAT'S THE BUZZ for non-tax stuff, or like a huge Personal Finance Blog Carnival.
So until I can get the link up - if you would like to receive a free copy of the December 2008 issue as a "pdf" email attachment send an email to rdftaxpro@mail.com with "FROM THE DESK OF RDF" in the subject line.
FYI, it is important to include the specific "subject" in your email, as I usually delete unopened email from persons or "addresses" with which I am not familiar as assumed spam.
So request your free copy today!


Today, day two, I discuss the SIMPLE Plan in my series of guest posts at CASH MONEY LIFE.
If you have any questions on the plans discussed in this series please submit a comment at CML.
I hope you are finding this series helpful.


Q. I have an S Corp (100% ownership) with about 40 employees including my spouse and myself. I also own a “C” Corp. We do IT consulting for different clients and visit the clients at their sites.

My employees claim per diem travel expenses based on the GSA per diem rates for lodging and meals if they travel more than 100 miles to our client sites from their home base.

I also travel to client sites and in some cases it is more than 100 miles from my home base. I was told by my CPA that as per IRS rules I, as the owner of the S Corp, will not be able to claim per diem.

In my case, I am not only the owner of the S Corp but I am also a consultant who helps clients whose location may be more than 100 miles from my home base.

Can I claim travel per diem expenses for lodging and meals based on the GSA allowance through the S Corp? Is the owner allowed to take per diem via the C Corp if the S Corp option is not possible?

A. An employer can pay to an employee a per diem allowance for expenses incurred by the employee for travel away from home by using one of the following methods –

* The federal per diem rate for meals, incidentals and lodging.

* The standard meal allowance (federal rate for meals and incidentals).

* The high-low rate,

Under IRS Rev Proc 2007-63, self-employed taxpayers filing a Schedule C and employees who are not covered by an employer reimbursement plan cannot use the per diem method that includes lodging. To claim a deduction for lodging expenses these taxpayers must substantiate the actual cost. The can use the standard meal allowance or incidental expense only per diem.

Similarly, corporate employers cannot use the per diem that includes lodging for owner-employees with more than 10% ownership, based on direct or indirect ownership.

Employers can reimburse employees tax free under an "accountable plan", and claim a deduction for travel expense, only if the employee is “away from home overnight” and the rules for a “temporary assignment” apply. An overnight stay is required.

If an employee is required to stay at a hotel or motel overnight in the course of a business assignment the employer can reimburse the employee tax-free for meals and lodging under an “accountable” plan, and a deduction is allowed for such an expense.

The employer can use the GSA per diem rate for meals and lodging to reimburse the employee in lieu of requiring the employee to substantiate the actual out-of-pocket expenses.

However if the employee owns 10% or more of the stock of the corporation, either directly or indirectly, the deduction for lodging is limited to the actual out-of-pocket expense.

If the actual cost of the hotel room is $100.00 and the allowable GSA per diem lodging allowance is $115.00, the employer can reimburse a non-10% employee, and claim a deduction for, $115.00 for lodging. However the employer can only deduct $100.00 if the employee in question is an owner-employee with a more than 10% ownership.

In your case as 100% owner you can deduct lodging while away from home overnight on business, but your tax deduction is limited to the actual expense for lodging. The Rev Proc does not differentiate between an “S” or “C” corporation. You can, however, deduct the GSA per diem standard meal allowance amount for meals and incidental expenses incurred while away from home overnight.

The use of 100 miles away from home base as criteria has absolutely nothing to do with the ability of an employer to reimburse an employee for business travel. The requirement for an overnight stay still exists.

If an employee travels to a business location, including the office of a client, during the day and returns to his home in the evening (i.e. there is no overnight stay), regardless of the number of miles traveled, no deduction is allowed for lodging. In such a case meals will only be deductible if the specific meal qualifies under the general rules for deducting business meals and entertainment.

If you pay an employee, owner or not, an additional flat per diem amount for traveling 100+ miles from home base and no overnight stay is involved that amount is considered to be additional taxable compensation subject to all payroll taxes and included as wages on the Form W-2.


Tuesday, December 16, 2008


My guest post series on “Self-Employed Retirement Plans” at the CASH MONEY LIFE blog that is.

The first entry discusses the SEP IRA.

Check it out!


A client had provided me with a listing of her “assumed” deductible expenses with her “stuff” (for a GD extension). Included on the list was the category “Business Trips” with the name of a city (i.e. Houston, Boston) followed by a dollar amount.

I emailed the client, a public school administrator, and asked for more specific information regarding the trips – i.e. purpose of the trip (i.e. convention or conference), the number of days away from home, and a break-down of the expenses (i.e. registration, hotel, airfare, taxis, meals, etc).

It turned out that one of the trips was to a conference for her college sorority, an education-related organization that also does charitable work. I told the client that whether or not she could deduct the expenses, and where they would be deducted on Schedule A, would depend on the “facts and circumstances”.

Here are the rules regarding attending conferences and conventions –

(1) Business Expense:

You can deduct the cost of travel to attend a business, professional or trade conference, convention or meeting only if it is an “ordinary and necessary” business expense. There must be a true relationship between the event and your trade or business and your attendance must benefit your business.

Employee business expenses, net any reimbursement from your employer, are deducted as a “miscellaneous expense” on Schedule A subject to the 2% of Adjusted Gross Income (AGI) exclusion. Only that amount of the total of all miscellaneous job, investment and tax preparation expenses that exceeds 2% of AGI can be deducted. If your total allowable expenses do not exceed 2% of AGI you get no tax deduction.

(2) Charitable Contribution:

According to IRS Publication 526 (Charitable Contributions) –

Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. The amounts must be:

· Unreimbursed,
· Directly connected with the services,
· Expenses you had only because of the services you gave, and
· Not personal, living, or family expenses.

If you are a chosen representative attending a convention of a qualified organization, you can deduct unreimbursed expenses for travel and transportation, including a reasonable amount for meals and lodging, while away from home overnight in connection with the convention.

You cannot deduct your expenses in attending a church convention if you go only as a member of your church rather than as a chosen representative. You can deduct unreimbursed expenses that are directly connected with giving services for your church during the convention

Allowable expenses connected with attending the conference of a charity as a “chosen representative” are deducted as a charitable contribution on Schedule A. There is no % of AGI exclusion.

In either case (business or charity) you cannot deduct personal expenses for sightseeing, fishing parties, theater tickets, or nightclubs. You also cannot deduct travel, meals and lodging, and other expenses for your spouse or children.

(3) Other:

If the conference or convention is for political or social purposes that don’t relate to your business, the expenses are not deductible.

Any questions?


Monday, December 15, 2008


I was honored to participate as one of the judges for taxgirl Kelly Phillips Erb’s unique “12 Days of Charitable Giving” program.

I am the first of the 12 days. My choice is highlighted today at

I also just heard from Patrick that my series of guest posts on “Retirement Plans for the Self-Employed” will begin tomorrow (Tuesday) at his CASH MONEY LIFE blog. The series is introduced in today’s post at CML.

Be sure to check it out.

Saturday, December 13, 2008


Before I begin - have you heard? “The opposite of PRO-gress is.....CON-gress." Thanks, and a tip of the hat to my Twitter follower “Resherpa”.

* First of all – I invite all fellow tax professionals who are members of the National Society of Tax Professionals to read my post “To NSTP or Not to NSTP” at my NJ TAX PRACTICE BLOG.

* CCH reports that both the House and the Senate have passed the Worker, Retiree and Employer Recovery Act of 2008 (HR 7327) by unanimous consent.

The item states – “Among the provisions is a measure to provide relief for seniors age 70 and 1/2 or older who are required to take distributions from their retirement plans under current law. The provision would allow savings to stay put and avoid a tax hit for seniors when the market is down.”

I will provide more details of this change once I get a chance to review the Act in detail.

* TAX PROF Paul Caron tells us about a paper titled “
The Unequal Geographic Burden of Federal Taxation” in his same-titled post.

According to the paper (highlight is mine) - “In the United States, workers in cities offering above-average nominal wages – cities with high productivity, low quality-of-life, or inefficient housing sectors – pay 30% more in federal taxes than otherwise identical workers in cities offering below-average wages.”

I have been complaining about this very fact for years – considering I am from an area that offers “above-average nominal wages”.

* Kristine McKinley of the EBIZ TAX TIPS blog, a CPA and Certified Financial Planner, is offering a free “teleclass” (i.e. via telephone) for small business owners on “Your Top Tax Questions Answered”. All you have to do is register for the call. The “teleclass” is scheduled for Thursday, December 18, 2008 at 1:00 CST. Click here to register to receive the call-in number and other details – you can also submit questions you would like Kristine to cover in advance

* From the “I have to see it to believe it” file – CNN Money reports in “Obama: No More Pork” that President-Elect Obama has announced “No more business as usual”!

I guess this means that New Jersey will not be getting any of the federal money for infrastructure, energy or education programs.

* Bruce the taxguy gives us a good listing of “Quick Tips”. Here is one to remember – “Insurance policies that cover medical cost are deductible. Disability and loss of income are not”.

* Robert O’Harrow Jr’s “Government Ink” column from the online version of the Washington Post titled “Bailout Not Well Planned” reports that “Now the Government Accountability Office is telling us that the Department of Treasury's bailout of the financial system is not well planned and could lead to a lot of mismanagement and waste or, presumably, worse”.

Does this surprise you? You do know that the bailout package was written by Congress, and, as Prof. Jim Maule has taught me to say, “Who says that Congress is thinking?”!

* I advise clients who itemize and make quarterly state estimated tax payments to make the 4th quarter payment – due January 15 of the following year (i.e. 2009) – in December of the current year (i.e. 2008). This way the client gets the full tax deduction on his/her 2008 Schedule A.

Joe Kristan has proven that this is good advice, and actually puts money in your pocket regardless of your tax bracket, in a chart he has devised for in post “Does It Make Sense to Prepay Your Taxes?” at the ROTH AND COMPANY TAX UPDATE BLOG.

* Michael Rozbruch reports on a new “phishing” tax scam aimed at “non-resident aliens” in his post “
Suspicious IRS Email Warning - Don’t be a Victim of Identity Theft and Avoid this Phishing Scheme” at the TAX RESOLUTION UNIVERSITY blog.

* AccountingWeb.com reports that “Intuit Launches Cutest Tax Deduction Baby Search”.

TurboTax the tax preparation software from Intuit Inc., is conducting its second annual nationwide search for America's Cutest Last-Minute Tax Deduction. One lucky baby, born in December 2008, will win a United States savings bond worth up to $10,000 upon maturity.

To enter the 2008 contest, parents or legal guardians should submit a photo of their newest last-minute tax deduction. To be eligible, babies must be born between December 1-31, 2008. Deadline for entries is January 9, 2009

Click here for further
details, rules, and eligibility information.

* We welcome back Gina Gwozdz of TAX TIPS BLOG back after a hiatus from posting of over 2 months. Gina, you have been away too long! Her post “
Children as Independent Contractors” is a good reminder to parents who want to hire their kids in their Schedule C business why they are generally not to be treated as independent contractors.

* Gina ends the week by advising a “New Business Owner”. The post includes links to some excellent information for new business owners.

I like how in the body of his question the “new business owner” states, “I have an assumed name”. I do believe he means to say that he has registered a “trade name” for his business.

* Russ Fox of TAXABLE TALK points out that “Rangel's Troubles Worsen”. It seems the extent of Chuck’s tax FUs is endless!
I just have to ask – Russ, what does shtml stand for? I assume it is not what one would think.

* Cindy, a twitter follower of mine, answers the question “What’s a Marginal Tax Bracket?” at her blog MEND YOUR MONEY.

* Richard Close, the IRS HITMAN, tells us
IRS Interest Rates are Dropping!” for the first quarter of 2009.

* Dan Meyer has begun the naming of the 2008 prestigious 12 Blogs of Christmas with 4 accounting blogs and 3 personal finance blogs. Dan expects the tax blogs will be announced later today (Saturday). Congratulations to the new members of this honor roll!

* Greed is alive and well! TAXGIRL Kelly Phillips Erb reports that “CNN Readers Want More Stimulus Checks”. It appears that a large portion of the American Public could care less about what is good for the country – they only care about what they can put in their pocket!

People wonder why I am so cynical – it comes from 35+ years of dealing with the public!

* Congratulations to Professor Jim Maule for his 1000th post at MAULED AGAIN! Here’s to the next 1000.

* Let’s end this week’s installment of the BUZZ with some year-end advice from yesterday’s (Friday) “Tip of the Day” from the Small Business Taxes and Management website. This site is a valuable resource for tax information for the individual as well as the business owner. The highlights are mine -

Worthless stock . . . If you're holding some stock you believe is worthless, but it's still trading for a few cents a share, you can't simply claim worthlessness. To claim a loss you've still got to sell the stock, even if the commissions will far exceed what you'll get for the shares. Check with your financial advisor. But taking the loss may make sense. If the loss can't be used this year, you can carry it forward. Can't find the stock quoted anywhere? See if you can sell it to your broker.”

Thursday, December 11, 2008


I have just been informed that the “42nd Money Hacks Carnival: Laid-Off and Freelancing Edition” is now up at THE FINANCIAL WELLNESS PROJECT ("Getting Better With Money – Health, Wealth, & Wise").

My post on “Keeping Track of Business Expenses” is included in the TAXES section, the last category (why does TAXES always seem to be the last category in these Blog Carnivals – saving the best for last?).

Also in the TAXES section is a good post on how your individual financial situation affects the choice of “Year End Tax Strategies for 2008” from MY WEALTH BUILDER.

Cindy of MEND YOUR MONEY, who happens to be a twitter follower of mine, shares my opinion in her post “Save for Retirement or College?”.


Wednesday, December 10, 2008


Q. Just wondering -- if we buy candy, 50/50 raffles, etc. from co-workers/friends/family for the benefit of schools or scouts, are we allowed to deduct the expenses on our tax return? (Sometimes, each order amounts to $40 or so.) If yes, should we pay by check each time?
A. When giving me a list of charitable contributions for the year many clients will include the cost of raffle tickets, including 50-50s, purchased for the benefit of a church or school. Regardless of who is selling them (i.e. church or charity) 50-50 raffle tickets, or any kind of raffle tickets, are not charitable contributions - they are gambling. To repeat - raffle tickets are not deductible as contributions.

If you are reporting taxable gambling winnings on Line 21 of your Form 1040 - from whatever source (i.e. casinos, racetrack, lottery, raffle, etc) - the cost of raffle tickets are deductible as a gambling expense (to the extent of the winnings reported) as a miscellaneous deduction (deductible in full – not subject to 2% of AGI exclusion) if (and only if) you itemize on Schedule A.

The only possible instance in which you could claim a charitable deduction for a raffle ticket is if you purchased a ticket and then donated the ticket itself back to the charity so they could sell it again. In such a situation you would not have any chance of winning the item(s) being raffled.

For the most part the purchase of candy, cookies, etc from a church or charity (most common example being Girl Scout Cookies) is not deductible as a charitable contribution. You are not making a contribution - you are buying something of value for a fair market price.
The only exception would be if, for example, the normal market value of a box of cookies is $3.00 and the charity is selling them for $10.00. In this case $7.00 would possibly be deductible. But in most cases the cookies and candy are being sold for pretty much what you would pay in the store - so no tax deduction.


Tuesday, December 9, 2008


As promised on Twitter, Kay Bell has finally gotten “Tax Carnival #43: Merry Taxes 2008!” up at DON’T MESS WITH TAXES.

Included is the following item – “Robert D Flach brings us the Ghost of Tax Filing Past in his post about ‘My First 1040’, posted at THE WANDERING TAX PRO”.

INVESTING SCHOOL provides a good lesson in the basics of “401(k) Retirement Plans”.

BTW, Kay has announced, “Yes, it's time to resume Tax Carnivalizing (not to be confused with tax caramelizing; is that even possible?!) every two weeks instead of monthly.

The plan to post Tax Carnivals more frequently from December through April is because that's when more folks want more tax info. And we aim to please!


Do you want to learn how to avoid having the bank foreclose on your home? Read on!

(1) Do not think you will be able to purchase a home with only 5% down. You should not even be looking at homes, townhouses or condo units unless you have enough in the bank to be able to put 20% down.

(2) Do not live above your means by using credit cards to “fund” an extravagant lifestyle – so that when your credit cards all approach the limits you take out a home equity loan or refinance your mortgage to get money to pay down the card balances, and then promptly begin to build them up again – so that when your credit cards all approach the limits . . . you see what I mean.

(3) If you can get by with a $15,000 car do not refinance your mortgage to get the money to buy a $35,000 luxury model. And keep your car an additional year or so instead of getting a new one every three or four years.

(4) Do not assume that the already inflated value of your home will continue to rise ad infinitum so that you can continue to live like a king on the wages of a footman and still think that when you are ready to retire you will be able to sell the home, pay off your mortgages, and have cash left over to buy a retirement property.

The bottom line – use common sense in your financial life!

If only I had written this post, and lots of people had read it and taken it to heart, back when I first began to blog!


Monday, December 8, 2008


As I had mentioned, last week I attended the annual National Association of Tax Professionals year-end tax update workshop – now called “The Essential 1040 Workshop”. I attend every year. There are two separate one-day programs – the first being the basic update and the second covering specific topics. I have often attended both days, but this year booked only the basic update.

I choose to attend the workshop being offered at Caesars Atlantic City. I have been going to AC in December for several years now – usually for the National Society of Tax Professionals year-end seminar. But this year I decided that attending both year-end classes was redundant.

The “published” room rate for workshop attendees was $95.00 per night – but of course the room cost more than $95.00 per night. With taxes and fees it was actually $112.60 per night. I wish that NATP, and every other conference provider, as well as every hotel and motel, would publicize/advertise the true room rate!

I probably could have gotten a special package at the Tropicana for close to half what I paid at Caesars – but I would have to schlep too long a distance from hotel to workshop. And, anyway, I have always wanted to stay at a Caesars hotel.

Caesars Atlantic City is directly connected to the Bally’s Wild West Casino, which is directly connected to Bally’s Atlantic City Hotel and Casino (Caesars and Bally’s both owned by Harrah's Entertainment). If there is a workshop at Caesars again in the future I will look into a package at Bally’s.

I was originally going to take the local casino bus to Caesars and the NJ Transit bus home (as I had done in past years) – but I was running late on Tuesday morn, missed the AM bus, and decided to drive. This was actually much “more better” – it was much less “out of pocket” (only $10.50 parking and tolls and about $20.00 gas) but will provide a greater tax deduction (258 miles round trip at 58.5 cents per mile)!

The ride was smooth and relaxing – no traffic. Basically Garden State Parkway to Exit 38, which is the Atlantic City Expressway. The entrance to the Caesars parking garage was a few feet from the end of the ACE. The walk from the garage to the hotel lobby (and from the lobby to the workshop room) was minimal – I did not have to schlep all over creation as I have done with some casino hotels. The room, while not the biggest, was “just right” – even though its view was of an air conditioning duct. And a walk-in shower instead of a tub – so no leisurely soak. But it did have a huge flat-screen tv!

Because I was in AC on Tuesday and Wednesday nights the hotel restaurants were closed and my only “in-house” option was the buffet – where I dined Tuesday night. Wednesday night it was the Virginia City Buffet at Bally’s Wild West (I had been there once before several years ago) – the better of the two buffets.

I had followed the walkway to “The Pier at Caesars” (formerly the Ocean One Mall – but a lot more upscale) and checked out the restaurants on the third level. None of the menus interested me – and besides they were much too expensive. I had hoped to dine at
The Trinity Pub and Carvery, but, as is too often the case in the US, the “shepherd’s pie” on the menu was not shepherd’s pie (sheep and mashed potatoes) but cottage pie (beef, onions, peas, and mashed potatoes) and nothing else interested me for the price.

While at the Pier I did watch the impressive Water Show - “the world's largest indoor fountain matrix of 150 individually controlled fountain nozzles, a 19,000 gallon reflecting pool, 179 LED and intelligent lighting fixtures, which create illuminated water effects with infinite color possibilities, and state-of-the-art audio technology” which is complimentary to the public and runs every hour on the hour.

Also because I was in AC on a Tuesday and Wednesday there was no show at the hotel. I probably could have found a review at one of the other casinos, but I didn’t want to schlep all over the Boardwalk.

But this is a tax blog and not a travel blog – so let me get to the content of the workshop itself.

The annual seminar always begins with a review of the new "numbers" for the current year’s Form 1040, in this case 2008 – exemptions, deductions, credits, phase-outs, etc. I had learned all this information back at the end of 2007 when writing the WHAT’S NEW FOR 2008 Page for
www.robertdflach.net, so this is really of no value to me. I attend for the review of new tax laws and “recent developments”.

Here are some reminders and items of interest I took away from the workshop –

* The standard mileage allowance for business travel cannot be used for a vehicle used for hire (like a taxi). However, according to Chief Counsel Advice 1997-40 vehicles used to provide courier services are not considered to be vehicles used for hire. One is hiring the service of a courier and not the use of a car.

* In the past an unmarried surviving spouse could only exclude up to $250,000 in gain on the sale of his/her personal residence if the residence was sold after the year of death of the deceased spouse.

But now, under the Mortgage Forgiveness Debt Relief Act of 2007, effective with sales closing after December 31, 2007, a surviving spouse who sells a principal residence within two (2) years of the date of death of the deceased spouse can exclude up to $500,000 of gain under Internal Revenue Code Section 121 as long as the ownership and use tests were met immediately before the death of the spouse.

* The amount of cancelled “qualified principal residence indebtedness” that is exempt from taxable income is limited to “acquisition indebtedness” – debt incurred in acquiring, constructing, or substantially improving the taxpayer’s principal residence. Refinanced debt will qualify only up to the extent that the principal of the previous mortgage would have qualified immediately prior to the refi.

Mortgage or home equity debt that was used to pay off credit cards, pay for college, buy a car, or any other reason that has been forgiven is not excluded from income.

I was premature in my post “What’s Wrong With This Picture” when I said “George W and his colleagues in Washington in their infinite wisdom have passed a law that exempts the $200,000 in mortgage debt forgiveness for Couple B from federal income tax”. In that example the bulk of the $200,000 that Couple B walked away from would not be exempt from income tax under this new law. Although if they were considered to be “insolvent” because they used the money to pay off credit cards and/or auto loans and to generally live above their means they could avoid the tax using the insolvency as an excuse.

* A person who was claimed as a dependent on his/her parents’ 2007 Form 1040, possibly because he/she was a full-time college student, did not receive an economic “stimulus” election year bribe check in 2007. However if that same person becomes independent and able to claim himself/herself on their 2008 return they will be able to claim a refundable “recovery rebate credit” of up to $600 on the 2008 Form 1040.

Similarly, it is possible that a couple received a $300 additional rebate for a 16-year old dependent child claimed on the couple’s 2007 Form 1040 and the same dependent child will receive a $600 refundable credit on his/her own 2008 return filed as an independent taxpayer (i.e. his/her parents do not claim an exemption on their 2008 return).

* The IRS will be sending out Notice 1378 to taxpayers to report the amount of the economic “stimulus” election year bribe payment issued in 2008. It is very important that you give this Notice to your tax professional along with your 2008 “stuff” (I hope my clients are reading this).

*Under final regulations issued by the IRS a copy of a court order or divorce or separation decree or agreement that includes the same language as the Form 8332 will no longer be acceptable as an alternative to Form 8332 (Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent). Only the actual Form 8332 or a similar document containing the same information that is specifically written for the sole purpose of serving as a written declaration in lieu of the Form 8332 will be acceptable.

Unfortunately the workshop included the ridiculous mandatory redundant 2 hours of ethics – as does apparently every single federal or state tax seminar that is offered. But luckily the instructor scheduled the discussion for immediately following the lunch break, which allowed me to watch DAYS OF OUR LIVES and part of AS THE WORLD TURNS in my room instead!

I am sure you are all waiting to ask one question – did I win or lose in the casino? From my point of view I was a big winner. I didn’t gamble a single penny (although there were penny, and nickel, slots available), so I didn’t lose a single penny!


Saturday, December 6, 2008


* Manly (according to Genderanalyzer) taxgirl Kelly Phillips Erb answers a tax question where “The feds look to state law for the answer to this one” in her post “Still Married After All These Years”.

* Bruce the taxguy (please note – one word all lower case) provides us with a history lesson in “
The Idea Behind the Term ‘Black Friday’”.

Bruce also tells us about a great product for tax professionals, and possibly taxpayers as well, in “Forms, Schedules and Worksheets”.

And taxguy discusses the new refundable “credit” for “first-time” home buyers in “
From the Flyer Notes”. He points out, quite correctly, that this is not a tax credit but an 15-year interest-free loan from the government. Bruce is right to advise readers and clients to evaluate this as a loan and seriously consider the responsibility to pay it back at $500 per year for 15 years, or until the property is sold. One of the reasons we are where we are today is because homebuyers did not properly evaluate loan decisions or seriously consider their future responsibilities.

* Russ Fox tells of an undercover sting operation on New York State tax preparers conducted by the NYS Department of Taxation and Finance, similar to ones done by the GAO and TIGTA in the past, in his post “Bozo Preparers Running Rampant in New York”. I do believe I have seen the handiwork of some of these bozos over the years when reviewing prior year returns of new clients.
* FYI, here is a chart of “History of Federal Individual Income Bottom and Top Bracket Rates” from the National Taxpayers Union Foundation.
* A CNN Money online article titled “Taxpayers: Furious Over Homeowner Bailouts” reports that “many Americans are outraged that their money is being spent to rescue irresponsible mortgage borrowers. Still, that probably won't stop government officials”.

According to the article, “Ask most Americans whether they're in favor of spending taxpayer dollars to help delinquent mortgage borrowers and you're likely to get an emphatic ‘No!’”.

Taxpayers are mad - especially those who held off buying their own homes or were careful not to spend beyond their means."

The article quotes disgruntled Queens NY resident Jay Black, "’All these idiots who bought homes they couldn't really afford are going to be rewarded with loan modifications, but what about those of us who didn't make stupid decisions?’"

Taxgirl Kelly offers a similar opinion in her 2 cents on the issue from her post “
Paulson Changes His Tune (Again)”.

I must admit I, too, have no sympathy for cafones who purchased more home than they knew they could afford and continually refinanced to take cash out as the market value of their homes grew. They made their bed – so now they should lie in it!


Friday, December 5, 2008


Q. My HUD statement only says "Loan Origination Fee - % - bank name amount". It does not say "points" anywhere, but it was computed as 1.25 points of the loan. So, does it qualify for a full deduction or an amortized one?

A. Your question is kind if like – “My car is blue. How many miles to the gallon should it get?” You do not provide sufficient information to give an answer.

For me to properly answer your question you must tell me if the mortgage is for the purchase of your principal residence or for a vacation or rental property. If it is a refinanced mortgage is it on your personal residence and is any additional monies taken out used to substantially improve the residence?

First off, the word “points” will rarely if ever appear on the Settlement Statement for the purchase or refinance of real estate. This item is most often referred to as “Loan Origination Fee” or “Loan Discount” or “Commitment Fee” and is reported on Lines 801 or 802 of the statement. This number will be a % (1%, 1.25%, 2.5%, 3%, etc) of the “Principal amount of new loan” indicated on Line 202.

In order to deduct in full the total amount of the “Loan Origination Fee” indicated on your Settlement Statement the mortgage on which the points are charged must be used to buy, build or substantially improve your principal residence, and be secured by that residence.

In addition, in order to deduct the points in full in the year of purchase the amount of money paid at closing, including any seller-paid points and the initial down payment or deposit, must at least equal the amount of points charged. The points on a $300,000 mortgage are $6,000. You had initially given a $1,000 deposit and paid $25,000 at closing. The $6,000 is deductible in full on your Schedule A.

While the points paid in such situations qualify for a full deduction, you can also elect to amortize the points over the life of the mortgage. Why would you want to do this? Consider the following example.
John and Jane Q Taxpayer close on the purchase of a principal residence in November of 2007. The total amount of points paid at closing is $2,500 and the interest paid on the mortgage for 2007 is also $2,500. The real estate tax adjustment on the Closing Statement is $458. This is the first principal residence for both of them – prior to the purchase J+J had rented an apartment. Their deductible state and local income taxes and charitable contributions add up to $4,142. Their itemized deductions for 2007 total $9,600. The 2007 standard deduction for a married couple for is $10,700. So they are not able to itemize on their 2007 Form 1040. They can elect to amortize the points paid on the purchase over the life of the mortgage loan so they will be able to get a tax benefit for the points in future years.

Points paid on the refinance of your principal residence or the initial purchase or refinance of a vacation home or a rental or investment property must be amortized over the life of the mortgage. However, if you refinance a mortgage on your principal residence in order to get additional money to “substantially improve” that residence you can deduct in full the points paid on the funds used for the improvements. A substantial improvement is one that adds value to the home or prolongs its useful life.