Tuesday, April 30, 2013


* TWTP is still one of TAXPRO TODAY’s “favorite blogs” – and they have now included The Tax Professional.  Posts from both of my blogs are referenced in “In the Blogs: The Tax Goes On”.

* FOXNEWS (frankly, not my usual source for news) has reported “Tax Cheats Pony up $5.5 Billion in IRS Amnesty Program” -

The Internal Revenue Service has recouped more than $5.5 billion under a series of programs that offered reduced penalties and no jail time to people who voluntarily disclosed assets they were hiding overseas, government investigators said Friday.

In all, more than 39,000 tax cheats have come clean under the programs.

But there's more.

Government investigators suspect that thousands of other taxpayers have quietly started reporting foreign accounts without paying any penalties or interest. The number of people reporting foreign accounts to the IRS nearly doubled from 2007 to 2010, to 516,000 accounts, a report by the Government Accountability Office said.”

With the success of this amnesty program – perhaps the IRS can now consider the federal amnesty program I first proposed in 2008 (see “WHAT ABOUT A FEDERAL TAX AMNESTY PROGRAM?”).

* Over at WISEBREAD Julie Rains lists “4 Ways Your IRA Beats Your Savings Account”.

* MOTLEY FOOL tells us “These 7 States Tax Homeowners the Hardest”.  Which state tops the list with the highest property taxes?  No surprise here (at least to me) -

New Jersey tops the 50 states with an average property tax burden of $2,819. At $343,000, its average home value is among the top five states, and despite fairly high income and sales taxes, New Jersey's fairly consistent suburban character leads to a reliance on property taxes for revenue as well.”  

There are one or two surprises on the list.

* Russ Fox has a good suggestion for employers who use an outside payroll company in “Use EFTPS If You Use a Payroll Service” at TAXABLE TALK.   

Yet there’s a way today to make sure your payroll tax company is remitting your taxes: EFTPS. It takes about two weeks to enroll (passwords will be mailed to you). Once you are enrolled, you can see your payroll tax remittances.”

* Robert W Woods of FORBES.COM gives us “10 Remarkable Facts About Online Sales Tax”.

Remarkable?  Certainly interesting. 

* Also at FORBES.COM TaxGirl Kelly Phillips Erb answers the question “Which State Pays Most In Gas Taxes?”.

It comes as no surprise that NY and CA are the highest taxed states.

KPE also lists the states that pay the least in gas taxes. 

This is the only instance where my former home state of New Jersey is not on the bottom of the list among those states with the highest taxes, if not the highest taxed state (see above item on property taxes).  NJ has the third lowest state gas tax in the country. 
Did you see THE DAILY SHOW WITH JOHN STEWART last night?  The opening bit was a spot on example of just what self-absorbed idiots the members of Congress are.  While it was obviously written with tongue in cheek, I have no doubt that it correctly identified the reason the idiots in Congress worked together to promptly end the furloughs for air traffic controllers.

Monday, April 29, 2013


Friday’s “issue” of the CCH week-day daily tax headline e-newsletter reported “Mortgage Interest Deduction Under Scrutiny by Ways and Means Committee” -

As part of the ongoing effort by House lawmakers to craft comprehensive tax reform legislation in 2013, the House Ways and Means Committee on April 25 heard testimony from real estate experts on the value of the mortgage interest deduction.”

Several experts testified that the mortgage interest deduction does not substantially affect homeownership - and I agree.

Select Revenue Measures Subcommittee Chairman Pat Tiberi, R-Ohio told the committee that few potential homebuyers consider the tax implications of real estate.  The biggest factors in the decision are price and location.

The item tells us –

Eric J. Toder, co-director of the Urban-Brookings Tax Policy Center, said the mortgage interest deduction is not very effective at promoting homeownership since in provides no subsidy to nonitemizers and a limited subsidy to those in the 15-percent tax bracket. ‘The subsidy value is largest among upper-middle-income taxpayers, who are the ones most likely to own a home without a subsidy,’ Toder noted. ‘Instead, the main incentive the [deduction] provides is an incentive for those who would own a home without a subsidy to purchase larger or more expensive homes.’

I support keeping the deduction for acquisition debt mortgage interest on one’s primary personal residence, and the deduction for real estate taxes on the same primary personal residence, not to encourage home ownership, but as a form of “geographical equalization”.

Americans are taxed based on income measured in pure dollars.  But the “value” of one’s level of income differs, sometimes greatly, based on one’s geographical location.  A family living in the northeast (New York, New Jersey, Massachusetts, and Connecticut) or California with an income of $150,000 may be just getting by, while a similar family that resides in “middle America” lives like royalty on $150,000. Many components of the Tax Code are indexed for inflation, but nothing is indexed for geography. 

It costs an awful lot to live in the northeast and California. State and local income and property taxes are the highest in the country. The cost of real estate is also excessively high, and so acquisition debt is higher. As a result one must earn a lot more money to be able to live in these states – and so salaries are arbitrarily increased to reflect the higher cost of living.  Since we pay taxes on “net income” after deductions, allowing an itemized deduction for these items would help to somewhat geographically equalize the tax burden.

Only interest on “acquisition debt” – money borrowed to buy, build or substantially improve a taxpayer’s primary personal residence, and secured by the residence - would be deductible.  I support doing away with the deduction for mortgage interest on a second personal residence or for interest on home equity debt not used to substantially improve one’s primary personal residence.

Interest on home equity borrowing would be allowed on Schedule C, E or F if the money borrowed was used for business or rental purposes, using the current “follow the money” tracking rules.

This would require special new rules and regulations for banks and mortgage companies for issuing home-secured loans.

A “mortgage” loan would only be permitted for “acquisition debt”. Interest on a “mortgage” for a taxpayer’s primary personal residence would be fully deductible, up to the current acquisition debt limitations. “Home equity debt” would have to be a totally separate loan, and interest on this type of loan would not be deductible. A Form 1098 would only be issued for interest paid on a “mortgage” loan, and the bank or mortgage company would be required to report only interest paid on up to $1 Million of principal, and indicate if the mortgage was secured by a primary personal residence.

One would not be able to refinance a home-secured loan to include both types of debt in one loan. Therefore a homeowner could not refinance a “mortgage” to get additional money in hand unless he/she could prove to the lender that the money is used to “substantially improve” the secured residence. One would have to refinance the “mortgage” for the exact same principal, adding perhaps related closing costs, and take out a separate “home equity” loan to get any money in hand.

By instituting these requirements a taxpayer, or his/her preparer, would truly be able to just take the amount of mortgage interest reported on the Form 1098 for the primary personal residence and transfer it to Schedule A.
And, while I would hope that the dreaded AMT is done away with, if it remained this policy would do away the "tax preference" adjustment for home equity interest.

So what do you think?

Friday, April 26, 2013


I have decided to change my BUZZ schedule from Wednesday and Saturday to Tuesday and Friday.

* The CCH daily headline e-newsletter reported that “Senate Finance Committee Chairman Baucus to Retire in 2014”.

The word is this means that actual tax reform could be enacted this year, as Baucus is a vocal supporter and, according to the item “he is prepared to move tax reform before he retires”.

However the critical issue is what is considered “tax reform”.  Unfortunately the Democrats’ concept of “tax reform” is not real reform, just raising taxes on the rich and increasing the ranks of the now-famous “47%”.

* David Wessel of THE WALL STREET JOURNAL provides a basic introduction to a subject I have talked about often in my discussions of tax reform - “Tax Breaks as Spending”.

* Robert W Wood tells us “Harvard Law School Offers 'Tax Planning for Marijuana Dealers'---No Joke” at FORBES.COM.

* Also at FORBES.COM TaxGirl Kelly Phillips Erb gives us the news that “H&R Block Offers Apology, Cash To Make Up For Filing Snafu” –

The tax preparation giant is offering $25 to its customers affected by the delay in processing individual tax returns claiming education credits. The $25 will be loaded onto Emerald Cards, the company’s signature debit card, which is also used for taxpayer refunds.”

This is a first.  Usually (quite often, actually) a judge has told Henry and Richard to provide refunds and payments to its clients due to some kind of overcharge or aggressive or deceptive sales tactic.  This is the first time, I believe, that H+R has voluntary offered refunds.  Of course they do it via one of their products, the Emerald Card.  I have often said that one of the reasons Henry and Richard charge so much is because they need the money to pay off their many legal judgements. 

* Professor James Maule correctly explains that “Putting It in Writing Makes Good Tax Sense” at MAULED.COM.  

* In case you are interested – Top Individual Income Tax Rates: How Does the U.S. Compare?” from the TAX POLICY CENTER.

* Great minds do think alike.  Christopher Bergin of TAX ANALYSTS tells it like it is in "Dilemma- The Earned Income Tax Credit".  
Like it or not, the EITC is welfare administered through the tax system.”

And -  

But things like the EITC have no business in a system that is supposed to collect revenue to support the country. Welfare and taxes, to me, is like oil and water.”  
Repeat after me - having the Earned Income Credit in the Tax Code is bad tax policy and bad fiscal policy. 


Thursday, April 25, 2013


Did you owe too much, or get too large of a refund, this year?  You should review and perhaps change your withholding at work.

Uncle Sam wants you to pay in at least 90% of your current tax liability, or 100% of your prior year’s liability (110% if that year’s AGI was over $150,000), paid in during the year via either withholding or quarterly estimated tax payments.

If your 2012 tax return had a balance due of more than 10% of your total tax liability, and this was not the result of a special non-recurring item, you should have more tax paid in during the year. 

In my opinion, increasing withholding is better than making quarterly estimated tax payments.  It is certainly much easier – and less painful.  You do not have to worry about forgetting to make the payment, or not having enough cash on hand to cover the payment when it becomes due. 

The penalty for underpayment of estimated tax is calculated on a quarterly basis.  In making the calculation income tax withholding is considered to be paid in evenly throughout the year.  So additional withholding later in the year will be applied evenly to the entire year.  Because of this, increasing your withholding can be “more better” than starting to make estimated tax payments later in the year.

If you elect to make quarterly estimated tax payments you can use the federal EFTPS system to pre-schedule your payments to automatically come out of your bank account so you do not forget to make them on time.

In the past when a client got too big a refund I would scold him/her and say that he/she was making an interest free loan to the government.

While this is still true, I do not scold any more, considering the pitiful amount of interest being paid on savings account today. 

Many taxpayers use excess withholding as a kind of “forced savings”, and count on a large refund to, for example, fund their vacation.  They know full well that if they had an extra $100 or more in their pocket each week they would spend it.  I do actually support this concept. 

However, if you have large credit card debt you should use the $100 or more of overwithholding each week to pay down this debt.  Because of the usurious interest rates charged by many cards, doing so will provided a substantial “return on investment”.  Similarly, you can use some of the overwithholding to make extra principal payments on your mortgage and cut years off the term.

Many states allow taxpayers to file separate state W-4 forms to have different withholding than for the federal tax.  If you owed Sam this year, but got a state tax refund you should think about increasing your federal withholding and reducing your state withholding so it is “revenue neutral” but applies withholding more appropriately.   


Wednesday, April 24, 2013


* No surprise here.  THE HILL reports that IRS Overpaid Up to $13.6B in Low-Income Tax Credits, Report Finds”.

The Internal Revenue Service (IRS) overpaid between $11.6 billion and $13.6 billion in tax credits designed to help low-income families in fiscal 2012, the Treasury Department announced in a report released Monday.

The overpayments account for 21 percent to 25 percent of the tax credits issued under the Earned Income Tax Credit (EITC), the IRS estimated.

The report from the Treasury Inspector General for Tax Administration, the department's IRS watchdog, highlights the difficulties faced by the agency in properly issuing refunds and credits under the popular program.

Though the fiscal 2012 overpayment was among the agency's lowest in a decade, since 2003, as much as $132.6 billion has been improperly distributed as part of the EITC.”

How many times do I have to say it?  Refundable credits are bad fiscal and tax policy.  The Earned Income Credit should NOT be in the Tax Code.

* I have always told clients and readers to keep the hard copy of their Form 1040 (or 1040A) and all attached schedules and forms forever, most recently in “Tax Tip: How Long Should I Save My Tax Records" at MAINSTREET.COM.  As I say in the TT – “You never know when the information on a prior year’s return will come in handy for a variety of tax or financial reasons, or just to satisfy personal curiosity”. 

Fellow tax blogger “Tax Mama” Eva Rosenberg apparently agrees with me, and over at MARKETWATCH.COM she lists in detail several reasons why you should “Never Throw Away Your Tax Returns”.

* Kay Bell, the yellow rose of taxes, warns “Don't Become a Charity Scam Victim in the Wake of This {now Last} Week's Terrible Events in Boston and West, Texas” at DON’T MESS WITH TAXES.

Good advice!

* Claudia Buck discusses what could happen if you fall victim to one of those “pennies on the dollar” so-called “tax resolution” companies who advertise on tv in “Personal Finance: When Tax 'Help' is Just a Mirage” at THE SACREMENTO BEE.

* Joe Kristan agrees with me this time!  In his post “Robot Returns?” at the ROTH AND COMPANY TAX UPDATE BLOG he shares my concerns about the proposed “autofill” return.  And he offers the following comment on my bottom line –

That would actually make sense.”

See, as I always say, great minds to think alike.

* We have a friend in Taxpayer Advocate Nina Olsen!  At the website of the Office of the Taxpayer Advocate we are told –

The National Taxpayer Advocate reiterates her longstanding recommendation that the individual AMT be repealed.” 

Hey, idiots in Congress.  Are you listening?   

* Fellow tax blogger TAXGIRL Kelly Phillips Erb is interviewed in “Enterprising Lawyer: Kelly Phillips Erb” at ATTORNEY @ WORK.

* Kelly’s fellow FORBES.COM blogger David John Marotta asks the question Is A $3 Million IRA Sufficient For Retirement?

He is talking about BO’s proposal to cap the accumulation in tax-preferred retirement accounts at $3 Million.  

He answers his own question (and suggests BO’s “understanding of financial planning is fundamentally flawed”) with the correct answer (highlight is mine) -

You may believe the government needs to collect more money in taxes. But this proposal is an awful way to do it. Money in traditional retirement accounts may grow tax free. However the entire amount is ultimately taxed during the withdrawal phase.

During that delay, the government’s portion grows at market rates of return. Were the government to collect its portion early, it would forgo years of growth. Government revenues have benefited greatly from these tax-preferred accounts. To suggest that collecting tax and spending this tax more quickly collects $9 billion over 10 years is a suspect claim.”  

Savings is good.  The more savings the better for the economy.  Capping retirement account accumulation ain’t going to raise taxes or help the economy.  As someone else pointed out, the wealthy will just find other ways to invest tax deferred. 

David continues to show his wisdom when he concludes –

No legislation should inhibit individuals from taking care of their own retirement. Government officials know very little about retirement planning. They haven’t even had the foresight to keep Social Security solvent.”


Tuesday, April 23, 2013


A recent article about the Boston Marathon bombers indicated that they were “driven by religion”.
Religion is supposed to provide hope and comfort, not drive one to acts of destruction.
One more example of my contention that in the history of civilization more evil than good has been done in the name of God.
In America today one of our biggest domestic enemies is the religious right, and the resulting Tea Party Movement, which has contributed substantially to the creation of the worst, and most polarized, Congress at least in my lifetime, if not in history (as some have suggested).  These idiots are unable to accomplish anything.
When I was in high school and college, and still a “church-goer”, local churches, including my own, gathered together to help the community, the nation, and the world by becoming involved in ecumenical community action and social welfare programs and promoting civil rights and world peace (I must point out that I grew up in the Northeast).  While there is no doubt that still goes on today, the more powerful religious voice is that of the fundamentalist and rigid right.
As I have posted in the past
Religious belief is personal and individual.  It should not be legislated, or used as the basis for legislature.
If your religious beliefs instruct you that abortion is bad – then do not have an abortion.  You can certainly bring to the attention of those who might consider such an act the various other options available.  But you cannot force your religious belief on your inconveniently pregnant neighbor, regardless of any sincere desire to save her from the ‘fires of hell’.”
I realize that it is unfair to compare the religious right in America to the bombers, but there is a point to be made about the dangers of religious zealousness,


The lead article of the April 2013 issue of the National Association of Tax Professionals’ TAX PRO MONTHLY discusses the details of the new “safe harbor” home office deduction, which is in effect for tax year 2013.

This new option allows taxpayers with a qualified home office to deduct $5.00 per square foot, up to a maximum of $1,500 (therefore the maximum allowable area of the home office is 300 square feet), instead of using actual expenses.

Normally one would determine the square footage of the home office and divide it by the total square footage of the home to come up with a business use percentage.  The total costs of the home – real estate taxes, mortgage interest (on money borrowed to build, buy or substantially improve the home), homeowners and flood insurance, utilities (gas and electric, heating oil, water), alarm system, etc. – are added up and multiplied by this business use percentage.  Depreciation is also allowed on the home office area.  

This new “safe harbor” deduction is an option – not a requirement.  It is similar to the standard mileage allowance, which can be claimed instead of the business use percentage of the actual costs of operating a car.  However the choice is less restrictive than that of electing to use the standard mileage allowance.  As the article points out, “Taxpayers may switch from the safe harbor method to actual expenses from year to year as they wish”.

This new option does not simplify the calculation of the home office deduction.  It actually makes it more complicated by adding another step to the process.  One of the major rules of tax preparation, which I point out in "My Best Tax Advice", is – “If you find yourself faced with choices you should review each option and do separate tax calculations to see which one will result in the lowest tax”.

You must calculate the home office deduction under the “normal” method, using actual expenses, and compare this to what you are allowed under the “safe harbor” method.

The article explains that “Taxpayers using the safe harbor method may deduct 100% of mortgage interest and real estate taxes on Schedule A”.  So the safe harbor deduction does not include the business use percentage of real estate taxes and mortgage interest.  When making your comparison do not include real estate taxes and mortgage interest in the calculation of actual expenses.

For a self-employed taxpayer filing a Schedule C, the safe harbor home office deduction cannot exceed the net income, after expenses, of the business activity.  This is also true of the deduction for actual expenses, with one exception. 

There is a hierarchy of deductions when the actual expense method is calculated on IRS Form 8829.  One first deducts the business use percentage of real estate taxes and mortgage interest.  If there is any net business income left over, after deductions the appropriate amount of taxes and interest, you can deduct the business use percentage of “other expenses”, such as insurance, utilities, security, etc., up to the remaining net business income.  If there is net income left over after deducting “other expenses” you can claim depreciation, again up to the remaining net business income. 

A Schedule C filer can deduct the business use percentage of real estate taxes and mortgage interest in full, regardless of the net business income.  So a home office deduction can create a negative Schedule C.

If the net business income before the home office deduction is $1,000, and the business use percentage of real estate taxes and mortgage interest is $1,500, the Schedule C shows a net loss of $500, which is carried over to Page 1 of Form 1040.

One of the advantages of this is that it moves a portion of the deduction for real estate taxes and mortgage interest from Schedule A to Page 1 of the 1040 – from “below the line” to “above the line” – and reduces Adjusted Gross Income.  As we all know by now, there are a multitude of deductions, credits and exclusions that are affected by AGI, and reducing AGI can result in increasing, or allowing, deductions and/or credits, and reducing tax liability.

When comparing the tax benefit of the two home office deduction options you must take this into consideration.  While the safe harbor method may produce the greater overall tax deduction, using the actual expenses may provide the greater tax benefit due to the reduction of AGI.

There is another disadvantage to the safe harbor deduction when the allowable deduction exceeds net business income.  The NATP item tells us, “Any taxpayer using the safe harbor method may not carry over any disallowed safe harbor deductions to the next year”.

When a taxpayer claims actual expenses on Form 8829 any of the unused “other expenses” or depreciation, not allowed because they exceed net business income, can be carried over to future years.

You have a bad year in 2013, and your home office deduction is more than your net business income.  But you expect substantially increased income in 2014, and the carryover of unused other expenses and depreciation will reduce your income tax, and your self-employment tax, in 2014.  You should use actual expenses instead of the safe harbor for 2013.

One advantage of the safe harbor deduction, if it provides the greater overall tax savings, is that it does not include depreciation.  In a year when the safe harbor method is used “the depreciation deduction allowable for that portion of the home for that taxable year is deemed to be zero”.  So you do not increase the amount of depreciation that must be recaptured when you sell the home.  However you should still include depreciation in the calculation of actual expenses when you are comparing methods.

If you elect the safe harbor option and the home office applies to only part of the year, for example you start the business in April, the $5.00 per square foot/$1,500 maximum must be pro-rated based on the number of full months of business use during the year (15 or more days of use = a full month).


Monday, April 22, 2013


ACCOUNTING TODAY recently told us that “Congress Introduces Bill to Have IRS Automatically Fill out Tax Forms”.

Here is how it would work -

The Autofill Act of 2013 would create a voluntary tax filing program that would allow individuals to log in to a secure IRS Web site and download a tax form automatically populated with information the IRS already collects from employers, the Social Security Administration and financial institutions.

Taxpayers could simply review the returns for accuracy and sign at the bottom, saving them time, money and anxiety.”

So let me get this straight.  I go to the IRS website and download a Form 1040, or 1040A, already filled in by the IRS based on information it has received from W-2s, 1099s, 1098s, K-1s, etc that have been submitted to the IRS by payers and payees.  I assume, or hope, that I would be able to see the specific details behind the numbers on the pre-prepared return – such as individual W-2, 1099, and 1098 information.  If I agree with the IRS calculation I simply print-out, sign, and mail, or electronically transmit, the return.

I can see one pro and several cons to this proposal.

The pro –

As a taxpayer, or even as a tax preparer, this would allow me to see all of the income and deduction information transmitted to the IRS – so, for example, I would not forget to report income from a 1099 that was lost in the mail but made its way to the IRS.

Some cons –

(1)  This would encourage and facilitate under-reporting.  A taxpayer with taxable income not reported to the IRS by a third party could submit the pre-prepared return that shows only what the IRS has received and not all his/her true income.

(2)  Many taxpayers would simply accept an IRS-generated incomplete pre-prepared return and miss out on legitimate deductions and other tax benefits to which they are legally entitled.

BO put forth a similar idea back in 2007.  He proposed “to direct the IRS to send pre-filled tax forms to 40 million workers who take the standard deduction and have a bank account. They would simply have to sign and return it, which Obama estimates would save more than $2 billion in tax preparation fees and 200 million hours of work.”   

Here is what I said about the idea at the time in my post “A Very Bad Idea” -

Taxpayers should be allowed to determine if they will claim the standard deduction – and not be told, or even suggested, by the IRS that this is what they should do. Individual situations change from year-to-year – how does the IRS know that a taxpayer is better off filing a short-form simply from his W-2 and Form 1099-INT information. Taxpayers should also be allowed to consult a competent tax professional to determine if the standard deduction or a short-form will result in the least tax liability.

Let’s face it.  There are a lot of taxpayers who would save mucho dinero by itemizing or taking advantage of various other tax adjustments or credits – but who would simply sign a short-form and pay a lot more tax then they would or should have to if the IRS sent them a pre-prepared return and requested a signature.”   

There are some practical questions regarding this pre-prepared return concept that would need to be addressed -

·      When would this pre-prepared return be generated and available? 

·      Would it change as additional or corrected information is transmitted to the IRS?  Would the pre-prepared return accessed on February 19th be different than the one that is accessed on March 19th because a brokerage firm issued a corrected 1099 statement? 

·      Would the pre-pared return accessed on March 19th be different, or even available, if I had already submitted the pre-prepared return accessed on February 19th? 

I can forsee all kinds of problems arising.   

The bottom line –

It would be helpful if a taxpayer, or tax preparer, could access the details of what the IRS has received from payers and payees issuing information returns.  But as a reference and not as a pre-prepared return option. 


Saturday, April 20, 2013


* Did you see the last of my post-tax season Tax Tips at MAINSTREET.COM?  Check out “Tax Tip: Amend Your Return”. 

* William Perez reported that “April 18 is Tax Freedom Day for 2013” at ABOUT.COM.TAX PLANNING:US.

As William explains, each year -

The Tax Foundation calculates a Tax Freedom Day based on the federal budget and projections for state and local taxes, and data from the Census and the Bureau of Economic Analysis.”

There are various components of the Tax Day calculation -

On average, Americans will spend about 32 days earning enough income sufficient to pay their federal income tax and another 24 days to earn enough income to pay for Social Security and Medicare taxes.

Tax Day 2013 is 5 days later than Tax Day 2012.  Why?

The Tax Foundation notes that federal income taxes and payroll taxes have increased for 2013, resulting in 2013's Tax Freedom Day being later than it was for the year 2012.  The increased taxes for 2013 includes the new 39.6% tax bracket, the new Medicare surtax on investment and wage incomes, and the new 20% tax rate on long-term gains.”

* Jason Dinesen, of DINESEN TAX TIMES, wants to know “Are Other Tax Pros Screening EIC Clients?” in light of the ridiculous new “due diligence” requirements.

He does make a point.  There are many honest taxpayers who legitimately qualify for the Earned Income Credit.  The EIC should not be in the Tax Code – but it is.  And those who truly qualify should be able to take full advantage of this tax benefit.

I do feel that the IRS should not make tax preparers Social Workers.  If enough tax professionals took a stand and publicly announced that they would not be accepting Earned Income Credit clients solely because of the excessive IRS requirements – would the IRS back down and remove these requirements?  To be honest, I doubt it.

The additional requirements means tax pros must waste more valuable tax season time verifying that the taxpayer qualifies for federal welfare – and time is money.  This ends up in a much higher fee for EIC clients.  Unfortunately, if one truly qualifies for the EIC he/she does not have a lot of money, and may not be able to afford the additional fee.  The IRS ain’t going to compensate the tax pros for their wasted time. 

It is truly, as Jason says, a conundrum.

* Just as the BUZZ is back, so is Joe Kristan’s daily “Tax Round-Up” at the ROTH AND COMPANY TAX UPDATE BLOG.

* The headline of this ROCHESTER BUSINESS JOURNAL article reads “N.Y. Tax Systems Ranks Among Nation's Worst”, and the lead paragraph tells us –

New York has the seventh-worst tax system for starting and growing small businesses, an advocacy group reported this week.”

But the real news (nothing surprising here) in the item for my clients and readers is the fact that, according to the Small Business & Entrepreneurial Council, my former home state of New Jersey is #49 on the list – or has the second-worst tax system in the US.  Only Hawaii (a surprise) has a worse tax system.

Thanks to sequestration (and, of course, the idiots in Congress the IRS will shut down for 5 days -   

As of today, those five identified furlough days are: May 24, June 14, July 5, July 22, and August 30. On those days, IRS will shut down completely and taxpayers and practitioners will not have access to IRS resources. That means unanswered calls and closed offices.”


Friday, April 19, 2013


I survived another tax season.  42 down – 8 to go!   
This was the first tax season in my new home in a new state.  A little different than past years.  And now that it is over I will do some things a bit differently next year.  I lost only a handful of clients – and those who did not send me their “stuff” this year were all elderly, so the reason I did not get their “stuff” could have nothing to do with my move. 
It was a “traditional” season – ending on April 15th (or for me April 14th).  No extra days.
The season got off to a late start for many tax preparers.  2012 ended with much uncertainty regarding 2012 and 2013 federal returns and many unresolved issues involving both years.  While the idiots in Washington had procrastinated in past years, this time they really outdid themselves and truly waited until very literally the last minute to pass needed tax legislation.  The American Taxpayer Relief Act of 2012 passed the Senate in the early hours of the morning and the House in the evening of January 1, 2013.
Because of the more than usual irresponsibility of Congress the IRS announced that it would not be able to begin processing either paper or electronically filed 2012 tax returns until January 30th.   
When making this announcement the Service also said –
There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future.”
Among the forms that would require “more extensive programming and testing” were -
• Form 4562, Depreciation and Amortization  
• Form 5695, Residential Energy Credits
• Form 8396, Mortgage Interest Credit
• Form 8582, Passive Activity Loss Limitations
• Form 8839, Qualified Adoption Expenses
• Form 8863, Education Credits  
• Form 8903, Domestic Production Activities Deduction
Did this late start affect my practice?  Not in the least.  For me the tax season has never “officially” begun until February 1st.  This is because issuers of information return have traditionally had until January 31st to get all W-2s, 1099s, and 1098s to taxpayers (some 1099 filers now have until February 15th).  Back when I, and my mentor before me, had the storefront office we did not open the doors to the public until February 1st.  I expect I would be able to count on the fingers of one hand the number of returns I have prepared before February 1 over the years.
And most of you know that in the past 41 tax seasons I have never used flawed and expensive tax preparation software to prepare the federal tax returns of my clients, and I certainly did not begin to do so this tax season, so I was, and am, unable to submit federal returns electronically.  I have renewed my vow to never use flawed and expensive tax preparation software to prepare 1040s for my remaining 8 seasons.
So I experienced no delays in starting the tax season on time.  And I experienced no delays in preparing returns containing the above listed IRS forms.  Client refunds for returns with these forms may have been delayed, but nothing stopped me from preparing the returns and getting them back to the client.  
There were additional delays during the season for some returns claiming an education credit on Form 8863.  Tax refunds for about 600,000 taxpayers who used fast-food tax preparation chains, like Henry and Richard, to prepare their returns were delayed due to a “software glitch”.  Just one more reason not to use fast-food chains to prepare your returns.
There was nothing really new for 2012 returns. 
It was the second year that brokerage houses and mutual fund companies had to report cost basis information for certain investment sales on Form 1099-B, and preparers and taxpayers had to enter investment sale transactions on as many as three separate Form 8949s, carrying over the totals to Schedule D.  While there was inconsistent treatment of 2011 Form 1099-B reporting among the various houses, resulting in extra work, things were better, and reporting was more consistent and easier to follow, on 2012 statements.  Only Morgan Stanley’s reporting was somewhat lacking. 
And this season I was acclimated to the new Schedule E format for reporting rental income and expenses.
The only new wrinkle was the added “due diligence” requirements for tax pros who prepared returns claiming the Earned Income Credit.  I had announced that I would not prepare any 2012 returns that included a claim for the EIC - but I ended up breaking this promise.  All but one of the very, very few 2012 returns with EIC that I did prepare involved clients (all long-time) without children.  The one that did involve a dependent child was a single mother whose returns I have been preparing since before her children were born.  How could I tell her I would not be doing her return this year?  There was one child involved, who was in college, so my “due diligence” consisted of looking at the Form 1098-T.
While I no longer accept any new clients, if I were doing so I would certainly not have taken on any new client who could be eligible for the Earned Income Credit.
I did not experience any “technical difficulties” during the 2013 filing season.  My computer and printer worked perfectly throughout, and I had no issues of any consequence with my car or the weather.
As for state returns, a FU that in past years did not allow NJ-1040s reporting gross income of over $150,000 to be submitted via NJWebFile (the NJDOT had been too lazy or too cheap to correct the software) was finally fixed and I was able to submit many more state returns online this season, allowing these clients to get direct deposit of their NJ refunds. 
And, while New York added a new form for claiming itemized deductions, it did do away with the IT-2 and once again allowed me to simply attach Copy 2 of the W-2 to the IT-201 or IT-203, saving what had been an unnecessary waste of valuable time.
I ended last year’s tax filing season with 29 GDEs – a record.  This year it was closer to 40.  With very few exceptions, all the returns extended were either received after March 15th (in my January letter to clients this year I said I could not guarantee that returns received after March 15th would be done in time for an April 15th filing), had missing information that would not be available until after April 15th, or were not received at all and the client asked me via email to submit a Form 4868. 
The increased number had nothing to do with IRS processing delays, or even with the lack of extra days, but were, I believe, the result of choices I made because of my move.  As I said earlier, I will do things a little differently next year.
For many preparers the delays that began the tax filing season also ended the season (again, none that affected me).
PA tax lawyer and fellow tax blogger Kelly Phillips Erb reported “Pennsylvania Taxpayers Get An Extra Day To File Returns” -
After a delay of what Revenue Secretary Dan Meuser referred to as “a few hours” of errors accessing taxpayer service web sites, the Commonwealth finally decided to give taxpayers a break. The Commonwealth is offering taxpayers one extra day to file their personal income tax returns. Those taxpayers who timely file their 2012 personal income tax returns by tomorrow, Tuesday, April 16, 2013, will not be assessed penalties and interest.”
California taxpayers also got an extra day.  In “When a Day Late Isn’t a Dollar Short” Russ Fox explained -
The Franchise Tax Board had major computer issues with their website on Monday. The FTB announced that anyone who pays their tax on April 16th via the FTB’s webpay system (for individuals or for businesses) on April 16th will be considered to have made the payments on April 15th.”
And the IRS recognized that the delay in processing certain returns caused problems for preparers -
The IRS has provided late-payment penalty relief to individuals and businesses who request tax-filing extensions and attach to their returns any of the ‘delayed’ forms that couldn’t be filed until February or March. Taxpayers using forms claiming depreciation deductions and various business credits qualify for this relief.
Other delayed forms include those for Residential Energy Credits (and related ‘Energy Efficiency’ Credits), Education Credits, Mortgage Interest Credits, and others. Click here for the text of an IRS Notice that includes a complete list of eligible forms."
So there you have it – the tax season that was.
FYI - fellow tax bloggers Jason Dinesen and Trish McIntire have also posted about their 2013 tax seasons (click on the name to read their post).