PAPER IS THE IRS KRYPTONITE

As most of you probably know, in my 50 years as a paid tax preparer I NEVER used flawed and expensive commercial tax preparation software to prepare or submit a federal income tax return (and I never will) – so I never “electronically filed” a Form 1040.  It is not that I oppose electronic filing – I do not.  I simply can’t do it.    

All my 2020 Form 1040s and 1040-SRs were prepared manually and mailed to the IRS by the client.  So, I expect the majority of the 2020 tax returns I prepared are currently part of the 7 Million paper-filed returns sitting in a pile somewhere in an IRS office – the direct result of the Service totally shutting down for over 6 months in 2020 in reaction to COVID.  Refunds requested by my clients that have been issued were seriously delayed and many clients are still waiting for their check.  And a large contingent of clients recently received the initial wave of CP 80 notices I described in yesterday’s post “WHAT TO DO IF AN IRS NOTICE TELLS YOU IT HAS NOT RECEIVED YOUR 2020 RETURN”.  

The National Taxpayer Advocate recently stated, "Paper is the IRS’ Kryptonite".  In a recent release the IRS recommended that taxpayers file their 2021 tax return electronically to assure prompt processing and request direct deposit for prompt issuance of any refund.

If paper is the Service’s “kryptonite” and it truly wants all taxpayers to submit their returns electronically it should allow taxpayers, and tax preparers, to submit federal income tax returns directly to the Service free of charge on the irs.gov website via an IRS created and maintained electronic filing system.

Before I retired most of the state returns I prepared were for NJ residents.  For many years now I have been able to go to the website of the NJ Division of Taxation and directly electronically file client NJ-1040 forms free of charge originally using the NJWebFile system and more recently via the improved New Jersey Online Income Tax Filing system.  I have had minimal problems with these NJDOT created and maintained electronic filing systems over the years.  FYI in the last couple of years I could also file NJ corporate income tax returns electronically through a similar state created and maintained system.

The Internal Revenue Service should create a system similar to NJ’s online income tax filing system for electronically filing federal income tax returns.

The IRS does have a Free File program available to taxpayers whose Adjusted Gross Income (AGI) is $73,000 or less.  But it uses outside commercial tax preparation software (highlights are mine) –

“To receive a free federal tax return, you must select an IRS Free File provider from the Browse All Offers page or your Online Lookup Tool results. Once you click your desired IRS Free File provider, you will leave the IRS.gov website and land on the IRS Free File provider’s website. Then, you must create an account at the IRS Free File provider’s website accessed via IRS.gov to prepare and file your return.”

This means you need to provide your tax and other personal information to an outside software company - and there is no doubt in my mind that the software company will attempt to get some money from you for auxiliary services like filing state returns.

So IRS, if you really want all Americans to file their income tax returns electronically provide them with a way to do so free of charge on the IRS website without using any outside commercial tax preparation software.

TTFN

WHAT TO DO IF AN IRS NOTICE TELLS YOU IT HAS NOT RECEIVED YOUR 2020 RETURN

 

Many of my clients have received notices from the Internal Revenue Service stating that they have an unidentified credit for tax year 2020 and that the Service had not received their 2020 income tax return.  They all seemed to have been mailed out to the taxpayers on the same date – a bulk automated mailing by the Service perhaps late last week.

In all of these cases the client timely mailed their 2020 return, which I prepared manually, to the IRS with a check for a balance due accompanied by a 2020 Form 1040-V.  It is obvious the IRS received the tax return, since the notice acknowledges receipt of the payment.

It is clear that, as I have posted before, the IRS is totally FU-ed – a direct result of the Service’s decision to completely shut down for over 6 months in 2020 in reaction to the pandemic.    

The notice tells the taxpayer to file their 2020 return or re-submit to the IRS a copy of the 2020 return that was filed with an original signature (or signatures if a joint return) and copies of all forms, schedules and attachments, including any W-2s or 1099s, that were part of the original filing.

My initial advice to the clients who received this notice, supported by a discussion of the issue on a Facebook tax preparer group, was to do as the notice instructed and send the IRS a copy of the original return and all attachments.

However, one client told me he called the IRS about the notice and, surprisingly, was able to get through without much wait time.  The IRS employee to whom he spoke told him NOT to re-submit his 2020 Form 1040 return as the Service was developing an “internal procedure regarding the 2020 tax returns”.

I just read today in a “tweet” that (highlights are mine) -

“The IRS will halt the use of automated notices in cases where a payment has been credited to a taxpayer but no tax return has been processed in an effort to help ease confusion related to a backlog in paper filings.

‘In many situations, the tax return may be part of our current paper tax inventory and simply hasn’t been processed. Stopping these letters — which could have otherwise been sent to thousands of taxpayers — will help avoid confusion,’ the agency said in a January 26 statement.”

Clearly the 2020 tax returns of my clients ARE a part of the Service’s current paper tax inventory and simply hasn’t been processed.

So, if you received a notice from the IRS reporting an unidentified credit but no receipt of a 2020 return it appears you should do nothing.   Do not resend a copy of your 2020 return to the IRS.

This makes sense.  The IRS is already inundated with literally millions of pieces of unprocessed correspondence and millions of unprocessed 2020 returns.  Sending a second filing of a 2020 return the IRS already has will only add to this humongous backlog and exacerbate the problem.

As I have also posted before - It will take many, many, many months for the IRS to fully recover from its 2020 shutdown, if it ever does.

TTFN

WHO MUST FILE A 2021 TAX RETURN?

Generally, you do not have to file a federal 2021 Form 1040, or 1040-SR, unless your “gross income” is at least –

FILING STATUS	ON 12/31/19 YOU WERE	GROSS INCOME
SINGLE	UNDER AGE 65	12,550
	65 OR OLDER	14,250
MARRIED FILING JOINT OR QUALIFYING WIDOW(ER)	BOTH SPOUSES UNDER 65	25,100
	ONE SPOUSE 65 OR OLDER	26,450
	BOTH SPOUSES 65 OR OLDER	27,800
MARRIED FILING SEPARATE	ANY AGE	5.00
HEAD OF HOUSEHOLD	UNDER 65	18,800
	65 OR OLDER	20,500

Your dependent child must file a tax return if –

* Unearned income (interest, dividends, capital gains, etc.) was over $1,100

* Earned Income (W-2 wages and self-employment) was over $12,550

* Gross income was more than the larger of $1,100 or earned income up to $12,200 plus $350.

“Gross income” means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). Do not include any Social Security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2020 or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). 

Gross income includes gains, but not losses, reported on Form 8949 or Schedule D.  If you are a sole proprietor filing a Schedule C, gross income is the amount reported on Line 7 of Part 1 – gross receipts less returns and allowances and cost of goods sold plus “other income”.  And if you are a landlord gross income includes the gross rents reported on Schedule E.

So, you see that the filing requirements are not based on actual "net" taxable income.  For any type of business income or capital gains the income before deducting any expenses or deducting the cost basis of investments sold is counted.  You must file a return to identify the expenses and cost basis.

The numbers for individual state income tax returns differ.  You may not have to file a federal return, but you must, or should, file a state return.  For example, the State of Pennsylvania is a gross income tax with no personal exemptions or standard, or itemized, deductions.  You must file a PA-40 and pay the 3.07% flat state income tax if “you received total PA gross taxable income in excess of $33”.  

Regardless of the amount of your gross income, you generally must file an income tax return for 2021 if -

* you had net self-employment income of $400 or more,

* you owe household employment taxes,

* you owe additional taxes on a premature retirement plan withdrawal,

* you failed to take a required minimum distribution from a retirement plan,

* you must repay the 2008 Homebuyer Credit,

* you owe Social Security and Medicare taxes on unreported tip income, or

* you did not receive an Economic Stimulus Payment in 2021 but were entitled to receive one or you received a payment that was less than the amount to which you were entitled, or

* you received an advance payment on the Premium Tax Credit.

There are times you should file a tax return even if you don’t have to -

1. To get a refund.  This is the most obvious reason.  If you do not have enough gross income to file a tax return you still need to file a return to get a refund of any income tax withheld or estimated tax payments, or to apply any of the tax to 2022.

2. If you are entitled to any of the refundable tax credits or refundable portions of tax credits – such as the Earned Income Credit, the Child Tax Credit, the American Opportunity Credit and the Child and Dependent Care Credit.

3. To establish or maintain a carryover of unused deductions or losses, such as a capital loss carryover, a carryover of IRA “basis” on Form 8606 (non-deductible IRA contributions), a carryover of unused home office deductions, or a carryover of suspended passive losses.

4. To “start the clock” on the 3-year audit statute of limitations.   The IRS normally has three years from the due date of a retur,n or the actual filing date, whichever is later, to audit a Form 1040. This is doubled to 6 years if you omitted 25% or more of your income. 

TTFN

THE IRS IS TOTALLY FU-ED!

 

The disastrous fallout from the Internal Revenue Service’s decision to completely shut down for over 6 months in 2020 in reaction to the pandemic continues. 

* Taxpayers continue to be frustrated by erroneous notices from the IRS - including those saying the 2020 tax return they had timely and correctly filed with a full payment of the balance due have not been received, although the same notice acknowledges receipt of the payment.

* Letters sent out by the IRS identifying the amount of advance Child Tax Credit payments and economic stimulus payments issued in 2021 – information necessary for the proper preparation of 2021 income tax returns - contain errors.

* Correspondence in response to IRS notices related to alleged outstanding tax debts and other issues have been ignored.

* Many taxpayers are still waiting to receive refunds for timely filed 2020 federal tax returns.

The IRS is dealing with a backlog of millions of unprocessed 2020 income tax returns, amended returns and collection-related and other correspondence.  

Most state tax agencies, like the NJ Division of Taxation, also closed down their offices during 2020, but employees were able to competently process returns, issue refunds, and deal with correspondence during this time with minimal delays.  The problems exist only with the IRS.

I do sympathize with the current plight of honest and competent IRS employees, which I expect is the majority of employees.

What to do?  Unfortunately, the answer is to just be patient.  And do not let any tax year 2020 issues delay the preparation and filing of your 2021 federal and state income tax returns.  If the 2021 IRS Child Tax Credit and/or Economic Impact Payment letter(s) is/are wrong use the correct information from your financial records to reconcile these payments on your 2021 return.

What not to do - 

I need to continually say this – there is absolutely nothing whatsoever your tax preparer can do to expedite the processing of your 2020 return, amended return or correspondence, or the issuance of your 2020 refund.  And - your tax preparer had absolutely nothing to do with the delays to your return, correspondence or refund.  While you should send copies of any IRS or state tax correspondence you receive to your preparer DO NOT call or email him or her if your refund is late.  And, looking forward, DO NOT call or email your tax preparer to ask about your 2021 refund if that is late. 

It will take many, many, many months for the IRS to fully recover from its 2020 shutdown – if it ever does.

What the IRS needs to do is, as I have said from the beginning of this mucking fess, and as a coalition of tax preparer organizations have recently requested the Service to do, immediately cease all collection activities until it has completely processed the backlog of correspondence.

The Service also needs to develop a detailed strategic plan for dealing with office closures in the event, heaven forbid, something like COVID happens again in the future.

And, nothing new here, Congress needs to properly fund the Internal Revenue Service.

So, the bottom line – be patient with the IRS and do not bug your tax preparer.

TTFN

FINALLY!

  

The 2021 New York State income tax returns, forms, schedules, and instructions are finally available to download online on the website of the New York Department of Taxation and Finance.  Click here.

A brief review of the 2021 IT-201(resident) and IT-203 (non-resident and part-year resident) returns indicates they are exactly the same as the 2020 forms – no changes to the descriptions and line numbers on either form.

The instruction booklet for both forms do not have a page to identify “What’s New” for 2021 returns as they usually did in the past – but a NY state tax update I “attended” in January (part of an online webinar) discussed the following changes of note –

* New York now has a PTET (Pass Through Entity Tax), which is the Empire State’s version of NJ’s BAIT tax scam, to assist NY taxpayers in evading federal income tax.

* New York continues to decouple from federal tax law changes.  It currently does not follow the temporary or permanent federal changes to the Earned Income Tax Credit (EITC).

* There is a new NY Real Property Relief Credit of between $250 and $350 that is calculated on NY Form IT-229.  The NY itemized deduction for property tax paid that is claimed on IT-196 is reduced by the amount of the credit claimed on IT-229.

And while we are on the subject of state taxes, the Pennsylvania 2021 state income tax returns, forms, schedules, and instructions are also now available online.  Nothing of any consequence new for PA state returns either.  Click here.

TTFN

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

 

The BUZZ returns to Tuesday this week, due to yesterday’s date-sensitive post.

Let’s begin with an FYI - the IRS will soon begin sending out Letter 6475 to people who received a third economic stimulus payment a year ago.  The letter says, “Your Third Economic Impact Payment” near the top and "Letter 6475” on the bottom.

It is very very important that you save this letter and give it to your tax preparer with your 2021 tax “stuff”!

* Over at THE STREET Allison L. Lee explains “How New IRS Life Expectancy Tables Affects 2022 RMDs” –

“As of January 1st, the IRS expects you to live a little longer. And even better, it could result in a smaller tax bill.”

* Andy Ives discusses the rule of “One IRA Rollover Per Year – Based on Distributions” at THE SLOTT REPORT.   

* Roger Russell tells us “Practitioner coalition urges IRS to step up for tax season” at ACCOUNTING TODAY.

Topping the list of what the coalition wants the IRS to do echoes what I said the service should have done back in 2020 -

“Discontinue automated compliance actions until the IRS is prepared to devote the necessary resources for a proper and timely resolution of the matter.”

Click here to see a copy of the letter.

* From TaxGirl Kelly Phillips Erb at her BLOOMBERGCOM blog - “Here’s What You Need to Know About the Upcoming Tax Season”

* According to DELMARVA NOW “Maryland extends state tax filing deadline into July” (highlight is mine) -

“Comptroller Peter Franchot announced Wednesday that the filing and payment deadline for 2021 Maryland state individual income taxes has been extended by three months — to Friday, July 15, 2022 — to assist taxpayers facing financial difficulties due to the COVID-19 pandemic.”

* Russ Fox provides more proof that the IRS it totally FU-ed in “Hug Your Tax Professional: The IRS Is At It Again” at TAXABLE TALK – three instances of recent IRS errors related to notices sent to his clients.

It will take a very long time for the IRS to recover from its wrong decision to completely shut down for too many months in 2020 and its inability to properly deal with the resulting consequences.  Sadly, taxpayers and tax professionals should expect continued delays and FUs by the Service throughout 2022. 

BTW – I really don’t want any hugs (social distancing, please).

* Michael Cohn reports “IRS begins requiring new ID system for accessing online accounts” at ACCOUNTING TODAY -

“The Internal Revenue Service has implemented a new verification process for taxpayers who want to access their online tax accounts and self-help tools that includes taking a selfie and submitting a photo of their driver’s license or passport to a third-party service, ID.me.”

Say cheese!

* The NJ Division of Taxation website has posted a page that briefly describes the provisions of the New Jersey College Affordability Act (highlight is mine) -

“Beginning with Tax Year 2022 (filed in 2023), the New Jersey College Affordability Act allows for three Income Tax deductions on New Jersey returns with a gross income of $200,000 or less.”

THE LAST WORD

I do not believe the so-called “evangelicals” of the religious right should be called “fundamentalist Christians”.  They are neither fundamentalist nor Christian.

The dictionary tells us a “fundamentalist” is “a person who believes in the strict, literal interpretation of scripture in a religion”.  The religious right chooses to believe only those specific examples of scripture that appear to reinforce and verify their personal prejudices and bigotry, while totally ignoring all other scripture.

And they are not truly Christian.  A “Christian” is 1. one who professes belief in Jesus as Christ or follows a religion based on the life and teachings of Jesus, or 2. one who lives according to the teachings of Jesus”.  The evangelicals clearly do not support or practice the actual teachings of Jesus.

TTFN

DON’T BE IN SUCH A HURRY – BUT DON’T WAIT TILL THE LAST MINUTE

 

According to the IRS today, January 24^th, is the first day the tax agency will begin accepting and processing 2021 tax year returns.

But don’t be in such a hurry to file.  You should not rush to be among the first taxpayers of the year to have your taxes prepared.   Do not give or send your tax preparer your ‘stuff’, or attempt to prepare your own returns, until you have received ALL the forms and information needed to complete the returns! That means every W-2, every 1099, and every K-1 and all the cost basis information on the sale of investments.

During my 50 years in “the business” I have had many experiences where a client came in very early in the season and had his/her return prepared, only to receive another Form 1099 in the mail the day after he/she had sent the finished returns off to his/her “uncles”.

Be aware that if you have a brokerage account there is an excellent chance that you will receive at least one, if not two, corrected “Consolidated 1099 Statements” to report taxable dividends, interest and gross proceeds after the initial statement arrives in late January.  The final corrected 1099 may not arrive until mid-March.

However don’t wait until the last minute.

Many taxpayers who expect to owe their “uncles” wait until the very last minute to get their “stuff” together to prepare their return.  Even if you think you will owe taxes you should have the return prepared early, once you have all the necessary information in hand.  You don’t have to actually file the returns and pay any tax until April 18th.  But by having your 1040 prepared early you will know exactly how much you will owe and have over a month to come up with the money, instead of running around trying to juggle funds days before the deadline. Hey, you might even be surprised to find that you will be getting a refund!

Also consider the workload of your tax preparer.  I had a strict long-standing rule that all returns that are not literally in my hands, with all the necessary information, by a specific date in March will be automatically extended!

There are some tax-related things you should do as early.  Make your 2022 contribution to your traditional or ROTH IRA, and Coverdell Education Savings Account, Section 529 College Savings Plan, or Health Savings Account as early as possible in the year.  Thanks to the miracle of tax-free compounding, by making your contribution on the first available day of each year you will have substantially more in the account by the time you are ready to retire, or when you need the money to pay for education or medical bills, than if you wait till the last minute.

If you make a 2022 ROTH contribution now and later discover that you are not eligible for a ROTH, or, for whatever reason, decide you would rather have the funds in a traditional IRA, you have until the due date of your return to "recharacterize" the contribution.

When making your contribution to a tax-deferred account be sure to identify the year for which it is being made.  Write, for example, “2022 IRA contribution” clearly in the memo section of the check.  If you enclose a payment voucher or coupon provided by the trustee make sure the correct year is marked.  Follow up by checking the next statement for the account to verify the contribution was applied to the correct year.

TTFN

IT'S IN THE MAIL!

 

Most of the information returns you will need to properly prepare your 2021 Form 1040 (or 1040-SR) are in the mail.

As you receive your 2021 information returns – W-2s, 1099s, 1098s, K-1s, etc. - you should check the amounts reported on the forms against your own records.  And it is important to verify that the Social Security numbers on all forms are the correct numbers.  If you discover an error, or something you don’t understand, contact the employer or financial institution for an explanation or a corrected return.

A bank may issue one 1099-INT for all accounts – savings, money market, CDs – belonging to the same name and Social Security number.  Verify each account listed on the form to make sure they all belong to you.  A few years back one of my clients received a 1099-INT with someone else’s account included. Had he not carefully checked the form he would have paid close to $100.00 in federal and state tax on another person’s income.

Some information returns may come attached to other documents. Check the contents of each envelope carefully. Your Form 1098 for mortgage interest may arrive attached to the January or February monthly mortgage statement. Some year-end dividend checks have a Form 1099-DIV attached. Don’t separate the check and throw out the 1099-DIV thinking it is a stub. And check 1099-DIVs you receive to see if there is a check attached. I can’t tell you how many times I have found checks attached to 1099s given to me by clients. 

Just because you didn’t receive a 1099 for income does not mean that one was not submitted to the IRS. You must report all taxable income, whether or not you have received a Form 1099. 1099-DIV and 1099-INT does not have to be issued if the amount is under $10, and Form 1099-MISC or 1099-NEC may not need to be issued if the amount is under $600, but all taxable dividends, interest and “miscellaneous” income must be reported regardless of the amount received.

When asked about a Form 1099-INT for an account, banks often tell depositors that you only have to report interest on your 1040 if it is $10 or more. This is wrong! Banks may not have to issue a Form 1099-INT if the interest is less than $10, but you are required to report all interest on all accounts from dollar one.

Many states will no longer mail out 1099-Gs for state tax refunds or unemployment benefits. You may need to go online to your state tax department’s website to download the form.

TTFN

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

I think I will return the BUZZ to a weekly Monday posting schedule.

* It will be déjà vu all over again.  Michael Cohn of ACCOUNTING TODAY reports “Taxpayer Advocate warns of tax refund delays this season” (highlight is mine) -

“National Taxpayer Advocate Erin Collins expressed deep concerns Wednesday about the upcoming tax filing season in her annual report to Congress on the 2021 filing season.

The report found that tens of millions of taxpayers saw delays in the processing of their returns last year, and with 77% of individual taxpayers receiving tax refunds, ‘processing delays translated directly into refund delays.’  Similar delays or worse are likely to occur this year.”

The IRS itself anticipates continued delays in return processing for the upcoming filing season, so expect delays in getting refunds requested on your 2021 returns.  And, most important, there is absolutely nothing whatsoever your tax preparer can do to expedite the processing of a return or the issuance of a refund – so do not call or email your tax pro if your 2021 refund is delayed!

* Speaking of the Taxpayer Advocates annual report to Congress, Kay Bell discusses it in more detail in “Top 10 Taxpayer Problems of 2021 likely to repeat in 2022” at DON’T MESS WITH TAXES.

Click here for the TA’s full report.

* And Kay lists and explains “Tax statements you need to file your 2021 return”.

Here is one statement you especially need to be aware of, and save and give to your tax professional -

“Letter 6475 — Similarly, this IRS letter details how much of the COVID-19 third economic impact payment (EIP) you got last year. The maximum, as also provided by ARPA, was $1,400 per person. If you didn't get that much, you might be able to get additional relief money by claiming the Recovery Rebate Credit. The information in Letter 6475, officially titled Your 2021 Economic Impact Payment, will help you calculate just how much you're still due. If you didn't get any EIP last year, but qualify, you can claim the Recovery Rebate Credit, no letter needed.”

When you receive the applicable forms in the mail be sure to check the Social Security numbers for accuracy and, if possible, verify the dollar amounts reported with your records. 

I hope my clients are “listening”.

* Matt Lebo, CPA discusses in detail “Considerations When Inheriting an IRA” at the new to me TAX WARRIORS blog.

* And we have another Kay Bell trifecta with her “Tax return checklist & questions to help you file your taxes”.

THE LAST WORD

We seem to be dealing with TWO pandemics.

Not only COVID, but a serious outbreak of STUPIDITY. The stupidity outbreak is exacerbating the COVID outbreak. 

There are, sadly, too many complete idiots in America today - and almost all seem to be Republicans.

TTFN

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

 

* Kay Bell tells us “Some state tax laws changed on Jan. 1, 2022” at DON’T MESS WITH TAXES.  

* KIPLINGER.COM lists “11 Surprising Things That Are Taxable”. 

Some are not particularly surprising, certainly not to me.

* Russ Fox explains “Tax Season (For Individuals) to Begin on January 24^th” at TAXABLE TALK –

“The IRS announced today that Tax Season will begin on Monday, January 24th.  That’s the first date that electronically filed returns (and extensions) for the 2021 tax year will be accepted for individuals.”   

For me the tax filing season always officially began on February 1^st every year.

Russ ends his post with a prediction and warning (highlight is mine) -

“As for how this year’s Tax Season will go, expect a repeat of last year.  The IRS still has not processed all 2020 returns (but they’re through April!).  Until IRS staff is fully back at their Service Centers, there’s no reason to expect anything to change.  This is not a scenario to make any IRS stakeholder–be it a tax professional, taxpayer, or Congressman–happy.  I can state for the record that I absolutely expect the same issues with delayed processing of refunds this year.  (I have a client whose 2019 return is still stuck in limbo!).”

Taxpayers (and especially my clients) please remember – there is absolutely nothing I, or ANY tax preparer, can do to expedite the processing of a tax return or the issuance of a refund.  So, don’t call or email me, or your tax pro, to ask where your refund is!

THE LAST WORD

During a devastating flood a man is sitting on his roof. A boat comes by to rescue him and instead of getting in the boat the man says, “No thanks.  God will save me.”  Another boat comes by and the man gives the same answer.  A helicopter descends to rescue the man, but again he says, “No thanks. God will save me.” 

The floodwater continues to rise and the man drowns.  In heaven he asks God, “Why didn’t you save me?”  God replies, “What do you mean?  I sent you two boats and a helicopter!”

If the moron “evangelical” anti-vaxxers who claim God will save them happen to pass God on their way to hell after dying of COVID you can believe God will say to them, “You idiots – I sent you a vaccine!”

TTFN

THE 2022 NJ-NATP FAMOUS STATE TAX SEMINAR

 

This past Saturday I was where I have been the same time this year for the past 30+ years, with one or two exceptions.  I was in the audience of the annual “Famous State Tax Seminar” presented by the NJ chapter of the National Association of Tax Professionals (I was a founding member of the chapter). 

As the title suggests, this annual “must-attend” event for tax pros who prepare NJ and NY state tax returns for clients is an update on the changes to state tax law for New Jersey and New York resident and non-resident taxpayers to prepare us for the upcoming tax filing season   It discusses individual and business income tax, payroll, sales and inheritance/estate taxes, the NJ property tax relief programs, and often touches on federal tax changes.

Although I have officially retired from preparing tax returns, I still write about federal and state taxes and continue to prepare 1040s and state returns for family and close personal friends.

Unfortunately, the seminar was “virtual” again this year – an online “webinar” – due to COVID.  Like most of my generation of tax pros (I started in 1972) I prefer in-person continuing professional education (CPE).  Being “virtual” apparently did not substantially limit participants – it was announced at the beginning of the seminar that more than 170 tax pros had registered for the event.  It is expected that this event will return to being in-person next January. 

An FYI – my personal interest in (and attention paid to) CPE topics is limited to issues related to my specific clients.  For the last several years this has been restricted to individual income tax issues – in this case NJ-1040 and IT-201 and IT-203 filings. 

The webinar began, as usual, with greetings and opening remarks from NJ-NATP President Josh Mellum (I like the beard).  Followed, again as usual, by the “keynote” presentation from John Ficara, the Acting Director of the NJ Division of Taxation (why still “acting”).  While I appreciate Mr. Ficara’s support of NJ-NATP and his willingness to participate in the seminar, this presentation, thankfully limited to 15 minutes, is usually of little value.  However, this year was different, as he reported on the Division’s operational response to COVID issues.  Thankfully, unlike the IRS, the NJDOT did not shut down in 2020.  Employees continued to work “remotely”.  Mr. Ficara announced NJDOT should return ti full worksite operations during the upcoming tax filing season.

Next was the real “meat” of the event – NJ state tax updates presented by members of NJDOT’s “New Jersey Taxation University”.  NJTU has proven to be the most consistently competent, informed, ethical, and cooperative component of the Division of Taxation.  Tilesha McCall provided individual updates, Solange Pimental discussed the state’s Property Tax Relief Programs (Homestead Benefit and Property Tax Reimbursement), Abra Watson tacked CBT updates (which apparently replaced the sales tax update presentation that had been listed on the printed seminar agenda), and Mike Kovacs explained in detail the relatively new NJ BAIT program.  BAIT (Business Alternative Income Tax) is New Jersey’s legal scam to assist NJ taxpayers in evading federal income tax.  

Here are highlights from the webinar that relate to the 2021 NJ-1040 –

* The initial filing deadline for the NJ-1040 is the same as that for the federal return – April 18, 2022.  For 2020 returns NJ is following the IRS on the extended deadline for taxpayers who were affected by Hurricane Ida – the original January 3^rd extended filing deadline has been further extended to February 15^th. 

* As in the past, NJ will not begin to issue refunds for 2021 NJ-1040s until March 3, 2022, regardless of when the return was filed.

* COVID-related stimulus, unemployment, “EBT” (Economic Benefit Transfer), PPP loan, and NJEDA and local grant payments and cancellation of debt continues to not be subject to NJ state income tax.  These payments are not reported anywhere on the NJ-1040.

* Changes to the Retirement Income Exclusion (the Pension Exclusion and the Other Retirement Income Exclusion) for 2021 and beyond have been discussed in a previous TWTP post.

* Changes to the NJ Child and Dependent Care Credit have been discusses in a previous TWTP post.  For 2021 there is no limit on the amount of the allowable NJ credit – previously the state credit was limited to $500 or $1,000.

* Changes to the NJ Earned Income Tax Credit have been discussed in a previous TWTP post.

* As usual, excess employee contributions to the various state benefit funds resulting from having more than one employer in 2021 can be claimed as additional state income tax withholding on the NJ-1040 via Form NJ-2450.  The maximum employee contributions for 2021 are:

·         Unemployment Insurance = $153.85

·         Disability Insurance = $649.54

·         Family Leave Insurance = 386.96

There were no real changes to the Property Tax Relief (aka “Senior Freeze”) program.  Here is what you need to know about the 2021 PTR-1 and PTR-2:

The income limitations are –

·         2020 = 92,969

·         2021 = 94,178

Thankfully, the 2020 income limit was not reduced to $70,000 by the state legislature to balance the budget, as had been done in past years (2010 – 2017).

The filing deadline for the applicable PTR form is October 31, 2022.  The application booklets will be sent out in mid-February and checks will be issued beginning on July 15, 2022.

There was no change to the application and distribution of the Homestead Benefit.

Unlike in-person offerings, there was no actual “lunch break” for this webinar.  We all had lunch at our desks while continuing to watch the presentations.  As an aside, the breakfast and lunch offerings at the in-person Famous State Tax Seminars held at what used to be known as the Woodbridge Hilton, actually in Iselin NJ, were consistently the best meal offerings of any CPE event I have attended in my 50 years in “the business”.

The last NJDOT presentation before leaving New Jersey was a Discussion Panel, new last year, which is an excellent addition to the seminar agenda (one I had recommended in past reviews).  Christina Quinones moderated a panel of NJDOT upper management to discuss systemic, operational and procedural issues.  I was glad the panel once again included NJ-NATP’s old friend Jake Foy (I also liked his beard).  Unfortunately, Jake’s screen view was fuzzy due to excess light coming from his windows.  Another aside – I miss past presenters Alexis and, of course, John Kelly.

I like that we could submit questions for the panel prior to the event.  As a component of this annual seminar, due to time constraints, it is, however, important that the seminar planners carefully review the submitted queries and consolidate similar and related questions to compose one edited question per specific topic.

Actually, there would be real value in a separate full-day in-person seminar with two NJDOT panels – one in the morning to respond to systemic, operational and procedural issues and another after lunch to answer questions and provide clarification on actual state tax law.  NJ-NATP Board – are you listening? 

The seminar ended, as it always does, with presentations by veteran tax pro and long-time NJ-NATP friend, and, like me, honorary member Kathryn Keane, EA of New York.  

While having state tax updates presented by official representatives of the NJDOT is important and valuable, there is also value in a review and interpretation of updates by an experienced tax preparer, who can discuss the practical application of tax law changes.

There is not much new for the 2021 New York IT-201 and IT-203 forms, except for these items:

* New York now has a PTET (Pass Through Entity Tax), which is the Empire State’s version of NJ’s BAIT scam.

* New York continues to decouple from federal tax law changes.  It currently does not follow the temporary or permanent federal changes to the Earned Income Tax Credit (EITC).

* There is a new NY Real Property Relief Credit of between $250 and $350 that is calculated on NY Form IT-229.  The NY itemized deduction for property tax paid that is claimed on IT-196 is reduced by the amount of the credit claimed on IT-229.

Lately Kathryn has also given a presentation on federal updates at this seminar, which I feel is actually unnecessary and not applicable to the event’s purpose.  This year’s presentation, titled “Post Pandemic Practice Management”, provided a different, more practical and interesting take on federal issues.

KK told us that, interestingly, the IRS did not see a reduction in Schedule A mortgage interest deductions as a result of the GOP Tax Act’s elimination of the deduction for home equity interest.  As I expected taxpayers and tax preparers are not properly complying with this tax law change (one that I actually support).

And she reminded us that the $300/$600 non-itemizer deduction for charitable contributions is for cash contributions only, and does not include non-cash contributions such as donations of clothes or household items to Goodwill, the Salvation Army, etc.

There were minimal technical issues with the virtual offering this year.  A “commercial” for one of the event sponsors ran occasionally during the webinar, replacing the tables manned by sponsors outside the “classroom” at in-person offerings.  And “Quick Poll” questions popped up throughout the day, a tool to verify the “attention” and “presence” of the participants for CPE credit purposes.  The results of the polls were also shown.

There was one interesting, but not surprising, poll result.  59% of the tax pros “in attendance” still have clients who are waiting for their 2020 Form 1040 (or 1040-SR) to be processed by the IRS.

The presenters were, as usual, good and experienced speakers, highly knowledgeable in their topics.  And the presentations were comprehensive.  The true value of this type of seminar is based on the extent of the changes to state tax law, regulations and procedures, and, of course, the extent the presentation content is relevant to a tax pro’s specific practice and clientele.  While the value to me personally, considering the limitations of my specific practice, may not have been especially high, it is important that the topics I am not interested in be presented at this seminar each year and the value for the average practitioner, and especially the newer one, was certainly very high.

I do believe that it is also important that the seminar content remain primarily true to the intended purpose of providing updates on changes to state tax law, regulations and procedures for the current tax filing season.  Comprehensive reviews and discussions of ongoing continuing tax law are topics for other offerings.

Once again kudos to the NJ-NATP Board, the NJ Taxation University and KK!

FYI – next year’s Famous State Tax Seminar is scheduled for Saturday, January 14^th and is expected to be, and I sincerely hope it is, an in-person event.

TTFN