Monday, December 7, 2009

ON THE BOARDWALK IN ATLANTIC CITY

Last Thursday and Friday I attended the annual National Association of Tax Professionals year-end tax update seminars, titled “The Essential 1040” and “Beyond the 1040”, at CAESAR’S Atlantic City.

I did not stay at CAESAR’S this year. The advertised seminar room rate at CAESAR’S was $95.00 per night. I stayed at the TROPICANA, a short walk down the Boardwalk, for the special rate of $49.00 per night for Wednesday and Thursday night and $99.00 for Friday night. Not only was the TROP cheaper, but it had many more options for dining, shopping and entertainment.

Now we all know that I did not pay $49.00 and $99.00 a night at the TROP, nor would I have paid $95.00 per night at CAESAR’S. I actually paid $65.89 for two nights and $122.86 for one night at the TROP (total $254.58) and would have paid $118.30 for three nights at CAC (total $354.90). This is because of two $5.00 per night special fees (total $10.00) and a 14% hotel tax! An excellent example of how New Jersey nickels and dimes its residents, and visitors, to death with fees, charges and taxes to keep its politicians, and their cronies, fat.

This is one of my “pet peeves” regarding travel. I wish the TROP and CAESAR’S had been honest in their advertising and said the room rate was $65.89 per night or $118.30 per night instead of $49.00 and $95.00 – just as I wish all hotels would advertise the true cost of a room when providing a “quote” or when advertising. The various fees and taxes vary from state to state, so, unless you know the charges for each individual state, you cannot automatically add the appropriate amount to the advertised price to come up with the true cost.

That said – back to the subject at hand.

“The Essential 1040” presents updates, adjustments, new developments, and changes to the tax law for 2009, and 2010 if known, with an overview of two topics thrown in for good measure. The “Beyond the 1040” seminar discusses certain timely topics in more detail.

While, for me, these year-end classes are more reminders then new knowledge, there was a lot of clarification of items, and it is always good to work through various tax scenarios and see how the information flows to the actual form or schedule. I made lots of notes, including items to discuss with specific clients before year-end.

The NATP membership is made up of all kinds of tax professionals, with all kinds of initials, or none, after their names. It appears that CPAs are less trustworthy than EAs or us poor unenrolled folks, as they were the only category of attendee who was required to physically sign out and record the time at the end of each day in order to get CPE credit. Now my CPA colleagues will say that it is because the AICPA is more diligent in verifying the continuing education of its members – but we know otherwise. {Sorry about that – I just couldn’t resist}

Our “teacher” for both days was veteran NATP instructor Alice Orzechowski, a CPA, an EA, and a goat farmer from Maryland. This was her third visit to NJ this year, as she also gave presentations at the NJ NATP chapter seminar in September and at a seminar sponsored by the NJ chapter of NSA.

While Alice obviously uses tax preparation software, and assumed everyone in the room also does (“the question” was not even asked this year), she has a healthy attitude about the capabilities of tax software. Throughout the two days she would often “disclaim” the fact that “your tax software is not going to be able to do this” or exclaim, “do you really think your software is going to do all this?”.

She told us that one year the tax software program she used had automatically checked the box on Page 2 of the 1040 to indicate “your spouse itemizes on a separate return or you were a dual status alien” on every single 1040 it processed. And on occasion she discovered tax software making math errors.

Here are some items of interest and some reminders from the seminars -

* While the basic standard deduction, and additions for age, blindness, and real estate taxes, is not allowed in calculating the dreaded Alternative Minimum Tax (AMT), the deduction for sales tax on a new car purchase and the disaster loss deduction (as additional Standard Deduction calculated on Schedule L) are deductible for determining AMT. The 2009 Form 6251 (currently in draft status) provides for deducting these items.

* The additional standard deduction for real estate taxes, limited to $500 or $1,000, is for any real estate taxes paid during the year that would have been deductible on Schedule A if filed. It is not restricted to real estate taxes paid on a personal residence.

* The $49,500 limit on the deduction for sales tax on a new car purchase is per car and nor per return. You can purchase two new cars (one for each spouse), or a new car and a new motorcycle, or 2 new cars and a new motor cycle and a new motor home between February 17 and December 31, 2009, and claim the sales tax deduction on the first $49,500 as an additional Standard Deduction for each new vehicle!

* The various standard per diem amounts for business travel between October 1, 2009 and September 30, 2010 have been increased -

(1) The meal and incidental expenses per diem for “locations not specifically listed” has increased from $39.00 per day to $46.00 per day. The lodging per diem remains at $70.00 per day.

(2) The incidental expenses only per diem has increased from $3.00 per day to $5.00 per day.

(3) The “inside continental US” meal and incidental expenses per diem for qualified members of the transportation industry has increased from $52.00 per day to $59.00 per day. For 2009 and 2010 80% of meals are deductible (as opposed to 50% for all other taxpayers).

* The per diem rate is determined by the city where you spend the night (i.e. where you sleep). If your business meeting is in New York City, and you eat all your meals in New York City, but you are staying in a hotel in Jersey City or North Bergen (New Jersey) to save money on the room rate, you must use Jersey City or North Bergen as the location for determining the per diem allowance. Of course in such a case you can elect to claim actual meal expenses instead of the per diem

* As an example of the complexity of the Tax Code, here are the AGI phase-out beginning points for a married couple filing jointly for the various available educational tax benefits -

• HOPE and Lifetime Learning Credit = $100,000
• Excluding Savings Bond Interest = $104,900
• Student Loan Interest Deduction = $120,000
• Tuition and Fees $4,000 Deduction = $130,001 (no phase-out – just not allowed)
• Tuition and Fees $2,000 Deduction = $160,001 (no phase-out – just not allowed)
• American Opportunity Credit = $160,000

God, and Congress, only knows why there is a different phase out amount for each individual item.

* The new American Opportunity Credit will pretty much make the deduction for tuition and fees obsolete for 2009 and 2010, except for graduate students, due to the increased income threshold. It also makes the HOPE credit obsolete, except in the case of students attending schools in the Midwestern Disaster Area, in which case a $3,600 maximum per student credit is available.

* If a taxpayer claims a HOPE credit for one student it must claim the HOPE credit for all eligible students, regardless of where they attended school. The same applies for the American Opportunity Credit. You cannot claim the HOPE credit for one student and the American Opportunity Credit for another student.

* A 529 plan allows tax-free distributions to pay for the room and board of the student as well as tuition, fees, course materials, and computer equipment. The room and board can be provided on campus, off campus, or in the taxpayer’s home. The room and board amount is limited to the lesser of the amount actually paid or the allowance for room and board included in he cost of attendance as defined in Section 472 of the Higher Education Act of 1965 in effect as of June 7, 2001. To determine the amount you can use for room and board for a student who is living at home go to the website of the college and look-up the cost allowance for room and board for living at home for purposes of financial aid.

* The IRS wants taxpayers to attach a copy of the Closing/Settlement Statement to the Form 1040 for all claims for the First Time Homebuyer Credit filed on 2009 income tax returns. This is as it should be. In such a case the tax return cannot be electronically filed.

* Be sure to tell your tax professional if you make non-deductible contributions to a traditional IRA. Just because the contribution is not deductible does not mean that it is not reportable. And make sure that the tax pro knows about all non-deductible contributions made in previous years. Once a non-deductible contribution has been made a Form 8606 should be included with each and every Form 1040 filed thereafter, whether or not additional non-deductible contributions are made, to carryforward the IRA basis amount.

FYI – it has nothing to do with the tax seminars, but the IRS 2009 Publication 17 (Your Federal Income Tax – For Individuals) is now available to download.

TTFN

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