Tuesday, January 31, 2012


Joy to the world - tax season’s here.
I’ll soon be flush with cash!
Let every client be organized,
and give me all I need, and give me all I need,
and give me all I need to prepare their returns!

My 41st tax season will officially begin tomorrow - let the deluge begin!

As is my custom, due to the demands of the filing season I will be taking my annual “tax season hiatus” from posting to THE WANDERING TAX PRO, the NJ TAX PRACTICE BLOG, and THE TAX PROFESSIONAL.

Between now and April 16th I will barely have time to relieve myself let alone blog! I will NOT be answering emails from non-clients, nor will I have time to respond to comments. If a comment requires a response I will do so after April 17th.

A reminder – I am NOT accepting any new 1040 clients (or any other kind of tax preparation clients).  So don’t email me asking if I can prepare your 2011 tax returns. 

I will be publishing a WHERE THE FAKAWI post at least every other week here at TWTP to keep my clients up-to-date on my progress during the season and to report changes or additions to my tax season policies and procedures. Clients can also keep track of my tax season progress by following me at TWITTER (rdftaxpro).

I realize that I am abandoning you at a time when you may need me the most – but I need to make a living!

I find it a bit amusing that the period of time when TWTP gets the most “hits” is during the tax filing season when I am not posting.

“Talk” to you when it is all over!


BTW – be sure to stop by tomorrow for the annual posting of my TWELVE DAYS OF TAX SEASON!

Monday, January 30, 2012


Some last minute BUZZ before my “tax season hiatus” begins -

+ Trish McIntire talks about a certain unnamed “tax chain” in her post “Listening to the Complaints” at OUR TAXING TIMES.

She asks the IRS –

So IRS, are you investigating these offices? It’s your rule; returns can’t be e-filed without the W-2s, W-2Gs and 1099R to back up the income. Are you contacting the taxpayers in the stories to get more info? Are you contacting, or investigating at all, reports from other preparers about tax offices filing with pay stubs? Have you contacted the news outlets with educational materials about filing before the taxpayer has their W-2s and what to do if it happens? Are you running reports for returns rejected because a prior return was filed and looking for trends?

Whatever you do, please avoid using a “tax chain” to prepare your 2011 returns.  Seek out a competent independent preparer.  You will get much better individual service and probably pay less!

+ Speaking of “tax chains” – just got an ad in the mail from Jackson Hewitt that said in big letters “GET $1,500 IN AS LITTLE AS ONE DAY!”.  How? Apply for a Refund Anticipation Loan!

The ad did not say that JH could correctly prepare your federal and state tax returns.  Or that its employees were competent and experienced tax preparers.  Just come in and get $1,500.  It did mention “Free Accuracy Guarantee with paid tax preparation”.  So normally you would have to pay an additional fee if you wanted an accurate return?

They offered a $40 OFF coupon (tax preparation fee only – not good for “financial products, online tax preparation products or other services”).  If that is the discount I can imagine the fee!

Once again – this tax season avoid “tax chains” like the plague!

+ Kelly Phillips Erb, the tax blogoshpere’s TAX GIRL, presents “Tax Trivia Giveaway #1: Top Tax Rates” at FORBES.COM.

The first trivia question is – What was the top income tax rate during World War I?

Do you know the answer?  You could win free tax software!

+ The IRS’s National Taxpayer Advocate, Nina Olsen, has started a blog!  Check out her first post – “Welcome to the National Taxpayer Advocate's Blog”.  We welcome Nina to the “tax blogosphere”!

As Nina says – “So, here’s to the opening of a dialogue about tax administration, taxpayer rights, and taxpayer burden”.

+ And Kay Bell brings us “Tax Carnival #96: Dealing With Tax Dragons” at DON’T MESS WITH TAXES.

I remembered to submit an item this time!  I end the Carnival with "Don't Be In Such A Hurry".  


Saturday, January 28, 2012


+ Check out the January issue of LOIS.  

+ My tax tip this week at MAINSTREET.COM was “How to Prepare Your Tax Preparer”.  And then there was “How to Correct an Error on Your W-2”.

+ Go to the MISSOURI TAXGUY blog and look for my Robert F page at the “Store”.

+ The Tax Foundation has issued its “2012 State Business Tax Climate Index”, which presents the tax climate of each state as of July 1, 2011, the first day of the standard 2012 state fiscal year.

The 10 best states in this year’s Index are, from 1 to 10 – Wyoming, South Dakota, Nevada, Alaska, Florida, New Hampshire, Washington, Montana, Texas, and Utah.

The 10 worst states are, from 41 to 50 – Iowa, Maryland, Wisconsin, North Carolina, Minnesota, Rhode Island, Vermont, California, New York, and New Jersey.

Once again, like Oliver Twist the Garden State is last on the list –

“New Jersey scores at the bottom by having the third-worst individual income tax, the fifth-worst sales tax, the 13th-worst corporate tax, and the second-worst property tax.”

+ Darren Mish has a two parter titled “Claim Tax Deductions from your Hobby” at his IRS PROBLEM SOLVER BLOG.  Click on Part 1 and Part 2.

The data showed that 467 employees of the House of Representatives, or about 4.2 percent of the workforce, owed more than $8.5 million. In the Senate, 217 employees, or about 3 percent of the workforce, owed $2.13 million.

Obama’s staff was not immune, either, with 36 people in Obama’s executive office of nearly 1,800 workers — about 2 percent — owing the government $833,970 in back taxes.”

+ Trish McIntire celebrated “Earned Income Awareness Day” (12/27/12) with a discussion of the troublesome fraud magnet known as the Earned Income Tax Credit over at OUR TAXING TIMES.

Trish likes the EITC.  While I may support the basic concept behind the credit, I have written and spoken out against its inclusion in the Tax Code for years.  It is a refundable credit – and refundable credits = rampant fraud.

+ Kay Bell talks about the delays in sending out refunds for early birds in “Tax Refunds Delayed By Fraud Fine-Tuning” at DON’T MESS WITH TAXES.

This will probably be the last BUZZ until after the “tax season”.


Friday, January 27, 2012


Just about every state resident tax return now has a line for the taxpayer to enter “Use Tax on Out of State Purchases”.  It is line 44 on the NJ-1040 and line 59 on New York’s IT-201.  Many states require that you make an entry on this line – even if it is 0.00.

The instructions for the 2011 NJ-1040 tell us –

If you were a New Jersey resident and you purchased items or services that were subject to New Jersey sales tax, you are liable for use tax at the rate of 7% of the purchase price {the normal NJ sales tax rate – rdf} if sales tax has not been paid.  If sales tax has been collected out of State, use tax is only due if the tax was paid at a rate less than 7%, based on the difference.”

The instructions provide the following examples –

You purchased a computer for $1,500 from a seller located outside of New Jersey and no sales tax was collected.  Your use tax liability to New Jersey on this item is $105 ($1,500  .07 = $105).

On a trip to Maine you purchased an antique desk for $4,000 and paid Maine sales tax at the rate of 5%. The difference, $80 (2% of the purchase price), is due to New Jersey as use tax.”

If you do not know the exact amount of use tax that you would owe some states will provide an “Estimated Use Tax Chart”.  For example, if your NJ Gross Income is between $75,001 and $100,000 the state suggests you claim $53 in use tax.

I expect that at least 98% of all US taxpayers do not claim any use tax on their state return.  And a great majority of the 2% or less who do are employees of a state tax agency.  In my 40 years in the business I have never had a client voluntarily pay state use tax on their state resident income tax return.

There are those who purposefully shop for big ticket items out of state and have the items shipped to their nonresident address in order to avoid paying state sales tax at the point of purchase.  When this is done the purchaser is liable for use tax on the purchase in his home state.

The at the time Director of the NJ Division of Taxation Robert Thompson told the NJ-NATP annual Famous State Tax Seminar a story several years ago where an attempt to avoid paying sales tax backfired.

The NJ Division of Taxation has had success in sales and use tax enforcement.  In one instance the Division got a hold of the names and addresses of NJ residents who had purchased jewelry from a store just over the border in NY and had the items shipped to their NJ address, and therefore did not pay NYS sales tax.

The NJDOT send a letter, and a use tax bill, to each name on the list.  One of these mailings was opened by the wife of a NJ doctor who thought there was an error on the billing.  The wife called the NJ Division of Taxation and told them –

“You have made a mistake on your billing.  My husband only purchased one diamond bracelet.”

The husband, who apparently purchased matching diamond bracelets for his wife and his mistress, should have paid the sales tax upfront!

If you were a totally honest taxpayer, and in 2011 you did pay use tax on out of state purchases you made, and you choose to deduct state and local sales tax instead of state and local income tax on your 2011 Schedule A, and you elect to deduct the actual tax paid instead of using the optional tables you can also deduct the use tax you paid.  According to the instructions for Schedule A (highlight is mine) –

Generally, you can deduct the actual state and local general sales taxes (including compensating use taxes) you paid in 2011”.  


Thursday, January 26, 2012


While I have not yet read it through carefully (nor did I sit through it), there appears to be nothing new on taxes from BO in the State of the Union address.  No mention that I have seen of the need to totally rewrite the mucking fess that is our current Tax Code.  Just more of the same – continue to complicate the Tax Code with more targeted deductions and credits.

The “Buffet Rule” and the general concept of taxing the rich more because they can afford it was one of BO’s themes -

Tax reform should follow the Buffett rule: If you make more than $1 million a year, you should not pay less than 30 percent in taxes. And my Republican friend Tom Coburn is right: Washington should stop subsidizing millionaires. In fact, if you're earning a million dollars a year, you shouldn't get special tax subsidies or deductions. On the other hand, if you make under $250,000 a year, like 98 percent of American families, your taxes shouldn't go up.”

"Millions of Americans who work hard and play by the rules every day deserve a government and a financial system that do the same. It's time to apply the same rules from top to bottom. No bailouts, no handouts, and no copouts. An America built to last insists on responsibility from everybody."

"Do we want to keep these tax cuts for the wealthiest Americans?  Or do we want to keep our investments in everything else, like education and medical research; a strong military and care for our veterans? Because if we're serious about paying down our debt, we can't do both."

Millionaires don’t get the Child Tax Credit, for example, or any of the tuition tax benefits.  Many tax benefits are wiped out based on Adjusted Gross Income (AGI) or Modified Adjusted Gross Income MAGI) well below the $1 Million mark.  Millionaires are taxed on 100% of net capital gains in successful years, but are limited to a deduction of $3,000 in net capital losses in unsuccessful years. 

Millionaires with excessive dividend income pay a lower tax rate on corporate dividends, but only because, due to unfair double-taxation, this income has already been taxed by the federal government on the corporate level as high as 35%.

Does insisting on “responsibility from everybody” mean that almost half of Americans do not have to pay any federal income tax?

And BO calls for the extension of the payroll tax reduction

Right now, our most immediate priority is stopping a tax hike on 160 million working Americans while the recovery is still fragile. People cannot afford losing $40 out of each paycheck this year. There are plenty of ways to get this done. So let's agree right here, right now: No side issues. No drama. Pass the payroll tax cut without delay.”

To be sure, extending this for only 2 months was totally ridiculous, and, as long as it is in place for part of 2012 it should be all or nothing.  But we should also address whether or not this kind of political trick is good tax or financial policy in the first place.

To give BO credit, he does make one good suggestion that I noticed -

Put Americans to work today building the infrastructure of tomorrow.”

And he talks about corporate tax reform – but that is not my interest at this point nor is that the focus of this blog.


Wednesday, January 25, 2012

MITT'S 1040

So now we have seen Mitt Romney’s tax return. 

We already knew he was rich – now we know just how rich.

What did Mitt do?  Certainly nothing illegal.  He invested his money for the best return, as you or I would do.  It is just that he has a lot more to invest than we do.

Did he participate in any shady tax dodges or shelters?  Not that I can see.  He invested in stocks and earned a ton of dividends, most of which were taxed at a special rate of 15%.  And he his investments did well – resulting in humungous long-term capital gains.  Did he do anything sneaky to get the special 15% rate?  No. The Tax Code allows for a 15% tax rate for “qualified” dividends and long-term capital gains.  If you or I invested in the same, or similar, stocks we, too, would pay 15% on qualified dividends and long-term gains.  Actually some of us would pay 0% tax on all or part of the and capital gain income.   

Romney also gave close to $3 Million to church and charity, about 1/7 of his AGI, which, being deductible, reduced his taxable income.  Would he have given the same $3 Million away if he did not get a tax deduction?  I think probably so, or at least almost as much.  But the Tax Code allows for a deduction, under both regular tax and the dreaded AMT, for contributions to church and charity.  You and I would get the same tax deduction.

Because he was a victim of the dreaded AMT he got no tax benefit for his substantial state and local income tax and real estate tax payments and his also very high investment expenses. 

He paid $3 Million in income taxes!  More than you or I did.  More than anyone I have ever known did (I believe the most a client of mine has ever paid is a little over $1 Million).  Again about 1/7th of his AGI.  Almost half of Americans either paid absolutely nothing or actually made a profit from filing a tax return.  Should he have paid more tax so a higher percentage could pay 0?  Why?

His return was indeed voluminous – over 200 pages and attachments.  And he filed forms and schedules that I have never even heard of in 40 years in the business, let alone ever prepared.  But they were due to the nature of his investments.

Here is some more info on presidential candidate tax returns -

  The TAX HISTORY PROJECT provides links to the tax returns of Obama and Biden and Romney and Gingrich, as well as those of former Presidents and candidates.

  The WASHINGTON POST compares the basics of the tax returns of BO, Newt and Mitt in “Tales of the 1040s”.

  TAXGIRL Kelly Phillips Erb has reviewed Mitt’s return and tells us “Romney's Tax Returns are Remarkably... Unremarkable”.  I agree with Kelly’s bottom line -

The returns are – as predicted – remarkably unremarkable. Are we okay with moving on now?



+ Check out the January issue of LOIS.  

+ I suggest you read my NJ TAX PRATICE BLOG post “Everybody Wants To Get Into The Act”.

+ Go to the MISSOURI TAXGUY blog and look for my Robert F page at the “Store”.

+ The WISDOM JOURNAL, by Ron, lists “57 Avoidable Tax Mistakes”.

Ron does a good job in listing mistakes to avoid when preparing your tax return.  However there are some errors.

For one thing, “many of these mistakes are easily avoidable if you use {tax preparation software} to prepare your taxes” is a false statement.  Tax preparation software is no substitute for knowledge of the Tax Code, and certainly no substitute for a competent tax professional.  If you don’t know the tax law you are bound to make these mistakes.

Mistake #10 is very important to note, and provides excellent advice– “Failing to read your entire return to check for accuracy.  It is ultimately up to you to make certain everything is accurate.  Double and triple check your return.”

However the statement “If you use {software} you shouldn’t have this problem” is again totally false.  It is even more important to double and triple check computer generated tax returns!

Mistake #19 is “Failing to correctly handle the ‘Making Work Pay’ tax credit”.  While this was a very frequent mistake on 2009 and 2010 tax returns, you do not have to worry about this on your 2011 Form 1040, as the credit has expired and was not extended.  There is no Making Work Pay credit on the 2011 Form 1040.

And I disagree with #50 – “Failure to use Certified Mail when you mail your return to the IRS”.  Unless you are mailing the return on April 17th and need to guarantee the postmark this is an unnecessary added expense.

+ The INTUIT SMALL BUSINESS BLOG tells us “5 Things You Should Never Say to the IRS” in an audit.

Hey, just because I do not recommend tax preparation software doesn’t mean a blog written by a software company does not have good information.

+ Trish McIntire tells you what has happened if your anticipated refund is reduced by “Debt Offset” at OUR TAXING TIMES.

+ Kay Bell gives us the “2011 and 2012 Tax Rates, Tax Brackets” and discusses marginal vs. effective taxes at DON’T MESS WITH TAXES.

+ And you can “Win 'Your Income Tax 2012'” (from JK Lasser) in Kay’s “No Tax Contests 2012” contest.

If you also feel the urge now and then to go a bit old school with your taxes, leave a comment below on the tax break you find the most confusing.

Or if you prefer, you can tell me via Twitter (I'm @taxtweet) or post your thoughts on Don't Mess With Taxes' Facebook wall.

Whichever communication route you choose, please do so by 8 p.m. Central Time on Friday, Jan. 27. That evening I'll randomly select the winner from all the comments and touch base with him or her about how to send the tax book, via snail mail, to its proud new owner.”

+ Two items regarding the release of Newt’s tax return – Jeanne Sahadi of CNN MONEY goes “Inside Newt Gingrich's Tax Return”, and then there is “Gingrich and Medicare Tax - Pig Maybe - Hog Not - Geithner Definitely Not” from Peter J Reilly at FORBES.COM.

Peter makes an interesting observation (highlight is his) -

What is impressive, given the not shabby 3 mil plus income, is the alimony deduction.  Less than $20,000.  Who is his divorce attorney?  That is someone who should not be wanting for business in the future.”

+ Peter’s FORBES.COM colleague Kelly Phillips Erb, aka the TAXGIRL, quizzes another Republican candidate I never heard of before on his tax policies in “Tax Talk 2012: Tom Miller”.

According to his website Tom Miller is “a 46 year old single dad who has been a career flight attendant for over 23+ years.”

+ William Perez tackles three tax issues that probably generate the most questions in “Differences between Dependents, Head of Household, and Earned Income Credit” at ABOUT.COM-TAX PLANNING: US.

+ And Bill continues the discussion in another item titled “Tips for Resolving Disputes over Dependents”.

+ Trish McIntire provides a good list of the types of income you need to report and the information returns that you (and the IRS) will receive in her post “Income and Their Forms” at OUR TAXING TIMES.


Newt Gingrich, who led the crusade to impeach Bill Clinton over being serviced by Monica Lewinsky while at the same time he was shagging one of his own interns, thinks that asking a question about his former wife’s contention that he wanted an “open marriage” at a Presidential debate is “despicable”.

While I would agree that one’s marital infidelities should not preclude one from serving as President, it also seems to me that serving your first wife with divorce papers while she was in the hospital recovering from uterine cancer is also a bit despicable.


Tuesday, January 24, 2012


Another timely updated year-beginning post re-run:

You should have begun to receive the various forms needed to prepare your Form 1040. Employers, banks, brokers, mortgage companies, mutual funds, etc. are required to provide taxpayers with W-2s, most 1099s and 1098s by January 31, 2012.  Some 1099s are not required to be delivered until mid-February.  If you have not received all your information returns by February 15th, contact the employer, bank, broker, or whoever and arrange to receive a duplicate copy.

When you receive your W-2s and 1099s check the figures against your own records to make sure the amounts reported are correct. Carefully compare the gross federal and state wages, federal, state and local income tax withheld, and Social Security and Medicare taxes withheld numbers on your W-2s to the amounts on your paystubs or other records. Also verify that the Social Security numbers on the forms are correct. If you find an error or discrepancy, contact the appropriate employer or financial institution for an explanation or a corrected copy.

If the federal and state wages are not the same I always attempt to reconcile the numbers. My home state of New Jersey does not allow a deduction from state wages for contributions to pension or deferred compensation plans other than a 401(k), or for employee contributions to flexible spending accounts for insurance premiums, medical expenses and dependent care. Third-party disability pay, which is usually at least partially taxable for federal purposes, is exempt from NJ state income tax and will not be included in the state wages amount.

If you do not receive a W-2 from an employer and you cannot contact the employer because it has gone out of business or disappeared all is not lost. You can use your paystubs or other records to reconstruct the various items of income and withholding and file Form 4852 “Substitute for FormW-2 Wage and Tax Statement” with your federal and state tax returns. In such a situation I recommend that you consult a tax professional.

A word of warning for taxpayers who have brokerage accounts.  You should receive at least one “Corrected” Consolidated Year-End 1099 statement. It would be a good idea to wait a few weeks after receiving the original 1099 information before having your return prepared.

Here is another heads up. Insurance company and telephone company dividend checks mailed out in December or January often have a Form 1099-DIV attached. Do not separate the check and throw out the 1099-DIV by mistake thinking it is merely a check-stub. Conversely, check any 1099-DIV you receive from an insurance company or telephone company to see if there is a dividend check attached. I can’t tell you how many times I have found checks attached to 1099s given to me by clients at tax time.

Just because you receive a Form 1099-G for a state tax refund does not mean that the refund is taxable. A state income tax refund is only taxable to the extent you received a “tax benefit” from deducting state and local taxes paid on your Schedule A.

Let us say your total itemized deductions on a joint 2010 Form 1040 were $11,728, just above the standard deduction amount of $11,400. Included in this amount is a deduction for the state income tax withheld during the year of $1,723. Your 2010 state income tax return reported an overpayment of $531 and you received a refund check for that amount in May of 2010. In January you may receive a Form 1099-G from your state tax authority for the $531 refund. Only $328 of this refund is taxable on your 2011 Form 1040. As your itemized deductions exceeded the standard deduction by $328, you only received a “tax benefit” of $328 from your deduction for state income taxes.

If you did not itemize on your 2010 Form 1040, or you filed a Form 1040A, a state income tax refund is not taxable. If you elected to deduct state and local sales tax instead of state and local income tax on your 2010 Schedule A the refund is also not taxable.

FYI, many states have stopped mailing out paper Form 1099-Gs.  You must go to the website of the state’s Division or Department of Taxation or Revenue to download a copy.  So just because you did not receive a Form 1099-G in the mail does not mean that one was not issued by the state.

The IRS is very picky about matching names to Social Security numbers. If a Social Security number and name reported on your tax return does not match exactly the name in the files of the Social Security Administration the IRS will remove the name and dependency exemption of that person and automatically recalculate the tax liability as Head of Household, Married Filing Separately or Single.

If you have changed your last name as a result of marriage or divorce during 2011 make sure to notify the Social Security Administration of the change before filing your tax return. You do this by submitting a Form SS-5 to request a new Social Security card. Go to www.ssa.gov/ssnumber.


Sunday, January 22, 2012


It is important to learn from the past.

When Jon Corzine was running against Republican Doug Forrester for Governor of New Jersey the race was tight.  But Corzine won after a Republican ad quoting a negative interview by his ex-wife backfired.

Newt Gingrich turned the tables again and used the negative interview by an ex-wife to his advantage in the most recent debate, winning the South Carolina primary.

For some reason using the accusations of an ex-wife in a political campaign does nothing but bring sympathy to the cheating candidate.

It is also important to remember some things about Newt Gingrich.

Twice he left his wife, who had each been diagnosed with a serious illness (according to Esquire, Gingrich served his first wife with divorce papers while she was in the hospital recovering from uterine cancer), for a mistress, while espousing his support of “family values”.

Gingrich led the charge against Bill Clinton on the Monica Lewinsky issue while he was conducting his own affair with a congressional aide, who is now his wife.  Coincidently I read that a woman named Anne Manning admitted to having a relationship with Gingrich during his 1976 campaign. "We had oral sex," she said. "He prefers that modus operandi because then he can say, 'I never slept with her.'"  I guess that is where Clinton got the idea.

FYI, while he was Speaker of the House Gingrich was penalized $300,000 by a 395–28 House vote after extensive investigation and negotiation by the House Ethics Committee.  This was the first time in history a Speaker was disciplined for ethical wrongdoing.

I realize that I have said I would prefer a snake to a faithful spouse in the White House– but Gingrich is too much of a hypocrite and sleaze even for me.


Saturday, January 21, 2012


+ Check out the January issue of LOIS.  

+ This week’s TAX TIP installment at MAINSTREET.COM (by me) is “What’s New for the 2011 Form 1040?”.       

+ Go to the MISSOURI TAXGUY blog and look for my Robert F page at the “Store”.

+ Many states are no longer mailing out Form 1099-G to refund recipients.  You have to go online and download a copy.  The MISSOURI TAXGUY tells us this is the case in his home state in “The Missouri 1099-G in 2012”.

This is also true for New Jersey and New York.  Click here to download a Form 1099-G for New Jersey.  The NY online system is not available yet.  

+ Speaking of NJCHANNEL NINE reports on the governor’s State of the State Address and tells us “Christie Calls For 10 Percent Income Tax Cut”.

+ Elsewhere, according to the WASHINGTON POST, “Governor O’Malley’s Budget Raises Taxes on Maryland’s High-Earners”.

+ Although Trish referenced this correction in a comment, I thought I would provide it here as well – “RAL Bounce – Edited”. 

+ Howard Gleckman reminds us that “Congress Is Back, And So Are Its Battles Over Tax And Budget Policy” in BUSINESS IN THE BELTWAY over at Forbes.com.

The least popular Congress in memory is back.  I, personally, am thrilled.

After a year in which lawmakers did almost nothing besides (barely) keeping the government running, this session promises hardly more.  Tax policy will be at the center of much of the partisan squabbling, but it is hard to imagine Congress achieving more than a temporary truce in its ongoing battle over last year’s unfinished business.”

+ Joe Kristan introduces us to a new Iowa-based tax blog in “A New Tax Blog Right Here in Town”.  It is the Davis Brown Law Firm’s UPDATES AND ANALYSIS OF TAX LAW.

+ The “Tax Tidbit on Deducting Meals” that Kimberly Kislak posts at KISLAK TAX & NOTARY SERVICE’S BLOG involves the standard meal and snack rates for 2011 and 2012 for day care providers.

+ Don’t forget to check out my TAXPRO BUZZ over at THE TAX PROFESSIONAL.


Henry and Richard’s advertising slogan – “Don’t Settle For Less” – is confusing.  It is as if they are telling you not to go to H+R Block to prepare your tax return.  H+R will certainly provide less service, less quality, and less value for your buck.  The only thing that will not be “less” is the cost.  Maybe that is what they mean.   


Friday, January 20, 2012


I recently received a question about NY non-resident taxation via a comment to an older post.


I was wondering if I was to work from home 5 days a week for a company with a NYC address would I still be liable for NY taxes?


As with any question involving taxes the answer is “it depends”.  It depends on the specific facts and circumstances of your situation.

You do not indicate whether or not you are an employee or the company with the NYC address or if you are an “independent contractor”.  I assume we are talking here about “telecommuting”. 

In May of 2006 the New York Department of Taxation and Finance addressed this issue for employees in TSB-M-06(5)I “New York Tax Treatment of Nonresidents and Part-Year Residents Application of the Convenience of the Employer Test to Telecommuters and Others”.  If you are an employee I suggest you download and read in full this TSB Memo.

Nonresident employees of New York employers do not have to pay New York state income tax on days worked physically outside of New York State.  The allocation is made on Schedule A of Form IT-203-B (Allocation of Wage and Salary Income to New York State).  The instructions for this Schedule provide that (highlight is mine):

“Work days are days on which you were required to perform the usual duties of your job. Any allowance for days worked outside New York State must be based upon the performance of services which, because of necessity (not convenience) of the employer, obligate the employee to out-of-state duties in the service of his employer. Such duties are those which, by their very nature, cannot be performed at the employer’s place of business.

Applying the above principles to the allocation formula, normal work days spent at home are considered days worked in New York State.”

The TSB Memo notes (highlights are mine) -

“Under this rule, days worked at home are considered New York work days only if the employee’s assigned or primary work location is at an established office or other bona fide place of business of the employer (hereinafter, a bona fide employer office) in New York State.”

For tax years beginning on or after January 1, 2006, it is the Tax Department’s position that in the case of a taxpayer whose assigned or primary office is in New York State, any normal work day spent at the home office will be treated as a day worked outside the state if the taxpayer’s home office is a bona fide employer office.

A combination of several factors are taken into account to determine if a taxpayer’s home office is a “bona fide employer office”.  For example - 

·      If some of the core duties of employment are performed at the home office, then the home office will meet this factor. For example, the core duties of a stock broker include the purchase and sale of stock. Accordingly, if the stock broker executes stock purchases and sales from the home office, this would constitute performing some of the core duties at the home office. However, if the stock broker merely reads business publications on the weekend, this would not constitute performing any core duties at the home office.

·      If an important part of the employee’s duties include physically meeting with clients, patients or customers in the normal course of the employer’s trade or business, and those meetings are performed on a regular and continuous basis at the home office, then the home office will meet this factor.

·      If the employer requires the employee to work from his or her home office as a condition of employment, the home office will meet this factor. For example, if a written employment contract states the employee must work from home to perform specific duties for the employer, then the home office will meet this factor.

·      If the employer does not provide the employee with designated office space or other regular work accommodations at one of its regular places of business, then the home office will meet this factor.

If you are a “self-employed” independent contractor, and your main place of business is your home, which is not located in New York, and the NY-based company is one of your clients or customers, and you do the work for this client or customer exclusively at your home office I would say you do not have to pay NY state income tax on the fees paid by this company.

Does anyone disagree?

FYI - NJ residents who regularly work as an employee at an office in New York do not have to pay NY state income tax on regular working days when you attend a job-related conference, convention, seminar, or other training activity, or visit a client, in another state.  For example, you attend a training session in Connecticut, or spend two days at a client or customer’s office in New Jersey. 

By allocating your days outside of NY you will probably pay less net combined state income tax, because the tax rate is higher in NY than NJ on most levels.  You would allocate out these days on Schedule A of Form IT-203-B. 


Thursday, January 19, 2012


The Tax Code is full of inequities.  Some are intentional, and some are a result of the evolution of the mucking fess that the Code has become.  The bottom line is that many taxpayers are slightly, or often royally, screwed.

Take, for example, the way gambling winnings and losses are treated.  Gross gambling winnings are taxed upfront on Page 1, increasing AGI, but losses are deductible only as a Miscellaneous itemized deduction on Schedule A.

A retired taxpayer playing $5.00 per day, six days a week, in the state lottery who wins $1,000 has actually lost $560 for the year, but could pay $150 or $250 more in federal income tax if he/she cannot itemize.  Plus, this $1000 gross win could add an additional $850 to his/her taxable Social Security benefits, adding another $125 to $213 in taxes.  So the $560 net loss could end up costing $463 in tax!

Since gross winnings increase AGI, but loss deductions do not, the winnings could cause the taxpayer to lose some or all of a multitude of other tax deductions and credits that are affected by AGI, so the tax on negative income could be even higher.

Larger winners are royally screwed.  While they can deduct their losses on Schedule A, if the win causes them to be a victim of the dreaded AMT the losses, as a Miscellaneous deduction, are “lost” in the AMT calculation.

There has been some relief offered in the new regulations for reporting casino winnings, but the basic inequity in the tax treatment of gambling winnings still exists.

Similarly unfair is the way “itemized deduction recoveries”, such as state tax refunds, are taxed.  A recovery is a return of an amount you deducted or took credit for in an earlier year.

Here is how the IRS explained the federal tax treatment of the former NJ Homestead Rebate check a while back -

In this case, it is the deduction you took for your property taxes in 1999. Taxpayers who itemized last year enjoyed the benefit of taking a deduction for the entire amount of their property tax payment. However, since they received part of that deduction back in the form of a property tax rebate, after they filed their return, these taxpayers will have to report that rebate as income on this year's return."

New Jersey taxpayers were told to report the rebate on Line 21 of Form 1040.  State tax refunds are reported on Line 10.  Like gross gambling winnings, this, too, increases AGI, and can therefore also increase taxable Social Security benefits and reduce various tax deductions and credits affected by AGI.

It is logical, and proper, that if you receive a tax benefit for a deduction in one year, if you receive a refund of all or part of that deduction in a subsequent year you must pay back the additional tax benefit that the original deduction provided.  However you deducted the item “below the line”, reducing taxable income, but you must report the recovery “above the line”, increasing AGI. 

A $500 state tax refund, which had provided a $125 tax benefit in 2010, could, when reported as gross income on Line 10, cause a married couple to lose a $2000 “above the line” deduction for tuition and fees paid for graduate school, resulting in “paying back” the IRS $500 more than the original tax benefit!  

While the so-called “Bush tax cuts”, which are set expire, did make some progress in bringing relief, there still exists a “marriage tax penalty”.  A married couple, especially where both spouses work, can pay substantially more federal income tax then if they remained single and just lived together, filing two separate Single returns.  Married taxpayers who file separately are even more screwed, as many deductions and credits are reduced or not allowed for those claiming this filing status. 

Self-employed taxpayers are royally screwed when it comes to the deduction for health insurance premiums.  The deduction is from gross income, and not from earnings from self-employment, causing a Schedule C filer, or a partner, to pay “self-employment tax” on the amount of premiums paid.

If the business was incorporated health insurance would be an employee benefit.  The amount of salary paid to the owner would reduce the amount of wages taken.  FICA tax would only be paid on the amount of salary.  So the owner-employee does not pay FICA tax on the amount of premiums paid.

The idiots in Congress fixed this inequity for one year only in 2010, but this fix was not extended.

And the list goes on.

Let us hope the many inequities in the Tax Code, like those I mentioned above, are addressed in the coming discussion of tax reform.