THE WANDERING TAX PRO
Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.
Here is another year-end
tip for charitable giving, taken from my “2016 Year-End TaxPlanning Guide”.
Instead of giving cash to charity at
year-end you can donate stock, bonds or mutual fund shares that you have held
for more than one year and which have increased in value, and save some money
in the process.
You can claim a deduction for the
full market price of the investment on the date you make the donation.You don’t have to report the increase in
value as a capital gain on Schedule D.
Art Center has pledged $5,000.00 to
his church building fund.He also has 100
shares of Online Profits, Inc. which he purchased in 1998 for $2,000.00 and is
now worth $5,000.00.He decides to give
the stock to the church to satisfy his pledge.Art can deduct $5,000.00 on his Schedule A.He does not have to pay tax on the $3,000.00
appreciation in the value of the stock.
If Art were to sell the Online
Profits, Inc. stock and give $5,000.00 cash to the church he would have to
report the sale of the stock on Schedule D and pay $450.00 in federal tax, as
well as state income tax, on the gain.Plus, the $3,000.00 gain would increase his Adjusted Gross Income (AGI),
which could reduce or altogether wipe out a multitude of deductions and credits
that are affected by AGI.As an added
bonus, by donating the stock rather than selling it Art will save the broker’s
commission and other expenses of sale.
Any investment you donate to charity
must be long-term property - an investment you have held for more than one
year.If you donate stock that you held
for one year or less your deduction is limited to the cost basis, which in the
above example would be $2,000.00.
Also, do not donate an investment
that has gone down in value.It is
better to sell the stock, claim the loss on Schedule D, and donate the cash to
moral?File your tax returns, no matter
how old or young you are.”
This post concerns a true “urban tax myth”
that I have seen many times over the past 45 years, with various ages
used.Some people have also told me that
they do not have to pay Social Security tax on their wages if over age 65, 70,
One taxpayer, who thought he did not have
to pay income taxes any more when he turned 65, 70 or 72 (I forget the age in
his situation), was brought to consult my mentor by his daughter after the IRS
filed a lien on his personal residence due to non-payment of taxes.
I have always said that if you have taxable income you must pay tax
whether you are 1 year old or 100 years old.And you also have to pay Social Security tax if you earn wages subject to Social Security
tax whether you are 1 year old or 100 years old.
The initials EA (and ATA and ATP from ACAT)
are the only initials that appear after one’s name that have anything to do
with competence and currency in 1040 preparation.Contrary to the popular but erroneous “urban
tax myth”, and the attempts of the AICPA, having
the initials CPA after one’s name does not automatically mean that the person
with these initials knows his arse from a hole in the ground when it comes to
1040s.There are many practicing
CPAs who are competent and current in 1040 preparation – but it has absolutely nothing to do with the initials
Enrolled Agents do indeed deserve more
* Please, please check out my new THE LIBERTY TIMES – and please share with family, friends, co-workers, and
colleagues.BTW – a new “issue” is
coming on December 1st.
Garden State's tax policies create a thicket of thorns for some retirees.
property taxes are the highest in the U.S.”
Considering the recently passed NJ tax
changes, which increase the “retirement income exclusion” and eventually do
away with the Estate Tax, I expect NJ may not be on future “10 Worst” lists,
although the property tax situation has not changed.
I was surprised to learn that Vermont
topped the list –
Green Mountain State doesn't coddle retirees. It has a steep top income tax
rate, and most retirement income is taxed. Vermont treats Social Security
benefits the same way the federal government does, which means as much as 85%
of your benefits could be taxed.”
good way to do that is with digital documentation. Take a picture of the items
you donate, clearly showing that they truly were in very good shape, worthy of
the slightly greater amounts you've assigned them.
better, make them donation selfies.
yourself in the photos to prove that the topnotch items were yours, not just
photos of well-kept articles that you downloaded from someone else's social
THE LAST WORD –
Is Trump a bigot?
As an extreme narcissist Trump thinks that
every single person – man, woman, white, black, brown, red, yellow, straight,
or gay - is below him.
Also as an extreme narcissist, if a
“non-white” or “non-traditional” man or woman, or an “affirmative” action, will
generate praise for him and feed his ego he will use that person or action to
The true danger from the Trump
Administration will be the appointed “ring (and other things) kissers” who have
their own actual bigoted agendas.Trump
is certainly not “ideological” – he has absolutely no political philosophy,
beliefs, or convictions other than “Trump is great and Trump is good”.It is his appointments who are truly
“ideological”, with personal bigoted, excessively religious right, xenophobic,
chauvinistic, and hate-filled philosophies, beliefs, and agendas, that will
cause the real damage to America, Americans, and the world.
Of course Trump’s inability to deal with
criticism and challenge like a mature adult, another symptom of his excessive
narcissism, will also do real damage to America, Americans, and the world.
This bears constant repeating. Please share
and tweet -
was a despicable human being and a dangerous narcissist before being elected.
Being elected President does not automatically endow him with morals, ethics,
or integrity where none existed before.
He has not changed, and we should not
change our disgust, disrespect, denouncement, and opposition to him just
because he was “elected” President.
Despite the truly horrendous and
dangerous result of the recent Presidential election (Electoral College result,
not actual popular vote), there is still much to be thankful for.
Of course there is the love and
support of family and friends.
For me this includes the support and
help from fellow tax professionals and tax bloggers.One way I stay up-to-date on tax developments
during the year is by following the blogs of my colleagues – Joe, Jason, Russ, Jamaal,
Bill, Bruce, Kay, Kelly, Jean, etc, etc, etc., and with information and
resources shared by my fellow NJ-NATP members (I am now actually an “honorary”
member as I live in PA) Marc, Lynn, John (Kelly and Sheeley), Jaimee, etc, etc,
And, along those lines, I am
thankful to the National Association of Tax Professionals – both on national
and state levels – for providing excellent information, resources, and
continuing education opportunities.
I am also thankful for the many
local theatre companies throughout rural North East PA and nearby NY that
provide me with a variety of good entertainment during the year.
And, as I eat out just about every
night, I am thankful for the variety of great nearby restaurants and diners –
actually more so than when I lived in Jersey City NJ – and their pleasant and
helpful wait staffs.
I am thankful for my adopted "son" Turbo.
Finally, as my sister pointed out to me
last year, I am truly thankful that my diabetes diagnosis happened while living
in rural North East PA and not metropolitan NJ.
Thanksgiving dinner this year, like
last year, is the buffet at Silver Birches on Lake Wallenpaupack with my sister,
who once again came up from NJ.
prepare your home for the holidays now is a good time to clean out your
closets, attic, or garage and donate what you no longer want or need that is
still in good condition to a church or charity and get a 2016 tax deduction.
claim a deduction for the “fair market value” of used appliances, books,
clothing, computer hardware and software, electronics, furniture, household
items, toys, videos, etc., etc. donated to a qualifying church or charity.According to the IRS, fair market value is
the price a “willing, knowledgeable buyer
would pay a willing, knowledgeable seller when neither has to buy or sell.”
You are responsible for determining
the fair market value of the items you are donating.The charity to which you make the donation is not required to provide
you with a value.
Make and keep a detailed listing of
what you are donating with the condition and value of each set of items (i.e. 6 pairs of men’s pants, good
condition, $60.00, 5 pairs of men’s shoes, good condition, $75.00).You may want to attach a copy of the listing
to your 2016 Form 1040.
You cannot deduct the contribution of a
used item of clothing or household item unless the item is in at least
"good" condition.Donations of
clothing and household items with a minimal monetary value, such as used socks
or underwear, are also not
new items of food, toys, clothing, etc. you may donate to a church or charity
for Thanksgiving food drives or holiday campaigns like “Toys for Tots”?You can deduct the actual cost of the items
donated.You should make a separate purchase of the items you will donate – don’t group
together with the purchase of personal use items – and save the store receipt.
total amount donated to a church or charity is more than $250.00 you must
have a “contemporaneous” written acknowledgement from the organization with its
name and address, the date of the contribution, and a brief description of the
item(s) donated (used clothes, toys, used furniture, etc).
To be able
to claim a deduction for the full amount of your contribution the acknowledgement
(any acknowledgement of any
contribution more than $250.00, whether cash or non-cash) must also indicate the statement “no goods or services were
provided in exchange for the donation”, and must be received before the earlier of the date the original tax
return is filed or the extended due date of the tax return.
Obviously this is only a tax benefit if you are able
to itemize on Schedule A.Be aware
that the Standard Deduction amounts for 2016 are –
·Single and Married Filing Separate = $6,300
·Married Filing Joint and Qualifying
Widow(er) = $12,600
·Head of Household = $9,300
this holiday season – but give wisely and keep good records of your giving.
vey!It now appears that the reciprocal
agreement between New Jersey and Pennsylvania will remain in place. New
Jersey and Pennsylvania residents working in the opposite state will continue
to pay state income taxes only in the
state where they live.
to the Governor’s website -
“Governor Chris Christie announced today he
is now able to save the income tax reciprocity agreement with Pennsylvania,
thanks to health benefit reforms enacted since the FY17 budget passed.”
how many employers had already wasted money to change their software or
internal payroll procedures.
that this “saving” of the reciprocal agreement by CC will not be reversed again
– although I did not oppose, and actually supported, the end of the agreement.
year at about this time for the past almost 30 years I have been attending the year-end
tax update workshops offered by the National Association of Tax Professionals
(NATP) – often, as I did this year, the Atlantic City offering (although one
year I did attend the workshops in San Juan, Puerto Rico).
Tuesday was “The Essential 1040”, which discussed the annual COLA and
inflation-adjusted numbers for tax deductions and credits (see my “What’s New In Taxes For 2016” for these numbers) and recent developments.
I paid for a full 8 hours of “continuing professional education” (CPE) on
Tuesday, as happens every year ¼ of the
fee was literally flushed down the toilet because of the 2 hours of
redundant ethics preaching, required for Enrolled Agents and CPAs but not
me.Fortunately this year the ethics
discussion was the last of the day – so I could leave 2 hours early.
I have said for years now –
have been preparing tax returns for 45 tax seasons.If I
ain’t honest and ethical by now, 2 hours of preaching ain’t going to perform
any miracles!Unfortunately just
about every full-day CPE offering includes this redundant ethics preaching
because providers feel they must include it in order to get maximum attendance.
I do have to sit through the ethics preaching, usually daydreaming or reading
the paper, some of what I do hear is, to
me, complete nonsense.I talk about
this in “If You Ask Me”, a compilation of commentaries on issues of importance
to the tax preparer community I have written.Click here to download this.
was “Beyond the 1040”, which this year was an in depth review of “Principal
Residence Tax Issues” and the “Tax Impact of Having a Child”.Luckily the full 8 hours was devoted to
were no familiar, to me, faces this year at BALLY’S.The instructor, Les Marti EA, was also new to
me.He did an excellent job, filling the
two days with humorous and insightful anecdotes from his own tax practice.
least for me much of the first day now is truly redundant – a reminder rather
than an actual update.Because of my tax
blogging I was intimately aware of the adjusted numbers for the past year.The true value and meat of this day, again
for me, is in the new developments – court cases, IRS regulations, tax
legislation.As there was no new tax
legislation to review in detail, here again it was somewhat redundant.
a factor in what I take away from this day, and any tax CPE offering, is the
fact that I no longer accept any new clients and am actually trying to “thin
the herd”.While I firmly believe that
you can indeed teach an old dog new tricks, there are some new tricks that this
old dog has no interest in learning if they do not affect a substantial portion
of my current clientele.And if relatively
obscure new tax law or regulations affect only a couple of clients I often prefer
to send those clients elsewhere instead of having to learn difficult new “stuff”.Here
my client tax preparation needs “trumps” any writing opportunities.
only negative comment on the workshops was the fact that the free continental
breakfast and afternoon snack were not “diabetic-friendly” – something that is
now important to me.NATP, please take
are some important items I was reminded of, or did indeed learn, during the 2
days in Atlantic City –
Any 2016 Form 1099-MISC that has an entry for “Non-Employee Compensation” in
Box 7 must be sent to recipients and filed with the Internal Revenue Service by
January 31, 2017, which is also the due date for W-2s.
For purposes of deducting home mortgage interest, a home under construction is
considered to be the taxpayer’s qualified residence for a 24-month period
beginning on or after the date that construction begins if the home does indeed
become a qualified residence when it is ready to be occupied.
If you borrow money secured by a residence to purchase the interest of a spouse
in the home as part of a divorce or legal separation this is treated as “home
equity debt” and not “acquisition debt”, even though you are “acquiring” an additional
interest in the residence.
The $100,000 in debt limitation for determining deductible “home equity”
interest is further limited by the “fair market value” of the residence less
any “acquisition debt”.So if a bank
allows you to borrow more than the actual market value of your home you cannot
deduct the interest paid on this excess debt even if it is within the $100,000
equity debt limit.
You can elect to treat debt secured by a personal residence as not being secured by the residence – so
the interest on the debt is treated as investment interest or business interest
instead of mortgage interest.If a
single mortgage loan involves multiple uses of the principal, both acquisition
and home equity debt and some debt you elect to treat as “not secured”, the
paydown of the mortgage principal is applied in the following order –
·Personal use (not deductible)
·Investment use (Form 4952)
·Rental Property with Active Participation
use (Schedule E)
·Trade or Business use (Schedule C or
·Home Equity Debt
If a taxpayer has Obamacare Marketplace insurance that covers a non-dependent
child or children under age 27 and receives an advance premium credit (and gets
a Form 1095-A), the information for the credit on Form 1095-A, which is
reported on Form 8962, can be allocated between the parents and the
non-dependent child(ren) on their individual returns in any way they agree from
0-100%.If there are 3 people covered
(the two spouses filing one return and a non-dependent child filing a separate
return) the allocation can be 2/3 to parents and 1/3 to child – or any other
allocation from 0-100%.There is nothing in the directions for Form
8962 that prevents the non-dependent child(ren) from claiming 100% of the
premium and the credit and the parents claiming 0%, or vice versa!
of what was discussed on Wednesday about “Principal Residence Tax Issues” is
covered in my “Tax Guide for New Homeowners”.Click here for more information on this e-book.
you have any questions about the above items please consult your, or a, tax
professional.You can begin your search
for a tax preparer at my FIND A TAX PROFESSIONAL website.
current tax professional who is not already a member of NATP should be.If you would like to receive membership
information email me at firstname.lastname@example.org
with NATP MEMBERSHIP in the “subject line”.
I was in Atlantic City for year-end tax
update classes most of the week (see my review tomorrow) – so I did not keep on top of the tax
BUZZ.Actually I don’t think there was
much BUZZ to keep on top of.Hence this
slim BUZZ installment.
do every year, I’m asking readers to submit via email (email@example.com) the
name of a charity which deserves mention this year for the 12 Days Of Charitable
Giving. Ideally, it would be one that you have supported financially over the
past year or that you plan to support before the year end. In addition to the
charity’s full name, I’ll need the city where the charity is located, what the
charity does, and why you support the charity (a personal story would be
great). Please also link to the website if the organization has one (Facebook
is okay, too): the more information that you can provide, the better.”
No surprise here.New Jersey is once again, like Oliver Twist,
last on the list – or first depending on how you look at it - with the highest average percentage of real estate
tax - 2.29%.Hawaii has the lowest
average tax rate - .28%.The average
rate for my home state of PA is 1.51%.
It looks like the Form 1098-T – now required
to claim an education tax benefit – will remain as useful as tits on a bull for
The week-day daily "Checkpoint Newsstand
November 18, 2016" brought this bad news on my 63-rd birthday (highlights are mine) -
penalty for 2017 Forms 1098-T. IRS will extend the relief from penalties under
Code Sec. 6721 and Code Sec. 6722, as described in Ann. 2016-17, to 2017 Forms
1098-T. Eligible educational
institutions, therefore, will continue to have the option of reporting either
the amount of payments of qualified tuition and related expenses received in
Box 1 of Form 1098-T or the amount of qualified tuition and related expenses
billed in Box 2 of Form 1098-T for the 2017 calendar year without being subject
relief is limited to 2017 Forms 1098-T
required to be filed by eligible educational institutions by Feb. 28, 2018
(or Apr. 2, 2018, if filed electronically) and furnished to recipients by Jan.
The IRS had previously rendered most 2016
Form 1098-Ts totally worthless –
relief. Following the enactment of the PATH Act, numerous eligible educational
institutions informed IRS that implementation of the law change will require
computer software reprogramming and other changes that cannot be implemented in
time to meet the applicable filing and furnishing due dates for Form 1098-T for
calendar year 2016. Accordingly, in Ann. 2016-17, IRS provided that these
penalties would not be imposed on eligible educational institutions with
respect to Forms 1098-T required to be filed and furnished to individuals for
the 2016 calendar year if the institution reports the aggregate amount billed
for qualified tuition and related expenses on Form 1098-T instead of the
aggregate amount of payments received.
And now the bulk of 2017 Form 1098-Ts will
also be totally worthless -
difficulty. Representatives of eligible educational institutions have informed
IRS that, despite diligent efforts, the changes to accounting systems,
software, and business practices that eligible educational institutions must
make to implement this law change cannot be accomplished in time to apply these
changes for calendar year 2017.”
Hopefully more than the usual handful of 2016 and 2017 Form 1098-Ts will actually provide useful information - but there is no incentive to make this happen.
Bad move by the IRS.
They want tax pros to become Social Workers
and do their work for them, and at the same time make it more difficult for us to
do our work.They have added multiple
hours to the preparation of returns for lower-income clients who can least
afford the appropriate additional fees we should be charging for this extra
tax preparation community needs a unified lobbying voice in Washington!