Wednesday, December 4, 2019
It’s that time of year again – time for the 36TH annual PNC Christmas Price Index!
The PNC Christmas Price index reports the cost to purchase the gifts included in the classic holiday song “The 12 Days of Christmas”.
PNC tells us it has “ . . . calculated the 2019 price tag for The PNC Christmas Price Index at $38,993.59, a negligible $67.56 or 0.2% more than last year's cost, but less than the government's Consumer Price Index, which increased 1.8% through October in year-over-year measurement before seasonal adjustment.”
The major differences in the included items are –
* a 20% drop in the cost of turtle doves, “the first drop in price since 2004”.
* a 10% increase in the price of 5 gold rings. “After falling in 2018 due to less demand and fluctuations in gold prices, Gold Rings rebounded” in 2019.
* a 7.7% jump in laying geese “largely due to an increase of interest in backyard farming”.
* a 4.5% drop in the cost of one partridge in a pear tree, resulting from a $10.00 drop in the price of the tree.
Once again, the labor unions for musicians, dancing ladies and leaping lords proves to be better than the milking maid union. The milkers were paid the minimum wage of $7.25 per hour for 2017 through 2019. After the individual partridge, costing $20.18, the $58.00 price tag for 8 milking maids was the lowest on the list. Leaping lords got $1,000 each, slightly more than dancing ladies. The musicians got a small .8% raise for 2019.
The chief economist of a bank in Philadelphia, which eventually became part of PNC, began estimating the cost of the 12 Christmas gifts in 1984 as a holiday client letter. This year’s price is about 95% higher than the first index from 34 years ago.
For those who prefer the convenience of online shopping the Index also calculates the cost of the gifts purchased on the internet. As online costs are higher due to travel and shipping, the total cost is $42,258.91, $3,265.32 more than “in store” purchases.
The actual true cost of every gift in the song (with each previous day’s purchases repeated over the 12 days) is $170,298.03 in store and $194,502.72 online.
There appears to be some discrepancies in the 2018 numbers reported in this year’s press release and table from PNC and the numbers from the 2018 chart that I had reported in last year’s post. PNC tells us the 2018 prices were “adjusted to better reflect open market pricing”.
Click here for the press release that includes the full chart.
Monday, December 2, 2019
A client recently emailed me to ask about charitable giving, specifically if she should use more than her Required Minimum Distribution (RMD) for a Qualified Charitable Distribution (QCD), since one is allowed to make QCDs of up to $100,000 per year, and if it is truly beneficial to donate appreciated securities instead of cash.
To find out just what a QCD is see my 2016 post “Wunnerful Wunnerful”. Click here to learn more about Donor Advised Funds (DAF). And I discuss contributing appreciated securities in “A Great Tax Saving Strategy for Charitable Taxpayers”.
In my answer I gave the following example.
You are a resident of the Garden State – New Jersey. For 2019 you have $17,000 in interest and dividends and $55,000 in capital gains for $72,000 in investment income. Because of this $22,000 of Social Security is taxed. You also have a total of $47,000 in RMDs from IRA accounts and $20,000 in RMDs from employer pension accounts, like a 401(k) or 403(b). So, the total income subject to tax is $161,000. You make QCDs of the entire $47,000 in IRA RMDs, so AGI is $114,000. You contribute $34,000 in appreciated stock to a Donor Advised Fund, which reduces taxable income to $80,000. Additional allowable itemized deductions reduce taxable income further.
By definition, an RMD is required - you need to take the RMD by law – so by basically wiping out your IRA RMD, a $47,000 QCD reduces taxable income. If you wanted to make a QCD from the IRA of $70,000 your gross income from the IRA would be $70,000, increasing gross income by $23,000, but AGI would remain the same.
The additional $23,000 QCD did reduce gross income by $23,000 – but it is a “wash” in that the $23,000 needed for the additional QCD increased gross income by $23,000. While there is technically a “tax benefit” from the additional QCD, it does not reduce your net taxable income. Your net taxable income after contributions remains $80,000.
This additional $23,000, while not taxed by Sam, is taxed on the NJ-1040 state income tax return. And if other NJ gross income was less – say there was not $55,000 in capital gains – so that your NJ gross income was under $100,000 a QCD in excess of the RMD could eliminate any available Retirement Income Exclusion. Bottom line – using more than your IRA RMD for a QCD increases your NJ state income tax.
Making contributions of appreciated shares of stock or mutual funds instead of cash to a DAF or directly to charities does provide a definite additional tax benefit.
You want to give $20,000 to a charity or DAF. If you donate 100 shares of stick with a value of $20,000, but which you paid $10,000 for 5 years ago, you reduce your net taxable income by $20,000. If instead you sell the shares and give $20,000 in cash to the charity you still have a $20,000 tax deduction, which reduces net taxable income by $20,000, but you have $10,000 in capital gains that increases your gross taxable income by $10,000. So, the net effect is reducing your net taxable income by only $10,000. In our example doing this would increase net taxable income after contributions by $10,000 to $90,000 and you would pay an additional $1,500 in federal income tax (capital gain rate of 15%) as well as additional NJ state income tax.
You can sell investments that have gone down in value and would generate a capital loss to generate the cash. Doing this you can deduct the capital loss from other capital gains and perhaps against up to $3,000 in ordinary income.
One other consideration when donating appreciated securities to a DAF or charity – the current deduction is limited to 30% of AGI. The deductions of securities in excess of this amount are not “lost” – they are carried forward to future tax years and available for deduction, within the annual calculation of the charitable deduction limitation.
What does all this mean?
* Make QCDs only to the extent of annual IRA RMDs,
* Contribute stock to a DAF or directly to a charity within the 30% of AGI limit (difficult to know the actual final AGI before the end of the year because of year-end dividends and capital gain distributions), and
* Donate the balance via cash from existing sources without selling additional appreciated investments to generate the cash.
One possible strategy to consider. The taxpayer in the above example could rollover all the money in employer pension accounts to an IRA account to make 100% of the source of RMDs an IRA account. So, the $67,000 total RMDs in the example – from both an IRA and pension accounts – would be all from an IRA account and QCDs of the $67,000 would totally wipe-out all RMD income from AGI and, in the example, reduce net taxable income after contributions to $60,000, assuming, of course, the taxpayer would still contribute $34,000 in appreciated securities to charities or a DAF.
I hope this is not too confusing. Let me know if you have any questions.
Friday, November 29, 2019
Just in time for Black Friday shopping, and year-end tax planning, I have updated my THE JOY OF AVOIDING NEW JERSEY TAXES, the only book available that I know of that discusses in details NJ state income taxes, for tax year 2019.
A new section on Tax Benefits for Veterans and their Caregivers has been added.
Most NJ taxpayers concentrate on their federal tax return and spend minimal time on their NJ return, simply taking numbers from the 1040 and putting them on the NJ-1040. As a result, they are paying more NJ state tax than necessary, often paying tax on income that is not even taxed by NJ. By becoming informed on NJ state tax law and using proper tax planning you can make sure that you pay the absolute least amount of NJ Gross Income Tax possible for your particular situation.
Whether or not you use a professional tax preparer, the more you know about NJ taxes the more you will be able to properly structure your financial transactions during the year to minimize taxes and the better prepared you will be when giving your “stuff” to your preparer at tax time.
I will send you this valuable book as a pdf email attachment for only 11.95. The cost of a print version, sent via postal mail, is $15.45.
The e-book version for Kindle available from Amazon should be updated by Cyber Monday (December 2nd) – wait till then to order. This version does not include the forms, schedules and worksheets included in the versions ordered directly from me.
To order send your check or money order payable to TAXES AND ACCOUNTING, INC to –
TAXES AND ACCOUNTING, INC
THE JOY OF AVOIDING NJ TAXES
POST OFFICE BOX A
HAWLEY PA 18428
Wednesday, November 27, 2019
Enough already. Let’s call a spade a shovel.
Donald T Rump is a worthless piece of garbage, totally devoid of humanity, and without a single redeeming human quality.
Trump is ignorant and incompetent, delusional and dangerous, despicable and deplorable, corrupt and crooked, and totally self-absorbed, caring about absolutely nothing but himself.
Trump lies to everyone about everything every day.
The most dangerous threat facing America and American values and democracy today is the Trump Presidency.
It is crystal clear that Trump Must Go ASAP.
The quickest way to remove Trump is by evoking the 25th Amendment, which is certainly justifiable, but this will not happen.
Next quickest is via impeachment, again certainly justifiable. We must hope and pray for a miracle – that enough Republicans in the Senate break from their truly hypocritical colleagues and actually put country ahead of Party and personal interests.
If that fails Trump MUST be voted out of office in 2020. The most important issue in the 2020 election, if he survives impeachment, is removing Trump from office. No other issue is more important.
Regardless of how Trump is removed from the White House – it is also vital that all the hypocritical Republicans in Congress who have supported and defended Trump MUST also be voted out of office when they come up for re-election.
There is absolutely no justification for defending Trump’s multitude of unethical, unconstitutional, illegal, racist, and just plain stupid actions and behavior and supporting his continuation in office. Defense of Trump is indefensible.
All patriotic Americans, regardless of political philosophy or affiliation, must vocally and aggressively oppose and denounce Trump.
It is NOT politics – it's patriotism!
Tuesday, November 26, 2019
* It is fast approaching the time of year when FORBES.COM’s TaxGirl Kelly Phillips Erb posts her annual “The Twelve Days of Charitable Giving ”.
Learn how you can “Include Your Favorite Charity InThe 12 Days Of Charitable Giving”.
* Staying with KPE, she discusses “Divorce, Retirement Accounts & Taxes: The Importance Of Getting It Right”, also at FORBES.COM.
* And a post from her original TAXGIRL.COM blog provides us with a KPE trifecta. She gives us an “Ask The Taxgirl” item, answering the question “Are Home Equity Loans Still Deductible?”.
* A new post at AMERICANS FOR COMMON SENSE - "Religion and Politics".
* The NSTB BLOG identifies “Tax Resources for Military Personnel”.
* Kay Bell tells us “IRS conducting in-person tax compliance visits in 3 states” at DON’T MESS WITH TAXES.
The 3 states are Arkansas, Texas and Wisconsin.
“Basically, according to the IRS, its agents will contact taxpayers, again individual and business, who have a previously known tax issue that wasn't resolved through mail contact.”
* THE TAX FOUNDATION supplies us with a tool for “Tracking the 2020 Presidential Tax Plans” of the Democratic candidates.
I do not support Democratic tax policies of taxing the rich simply because they can afford it and using the Tax Code to deliver government benefits and redistribute wealth. Click here for my views on tax reform.
While tax policy is important, and it is important to know a candidate’s tax and other policies, the most important criteria for selecting a Democratic candidate for President in 2020 is the ability to defeat Trump. No issue is more important in 2020 than removing Trump from the White House.
* Jim Buttonow lists “Ten major trends in IRS audits” at ACCOUNTING TODAY.
Some interesting trends. Specifically, “Most audits are done by mail”, 75% mail audits and 25% office or field audits for 2018, and this -
THE LAST WORD
To all the Republicans out there, in and out of Congress - it comes down to this.
Do you believe career diplomats and members of the intelligence community whose primary concern is protecting the national security of the US or a totally self-absorbed ignorant and incompetent moron whose ONLY concern is protecting himself?
The answer is obvious to anyone with a brain and a conscience.
Those who still support and defend Trump either have no brain or no conscience - or neither.
Monday, November 25, 2019
As promised, here are the federally declared disaster areas that qualify for tax relief in 2019 (so far):
Alabama Severe storms, tornadoes, and straight-line winds that took place on March 3, 2019 for individuals who reside or have a business in Lee County.
Arkansas Severe storms and flooding that took place on May 21, 2019 for individuals who reside or have a business in Arkansas, Conway, Crawford, Desha, Faulkner, Jefferson, Lincoln, Logan, Perry, Pope, Pulaski, Sebastian, and Yell counties.
Iowa Severe storms and flooding that took place on March 12, 2019 for individuals who reside or have a business in Fremont, Harrison, Louisa, Mills, Monona, Pottawattamie, Scott, Shelby, and Woodbury counties.
Missouri Severe storms, tornadoes, and flooding that took place on April 29, 2019 for individuals who reside or have a business in Andrew, Atchison, Boone, Buchanan, Carroll, Chariton, Cole, Greene, Holt, Jackson, Jasper, Lafayette, Lincoln, Livingston, Miller, Osage, Pike, Platte, Pulaski, and St. Charles counties.
Nebraska Severe winter storm, straight-line winds, and flooding that took place on March 9, 2019 for individuals who reside or have a business in Antelope, Boone, Boyd, Buffalo, Butler, Burt, Cass, Colfax, Cuming, Custer, Dodge, Douglas, Hall, Holt, Howard, Knox, Madison, Nance, Nemaha, Pierce, Platte, Richardson, Saline, Sarpy, Saunders, Stanton, Thurston, and Washington counties, and the Santee Sioux Nation.
Ohio Severe storms, straight -line winds, tornadoes, flooding, and landslides that took place on May 27, 2019 for individuals who reside or have a business in Auglaize, Darke, Greene, Hocking, Mercer, Miami, Montgomery, Muskingum, Perry, and Pickaway counties.
Oklahoma Severe storms , tornadoes, straight-line winds, and flooding that took place on May 7, 2019 for individuals who reside or have a business in Alfalfa, Canadian, Creek, Cherokee, Craig, Delaware, Garfield, Kay, Kingfisher, Le Flore, Logan , Mayes, Muskogee, Noble, Nowata, Okmulgee, Osage, Ottawa, Payne, Pawnee, Pottawatomie, Rogers, Sequoyah, Tulsa, Wagoner, Washington and Woods counties.
South Dakota Severe storms, tornadoes, straight-line winds, and flooding that began on March 13, 2019 for individuals and households who reside or have a business in Bennett, Bon Homme, Charles Mix, Dewey, Hutchinson, Jackson, Mellette, Minnehaha, Oglala Lakota, Todd, Turner, Yankton, Ziebach counties, the Cheyenne River Sioux Reservation, the Pine Ridge Reservation, and the Rosebud Reservation.
And again, for for updates on the areas that qualify click here.
Friday, November 22, 2019
Monday and Tuesday of this week I attended the annual National Association of Tax Professionals 1040 Update seminar (Monday) and a seminar on “Business Tax Reporting on the 1040” (Tuesday).at Bally’s in Atlantic City. Click here for more details on these offerings.
I have been attending the annual update seminar for as long as I have been a member of NATP (over 30 years). However, it no longer has the value for me that it did in earlier years. The actual update portion is truly redundant. It is a year behind from my point of view. While NATP is teaching the 2019 Form 1040-related numbers I am reviewing and compiling the 2020 numbers.
This was the first seminar I was attending as a designated NATP volunteer, helping with the signing in, handing out of workbooks and signing out.
One new feature of the event was a pleasant surprise. For the first time the continental breakfast provided included a hot option – bacon, egg and cheese or sausage, egg and cheese on a bagel. As a diabetic I would have also preferred cereal and fruit as another option, and for the afternoon dessert break sugar-free cookies.
Monday began with New Tax Law and New Developments. The only new tax-related law passed in 2019 was the “Taxpayer First Act”, dealing with taxpayer protections and identity theft prevention. Congress is, and will be, incapable of enacting any substantive legislation on any issue until 2021.
There were few new developments, a major one being the issuance of IRS regulations dealing with the new, truly complicated, and in my opinion unnecessary Section 199a QBI deduction. Speaking of the QBI deduction, new for 2019 are Form 8995 and Form 8995-A to calculate the QBI deduction, replacing worksheets that were used for 2018. The applicable form is included in the 2019 Form 1040 filing.
We reviewed the draft of the new 2019 Form 1040 and 1040-SR, which I have discussed here in previous posts, and the 2019 supplemental schedules. What was new to me was the reduction of the previous 6 supplemental schedules to 3 – Schedule 2 and 4 are combined in the 2019 Schedule 2, Schedule 3 and 5 are combined in Schedule 3 for 2019, and the information previously reported on Schedule 6 is now on the 1040. Reporting Schedule D income or loss has been moved from Schedule 1 to a line on the 2019 Form 1040.
We also took a look at the proposed new 2020 Form W-4. Click here for a copy of the draft. There are no more exemptions to claim – you no longer indicate “Single-0” or “Married-3”. When filling it out you must follow the instructions and enter the requested information. I would recommend you do not enter any amount for “deductions”, but do enter any other income, such as interest and dividends, and do not claim any or your dependents, or at least claim only half the number of exemptions to which you are entitled.
One thing discussed was new to me - I was not aware that the $10,000 “SALT” limitation on Schedule A could have an effect on the home office deduction on Form 8829 and the rental income and expenses on a two-family home reported on Schedule E. This is something I need to review further and perhaps devote a future post to it.
Under the GOP Tax Act only casualty losses resulting from Presidentially-declared disasters are deductible on Schedule A. The workbook provided a list of these areas so far for 2019, and I wanted to share it here, but for some reason I cannot access the workbook online. When this is fixed and I am able to I will post the list.
The text also identified this IRS webpage as a source of continuing information on disaster relief.
BTW – a Presidentially-declared disaster is different from a Presidentially-caused disaster. Taxpayers cannot deduct losses from national disasters caused by Trump. Trump himself IS a national disaster.
As a point of information - my entire perspective in attending continuing professional education sessions is different now. While, as a tax blogger I have a general journalist’s interest in new tax law and new tax developments, as a tax preparer who no longer seeks or accepts new clients, and is winding down my practice, I have no interest in taking time to learn anything new that does not directly affect my existing 1040 clients, or anything that involves too much complexity or study that perhaps might affect a few clients. It is easier for me to tell the clients that the new law or development might affect, “Homey don’t play that”.
As I tell my clients, while I do believe you can teach an old dog new tricks, and I have to learn some new tricks every year, there are some new tricks this old dog doesn’t want to learn.
I was truly pleased that for the second year the update seminar did not include 2 hours of redundant ethics preaching. I had always complained in the past that I paid for 8 hours of actual tax education but only got 6.
This may perhaps be the last year I attend the update seminar. Next year I may choose the NATP Forum, also held each year in Atlantic City but at Harrah’s on the marina, instead to learn of new developments.
Tuesday’s business reporting seminar was basically a review, albeit a good review, and I really did not learn anything new.
One more item worth sharing before I go. The instructor explained that she was told why the new treatment of alimony in the GOP Tax Act did not take effect until 2019, instead of beginning in 2018 like other items. As per the Act, alimony is not deductible by the payer or included in income of the recipient for divorce or separation decrees or agreements executed after December 31, 2018. For decrees or agreements executed before January 1, 2019 the old law still applies. At the time the bill was being written 3 Congressmen, presumably Republicans, were going through divorce proceedings which would not be finalized until 2018. And as we know, most Congresspersons, apparently as we’ve learned recently certainly Republican ones, put their personal interests ahead of the country’s interests.
Tuesday, November 19, 2019
As you read this, I am in Atlantic City at the annual year-end tax update seminars of the National Association of Tax Professionals. I will report on what we learned after I return.
* A belated happy 14th Anniversary to Kay Bell’s DON’T MESS WITH TAXES blog! Here is her first post – “The Most Wonderful Time of the Year”.
Congratulations to the yellow rose of taxes!
* Just when we tax pros thought we didn’t need to deal with client health insurance coverage anymore Russ Fox tells us “Out With the Fed Mandate; In With State Mandates” at TAXABLE TALK.
“Massachusetts, New Jersey, and the District of Columbia have their own mandates for the 2019 tax year (tax returns filed in 2020); Massachusetts’ mandate began in 2007. California, Rhode Island, and Vermont have implemented mandates for the 2020 tax year (tax returns filed in 2021).”
Unfortunately, as 90% of my clients are NJ residents I will have to continue to deal with this PITA. I personally have never believed a taxpayer should be penalized for not having “adequate” health insurance coverage for all household members for the entire year.
* A topical post, considering Trump’s crime (only one of many). Robert W Wood explains “Quid Pro Quo? Actually, IRS Cares Too” at FORBES.COM.
RWW deals with the QPQ in terms of charitable contributions, stating “The tax law is clear that you cannot write off a charitable contribution if it wasn’t really a charitable contribution.”
* Speaking of charitable contributions, TaxGirl Kelly Phillips Erb describes “The Gifts That Keep On Giving: 5 Strategies To Tax-Optimize Charitable Giving”, also at FOBES.COM.
* KIPLINGER.COM has put its 2 cents into the discussion of state taxes and identified its choices for “Best States for Low Taxes: 50 States Ranked for Taxes, 2019”.
No surprise that New Jersey is on the list of top-10 least friendly tax states. Kiplinger confirms “New Jersey’s property taxes are the highest in the U.S.”.
Unfortunately, I found no list of the 50-state rankings. There is a state tax map (here) where you can click on a state to go a detailed analysis.
THE LAST WORD
Donald T Rump was unfit to be President in 2016 and is unfit to be President today and in 2020 because he is Donald T Rump – a corrupt and unethical businessman with more failures than successes and an ignorant, racist, delusional malignant narcissist and sociopath totally devoid of humanity, integrity and credibility.