Wednesday, December 30, 2015


Before it began the 2015 tax filing season, my 44th season as a paid tax preparer, was expected to be the worst tax season ever, at least by IRS leadership.

The filing season is going to be the worst filing season since I’ve been the National Taxpayer Advocate,” said Nina Olsen.  And IRS Commissioner John Koskinen predicted that the 2015 tax filing season “will be one of the most complicated filing seasons we’ve ever had.”

As it turned out, at least for me, the tax filing season was no worse, or better, than any other.

The idiots in Congress had once again waited until the last minute to extend the “tax extenders” for 2014 returns.  However, for the past 40+ years the tax season has always started for me on the first of February, so the late passage of the extenders did not delay the filing season for me.    

As a result of Obamacare taxpayers had to indicate on their 2014 Form 1040 (or 1040A) whether or not they had “adequate” health insurance coverage, and could be subject to a penalty if they did not.  And taxpayers who acquired insurance through the Obamacare Marketplace and received an “advance premium credit” to help pay for their insurance during 2014 had to calculate the correct amount of the credit to which they were entitled as part of the filing of their tax return and reconcile the actual credit to the advance credit.

For the most part I was able to tell whether or not my clients had health insurance coverage without even asking the question.  I could tell from the DD entry in Box 12 of Form W-2, or a reference to Section 125 pre-tax health insurance coverage in Box 14.  Or the deduction for Medicare Part B premiums identified on Form SSA-1099.  Or the amount of the “above-the-line” self-employed health insurance deduction listed on the worksheet of a Schedule C filer.  For the very few clients where the above did not apply all I had to do was ask.  I had no legal or ethical responsibility to personally verify a client’s coverage.  A simple yes or no answer was enough.

I only had a handful of clients who did not have the required coverage, and most were able to avoid the penalty via the “unaffordable” exemption.  Only two clients had to actually pay a penalty.  And only three clients had received an advance premium credit (one a GDE).  The two that I did during the season initially received erroneous 1095-As (it was announced that 800,000 erroneous Form 1095-As were mailed out).  Both eventually received a corrected form one during the filing season and the other not until the fall.  I prepared the second return with the incorrect information so as not to hold up the client’s refund.  When the correction arrived no amended return was necessary.

Other than the two Obamacare items there was really nothing new for 2014 returns to deal with.

The idiots in Congress had cut the IRS budget, despite forcing new Obamacare responsibilities on the Service, and, of course, taxpayer service took the hardest hit.   As a result I heard from more clients about excessively delayed federal refunds during the 2015 filing season than in all my seasons in “the business” combined.      

A client, a widower who was filing his 2014 return as a Single taxpayer for the first time after the passing of his wife in 2013, sent his 1040 to the IRS on Feb.7th requesting a refund.  No refund ever came.  Finally on April 25th he received a letter from the IRS saying that they had received the return but were unable to process the refund.  The letter explained –

"Our records indicate that the person identified as the primary taxpayer or spouse on the tax return was deceased prior to the tax year shown on the tax form. Our records are based on the information received from the Social Security Administration. Based on this information, the tax account for the individual has been locked.”

The IRS was writing to the taxpayer to tell him that he is dead and so they were not going to process his refund.  He went through all the hoops required by the IRS, including going to the Social Security Administration to get a letter affirming that he was indeed still alive, and finally got his refund on Halloween.

I also heard that the IRS had held up the refund of a client’s unmarried college student son because an injured spouse form was attached to the son’s documents and his return was forwarded to the department that processes injured spouse claims.  Where the injured spouse form came from is anyone's guess.  Certainly not from me or the taxpayer.  The refund was finally received in late May.

It seemed that the initial Consolidated 1099 Tax Reporting Statements from brokerage houses were mailed out later than usual this year – with some houses totally ignoring the February 17th deadline – and the sometimes multiple corrected 1099s also arrived later.  I was notified by a client’s broker of corrected 1099 statements for two accounts on March 24th, literally the day after I had hand-delivered the finished 1040 to the client, with news of another corrected form for the same account a week later. 

While NJ state tax law did not change, I now had to attach a signed NJ-1040-O “opt-out” form to all manually prepared NJ-1040s, as well as keep signed copies on file.  I do not use flawed and expensive tax preparation software, and never will, so I cannot submit all NJ returns electronically.  Whenever possible, and unless the client specifically opts out, I use the NJWebFile system, which allows me to submit NJ-1040s directly to the Division of Taxation online, but this system has many limitations, and I am often forced to submit manual returns.  I was pleased to learn that the ability to claim excess Family Leave Insurance contributions was finally added to the NJWebFile system, allowing me to use it for more returns this season.

The Treasury Department introduced the new “myRA” retirement account with little fanfare in April.  BO first talked about a myRA payroll withholding starter retirement account for employees without access to a 401(k) plan in the January 2014 State of the Union address.  A CNBC article explained the new account –

People can open the accounts with just $25 and can contribute as little as $5 per paycheck through direct deposit. After-tax dollars are contributed to the account, which is set up as a Roth IRA, and the principal and interest earned can be withdrawn at any time without tax or penalty.

Participants can accumulate a maximum of $15,000 in the account, at which point it would be rolled over into a private-sector Roth IRA. If they haven't reached that threshold after 30 years, the account would also be rolled into a private account.”  

The investment in a myRA is backed by the United States Treasury and the account carries no risk of losing money.  Contributions are invested in the Thrift Savings Plan Government Securities Investment Fund (aka the “G” fund), which had an average annual return of 3.19% over the ten-year period ending December.  More information on the myRA is available at   

Identity theft became a big tax issue in 2015.  Thankfully none of my clients were victims of identity theft (as far as I know).  Accounting Today discussed this issue in a year-end review of the top accounting stories of 2015 –

Some tax preparers reported that as many as 1 in 4 of their clients were the victim of tax-related ID theft last tax season, and in June the IRS reported that its Get Transcript function had been hacked, putting the data of over 200,000 taxpayers at risk. The IRS, tax software companies, payroll processes and other stakeholders came together on a number of initiatives they hope will make things more secure in 2016.”

Rep. Paul Ryan was officially elected as the 54th Speaker of the House at the end of October, replacing retiring John Boehner.  Ryan, the 2012 Republican Vice-Presidential candidate, had previously chaired the House Ways and Means Committee, and had been an ardent advocate of rewriting the Tax Code.  Ryan’s election was considered to be big boost for tax reform.

The main news story of 2015 was the Presidential campaign.  Fool Donald Trump’s entry into the crowded Republican race was initially greeted with unanimous cheers from comics and joke writers across the country.  His participation soon turned the Presidential campaign into a three-ring circus.  But with his early and continued leadership in the polls, and his constant racist, anti-feminine, and other ridiculous rants, it soon became no longer funny – and quickly turned into, as I have said often during the year, the most disturbing political development in my lifetime (I turned 62 this fall).  The fact that so many people support the narcissistic clown for President is a truly sad commentary on the intelligence and maturity of the American public. 

While many of the Republican candidates call for serious and substantive tax reform - candidate Ron Paul promised to “blow-up” the Tax Code and released a video of himself eviscerating a copy of the Code with a chainsaw - the Democrat hopefuls continue to call for adding more complexity to the convoluted “mucking fess” of the Code, and more incorrect and improper use of the Code to deliver federal welfare and other social benefits.  

The IRS voluntary Annual Filing Season Program (AFSP) continued with poor response.  As of December 1, 2015, only 44,622 individuals had received a “Record of Completion”.  This is only a bit more than 10% of the total “previously unenrolled” PTIN-holders.

As I reported last year, the American Institute for Certified Public Accountants (AICPA) filed a lawsuit in July 2014 challenging the AFSP program in court and the District Court for the District of Columbia ruled that the AICPA did not have standing to sue.  The AICPA appealed that ruling and on Halloween the Court of Appeals for the District of Columbia ruled that the lower court was wrong, and the AICPA did have standing and the lawsuit can move forward.

The AICPA fears that any government, or other, credential or designation that identifies a person’s competence and currency in 1040 preparation will take business away from CPAs, as it will and as it should, and so they attempt to block any new tax-related credential and sabotage existing credentials like the “EA”.  But EAs and qualified currently unenrolled preparers should be able to more effectively compete with the totally untrue urban tax myth that CPAs are automatically 1040 experts.  
New York State added a 4 hour CPE requirement, in addition to the annual $100 fee, for experienced registered tax preparers, offered free online by the Department of Taxation and Finance.  However the federal and state updates were for tax year 2014 and not 2015, and it included redundant ethics preaching, so the entire 4 hours was a total waste of time for me.

Despite all the talk about tax reform these past couple of years, the idiots in Congress did nothing along these lines during 2015.  The lyrics from the Broadway musical 1776 were once again relevant - “piddle, twiddle, and resolve – not one damn thing do we solve”. 

They did pass some administrative tax changes, usually tacked onto unrelated legislation.  The due dates for some tax returns were changed effective for years beginning after December 31, 2015 via the “Surface Transportation and Veterans Health Care Choice Improvement Act of 2015” –

* Partnership Form 1041s are due March 15 (previously April 15).  For fiscal year partnerships the return is due on the 15th day of the third month following the close of your tax year.

* C corporation Form 1120s are due April 15 (previously March 15).  For fiscal year corporations the return is due on the 15th day of the fourth month following the close of the tax year.  However C corporations with tax years ending on June 30 will continue to have a due date of September 15 until 2025. For years beginning after 2025, the due date for these returns will be October 15.
* FinCEN Form 114s (known as the “Foreign Bank Account Report” or “FBAR” – not to be confused with “FUBAR”, which is a technical term for the US Tax Code) are due April 15 (previously June 30th), but you can get a six-month extension (not previously permitted).

And the “Bipartisan Congressional Trade Priorities and Accountability Act of 2015” included a change in the documentation of education tax benefits beginning with tax year 2016.  As explained at the time by fellow tax blogger Kay Bell, the yellow rose of taxes, in her blog DON’T MESS WITH TAXES -

Under the new trade preferences act, 1098-T information will have to match up with American Opportunity or Lifetime Learning tax credits claims.

Similarly, a Form 1098-T {Tuition Statement – rdf}  will be required to claim the above-the-line tuition and fees deduction, which actually expired at the end of 2014, but is expected to be renewed under pending extenders legislation.

Basically, if you don't have a valid 1098-T with the info you're putting on your return, the IRS will not accept your education claims. This effectively means that folks claiming education tax breaks will have to wait to file until they (and the IRS) get their Form 1098-T copies, delaying filing by folks who submit their returns early because they're getting big refunds.”

However, at the end of 2015, as we in the tax profession engaged in our now annual year-end tradition of watching the calendar waiting for the idiots in Congress to extend the “tax extenders” again at the very last minute, we were genuinely shocked when, in a truly rare exhibition of cooperation, the idiots actually made many of the more popular, and less controversial, of the extenders permanent!  And those that were not made permanent were extended at least through the end of 2016.  

The Protecting Americans from Tax Hikes Act of 2015, aka the PATH Act, quickly passed both the House and the Senate and was signed into law by BO on Friday, December 18th, before everyone in Washington left for Christmas vacation.  So for tax year 2016 everything will be back to what used to be normal years ago – making life easier again for year-round tax planning and for the Internal Revenue Service.

The PATH Act also made permanent some enhanced tax benefits, all involving refundable credits, that were scheduled to expire within the next few years, and did one thing that will truly be helpful to tax preparers, fixing a problem that I have been complaining about for several years now.

Educational institutions are required to report only qualified tuition and related expenses actually paid, rather than choosing between amounts paid and amounts billed as is currently allowed (most institutions historically report only amounts billed), on Form 1098-T, beginning with calendar year 2016.  So, beginning with forms for tax year 2016 issued in January of 2017, the Form 1098-T students receive from colleges will actually provide important and needed information, and will no longer be as useful as “tits on a bull”.

So, while they are still idiots, the members of Congress actually did something “unidiotic” for a change.  Will this be a sign of things to come?  Will the idiots in Congress actually address serious and substantive tax reform in 2016?  I doubt it very much - but I can dream, can’t I.

So that is the year in taxes 2015.  Fellow tax pros - did I forget anything?

BTW – I will be celebrating New Year’s Eve Day tomorrow with my annual tradition of typing W-2s and 1099s.


Tuesday, December 29, 2015


A reader asked me the following question in a comment to my post “Tax Professionals for Tax Reform”.

How do you project complete tax reform would affect your business?

As an answer let me quote what I have always said –

I believe that a much simpler tax system would not hurt my business, or that of most tax preparers, at all. I sincerely believe that if I did nothing but 1040As all day during the tax season, I would make more money, experience less agita, and substantially reduce the number of extensions {add - and audits - rdf}.

I also believe that my clients would not decide to do their own returns if the tax system was simplified; they would continue to come to me. Most taxpayers who use a tax professional simply don’t want to be bothered with the task of preparing their tax return.

And there will always be the need to calculate business, investment sale, rental, and farming gains and losses on Schedules C, D, E and F and Form 4797.”

The above is from my February 2013 editorial at Accounting Today titled “We Need True Tax Reform”.

I also believe that many taxpayers will continue to use the services of paid tax preparers, even if returns are truly simple, because they want to be sure that they do not miss anything.

The components of the tax profession that will probably be the most hurt by true tax simplification is “taxpayer representation” and “problem resolution”.  Since there will be less items for the IRS to audit there will be less audits, and less problems to resolve.  But my practice has always been preparation, so a simpler tax system would not affect practices like mine.

As a point of information - my specific business situation is unique.  I am winding down my practice as I head toward retirement after being able to say I have been preparing 1040s for 50 tax seasons (5 more to go), and I am actually trying to “thin the herd”.   

Fellow tax pros – how do you think true tax simplification would affect your business?


The last BUZZ of 2015!  A bit “slender” considering the holidays.

* Tax pros – did you get my Christmas present yet?  Click here to read the premiere issue (January 2016) of THE TAX PROFESSIONAL quarterly e-magazine.  And spread the word, and the issue, to fellow tax pros.  Your, and their, thoughts, comments and suggestions are welcomed and solicited.

* And while I have your attention – Tax pros, please join me in 2016 in my crusade to advocate and promote serious and substantive tax reform by joining TAX PROFESSIONALS FOR TAX REFORM.

* Have you been following TaxGirl Kelly Phillips Erb’s series on “12 Days Of Charitable Giving 2015” at FORBES.COM? 

* Sarah Brenner explains “How a Stay-At-Home Spouse Can Make IRA Contributions” at THE SLOTT REPORT –

If you are married, you may be able to make an IRA contribution based on your spouse’s taxable compensation for the year. These IRA contributions are called ‘spousal IRA contributions’. Spousal IRA contributions can be a valuable tool if you are a parent who has left the workplace to stay home with your children and you are concerned about the impact this may have on your retirement savings.”  

* Jason Dinesen goes far back for his Christmas Day “From the Archives” post at DINESEN TAX TIMES.  It was back in February of 2011 when he first answered the question “Does the 5th Amendment Protect You During an Audit?”.
I won't give away the answer - you will have to read the post.

* Russ Fox reminds us that it is the “Last Chance for Nominees for 2015 Tax Offender of the Year over at TAXABLE TALK.  Get your nomination in today!

Monday, December 28, 2015


I have created Tax Professionals for Tax Reform, a national membership organization of tax preparers, to advocate and promote a total rewriting of the US Tax Code.

Our Tax Code has grown into a complicated and convoluted mess.  The major reason for tax return errors, by both paid tax preparers and taxpayers who self-prepare, is the excessive complexity of the Code.  Tax Professionals for Tax Reform firmly believes that it needs to be shredded and totally rewritten from scratch.

We believe that the one and only purpose of the Tax Code is to raise the money necessary to fund the government. 

According to the organization’s “Principles of Tax Reform”, the new Tax Code must

(1) Be simple – easy for everyone to understand.  Simplicity for simplicity’s sake. 

(2) Be fair and equitable - treat all taxpayers equally.

(3) Be consistent – treat specific conditions, situations, and activities, and maintain specific definitions and descriptions, the same in all instances.

(4) Encourage savings, investment, and growth.

(5) Index for inflation all allowable deductions and credits.

The new Tax Code must not

(1)  Be used for social engineering, to redistribute income or wealth, or to deliver social welfare and other government benefits.

(2) Punish ambition, entrepreneurship, investment, success, or hard work.

(3) Encourage or discourage certain economic decisions (other than savings, investment, and growth).

(4) Encourage or discourage marriage.

(5) Provide exclusive benefits for specific industries, business activities, or classes of taxpayers.
(6) Distort true economic reality.

(7) Contain any Adjusted Gross Income, or Modified Adjusted Gross Income, based reductions, phase-outs, exclusions or adjustments. 

(8) Contain any refundable credits. 

(9) Contain any “alternative” tax calculation systems (such as the current “Alternative Minimum Tax”).

(10) Contain any temporary deductions, credits, benefits, or provisions.

This new Code would state “Everything is taxable, except . . .” and “Nothing is deductible, except . . .”.  Only those “excepts” – exclusions and deductions - that are absolutely necessary and appropriate, in the context of the “musts” and “must nots” listed above, should be added back.

I invite fellow tax professionals who support the “Principles of Tax Reform” listed above to join in the crusade for serious and substantive tax reform by becoming a member of Tax Professionals for Tax Reform.  A membership application form is available on the organization’s website.

TTF 2015!

Sunday, December 27, 2015


A reader asked me "Who is Turbo" in a comment.
Here he is -


Friday, December 25, 2015


While I think the tax filing season is the most wonderful time of the year - this is a close second!
From The Wandering Tax Pro and Turbo

Wednesday, December 23, 2015


A client sent me the following email message this past Monday morning -

I have a mutual fund in my CMA account with Merrill Lynch which for the last two years has shown an unrealized loss - this year being $1,264.

Since I have used up all the investment losses on last year's return, is it a good idea for me to sell this fund so I won't be clobbered by Uncle Sap - I mean Uncle Sam?

Here is my answer –

My preliminary comment is that your first criteria for any transaction should always be financial.  Taxes are second. 

If you, or your financial advisors, think this investment will increase in the future and eventually generate a gain, or it provides good dividends, you should not sell it just to get a tax loss.”

However, if it is truly a ‘dog’, selling it for a loss before the price goes even lower will generate a small tax savings.  You will receive at least $190 (and possibly up to $316) in tax savings with a $1,264 loss.”

Good advice for anyone with a similar question.

Don’t let the tax tail wag the financial dog.

You cannot sell the investment for a loss and immediately buy it back. That would result in a “wash sale”, which would defeat the purpose of the sale.  You must wait at least a full calendar 30 days before you can buy back the shares – and a lot can happen in those 30 days.


Tuesday, December 22, 2015


A rather “meaty” pre-Christmas BUZZ.    

* Just a reminder – the PATH Act of 2015, which permanently extends many of the popular “tax extenders”, has been passed and signed into law by BO.  All of the extenders are available for 2015 returns.  The PATH Act also contains some other good news.  Click here to see my earlier TWTP post “A New Path”.

* In my analysis of the PATH Act I say about those items that were extended through 2016 - “These include a laundry list of industry-specific business tax benefits that were bought and paid for by lobbyists lining the pockets of legislators.”

Unfortunately one of the problems with the current complicated and convoluted Tax Code is the fact that it includes a “reality tv-load” of pork.

Kelly Phillips Erb expands on my comment by identifying some of the pork in the PATH Act in her listing of “10 Breaks In The Tax Extenders Bill That Probably Won't Help You At All” at FORBES.COM.

I do take exception to items #9 and #10 on Kelly’s list –

9. IRS employees prohibited from using personal email accounts for official business.

10. Duty to ensure that Internal Revenue Service employees are familiar with and act in accordance with certain taxpayer rights.”

Anything that attempts to increase the competence and ethical behavior of IRS employees will help taxpayers.

* The passage of the PATH Act also assures that, as Kay Bell reports at DON’T MESS WITH TAXES, “Tax Filing Season 2016 Should Start on Time”.

Kay quotes IRS Commissioner John Koskinen’s announcement that "The normal start of the filing season would be January 19”.

The PATH Act also makes the job of the IRS easier in the future.

Of course, while I can actually begin to prepare 1040s on January 1st, the tax filing season always begins for me on February 1st - by which time taxpayers should have received their W-2s and many 1099s.  I can count on the fingers of one hand the number of 1040s or 1040As, other than my own, that I have prepared over the past 44 tax seasons prior to February 1st.  

* Did you know that the "PATH Act Expands Penalty-Free IRA Distributions for Education"?  Sarah Brenner tells us at THE SLOTT REPORT.  
* Russ Fox gives us his take on the PATH Act in “The Great, the Good, and the Bad of the Extender Legislation” at TAXABLE TALK.

I most certainly agree with his “bad” items, and join him in saying –

I strongly dislike welfare being done through the Tax Code. It causes the Tax Code to be complex, and puts the IRS in a mission it shouldn’t be in. Second, I dislike refundable tax credits; they lead to fraud and are difficult for the IRS to manage.”

* I don’t want this to be an “All PATH Act Edition” of the BUZZ, so let me at least get a plug in –

Attention Tax Professionals.  Click here to learn about some great resources for use in your practice during the upcoming tax filing season.

* And tax pros, while I have your attention let me return to Kay Bell and her suggestions for “Christmas Gifts for Tax and Financial Geeks”.

One of the shirts she mentions excellently summarizes my tax filing season routine.

* Final entry in a tax pro trifecta - the blog of the NATIONAL SOCIETY OF ACCOUNTANTS (the “other” NSA) reports “The IRS will be mailing the following letters to return preparers on Tuesday, Dec. 29”.

* Professor Annette Nellen continues her series at 21st CENTURY TAXATION on the “Top Ten Items of Tax Policy Interest for 2015” with "#2 - IRS Funding Challenges” -

Despite an aging workforce resulting in many retirements, a tax statute that is made increasingly more complicated each year, and the need to modernize operational and technology practices, the IRS budget has been cut by over $1.2 billion from FY2010 to FY2015.”

I agree with the Professor that this is a problem.

On one hand the idiots in Congress continue to force unnecessary and extraneous jobs on the IRS – joining tax preparers in becoming Social Workers by having to administer government benefit programs like the EITC and Obamacare – without providing sufficient additional funding.

Yet on the other hand there is certainly mismanagement of the reduced funding by the Service.

The IRS needs proper funding and new top management.

* Joe Davidson asks “Will Scammers Hide Behind New Law for Private Tax Collectors?” at THE WASHINGTON POST.


Passing the PATH Act, despite the customary lateness, showed some signs of intelligence on the part of the idiots in Congress.  However, requiring the IRS to use outside collection agencies is so idiotic it solidifies the overall reputation of the fools in Washington as true idiots.

* During the holidays Jason Dinesen will be showcasing posts “From the Archives” at DINESEN TAX TIMES.  He begins with some good advice from 2013 that is still relevant – “Insolvency and Canceled Debt: Make Sure You Can Prove It!”.

* Let me end by announcing that Kelly Phillips Erb begun her annual “12 Days of Charitable Giving 2015” with the charity “Wounded Warrior Project” - certainly one worth supporting now and throughout the year.


I will be engaged in my annual Christmas Eve Day tradition again this year – typing W-2s and 1099s!  I also spend New Years Eve Day each year typing W-2s.

Best wishes for a Merry and “Successful” Christmas!


Monday, December 21, 2015


The Protecting Americans from Tax Hikes Act of 2015 (aka the PATH Act) made permanent the previous “tax extender” known as a Qualified Charitable Distribution (QCD).

A QCD allows IRA owners age 70½ and older to directly transfer up to $100,000 from an IRA account to a qualified charity, tax-free, as part (or all) of their Required Minimum Distribution (RMD) for the year.

Any portion of an RMD that represents a QCD is not included in gross taxable income reported on Line 15(b) “Taxable amount” of “IRA distributions”) on Page 1 of Form 1040.  If your total Required Minimum Distribution from your IRA investments for the year is $50,000, and you have made a QCD of $40,000, you only report $10,000 as a taxable distribution.  If the entire $50,000 was used as a QCD you have “0” taxable income to report.

By reducing the amount of the RMD that must be included in gross income you also reduce your Adjusted Gross Income (AGI), and, by doing so, you can also potentially reduce the taxable portion of Social Security or Railroad Retirement benefits and increase the multitude of deductions and credits that are reduced or phased out as AGI rises. 

You are not allowed to claim a charitable deduction for the amount of the QCD on Schedule A – the “deduction” has already been claimed by reducing the taxable portion of your RMD. 

If you have not already taken your RMD for 2015 you must do so by December 31, 2015 or you will be subject to a humungous 50% IRS penalty.  And if you have not already taken your RMD for 2015, you should seriously consider using some of the amount to make a Qualified Charitable Distribution to a church or charity.

Now that the idiots in Congress have made the QCD permanent we will no longer need to wait until the end of December each year to find out if this tax benefit is available.  It seems the idiots have done something right for a change (a true rarity indeed).

My standard final word of advice – before acting on anything you have read here contact your tax professional.



Friday, December 18, 2015


I have waited to report on this until after it was signed into law, just to be safe.  I usually wait to talk about tax legislation until it is passed and signed, so I do not confuse readers with proposed tax law that may or may not be passed, or passed as originally proposed.
The idiots in both houses of Congress have passed the PATH Act of 2015, and it will be signed by BO any minute now, but I did not want to wait any longer to write about it.  {BO has signed the law - "Agreeing at last: Congress sends tax, spending bill to president; Obama signs", and also click here- rdf} 

It has nothing to do with taking an underground train from New Jersey to New York (although it does include a mass transit provision).  It is “The Protecting Americans from Tax Hikes Act of 2015”, which finally, once again at the very last minute, deals with the now infamous “tax extenders”.

This Act includes three tiers of extension for the 50+ annual tax extenders – permanent, from 2015 through 2016, and from 2015 through 2019.

The more popular, and perhaps less controversial, of the extenders have been made permanent.  And the more questionable, and less “deserving”, of the extenders are extended for 2015 and 2016 only.  These include a laundry list of industry-specific business tax benefits that were bought and paid for by lobbyists lining the pockets of legislators.

In addition, a few other tax benefits that were scheduled for expiration a couple of years down the road were also made permanent, mostly to appease the Democrats.  These benefits all include refundable tax credits, which are a magnet for tax fraud.

Here is a listing of the major components of the PATH Act that affect 1040 filers –

(A) Made Permanent (2015, 2016 and beyond) –

1. Tax Extenders:

a. Parity for Exclusion of Employer-Provided Mass Transit and Parking Benefits – makes the maximum monthly exclusion for transit passes and van pool benefits the same as the maximum exclusion for parking benefits.

b. Qualified Charitable Distributions – the ability of individuals age 70½ and older to exclude from gross income (and use to satisfy their Required Minimum Distribution or RMD) up to $100,000 in direct transfers from an IRA to a qualified charity. {unfortunately the unforgiveable procrastination of the idiots in Congress may have made it too late for most qualifying taxpayers to take advantage of the availability of this benefit for tax year 2015 – rdf}

c. Section 179 Expensing Limitations – the $500,000 maximum expense deduction for qualified business asset purchases and the $2 Million qualifying property threshold where reduction of the deduction begins.

d. Educator Expense Deduction – the above-the-line deduction for up to $250 in unreimbursed business expenses for K-12 teachers, counselors, principals, and aides.  Beginning in 2016 the maximum deduction will be indexed for inflation and will include professional development expenses.

e. Option to Deduct State and Local Sales Tax Instead of State and Local Income Tax.

2. Other Tax Benefits:

a.  American Opportunity Education Credit.

b.  Increased Additional Child Tax Credit.

c.  Increased Earned Income Credit.

(B) Extended January 1, 2015 Through December 31, 2016

1. Exclusion of up to $2 Million of Cancellation of Debt (COD) Income from Foreclosure of Principal Personal Residence. 

2. Deduction for Tuition and Fees – the above-the-line deduction of $4,000 or $2,000 of qualified tuition and fees for both undergraduate and graduate education.

3. Itemized Deduction for Mortgage Insurance Premiums 

4. Lifetime Maximum $500 Residential Energy Credit of 10% on Qualified Energy Efficient Purchases and Improvements.

(C) Extended January 1, 2015 Through December 31, 2019

The 50% Bonus Depreciation Deduction for Qualified Business Asset Purchases.

The bottom line is that we will no longer have to go through the nonsense each and every year of waiting until the last minute to know what is allowed on the Form 1040.  This will make year-round tax planning much easier, and also make the job of the IRS much easier.  The members of Congress are still idiots, but at least this time what they have done is, for the most part, a good thing.

The major 1040-related extenders, and I expect most if not all of the others, that expire in 2016 should expire in 2016.  The deduction for mortgage insurance premiums, which is basically life insurance, should never have been passed in the first place.  And I do not believe that homeowners who have made bad financial decisions should be rewarded by excluding “cancellation of debt” income on foreclosures.

The 4 extenders that expire in 2019 are all business-related benefits that do not affect most 1040 filers.

I still question the appropriateness of at least one of the extenders made permanent.  I am talking about the above-the line deduction for a very limited amount of “Educator Expenses”.  As I have said consistently in the past, this $38 - $70 gift from Uncle Sam is a nice nod to teachers, paying for a dinner out.  But why do teachers deserve this more than police officers or firefighters or nurses or EMTs or other public service employees?  There is no real reason why this should be made permanent.  Of course I will continue to claim this deduction for clients who qualify.       

The ACT also contains a few non-extender provisions –

1. Formally “legitimizing” the use of the “EA” credential by Enrolled Agents, a blow to the AICPA.

2. Higher education expenses that qualify for tax-free distributions from a Section 529 plan now include computer equipment and related expenses, such as computer software and internet access.

3. The effective date of the Obamacare 40% “Cadillac Tax” on high-cost company health care policies is changed from 2018 to 2020. 

4. Forms W-2, W-3, and returns or statements to report non-employee compensation (i.e. Form 1099-MISC) must now be filed with the government on or before January 31 of the year following the calendar year to which such returns relate.

5. Taxpayers claiming the American Opportunity Credit must report the Employer Identification Number (EIN) of the educational institution to which the taxpayer makes qualified payments under the credit beginning in tax year 2016.

6. Educational institutions are required to report only qualified tuition and related expenses actually paid, rather than choosing between amounts paid and amounts billed as is currently allowed (most institutions report only amounts billed), on Form 1098-T, beginning with calendar year 2016.  

The last item - #6 – is very important for us tax preparers.  It means that, beginning in 2016, the Form 1098-T students receive from colleges will actually provide important and needed information, and will no longer be as useful as “tits on a bull”.

Click here to read a section-by-section summary of the Act.