Monday, April 19, 2021

JUST A REMINDER

Make a note of the amount of the third stimulus payment you received (the maximum $1,400 per taxpayer and dependent), or if you received no payment, and keep any IRS notice you get that identifies the payment.  Do the same for any subsequent payments that may be enacted.  Give this information to your tax preparer with your 2021 tax “stuff” next year.

These payments are NOT taxable income.  But they will need to be “reconciled” when preparing your 2021 tax return.  If you didn’t get the full amount to which you were entitled you can claim the shortage as a refundable credit on the 2021 return.

TTFN















Tuesday, April 13, 2021

ESTIMATED TAXES

The filing and paying deadline for the 2020 Form 1040 (and 1040-SR) has been extended to May 17th, but as of this writing the 1st Quarter 2021 federal estimated tax payment is still due April 15th.

But, according to the IRS (see here) -

To the extent an overpayment of the 2020 tax exists as of April 15, 2021 (because payments made on or before April 15, 2021, exceed the 2020 tax liability), and the taxpayer makes a valid election to apply the overpayment to 2021 estimated tax, the overpayment would be applied as of April 15, 2021, whether the 2020 return is filed on April 15, May 17, or October 15, 2021.

So any amount of your overpayment you apply to 2021 estimated tax on your 2020 tax return, regardless of when the return is filed, is treated as having been received by the IRS by April 15, 2021 – assuming that all the tax payments reported on the tax return were made before April 15, 2021. 

So, if you file an extension with a payment of anticipated tax due and when you finally prepare your return you are entitled to a refund this may not apply.  But if all the tax payments reported on your return were made via withholding and/or timely paid estimated taxes you are OK.

TTFN






 

Saturday, April 10, 2021

THIS JUST IN – FORM 8962 NOT REQUIRED

If you received an advance premium tax credit (APTC) in 2020 to help pay for your monthly health insurance premiums for coverage purchased through the Obamacare Health Insurance Marketplace and the advance premium you received is more than you are entitled to based on your actual 2020 household income the IRS now tells us in IR-2021-84

. . . taxpayers with excess APTC for 2020 are not required to file Form 8962, Premium Tax Credit, or report an excess advance Premium Tax Credit repayment on their 2020 Form 1040 or Form 1040-SR, Schedule 2, Line 2, when they file.”

So not only do you not have to repay the excess credit, but you do not have to file Form 8962 with your 2020 tax return.

Of course, if you are entitled to more of a credit than you got during the year you should file Form 8962 to claim the additional amount. 

TTFN







Tuesday, March 30, 2021

DEADLINE FOR MAKING 2020 IRA CONTRIBUTIONS EXTENDED TO MAY 17

The IRS has clarified the recent extension of the filing, and paying, deadline from April 15 to May 17.

In “IRS extends additional tax deadlines for individuals to May 17”, which explains IRS Notice 2021-21, we are told -

In extending the deadline to file Form 1040 series returns to May 17, the IRS is automatically postponing to the same date the time for individuals to make 2020 contributions to their individual retirement arrangements (IRAs and Roth IRAs), health savings accounts (HSAs), Archer Medical Savings Accounts (Archer MSAs), and Coverdell education savings accounts (Coverdell ESAs).

TTFN









Saturday, March 27, 2021

THIS JUST IN – PPE DEDUCTIBLE MEDICAL EXPENSE

IRS Announcement 2021-7 (1) tells us that the cost of personal protective equipment (PPE) for the primary purpose of preventing the spread of COVID-19 is considered amounts paid for medical care under Internal Revenue Code Sec. 213(d). 

So, the purchase of personal protective equipment such as face-masks, hand sanitizer and sanitizing wipes for COVID-19 protection are deductible as medical expenses on Schedule A.  

And, for NJ residents, because these costs are a deductible expense for Schedule A they are also deductible as a medical expense on the NJ-1040. 

TTFN












Saturday, March 20, 2021

NJ, NY AND PA FOLLOW IRS FILING DEADLINE EXTENSION

NJ.COM reports “N.J. extends tax deadline to May 17, matching federal change” –

But there will not be an extension for first quarter 2021 individual estimated tax payments, the statement said. Those will still be due on April 15.”

I have not seen anything on the NJ Division of Taxation webpage yet.

As For New York, according to N-21-1

The Commissioner of the New York State Department of Taxation and Finance has extended the due date for personal income tax returns, and related payments, for the 2020 tax year from April 15, 2021 to May 17, 2021.” 

But, as with the IRS – 

“This relief does not apply to estimated tax payments for the 2021 tax year that are due on April 15, 2021. These payments are still due on April 15, 2021.” 

And from the Pennsylvania Department of Revenue

The Department of Revenue today announced the deadline for taxpayers to file their 2020 Pennsylvania personal income tax returns and make final 2020 income tax payments is extended to May 17, 2021.”

And -  

Those who make estimated income tax payments should continue to do so on the same filing schedule that they would normally follow. This includes taxpayers with estimated tax payments due on April 15, 2021.” 

Not from New Jersey, New York or Pennsylvania.  You should check the website of your state tax agency to see if it has extended the filing and paying deadline.

TTFN









Friday, March 19, 2021

DO NOT AMEND


It appears, according to IRS Commissioner Chuck Rettig, that the IRS will automatically process refunds for taxpayers who have already filed their 2020 income tax returns and claimed the full amount of unemployment benefits received as taxable income.  

 
As I explained in a previous post (click here) - “The American Rescue Plan . . . exempts from federal taxable income up to $10,200 in unemployment benefits received in 2020 if your “household” modified AGI is less than $150,000.” 
 
Do not file an amended return at this time,” Rettig told a congressional panel on Thursday. “We believe that we will be able to handle this on our own. We believe that we will be able to automatically issue refunds associated with the $10,200.”
 
Rettig explained that the IRS would soon officially release details for taxpayers about how to proceed.

TTFN










Thursday, March 18, 2021

FILING AND PAYING DEADLINE EXTENDED!

The IRS, in IR-2021-59, has announced that “the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021.”
 
According to the notice -
 
Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. . . . Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.”
 
It also explains –
 
Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until Oct. 15 by filing Form 4868.”
 
This applies only to the federal Form 1040 or 1040-SR.  “This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15.”
 
It also does not necessarily apply to the deadline for filing state income tax returns and paying any balance due.  “State filing and payment deadlines vary and are not always the same as the federal filing deadline. The IRS urges taxpayers to check with their state tax agencies for those details.”
 
I will post here when I hear about any change to New Jersey and New York state return deadlines.

TTFN

Monday, March 15, 2021

UNEMPLOYMENT BENEFITS

The American Rescue Plan, signed into law last week, exempts from federal taxable income up to $10,200 in unemployment benefits received in 2020 if your “household” modified AGI is less than $150,000. 

This exemption applies to all unemployment received in 2020, and not just the special federal $600 per week extended benefit passed as part of the stimulus package.  It includes “regular” unemployment benefits paid under a traditional state program.

The $10,200 exemption is per spouse on a joint return.  So, if both spouses received unemployment in 2020, they can each exclude up to $10,200.  The $10,200 is “per spouse” – as IRS guidance explains, if one spouse received $20,000 in unemployment and the other received $5,000 the total amount you can exclude is $15,200 ($10,200 + $5,000).

Your “modified” AGI for claiming the exemption is your AGI before subtracting the exclusion of unemployment benefits.  The $150,000 income threshold applies to Single filers, Head of Household filers, and joint filers.  If you are single or a Head of Household you can exclude up to $10,200 if your AGI is $149,999 or less.  If you are married filing a joint return you can exclude up to $10,200 each if your AGI does not exceed $149,999.  The exclusion does not “phase-out” at $150,000.  If your AGI is $149,999 or less you can exclude $10,200 per taxpayer.  If your AGI is $150,000 or more you cannot exclude anything – all of your unemployment is fully taxable.  So, $1.00 in actual income can increase your net taxable income by at least $10,200 or $20,400!  I do not know yet how this $150,000 threshold applies to separate returns filed by a married couple.

The gross amount of unemployment received, as reported on Form 1099-G, is reported on Line 7 of Schedule 1.  The amount of the exclusion is reported as a negative number on Line 8.  Write “UCE” and show the amount of the exclusion claimed in parentheses on the dotted line at Line 8. 

A single filer who received $16,000 in total unemployment would enter $16,000 on Line 7.  If the taxpayer had no other “other income” to report on Line 8 he or she would enter ($10,200) on Line 8.  If these were the only entries on Schedule 1 Part 1 Line 9, carried over to the Form 1040 or 1040-SR, would be $5.800. 

Go here for the official IRS explanation of how to claim the exemption.

TTFN










Wednesday, February 17, 2021

A MESSAGE TO TAXPAYERS ON BEHALF OF YOUR TAX PREPARER

 

Dear Taxpayer –

When sending/giving your tax preparer your 2020 tax “stuff” be sure to include the amount of any Economic Impact Payments you received in May of 2020 and January of 2021 – the up to $1,200 per person and up to $600 per person payments.  Or tell them that you did not receive one or both of the payments.

You do not have to give them the Notice 1444-A or 1444-B you received from the IRS identifying your payment – but do so if you have it.  I actually just received my 1444-B notice for the check I got this January in today’s mail.

If you want to verify what you did and did not receive you can do so at the IRS website – go here.  Perhaps more better – go here to create an individual IRS account and request a transcript.

Only about half of the clients whose “stuff” I have received so far this season included information about these payments – despite the fact that I specifically requested this information in my annual January mailing to my 1040 clients.

These payments are NOT taxable income – but if you did not get the full amount of either check to which you were entitled you can claim a refundable credit for the shortage when filing your 2020 tax return.  Several of my clients have told me they did not receive either the first or second check.

The reason for a potential shortage is the fact that most of the payments sent out in 2020 were based on 2018 tax return information and the payments sent out this past January were based on 2019 tax return information – but the actual amount you are entitled to is based on your 2020 income.

FYI – if you got more than you were entitled to you do not have to pay the excess back when filing your 2020 return.

One more FYI while I have your attention – a “Where the Fakawi” FYI.  This tax season I am relying 100% on the Postal Service for delivering work and payments to me.  Moron Trump’s attempts to destroy the Post Office to sabotage the timely delivery of the legitimate mail-in ballots from those voting for Democratic candidates in the 2020 election have had lasting effects.  It is taking much longer for “regular” mail to get to me here in “the country” – and it is even taking longer for Priority Mail packages. 

I mailed a check payment for a credit card in January 15th – and it was just received and applied by the credit card company yesterday!  It literally took a month to deliver.

Just one more reason to say “Fuck You, Donald Trump” and be glad he is gone.

TTFAW












Monday, February 1, 2021

THE TWELVE DAYS OF TAX SEASON


JOY TO THE WORLD,

TAX SEASON’S HERE!

I’LL SOON BE FLUSH WITH CASH.

And so, the 2021 “tax season” officially begins.  This will be my 50th season.

And now – what you have been waiting a year for - 

THE TWELVE DAYS OF TAX SEASON

On the first day of tax season my client gave to me a Closing Statement for the purchase of a home.

On the second day of tax season my client gave to me 2 Economic Impact Payment notices.

On the third day of tax season my client gave to me 3 mortgage statements (without, of course, any analysis of how much of the mortgage interest reported represents interest on acquisition debt).

On the fourth day of tax season my client gave to me 4 W-2s.

On the fifth day of tax season my client gave to me 5 Salvation Army receipts.

On the sixth day of tax season my client gave to me 6 1099-DIVs.

On the seventh day of tax season my client gave to me 7 cancelled checks.

On the eighth day of tax season my client gave to me 8 useless items.

On the ninth day of tax season my client gave to me 9 medical bills.

On the tenth day of tax season my client gave to me 10 stock sale confirms.

On the eleventh day of tax season my client gave to me 11 employee business expenses (despite being no longer deductible).

On the twelfth day of tax season my client got from me a finished tax return, 11 employee business expenses, 10 stock sale confirms, 9 medical bills, 8 useless items, 7 cancelled checks, 6 1099-DIVs, 5 Salvation Army receipts, 4 W-2s, 3 mortgage statements, 2 Economic Impact Payment notices, and a Closing Statement for the purchase of a home.

And, of course, on the thirteenth day of tax season the client gave to me a corrected Consolidated 1099 from Wells Fargo Advisors!

                                             - - - - - - - - - -

As is my custom, due to the demands of the filing season I will be taking my annual “tax season hiatus” from posting to THE WANDERING TAX.  Between now and April 14th I will barely have time to relieve myself let alone blog!   

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

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

“Talk” to you when it is all over!

TAFAW









Sunday, January 31, 2021

TELLING IT LIKE IT IS

Anyone who believes Trump knows his ass from a hole in the ground about anything is a moron.
 
Anyone who believes Trump cares about America or the American people or the Republican Party is a moron.
 
Anyone who believes Trump cares about conservative or Christian ideology and values is a moron.
 
Anyone who believes Trump cares about anything but himself is a moron.

Anyone who actually listens to, believes, supports, and follows Trump is either a moron or a racist or both.

It is obvious to anyone with any intelligence that Trump is an ignorant, racist and corrupt narcissist, sociopath and wannabe dictator.
 
The leaders of the Republican Party and Republicans in Congress who refuse to totally denounce and disavow Trump because they are afraid of offending and antagonizing his core cult of ignorant racists have totally abandoned all integrity, credibility and honor and have proven they have no conscience.  They do not care about political ideology but only about power. The new definition of Republican - "A person who claims to have moral standards or beliefs to which his or her behavior does not conform." 

The Republican Party has become the embodiment of Trump – ignorant, racist and without a conscience.  It is no longer a legitimate ideological political party. 
 
We must unite America – true conservative and traditional Republican and Democrat and Independent Americans – by denouncing, disavowing, indicting, prosecuting, convicting, and imprisoning Trump.   









Friday, January 29, 2021

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’?

The last BUZZ until mid-April (after the 2021 tax season).

Be sure to return here to TWTP on Monday, February 1st for what you have been waiting a year for.

* There is a new “wrinkle” to the Earned Income Credit for 2020.  Kelly Phillips Erb explains the EIC in detail in “Here’s What You Need To Know About The Earned Income Tax Credit In 2021”.

The post identified the new wrinkle – “as part of COVID-related tax relief, you can elect to use your 2019 earned income to figure the EITC for 2020 if your 2019 earned income is more than their 2020 earned income. 

* Speaking of the Earned Income Credit - there will be a delay in processing returns in the following circumstances:

- The taxpayer uses 2019 income to calculate the 2020 Earned Income Credit and/or Additional Child Tax Credit, as per the latest stimulus package. The IRS must verify that the amount of 2019 income reported on the 2020 return matches what was reported on their 2019 return.

- The taxpayer claims the Recovery Rebate Credit on their 2020 federal return.  The IRS must verify the amount of EIPs sent to the taxpayer match the amounts reported on the 2020 return.

Apparently, the amount of delay depends on the number of returns that are being processed at any one time.

There are always delays in issuing refunds on returns that include the EIC and the ACTC, due to the PATH Act.

Refunds in general will be delayed this year, regardless of what is claimed on the return, as the IRS will not begin to process returns until February 12th this year.

And IRS processing of 2019 returns and calendar year 2020 correspondence is still be backed up.  It is more important than ever to carefully review IRS correspondence – much is wrong and based on outdated information.  Be sure to give/send your tax preparer any correspondence you get from “Sam” immediately.

* Andy Ives discusses “'Compensation for IRA Eligibility” – what does and does not qualify – at THE SLOTT REPORT.   

* William Perez has a wealth of information at THE BALANCE.  Click here and scroll down a bit to check out the posts listed under “Latest From William Perez, EA”.

* No BUZZ would be complete without something from Kay Bell, the yellow rose of taxes, author of the DON’T MESS WITH TAXES blog.  In a recent post Kay talks about “Tax tips for members of the U.S. military”.

THE LAST WORD
 
The hypocrisy and despicability of most of the Republicans in Congress is truly disturbing.
 
It is also interesting how the 2016 Republican presidential candidates who railed against Trump during the primary campaign – Cruz, Rubio and Paul – have become the staunchest supporters, enablers and defenders of Trump and his lies. 
 
Trump supporters among the general public are clearly a “basket of deplorables”.  And the current Republicans in Congress, with too few exceptions, are also in the basket.
 
TTFN













Monday, January 25, 2021

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’?

FYI – I had hoped to be able to discuss what is new on the 2020 New York state income tax returns – Forms IT-201 and IT-203 – by now.  But, according to the New York Department of Taxation and Finance website, “"2020 income tax forms will be available mid-February 2021."  So, since I cannot actually review the 2020 forms I cannot post on the changes.
 
* Kay Bell, the yellow rose of taxes, reports “TIGTA finds problems with private tax collection levels, payment plans and security” -
 
A recent Treasury Inspector General for Tax Administration (TIGTA) report says that the private tax debt collectors currently under IRS contract have brought in just a fraction — 1.79 percent of the total value of accounts — of the $30 billion in unpaid tax they've been assigned since 2017.”
 
Using private collection agencies is truly a bad idea for a multitude of reasons.  Past attempts have been similarly unsuccessful – but Congress believes that if at first you don’t succeed try again and again and again despite the results.
 
Here is what I have said about outside collection agencies in the past -
 
Why should the government not outsource tax collection to private agencies? 
 
The Internal Revenue Service, and state tax agencies, have an ethical, and I believe legal, obligation to make sure that alleged outstanding debt is properly and correctly assessed.  They have a fiduciary responsibility to the Nation, or the State, and its taxpayers to be fair, equitable, and ethical in the administration of tax collection.  They must investigate taxpayer claims that debt, penalties and interest was assessed erroneously.
 
Outside collection agencies don’t give a rat’s arse about the legitimacy of an alleged outstanding tax debt.  They only make money if they collect money, whether the money is actually due or not.  And they will continue to unethically harass alleged tax delinquents, as they do when collecting alleged private debts, and as they been proven to have done in prior outsourcing programs.”
 
* William Perez tells you how to set up a “Capital Gains Tax Calculation Worksheet” at THE BALANCE.
 
* Help yourself save on taxes and help the Actor’s Fund at the same time.  Check out my latest post at FRIENDS OF THEATRE AND ART.  
 
* KIPLINGER.COM reports on good news for those with student loan debt in “Biden Extends Student Loan Relief, Is Loan Forgiveness Next?”.
 
As the sub-headline explains – “On his first day as president, Joe Biden continued the suspension of student loan payments until October”.
 
* Bob Carlson identifies “Mistakes IRA Beneficiaries Are Making After The SECURE Act” at FORBES.COM.
 
* Haven’t received your second stimulus payment yet.  Michael Cohn explains “Treasury plans efforts to deliver missing stimulus payments” at ACCOUNTING TODAY.
 
TTFN





















Wednesday, January 20, 2021

FREE AT LAST!

Free at last!  Free at last!  Thank God almighty, free at last!  Free of the danger and damage of the Trump presidency and the Trump Administration.  When Joe Biden is sworn in as President today our 4-year national nightmare will finally be over.

Donald J Trump has proven every single day of his presidency with every single word, tweet and deed that he is totally worthless, completely devoid of humanity, and does not possess a single redeeming positive human quality or value.  Trump has been the most ignorant, the most incompetent and the most corrupt – the absolute worst – President in US history.  I will go further  - he has been the worst human being to ever hold national public office in US history.

Trump does not care about America – he never has.

Trump does not care about the American people – he never has.

Trump does not care about American democracy, American values, or the Constitution – he never has.

Trump does not care about the Republican Party – he never has.

Trump does not care about conservative or Christian beliefs, values, or policy – he never has.   

Trump does not care about his core cult of ignorant racists – he never has.

Trump cares about one, and only one, thing – Trump.  He always has and he always will.  He is the ultimate textbook example of a malignant narcissist and a sociopath. 

The legacy of the Trump presidency is the emboldening, empowering and attempted “legitimization” of racism, bigotry and white supremacy.  He has organized racists, bigots and white supremacists, his core cult or “base”,  into a unified voting bloc.

Sadly, for the rest of my life I will judge the intelligence and character of every person based on whether they supported or opposed Trump and his presidency.  There is and was absolutely no intelligent, legitimate, rational or acceptable reason for any American, regardless of party affiliation or political philosophy, to support, defend or vote for Trump.

The Republican Party has totally abandoned all credibility, integrity and honor by supporting, defending and enabling – by embracing – Trump and Trumpism consistently over the past 4 years.  The Republican Party, and every Republican member of Congress almost to a man and woman, is directly responsible for every single bad act committed by Trump as President.  The recent discovery of a conscience by some Republican Congresspersons is too little too late.  The entire current leadership of the Republican National Committee must resign and be replaced by consistent anti-Trumpers if the Party is to survive.    

Going forward Trump must be aggressively investigated, indicted, prosecuted, convicted, and imprisoned for his multiple federal and state crimes.  He must be held accountable for his multitude of “sins’.  We must forcefully say “never again”.  There must never be any degree or act of respect or honor usually provided a past President given to Trump.  He must be publicly vilified and disgraced.  History will condemn America if this is not done.   

President Joe Biden and his Administration has a big job ahead – to undue the substantial damage done to America, American values and American democracy by Trump and his Administration, and to restore America’s credibility, stature and standing on the world stage.  I wish Joe luck and give him my complete and total support.

TTFN












Monday, January 18, 2021

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’?

* A warning from Kay Bell at DON’T MESS WITH TAXES – “Undeliverable COVID-19 payments offer another scam route”.
 
* The NATP BLOG explains “ABLE accounts can provide value for clients with disabilities”.
 
And NATP also discusses “Coronavirus-related distributions from an IRA or qualified plan”.
 
* Check out the latest “Theatre BUZZ” at my blog FRIENDS OF THEATRE AND ART
 
* And also check out the latest posts at THE TAX PROFESSIONAL.
 
* And – one more reminder - also check out my new free monthly online newsletter BOBSERVATIONS.
 
THE LAST WORD
 
IMPEACH – INDICT – IMPRISON! 
 
The best end to the story of Donald T Rump would be his eventual death broke and disgraced in prison.
 
TTFN









Friday, January 15, 2021

MISLEADING INFORMATION

The income tax filing season begins on February 1st - at least it has for me each year for 49 years.  The 2021 tax filing season begins on February 1st.  

Bloggers and journalists are falsely indicating that the tax filing season begins on February 12th.

February 12th is the date that the IRS will begin accepting and processing paper and electronic tax returns.  Period.  This is later than usual due mostly to late enacted tax legislation.

Taxpayers should not put off contacting their tax professionals with 2020 tax information if they have truly received everything needed to properly prepare the return. 

Time is a precious commodity for tax pros from February 1 through April 15.  Do not make their job more difficult by waiting until February 12 if you are not missing for any forms or information.

TTFN









Tuesday, January 12, 2021

“BAIT” AND SWITCH

I am trying to understand the legitimacy of the new “NJ BAIT”.
 
As explained on the “Business Alternative Income Tax” (BAIT) FAQ page of the NJ Division of Taxation website –
 
For New Jersey tax purposes, income and losses of a pass-through entity are passed through to its members. However, for taxable years beginning on or after January 1, 2020, pass-through entities may elect to pay a Pass-Through Business Alternative Income Tax due on the sum of each of the member’s share of distributive proceeds. The member(s) may then claim a tax credit for the amount of tax paid by the pass-through entity on their share of distributive proceeds.”
 
The website of an accounting firm I found in a search tells us –
 
The significance of this election is that the business taxes paid by an eligible entity can be deducted in determining federal income that passes-through to the owners, resulting in less federal tax paid by the owners on their share of the PTE income.”  
 
I assume the entity’s BAIT payment is claimed as a state income tax deduction on the federal Form 1065 or 1120-S, reducing the net taxable income passed-through to the partner or shareholder.
 
But what is actually happening?  The pass-through entity is making a payment of state income tax, calculated on the income of the entity, on behalf of the partner or shareholder.  The income of the entity, before any deduction for the BAIT, is still passed-through to the individual partners or shareholders on the NJK-1 and reported on Line 21 or 22 of the NJ-1040.  The partners’ or shareholders’ individual NJGIT liability is calculated based on this income. 
 
The BAIT payment allocated to the partner or shareholder is in effect an estimated tax payment of NJGIT.  If the actual tax cost of the pass-through income is more than the BAIT payment the partner or shareholder pays the additional tax.  If the tax cost is less than the allocated BAIT payment the partner or shareholder gets a refund or reduces the balance due.  
 
The BAIT payment made by the entity is not an expense of the entity but a payment made on behalf of the partner or shareholder.  It is not an expense of the entity, but a distribution of partner capital or shareholder PTI made to the State of New Jersey.
 
It appears to me that this is just a scam to allow New Jersey taxpayers to legally cheat on their federal income tax return.  The GOP Tax Act limited the itemized deduction for State and Local Taxes (SALT) to $10,000.  The BAIT is a way to “work around” this limitation so taxpayers could deduct a portion of their NJ state income tax, calculated on their NJ state individual income tax return, somewhere else on the federal return.
 
I certainly understand what New Jersey is trying to do.  I personally oppose the SALT limit – but for a unique reason (see my post “Defending the Deductions for Taxes and Mortgage Interest”).   But what about “substance over form”?  You can call it a “credit” and not an estimated tax payment, but if it walks like a duck  . . .
 
To be an actual legitimate entity-level state income tax should not the election be to pay BAIT on the entity’s net taxable income in lieu of passing the entity’s income to its partners or shareholders?  The entity would elect to not pass through its income to partners or shareholders.  An entity electing BAIT would not issue a NJK-1 to its partners or shareholders, and the partners or shareholders would not report any income from the entity on Form NJ-1040 Lines 21 or 22.  Since the individual partner or shareholder is not paying NJGIT on the income of the entity there would be no BAIT credit on the NJ-1040.   
 
So, what do you think?

TTFN