Thursday, April 30, 2009


The parents of college students are big winners under ARRA 2009.

Both the amount and the availability of the Hope Education Tax Credit are expanded for tax years 2009 and 2010 and the credit, originally named for the town of Hope in Arkansas (and not the “hope” that you kid will graduate from college), is renamed the “American Opportunity Tax Credit”.

The maximum credit is increased from $1,800 to $2,500. This is calculated as 100% of the first $2,000 of qualified expenses and 25% of the next $2,000. In order to get the maximum credit you must have at least $4,000 in qualified expenses.

Remember that a credit is a dollar-for-dollar reduction of tax. So a $2,500 tax credit will reduce a $3,000 tax liability to $500. Basically a $2,500 credit could mean $2,500 in your pocket.

The credit is available for the first four (4) years of post-secondary education in a degree or certificate program. Previously the HOPE was only available for the first (2) years of qualified education (Freshman and Sophomore at beginning of year) and could only be claimed in 2 tax years. Education after the first two years would then qualify for the Lifetime Learning Credit, which was 20% of qualified expenses up to a maximum of $2,000.

In addition to tuition and fees the credit is expanded to include required “course materials”, such as books, as qualified expenses.

The credit is phased-out for single taxpayers with “modified” AGI between $80,000 and $90,000 and joint filers with MAGI of $160,000 to $180,000. Here “modified” AGI begins with your regular AGI (i.e. Line 37 on the 2008 Form 1040) and adds back any exclusion or deduction for foreign income, foreign housing costs, income for residents of American Samoa and income from Puerto Rico.

Previously single taxpayers with MAGI above $58,000 and joint filers with MAGI above $116,000 were not eligible for any education tax credit and those with incomes above $80,000 or $160,000 were not eligible for any “above-the-line” deduction for tuition and fees.

So many of my clients who were denied any tax benefits for their kids’ college costs will be able to realize some tax savings in 2009 and 2010. This is good.

As with the HOPE credit, the $2,500 maximum is per student and not per return. So if you have two kids in college at the same time you can get up to $5,000 from “Sam”. The Lifetime Learning Credit maximum of $2,000, which would apply to graduate school, is per return, regardless of the number of students. If you had one dependent child eligible for the maximum AOTC and one dependent child in graduate school eligible for the maximum LLC you could claim a total of $4,500 in education credits on your tax return.

Generally a tax credit is only allowed up to the amount of tax liability. If your tax liability is $500 the credit is limited to $500. However up to 40% of the allowable American Opportunity Tax Credit is “refundable”. So if you have a “0” tax liability you could get up to $1,000 in your pocket as a “gift” from Uncle Sam. As with the Earned Income Credit you could “make a profit” by filing a tax return. If the student is subject to the “kiddie tax” this will affect the refundable portion of the excess credit.

You know how I feel about “refundable” credits.

When originally proposed there was talk of requiring students to engage in some kind of “community service” to be eligible for the AOTC. However the final bill merely instructs the Treasury Department to “study” the “feasibility” of requiring students to perform community service. It also directs Treasury Department studies on -
· Coordination with non-tax student financial assistance;
· Coordinating the credit allowed under the Federal Pell Grant program to maximize their effectiveness at promoting college affordability; and
· Examining ways to expedite the delivery of the tax credit.
The credit is for tuition, fees and course materials actually paid in calendar years 2009 and 2010. Qualified expenses related to a college semester beginning in calendar year 2009 that were paid in calendar year 2008 will be eligible for the HOPE or Lifetime Learning Credit on the 2008 Form 1040 (or 1040A) under the old tax rules.

As an added benefit for college students, for tax years 2009 and 2010 computer equipment and computer “technology”, including internet access costs, will be considered “qualified education expenses” under Section 529 college savings plans. Students will be able to use tax-free 529 monies to purchase computers and pay for internet access if they are enrolled in an eligible educational institution in 2009 and 2010.


Wednesday, April 29, 2009


+ Here is a first! I have never heard of this happening before in 37 years of preparing 1040s.

Look what happened to a client -
“{My son’s} return was properly addressed to the IRS. I mailed it myself. The US Postal Service had delivered {the} tax return to a company in Kansas City MO instead of delivering it to the IRS address. That company had opened the letter up, must have looked at the information inside, and it was returned back to {my son} with a small explanation attached. What I can't figure out is why they just didn't give it back the Post Office and it would of been on it's way. So, know we are worried about someone having all of David's information and are concerned.
I provide my clients with pre-addressed envelopes to use in mailing their tax returns. The address on the envelope is from a self-created page of labels. So the Post Office certainly could read the correct address. And those who know me will tell you that even if I hand wrote the address it would be easily readable. A properly addressed envelope, confirmed by the client, was provided in the above instance.
So there is really no excuse for the tax return not being delivered to the proper Internal Revenue Service address in Kansas City, MO.
As I said, this is the first time I have encountered such a FU by the Post Office. In the past I have always praised their service and announced that I have never lost a tax return in the mail. The closest incident was several years ago when a package from Rhode Island never arrived at my office. The client was able to track it down within the PO and it eventually made its way to Jersey City intact.
I prefer Post Office overnight to FedEx or more expensive services. The Post Office delivered an overnight package to a client on Easter Sunday once, while FedEx could not always guarantee overnight delivery to out of the way locations within the US.
I do share my client’s curiosity about why the letter was opened in the first place by the company who received it in error. It was clearly addressed to the Internal Revenue Service and not them, so it should have been promptly returned to the Post Office unopened. Is opening something addressed to the IRS breaking a federal law?
There was no refund requested on the return in question (and therefore no direct deposit information), and there was no payment enclosed with the return – it was a “0” liability + “0” withholding return filed only to report excessive stock losses to be carried over. The return did not include any real financial information other than the son’s Social Security number. And the company did return the return to the son, so they at least have the appearance of honesty.
This situation seems to support “e-filing” of a return, although there are also confidentiality concerns connected with the electronic filing system.
Has this ever happened to anyone out there before?
+ I have been catching up on my @rdftaxpro messages at Twitter and found a note from Kay Bell of DON’T MESS WITH TAXES that she, Kelly Phillips Erb (aka TAXGIRL) and I are included in a blog list from fellow tax blogger Jim Maule – “MauledAgain's 10 Favorite Tax Blogs”. Also on the list is Joe Kristan’s ROTH AND COMPANY TAX UPDATES and Russ Fox’s TAXABLE TALK.

+ As long as I am shamelessly “tooting my own horn” (a la TAX MAMA) I might as well also point out that THE WANDERING TAX PRO made the list of the “100 Best Financial Planning Blogs” compiled by L. Fabry at the ONLINE MBA REVIEW’s blog. Online MBA Guide ranks the best online MBA degrees and reviews top online MBA programs in the USA.

THE WANDERING TAX PRO is #89 on the list under the last category of “Specialty Blogs”. It looks like I am the only tax blog on the list!

+ A very belated thanks to Pete Pappas of THE TAX LAWYER’S BLOG for selecting my post on “The EIC and Tax Fraud” for inclusion in his “Issue # 6: Dr. Taxosphere, Or How I Stopped Worrying and Learned to Love the Tax Code”.

Pete’s comments on the subject were right on –

My Observations: The EITC is a refundable credit. In other words, qualifying taxpayers get a check from the government regardless of whether they paid any taxes in during the year.

It is, therefore, a welfare program and, as was the case with America’s old welfare system (subsequently reformed in the 90’s through a joint effort of Congressional Republicans and President Clinton), its entitlement nature invites abuse.

Nobody should get money from the government (i.e. other taxpayers) merely by completing a form requesting the money.

Like the guy who leaves his keys in his Cadillac and the driver-side door wide open, a government that makes it this easy for people to steal from it deserves to have its money stolen

Pete also posted about “Five Nevers from Flach”. I do agree with him about butchers and surgeons.


Tuesday, April 28, 2009


As a tax preparer I don’t just save clients money on their Form 1040 (or 1040A) and state tax returns. Over the years in the course of preparing a tax return I have uncovered FUs by banks, mortgage companies and employers that have saved clients money in other areas.

I have never used a pre-packaged client questionnaire in my practice, nor did we in my mentor’s practice. We have always requested original documents from the client – W-2s, 1099s, 1098s, Closing Statements, and so on. I have several self-created worksheets for special situations - medical expenses, employee business expenses for specific professions, rental expenses – that I send to applicable clients in my January mailing. But when it comes to the important stuff – mortgage interest, real estate taxes, items of income – I want to see the original documents.

In many cases I attempt to reconcile various items on the form to supplementary information – especially in the case of mortgage statements and W-2s.

New Jersey is somewhat unique in its form of billing real estate taxes. The bill is calculated and paid on a quarterly basis. While the amount is determined by calendar quarter, the payment is due February, May, August and November. When a client buys or sells real estate, or both, I must determine the actual real estate tax paid in each property on a quarterly basis, taking into account adjustments made at closing for the number of days of ownership within a calendar quarter (except if the Closing is, for example, on June 30th).

In the case of a property with a mortgage, as I expect is the case everywhere, about 90% of the time the real estate taxes are paid from an escrow account maintained by the mortgage holder.

Several years ago, in the course of reconciling the taxes for a client who sold one home and purchased another, I discovered that she had paid real estate taxes on the home sold for one of the quarters twice – once via mortgage escrow and again as an adjustment on the Closing Statement. Her lawyer did not discover this FU, and the municipality certainly did not contact either the former or the new owner to say that the tax had been overpaid (this is New Jersey now).

I told the client of this FU and after much leg work and frustrations on her part contacting both the mortgage company and the municipality the error was finally acknowledged and she got a refund of the double payment.

As a strange coincidence, when the same client sold her home again recently the exact same FU occurred – which I again discovered. And again she was able to get a refund of the overpayment. I should go back and see if she used the same lawyer at both closings.

In both of the above instances we are talking about $1,500 - $2,000 in double payments.

New Jersey does not treat certain items of income and certain employee benefit contributions the same as Uncle Sam for purposes of the state income tax. Disability benefits, while partially or fully taxed on the federal return, are exempt from NJ Gross Income Tax. While treated as “pre-tax” for federal purposes, employee contributions to Section 125 plans for health insurance premiums or medical flexible spending accounts and contributions to 403(b), 457, 414(H) pension plans - just about any type of employer pension other than the basic 401(k) do not reduce state taxable wages.

In many cases the federal wages and NJ state wages reported on Form W-2 differ. In such a situation I try to reconcile the difference, using the final pay-stub whenever available.

A while back I sent the following message to a client after attempting to reconcile the final pay-stub to the W-2 –

Your W-2 may be incorrect. The ‘non-tax’ amount of $5,359.00, which is deducted from your total income in determining the federal wages reported in Box 7, is $5,238.00 for your tax-deferred annuity . . . and the $120.00 ‘Section 125 Dental Insurance’. You also had $1,900.00 in “Section 125 Health Insurance”. This $1,900.00, if part of a Section 125 cafeteria plan, should be ‘pre-tax’, and should reduce your federal wages further. I suggest you check with your Payroll Department to see if there was an error made.”

The client’s response –

Thanks for the heads up regarding my pre-tax insurance. Enclosed is my amended W-2 form. The HR Department and our new controller were impressed that you caught the mistake when they didn’t. At first when I called them they thought I was crazy. But alas, you were right, and lucky for all involved.”

The correction added $551.00 to the federal refund.

In another instance I noticed that a client’s employer, an out-of-state company for which my client was the only New Jersey based employee, did not treat the employee 401(k) contributions as pre-tax for NJ state wages on the W-2. They were also set straight.

I am not telling these tales to solicit new clients – my readers should know by now that I am not looking for any more 1040 clients (if anything I am trying to “thin the herd”). Or to, like TAX MAMA, “toot my own horn”. I just want to show you that it truly pays to use a competent, independent tax professional. Their potential value goes beyond just preparing the 1040.

No tax preparation software that I know of would have uncovered the FU’s discussed above. And no employee of Henry and Richard, Jackson Hewitt or Liberty would find such FUs – or even care – as it would not increase their fee (unless they charged a % finder’s fee).


Monday, April 27, 2009


The centerpiece of the tax provisions of BO’s “stimulus” package is his Making Work Pay Credit. Every taxpayer, except as listed below, with “earned income” (i.e. W-2 wages and net earnings from self-employment) will get a credit (dollar for dollar reduction of tax) of up to $400.00 (which becomes $800.00 for a joint return) on their 2009 and 2010 tax returns.

The credit is calculated as 6.2% of earned income.

The credit is not available for non-resident aliens, those who can be claimed as a dependent, or estates or trusts. You must have a valid Social Security number (at least on spouse on a joint return) to get the credit.

The credit is “phased-out” at the rate of 2% of the taxpayer’s Adjusted Gross Income (AGI) in excess of $75,000 for singles and $150,000 for joint filers – the same phase-out range used for GWB’s 2008 rebate checks and the second chance “recovery rebate credit” available on the 2008 tax return, although a smaller percentage (2% instead of 5%). The credit is completely phased out if AGI exceeds $95,000 or $190,000 respectively.

There is no additional credit based on “qualified” children as there was with GWB’s “stimulus” rebate. The most a family can get is $800.00 ($400.00 if a single parent).

The federal withholding tables have been revised accordingly to reflect this credit – so workers will see about $13 per week extra in their paychecks. The IRS asks that employers start using these new tables as soon as possible, but no later than April 1, 2009.

Big whoop!

It is obvious that the 2008 rebate checks were a very expensive fiasco – costing the government billions of dollars both in actual out-of-pocket expense and in uncollected outstanding taxes (as the IRS had to take employees away from collecting back taxes to man the phones to answer the multitude of questions from taxpayers), and doing nothing to “stimulate” the economy. See my guest post at taxguy “That Was the Economic Stimulus That Was”.

However, a lump-sum check of $1,200 to $2,100 or more (depending on family size) could be put to good use paying down bills or credit card debt or as an investment. Granted, as my mentor Jim Gill would say when discussing a small refund, “Better in your pocket . . . {than in the pocket of the government}”, $13.00 per week will be simply “lost in the shuffle” and not make any significant impact on anything. What will it buy – a night out for the family at McDonald’s?

At least this “stimulus” payment saves the government the cost of distributing the money - it is much more cost-efficient to have all the work done by employers. But making the pay-out through revised income tax withholding tax tables will result in many unintended consequences.

Andrea Coombes points out the major problem in her article “More Like a 'Make Work' Credit: New Making Work Pay Credit Makes a Check-Up on Your Withholding Essential” at MarketWatch -

But withholding tables are a blunt instrument, unable to precisely assess taxes for millions of taxpayers' unique situations. And employers who use the tables don't know workers' complete situation, such as whether an employee has a second job or is married to someone who also works. That means some workers will end up with more cash than they're eligible for under the new credit”.

She also points out that, “People claimed as dependents aren't eligible for the credit, but if they work it may show up in their paychecks.”

Many taxpayers will find themselves unpleasantly surprised at tax filing time next year by an unexpected balance due to “Sam” resulting from under-withholding.

Also hit with unintended consequences are retired taxpayers who do not have earned income but receive pensions. I have seen the effect on several clients already. While some retirees request a flat % withholding on their pension distributions (i.e. 20%) there are also many who use the withholding tables, claiming “Married 0” or “Single 1” just as they would if they were working. These taxpayers are not entitled to the Making Work Pay credit – but the withholding on their pensions, often just enough to cover their tax liability, will be reduced by over $50.00 per month due to the revised tables.

A significant number of individuals, working and retired, will need to revise their W-4 or W-4P to request additional withholding in order to offset the MWPC adjustments.

Totally self-employed individuals would, in theory, adjust their quarterly estimated tax payments by $100.00 or $200.00 per quarter to take advantage of the advance payment of the credit.

The credit of 6.2% comes from an earlier, non-BO stimulus proposal known as the “payroll tax holiday”. 6.2% is the tax rate for withholding for the Social Security component of the “FICA” payroll tax. The “payroll tax holiday” idea called for suspension of Social Security withholding on the first $XXXX of wages – sufficient to equal the specific dollar amount of the proposed rebate.

This method would not affect income tax, and therefore would not require a change in the income tax withholding tables. It would avoid the problem faced by retirees, but would not avoid “double-dipping” by employees with more than one job during the year or the problem of working dependents.

Recipients of Social Security, SSI, Railroad Retirement, and Veterans Benefits will receive a one-time “Economic Recovery Payment” of $250.00 sometime before the end of May (my parents just received a notice from SSA about this payment). This is a separate check issued by SSA, RR or VA. If your benefits are directly deposited to a bank account so will this $250.00. Those who are also entitled to a MWPC due to employment or self-employment must reduce their $400.00 credit by any such “Economic Recovery Payment” – so the most an employed Social Security recipient gets is $400.00 and not $650.00.
As the notice my parents received points out "You do not need to take any action to get this payment".
The ERP is for 2009 only. There does not seem to be any income phase-out for the $250.00 payment. It is available to recipients of one of the 4 sources who were eligible for benefits for any one of the three (3) months prior to the February 17 enactment date (i.e November or December 2008 or January 2009). Eligible ERP recipients are asked to notify the appropriate agency (SSA, RR, VA) if a payment is not received by June 4, 2009.

Again big whoop – but still “better in your pocket . . .”!

The IRS has a Q+A section for the Making Work Pay Credit at its website (click here), and the SSA website has a page on the Economic Recovery Payment (clock here).

So what are you going to do with your $13.00 per week “windfall”?


Saturday, April 25, 2009


Limited BUZZ lately. Many tax bloggers, who are also practicing tax professionals, are taking time off to recuperate from the tax filing season.

* I found Mike from MONEY TLD echoing advice that I have been giving for years in the last TAX CARNIVAL from Kay Bell. Mikes tells us “
Don’t Spend Just To Get the Tax Deduction”.

* The same TAX CARNIVAL led me to “Don’t Guess on Your Taxes” at MIGHTY BARGAIN HUNTER (“I pity the fool who charges me retail!”). He ends his post with some great advice - “If you don’t understand everything you’re putting on your tax return, shell out the money to get it looked over by a competent professional. It really isn’t worth it to guess.”

* Blogger Chris Weigant offers a self-described “flight of fancy” in “
A Modest Proposal For Simplifying The Tax Code” over at the HUFFINGTON POST. Thanks to Rick Telberg of CPA TRENDLINES for pointing out this editorial in a Twit (Tweet?).

* Roni Deutch reports that THE “
Tax Credit for Ford Hybrids Begins Phase-Out” at her TAX HELP BLOG.
* TAXGIRL Kelly Phillips Erb is up to California in her “State Tax Primer from A to W”.

* The Spring 2009 issue of “Tax Watch”, the Tax Foundation's quarterly tax policy newsletter, which presents the Foundation’s our economic research and analysis in a simple, non-technical format, is now available to download.

The issue includes the following articles:

· Federal Tax Reform on the Way?
· State Budget Shortfalls May Spark Tax Reform
· America's Tax Freedom Day Arrives Early
· Experts Talk Stimulus, Reform in Recent Tax Policy Podcasts
Click here to download the issue.

Wednesday, April 22, 2009


Look – it’s another blog list!

Despite what the title of Sean Connery’s last James Bond film recommends, there are times when you can say “never”, especially when it comes to tax returns. Here are five of them -

1. NEVER accept tax advice from anyone other than a professional tax preparer. Don’t listen to a broker, a banker, an insurance salesman, or your Uncle Charlie! You wouldn’t ask your butcher for a medical opinion, so why would you listen to tax advice from your MD?

2. NEVER ignore correspondence from the Internal Revenue Service or a state tax authority. When you get a letter or notice from “Sam” or any of your other “Uncles” give it to your tax professional immediately.

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

4. NEVER hold up filing your return, or an automatic extension request, by the April statutory deadline simply because you do not have the money to pay the tax you owe. It is important that you file your 1040 or 1040A, or 4868 extension application, by the April 15th deadline, even if you cannot pay all or any of the tax due on the return. Along the same lines, if you have requested an extension be sure to get your tax return in the mail by October 15th, again even if you cannot pay all or any of the tax due. The penalty for paying late is .5% (1/2 of 1%) of the tax due per month. The penalty for filing late is a full 5% of the tax due per month – 10 times more!
5. NEVER have your tax return prepared by one of the “fast food” preparation chains, especially the one that bears the name of the two brothers (in the literal sense – no ethnic reference). You will pay gourmet restaurant prices for fast food service. And, now that I think about it, the “products” at McDonald’s or Burger King are superior to those of these tax preparation chains.


Tuesday, April 21, 2009


Now that the tax filing season is over I once again regularly search the web for items of tax-related “BUZZ”. In doing so I came across two editorials of interest from the Wall Street Journal.

* The first one, “We Still Need a Simpler Tax Code”, is by National Taxpayer Advocate Nina Olson.

Nina points out, “Every year taxpayers and elected officials complain about the tax law's complexity. But despite the exasperation, no significant simplification has occurred since the landmark Tax Reform Act of 1986. To the contrary, each new tax proposal is layered onto the existing code, rendering it more complex with every new act.”

She gives some interesting statistics to highlight the complexity of today’s Tax Code:

Since the beginning of 2001, there have been more than 3,250 changes to the tax code -- an average of more than one a day -- including more than 500 changes last year alone.

The tax code has grown so long that it's challenging even to figure out its length. A search of the code conducted in the course of preparing my last report turned up 3.7 million words. A 2005 study by the Tax Foundation, a tax research organization, found that the number of words in the code has more than tripled since 1975.

One significant problem is the ambiguity concerning tax breaks meant to encourage taxpayers to save for education and retirement. The number of such incentives has grown to at least 27. And the eligibility requirements, definitons of common terms, income-level thresholds, phase-out ranges and inflation adjustments vary widely

Nina is right when she says “American taxpayers deserve a simpler and less burdonsome tax system”. As she said in the beginning of her editorial, everyone agrees that the tax system is too complicated and should be simplified – but yet nothing is done about it. Why is that? Nina hits the nail on the head when she suggests –

In my view {and mine, too – rdf}, it’s because elected officials believe the political risks of putting forward a proposal to vastly simplify the tax code outweigh the political benefits. Each tax break has a constituency, and constituencies that stand to lose benefits tend to organize quickly to protect their benefits.”

As long as the main function of a member of Congress is not to properly manage the affairs of the country but to get re-elected we will continue to have the mucking fess that the Tax Code has become. Congresspersons do not think first what is best for the country or best for the American public, but always “what’s in it for my constituents/contributors?”, or, if my cynicism is allowed, more realistically “what’s in it for me?”.

As Nina points out “tax simplification would benefit all Americans, regarless of political party”. She feels, again as do I, that most Americans would enthusiastically support tax simplification, and “it is this constituency that can and should prevail”.

* The second, titled “Everyone Should Pay Income Taxes: It's bad for our democracy to exempt half the country”, is by Ari Fleischer, a former press secretary for President George W. Bush. Here are some facts from the editorial (the highlights are mine) -

As a result of the 2001 tax cuts enacted by a bipartisan Congress and signed by President George W. Bush, the share of taxes paid by the top 10% increased to 72.8% in 2005 from 67.8% in 2001, according to the latest data from the Congressional Budget Office (CBO).

Contrary to the myth that Mr. Bush cut taxes only for the wealthy, the 2001 tax cut reduced taxes for every income-tax-payer in the country. He reduced the bottom tax rate to 10% from 15% and increased the refundable child tax credit to $1,000 from $500 per child, both cuts that President Barack Obama says we should keep. In so doing, millions of lower income taxpayers were removed from the tax rolls, shifting the remaining burden to those at the top, even after their taxes were cut.

According to the CBO, those who made less than $44,300 in 2001 -- 60% of the country -- paid a paltry 3.3% of all income taxes. By 2005, almost all of them were excused from paying any income tax. They paid less than 1% of the income tax burden.. . . All the while, this large group of voters made 25.8% of the nation's income.

Mr. Obama is adding to this trend with his "Make Work Pay" tax cut that means almost 50% of the country will no longer pay any income taxes, up from a little over 40% today

I wholeheartedly agree with Mr Fleischer’s suggestion -

It's time to create an Economic Growth Code whose purpose is to fix and grow the economy, not redistribute massive amounts of wealth. A new tax code that creates growth and reforms our entitlement system is the only way to dig our way out of the hole we're in.

Under an Economic Growth Code, everyone in American would pay income taxes -- everyone. Such a system would be designed to foster broad-based growth for all, in contrast to the loophole-ridden system we have today. Not only is the current code flawed from top to bottom, it is used by politicians to divide the public along class lines and fails to promote prosperity

I have long said that every single adult taxpayer should pay at least $100.00 in federal income taxes.

So what do you think?


Monday, April 20, 2009


I just discovered this information from the NJ Division of Taxation website.

Senior and disabled residents who qualify for a 2007 property tax reimbursement because of the recent increase in income limits for the Senior Freeze (Property Tax Reimbursement) Program now have until June 1, 2009, to file applications, Governor Jon S. Corzine announced today. The original deadline for the newly eligible applicants to file their 2007 applications was March 31, 2009.

Governor Corzine signed the legislation to expand the income limits of the Senior Freeze Program in December as part of his New Jersey economic assistance and recovery package. The first phase of the expansion increased the income eligibility limits for 2007 from about $45,000 for single applicants and approximately $55,000 for married/civil union couples to $60,000 for all applicants.
As a result of the increase in the income limit for 2007, some senior and disabled New Jersey residents who did not previously qualify became eligible to apply for a reimbursement. The amount of the Senior Freeze reimbursement would be the difference between property taxes paid for the first year the applicant met all the eligibility requirements, and the property taxes for the reimbursement year.

The expansion of the Senior Freeze Program significantly increases income eligibility limits for seniors and disabled citizens for the next two tax years as well. The income limits increased to $70,000 for tax year 2008 and will increase to $80,000 for tax year 2009. The deadline for filing applications for the 2008 tax year is also June 1, 2009

It doesn’t surprise me. Each year NJ sets initial deadlines for the Property Tax Reimbursement and NJ Homestead Rebate applications - which are always eventually extended until October.

here to read the entire press release.


Now that the tax season is over I have had a chance to review the items in the American Recovery and Reinvestment Act of 2009, signed into law by BO on February 17th, that will affect 2009 and 2010 Form 1040s (and 1040As). I will discuss these items over the next few days.

This past tax season several clients included notes or receipts for energy saving purchases made in 2008 with their tax “stuff”, hoping to get an energy tax credit. Unfortunately the credit for energy saving items purchased for your personal residence expired on December 31, 2007, and was not renewed until January 1, 2009. There was no such energy credit available for 2008 purchases. I expect that several of these clients were upset when I pointed out their bad timing.

The reinstated credit, a provision of ARARA 2009, allows for a maximum total energy credit of $1,500 for 2009 and 2010. If you use the full $1,500 credit on your 2009 Form 1040 you cannot claim an additional credit for qualifying purchases made in 2010 – but if you have a $700 credit on your 2009 return you can still claim up to $800 on your 2010 return, assuming you make qualified purchases in 2010.

The limits that had been placed on specific individual items - such $200 for windows, $50 for an advanced main air circulating fan, $150 for a qualified natural gas, propane, or oil furnace or hot water boiler, and $300 for “energy-efficient building property” - were also eliminated. The new credit is now 30% (up from 10%) of the cost of the item – up to the $1,500 maximum.

If you claimed the energy credit in 2006 or 2007 and used up part or all of the $500 credit maximum that was previously allowed you do not have to worry. The earlier $500 cap does not apply towards the $1,500 for 2009 and 2010 – you start from “0” with a clean slate in 2009.

The following items, which meet federal energy-efficiency standards, qualify for the credit:

· Energy-efficient windows
· Skylights
· Central air conditioners
· Electric heat pumps
· Water heaters
· Exterior doors
· Insulation
· Natural gas, propane or oil furnaces
· Natural gas, propane or oil hot water boilers
· Biomass fuel stoves
· Main air circulating fans
· Pigmented metal roofs

Just as with the previous credit, you should receive a “manufacturer’s certification” when you purchase an item that qualified for the energy credit. Save this certification and give it to your tax professional with your “stuff” next year. And to repeat, only qualifying items purchased for use in your primary personal residence are eligible for the credit.

Click here for more detailed information on the items available for the revised reinstated energy tax credit.


Saturday, April 18, 2009



It is good to get back to not only blogging but also reading other blogs. I missed my daily dose of Kay, Kelly, Trish, Bruce, Jim, Joe, Pete, et al.

* Peter Pappas provides some good advice for the self-employed in “Famous Last Words From the Self-Employed Taxpayer With IRS Problems” at THE TAX LAWYER’S BLOG.

* Roni Deutch, whose book I still have to read, gives us some "Tax Tips for Job Hunters", of which there are currently a lot more than usual (hunters, not tips), at her TAX LADY blog.

* I’m on board with Kirk Walsh. “I Don’t Get the Tea Parties” either – the tax day protest by conservatives. I am not a fan of TARP and the bail-out passed under GWB – but it was passed under GWB and is not the fault of the current administration.

Yellow Rose of Taxes Kay also offers some opinions on the tea party cafones in her post “Taking On the Tax Tea Partiers” at DON’T MESS WITH TAXES.

* Linda Beale of A TAXING MATTER brings us the “
IRS "Dirty Dozen" List of Tax Scams: Don't Do Them, Dear Reader”.

* It appears that TAX FREEDOM DAY 2009 (April 13th) occurred before TAX DAY 2009 (April 15th), the Tax Foundation reports in “America Celebrates Tax Freedom Day”. Unfortunately I was too busy to stop and celebrate this year.

New Jersey’s TAX FREEDOM DAY will be April 29th – more than 2 weeks after the national day. NJ is #2 (appropriate) on the list of most taxed states – behind Connecticut, whose TAX FREEDOM DAY is April 30th. New York is not far behind – at #3 with TFD on April 27th.

Residents of Alaska pay the least tax – with the earliest TAX FREEDOM DAY of the 50 states on March 23rd.


Friday, April 17, 2009


I survived another tax season!
My 38th tax filing season was prefaced by an incident. While parked overnight on Summit Avenue my car was struck by a hit and run drunk at 2:30 AM on a Wednesday morning during the last week of January. The impact pushed the back of my car on top of the hood of the car parked behind me and did extensive body and undercarriage damage! As a result of having to wait for the car to be repaired, with insurance considerations and all, I was unable to get to Summit for my annual “pre-tax season” haircut (I get my hair cut every 6 months – whether I need it or not!). Because of this my hair is longer now than it was in the 70s! Getting a haircut is high on my list of post-tax season “housekeeping” items.

There has been a special “gimmick” for each of the past two tax seasons. Two years ago taxpayers who normally would not have to file needed to submit a special Form 1040EZ-T to get a $30.00 - $60.00 refund of telephone excise tax paid. Last year normal non-filers had to file at Form 1040A with a “0” tax liability in order to get a $300.00 minimum “stimulus” rebate check.

While there was nothing this tax season that required non-filers to file, the “gimmick” was a “second chance” at last year’s GWB “stimulus” rebate fiasco via the refundable “Recovery Rebate Credit”. The rebate checks sent out last year were based on information reported on the 2007 tax return. If an individual or couple’s situation changed for 2008 – i.e. the birth of a child, a reduction in Adjusted Gross Income, or an increase in taxable income that resulted in a positive tax liability – it was possible to add an additional rebate amount to tax withheld or paid in on the “Payments” section and either increase the 2008 refund or reduce the 2008 balance due. I had several clients who were able to take advantage of this “second chance” for all of the named reasons.

Another kind of “gimmick” for 2008 was the refundable “First-Time Homebuyer Credit” of up to $7.500. It was not really a true credit but really an interest-free loan, as it has to be paid back over an extended period of time beginning in two years. I had three clients who took advantage of this “gimmick” – two on the same property (non-married co-owners) – and it looks like one of the GD extensions will be claiming this credit. I did not have anyone who purchased in 2009 but claimed the credit on the 2008 return.

I also took advantage of the weird one-time only additional standard deduction of $500 or $1,000 for real estate taxes paid on quite a few returns. As I predicted in most cases this added deduction benefited retired taxpayers.

Last year the State of New Jersey stopped sending out booklets with forms and instructions to most NJ taxpayers, and the IRS, in its infinite wisdom, stopped sending out pre-printed estimated tax voucher packages. This year I was prepared and provided the coupons and envelopes to clients who file quarterly with their finished returns.

This year the State of New York decided not to send out forms to resident or non-resident filers – forcing me to purchase bulk copies. I am still mad at NY for making me write the information from W-2s on its IT-2 form instead of just attaching a copy of the W-2 to the return, as every other state and the IRS does.

There was a glitch with NJWebFile this year. A few weeks into the season I found that, while I was able to access the system and begin a return, as I finished the first page of data entry the internet would automatically shut down and I would get an error message from Microsoft saying in effect it had a problem with NJWebFile and could not continue. I wrote to a contact at NJDOT about the problem and prepared all NJ-1040s manually. I would go back and check it every other day and finally a return went through. After that there were no problems with the online filing of NJ-1040s for the rest of the season.

NJWebFile still allows one to condense 100 stock transactions into a single entry, but will not allow returns with Schedule C, partnership or Sub-S income, or more than 3 pension and annuity sources per taxpayer (and 6 W-2s per return).

The season got off to a smooth start. For the first two weeks of February the turn-around was relatively quick – with returns being done as they were received. However by February 15th the floodgates had opened and the deluge began. For perhaps the first three weeks of February the turn-around time was never more than two weeks – but by the end of the month and pretty much through March it became four weeks.

I made it a point this season to finish all returns received in February, for which I had all the information necessary to complete the returns, before beginning any of the returns received in March.

Partially because I did not have a car for much of February I started the season by going to my “mail drop” to pick up new returns only once a week – on Sunday – a practice which continued throughout the season. In the past I went almost every other day – which wasted a lot of time.

Often times a tax filing season will have a recurring theme. There was one year when every third person in the door had won something in the lottery – from $1,000 to $50,000. Another year, more recent, it seems that every homeowner had refinanced at least once. The only recurring item this season that I noticed was an abundance of round numbers - $2,300, or $6,600, or $52,000. Either the AGI or the total of itemized deductions or the taxable income or the tax liability or refund on quite a few returns was a nice round number.

I am pleased to say that not a single client had undergone foreclosure on a personal residence in 2008. While some are not exactly the most fiscally frugal it seems that I have instilled some sense of financial responsibility in my clientele.

This year I completed returns as they were received – I did not put off more involved ones until the end of the season and then find I had to file a GD extension because I did not have enough time to properly devote to them. I finished “red-filed” (need more information) returns as soon as the missing information became available – so there were no returns “hanging over my head” throughout the season.

There were several surprise “early birds” this season, and I was able to get some of the more involved returns out of the way in February. Of course many returns were delayed because of the late issuance of brokerage “Consolidated 1099” statements – specifically permitted by the IRS this year. However I do believe that there were less “corrected” Consolidated 1099s issued by brokerages than there had been in the past.

I strictly enforced my “read my lips – no new clients” policy this year, which was a help. I did accept two “lost lambs” back into the fold.

Health issues with my mother caused the loss of a few days during the end of the season – including causing me to end the season a half day earlier than usual – and dealing with the car repair issue took away some valuable hours in February. Still I managed to end the season with less GD extensions than ever – although still too many.

I ended this year with 32 federal extensions filed, and 2 state returns waiting for additional information. About 2/3 of the GDEs were either specifically requested by clients who needed more time to get their “stuff” ready, or returns that were not “in my hands” by March 31st, or returns that needed more information to properly complete. A dozen were received by March 31st, but either arrived during the last week of March or close thereto.

I never felt “overwhelmed” during this 38th tax season. I used to say that there were three stages to a tax filing season –

Stage 1 is “Bring on the 1040s – there is plenty of time.”

Stage 2 is “Oh my God – there is so much to do and so little time. I will never get them all done. What am I going to do?”

Stage 3 is “F-ck it! It they get done they get done.”

This season did not provide me with three stages – it seemed relatively smooth throughout the 2½ months.

I am indeed glad the season is over. Now I have to clean my office, closet and kitchen, do my laundry, get my hair cut, have my car inspected (I have just had it tuned-up) . . . and, oh yes, get to work on the GD extensions.

Only 12 more tax seasons to go (I want to be able to say I prepared taxes for 50 years).

An interesting non-related item – I checked my blog “statistics” yesterday and it seems that I had about 3 times as many visitors to TWTP during the tax season, when I do not blog at all, then during the “normal” year when I try to blog daily.

And, despite the fact that I clearly stated that I would not be reading or responding to tax questions submitted via email or as post comments during the season, I of course got lots of questions. They were, as I said they would be, automatically placed in “inventory” unread to be used as the source of future ASK THE TAX PRO postings. I will review them after I have a good number of GD extensions “under my belt”. I expect that quite a few are situation-specific questions sent to me in an attempt to avoid having to pay a local tax professional to deal with the issue.


Thursday, April 16, 2009


It appears that the State of New Jersey will institute a Tax Amnesty program. NJ has had success with such programs in the past.

Here is the word from the NJ Division of Taxation -

“Governor Jon S. Corzine recently signed a bill into law that requires the Director of the Division of Taxation to establish a tax amnesty period, not to exceed 45 days in duration, which shall end no later than June 15, 2009. As a result, the Division of Taxation has announced the Tax Amnesty program will begin on May 4, 2009, and end on June 15, 2009. In accordance with the law, amnesty “…shall apply only to State tax liabilities for tax returns due on or after January 1, 2002 and prior to February 1, 2009 and shall not extend to any taxpayer who at the time of payment is under criminal investigation or charge for any State tax matter, as certified by a county prosecutor or the Attorney General to the director.”

In accordance with the provisions of the law, the program will offer a waiver of all penalties, referral cost fees, and one-half of the balance of the interest that remains due as of May 1, 2009, provided payment of all tax owed and one-half of the balance of the interest that remains due is paid in full during the amnesty period. In addition, all filing requirements must be satisfied for delinquent returns.

More information will be posted on a special Web site that is being planned and developed. In addition, a public awareness campaign is planned and is expected to be implemented on or about mid-April.

The Division of Taxation plans an outreach mailing to all taxpayers who are known to have amnesty-eligible deficient and/or delinquent accounts. In addition, a phone number will be established for the public to reach a special Call Center where representatives will be trained to answer specific inquiries. The Call Center is expected to be established on or about the week of April 27.”

Click below for more information -

2009 Tax Amnesty – General FAQ
FAQ for Special Situations & Tax Practitioners

Now if only Congress would institute a federal Tax Amnesty Program!


Wednesday, April 15, 2009


Tax season's over!

My face it has a big smile.

And so it's off to the shore -

1040s no more!

At least for a while.

"Talk" to you soon!