THE IRS IS COMING, THE IRS IS COMING - NOT!

 
Sadly true to form, because the $80 Billion in additional funding for the Internal Revenue Service (from the Inflation Reduction Act of 2022) was in a bill introduced and supported by President Biden and the Democratic Party, the Republicans are saying the additional funding means an army of IRS auditors will soon be coming after average middle class taxpayers.
 
Clearly, like, also sadly, just about everything else said by the today’s Republican Party and Republicans in Congress, this is a lie.  

The increased IRS funding is a good thing.
 
Here is the story (fellow tax pros, correct me if I am wrong) –
 
The $80 Billion in additional funding is spread over ten (10) years – through 2031 – and the use of this money is specifically identified in the Act.
 
* $45+ Billion is for “tax enforcement activities” such as hiring and training enforcement agents, purchasing equipment for enforcement agents and investing in investigative technology.
 
* About $25 Billion is for “operations support” such as rent and facility payments, printing, postage and other office supplies and costs, security of IRS facilities, IRS-wide administration, research, and enhancement and development of information technology.  This money will help the Service address the ongoing backlog generated by the COVID-related shut-down.
 
* Almost 5 Billion is for “business system modernization” to update outdated technology and systems, cybersecurity, and to improve customer service.
 
* $3+ Billion is for “enhancement of IRS services” such as pre-filing assistance and education, filing and account services, and taxpayer advocacy.
 
* $500+ Million to oversee the administration of the additional funding provided by the Inflation Reduction Act.
 
* $500+ Million for the Treasury Inspector General for Tax Administration and the Office of Tax Policy.
 
The Act also provides $15 Billion through September 30, 2023 for the IRS to investigate and provide a report to Congress on the options and costs of creating and administering a free direct electronic filing tax return system.  This is a system that would allow, I would expect, all taxpayers, and presumably their tax professionals, to compile and submit their federal income tax returns – Form 1040 and Form 1040-SR - directly to the IRS free or charge at the irs.gov or another IRS maintained website.
 
The IRS currently has a limited online FreeFile system for low income taxpayers (which we have been told is used by only 3% of those who qualify) – but this system is not a direct submission of returns to the IRS.  The actual compilation and submission of the returns is done by commercial tax preparation and tax preparation software companies and requires taxpayers to share personal financial information with these third-party for-profit companies.  As I understand it, the new system the IRS will investigate will be completely created and administered by the Service and will not involve any third-party commercial “partners”. 
 
What would be ideal is a system similar to the New Jersey Division of Taxation’s current program which allows all taxpayers, or their tax professionals, to submit NJ-1040 returns directly to the Division free of charge online using Division created and maintained software.  I would suggest that the IRS study the NJ system.
 
Clearly the greater the amount of gross income, and the more involved the return, the more likely an audit will find purposeful or inadvertent/unintended errors on the return and generate additional tax dollars.  There are not great sums of money to be found by auditing average middle class taxpayers.  Whatever you may think of the IRS, the Service is not stupid and it knows this.  In addition, Treasury Secretary Yellen has issued a directive that the IRS should not increase examinations of taxpayers making less than $400,000.  The increase in IRS audits that results from the additional funding will correctly be on high-income taxpayers.
 
The IRS has been underfunded for years.  And, despite reduced funding, each year Congress gives the Service more work to do - such as having it administer the recent stimulus payments and to administer the continued and expanding erroneous distribution of government social welfare and other benefit programs via the Tax Code.  This additional funding for the Internal Revenue Service is truly a good thing for everyone, except perhaps tax cheats.
 
Whenever I discuss IRS administration nowadays, I always add this commentary:
 
Trump never does anything, including appoint what he considers “underlings”, without some kind of required quid pro quo and pledge of loyalty.  So, I was understandably skeptical when Trump appointed a new IRS Commissioner.  However, hearing Commissioner Rettig speak at the National Association of Tax Professionals national conference in Washington DC shortly after his appointment I was not unimpressed and decided to give him the benefit of the slim doubt. 
 
However, the proven erroneous decision to very literally lock down the IRS for over 6 months in reaction to COVID and the problems and issues it generated has made me wonder if this was a conscious decision to attempt to at least hinder IRS audits and enforcement – similar to the way Trump’s Postmaster General appointee DeJoy purposefully tried to destroy the Post Office to invalidate 2020 mail-in ballots, which were expected to be mostly for Biden – and was Rettig’s “quid pro quo”.
 
I will not be completely comfortable that the IRS is being properly administered at the top until a new Commissioner is appointed.
 
TTFN

HOW WILL CANCELLED STUDENT LOAN DEBT AFFECT YOUR 2022 TAX RETURN?

The cancellation of student loan debt will have absolutely no effect on your 2022 federal income tax return.

The American Rescue Plan Act excluded student loan debt forgiveness from federal taxable income for tax years 2021 through 2025.  The recently announced cancellation of student loan debt will NOT be taxed as cancellation of debt income on 2022 federal returns.

 

However, the cancelled student loan debt could be taxed on state income tax returns in Arkansas, Connecticut, Hawaii, Idaho, Illinois, Iowa, Kentucky, Massachusetts, Minnesota, Mississippi, Pennsylvania, South Carolina, Virginia, West Virginia, and Wisconsin.  FYI - New Jersey does not tax cancellation of debt.

TTFN

THE NEW AND IMPROVED ENERGY EFFICIENT HOME IMPROVEMENT CREDIT

The Inflation Reduction Act of 2022 brought back the credit for energy-efficient purchases for and improvements to a personal residence, which had expired on December 31, 2021, renamed it the Energy Efficient Home Improvement Credit, and enhanced and increased the credit for tax years 2023 through 2032.
 
Based on summaries and analyses of the Act that I have read here is the word on the improved credit.
 
For 2022 returns filed in 2023 the credit remains the same as it was for 2021 returns.  The 10% credit, with a lifetime $500 limit, applies to qualified purchases for –
 
* Heating, Ventilating, and Air Conditioning: advanced main air circulating fan ($50 maximum), air source heat pumps, central air conditioning ($300 maximum), gas, propane, or oil hot water boiler ($150 maximum), and natural gas, propane or oil furnace ($300 maximum),
* Water Heaters: gas, propane or oil water heater, and electric heat pump water heater ($300 max),
* Insulation,
* Roofing (metal and asphalt), and
* Windows and Doors ($200 lifetime limit for windows and skylights)
 
For tax years 2023 through 2032 –
 
* The credit is increased to 30% of eligible costs, which includes the cost of installation.
 
* The annual limit is increased to $1,200 (with some exceptions discussed below).  There is NO lifetime limit.
 
* A credit of up to $150 is allowed for a home energy study or audit.
 
* The annual per item maximum credit limits are:
 
·         $250 for an exterior door ($500 for more than one door),
·         $600 for exterior windows and skylights, central air conditioners, electric panels and related equipment, natural gas, propane, or oil water heaters, and natural gas, propane or oil furnaces or hot water boilers, and
·         $2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and boilers (here the full $2,000 credit is allowed despite the $1,200 annual limit).
 
* A credit can be claimed for qualifying purchases for and improvements to a second personal residence, such as a vacation home.
 
I did read that there may also be rebates available.  More on that in the future when I find more detailed information.
 
From the point of view of the tax preparer perhaps the best change to the credit in the Act is that beginning with 2025 returns it appears the manufacturer of an item that qualifies for the credit by meeting the specific energy star requirements must create a “product identification number” for the item and this number must be entered on the claimant’s tax return in order to get the applicable credit. 
 
In the past taxpayers would merely tell their tax preparer they bought a new furnace or heater and expect the preparer to know by magic that the individual product qualified for the credit.  I told my clients that they must determine if their purchase qualified – I would not do it for them. 
 
FYI, you can find the specific qualifications for individual items for 2022 and beyond here.
 
TTFN

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

Sorry to be so long in getting it up – this BUZZ installment that is.
 
* TaxGirl Kelly Phillips Erb lists “Six Ways to Help Your Clients Reduce Their Children’s Taxes” at her BLOOMBERG.COM blog.
 
I especially like the second way – something I have been advising readers for years now – “Have Their Children Invest in a Roth IRA”.
 
* Check out the new TAX PLANNING RESOURCE CENTER.  And please share with friends, family and colleagues.
 
* Professor Annette Nellen provides some “Observations on the Inflation Reduction Act of 2022” at 21^st CENTURY TAXATION.
 
* Kay Bell, the yellow rose of taxes, does a good job of “Comparing education tax credits” (i.e. the American Opportunity Credit and the Lifetime Learning Credit) at DON’T MESS WITH TAXES.
 
* And also from Kay – some good news from the IRS.  Kay reports “IRS refunding $1.2 billion to millions who faced COVID-related late-filing tax penalties” -
 
“ . . . the agency announced that it will provide tax penalty relief to most people and businesses who file certain 2019 or 2020 returns late.
 
It's also taking steps to help those who already paid these penalties.
 
That's nearly 1.6 million taxpayers, according to the IRS count. They will automatically receive more than $1.2 billion in refunds or credits.”

The relief applies to the failure to file penalty – assessed at 5% of the tax paid with the late filed return per month up to a maximum of 25% - for 2019 and 2020 individual (Form 1040 and 1040-SR), estate and trust (Form 1041) and corporate (Form 1120) returns.

 
If you have not yet paid any penalties assessed for 2019 or 2020 returns you don't have to do anything - just don't pay the assessment.  Those who have already paid penalties that qualify for the relief do not have to ask for a refund – a refund of abated penalties will automatically be issued.  Do not write or call the IRS.
 
THE LAST WORD
 
I will continue to say this.
 
If you are not part of the solution you are part of the problem.
 
If you do not vocally and aggressively oppose, denounce and disavow Trump, his lies and today’s Trump-embracing and Religious Right-controlled Republican Party you are part of the problem.
 
TTFN

THIS IS DONALD TRUMP

 

This is how history will remember Donald “The Man Who Would Be King” Trump.

Donald J Trump was placed in the White House as 45^th President of the United States by the Electoral College, despite losing the election by 2,868,686 (2.9 Million) votes.  Clinton received 48.18% of the popular vote and Trump received 46.09%.  10.7 Million more Americans voted against Trump than voted for Trump.

He was the most ignorant, incompetent, corrupt, and totally self-absorbed President in US history.  The main legacy of the Trump Presidency is the emboldening, empowering and “legitimizing” of racism, bigotry and white supremacy.

Trump lost re-election in 2020, in a fair and honest election, by 7,052,770 (7 Million) votes.  Biden received 51.31% of the popular vote and Trump received 46.86%.  Trump continues to, without any evidence, erroneously contend the election was “stolen” from him via massive election fraud.  Many federal, state and local Republican elected officials, including members of Congress, and current candidates for office supported and continue to support Trump’s lies.  On January 6, 2021 Trump instigated an armed assault on the US Capital in an unsuccessful attempt to prevent Congress from certifying the 2020 election results. 

Before running for President, Trump was an unethical businessman with more business failures than successes, whose main claim to fame was as a Reality TV cartoon clown.  His Trump University scam, which took advantage of elderly and low-income individuals, resulted in several law suits for fraud.  A federal court approved a $25 Million settlement with students who were duped by Trump.

Trump was accused of rape, sexual assault, and sexual harassment, including non-consensual kissing or groping, by at least 25 women since the 1970s. He bragged about his sexual assaults to an entertainment news program host.

In the history of our country no one single individual has done more damage to America, the American people, American values, and American democracy than Donald Trump.

Trump is a totally worthless piece of excrement, completely devoid of intelligence and humanity, who does not possess a single redeeming positive human value or quality.  He has never performed a single totally unselfish positive act in his entire adult life.  Trump is the textbook example of a narcissist and a sociopath.

Trump totally destroyed the Republican Party, which has abandoned all integrity, honor and credibility, and true conservative and traditional Republican policies and values, to embrace Trump and to court and pander to his core cult of ignorant racists.  

No intelligent person with a conscience could possibly defend Trump or support Trump for any public office at any level.

TTFN

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

* A new to me blog, HENRY AND HORNE TAX INSIGHTS, discusses the “Business meal deduction 2022 – what you should know”.  It points out (highlight is mine) -

“In 2021, the business meal deduction was enhanced to a 100% deductible expense to help the restaurant industry which was heavily impacted by COVID-19. This was an incentive for business owners to eat out at restaurants for business-related events and capitalize on a 100% deduction for their 2021 taxes. Tax year 2022 will be no different. As it still stands businesses can deduct the entire cost of business-related food and beverages from restaurants, including taxes and tips.”

A reminder – employee business expenses are no longer deductible on Schedule A, so the business meal deduction only applies to business schedules (C, E and F) and returns (1120, 1120S, 1065).

* Kay Bell reports “Missouri flood victims get new Nov. 15 tax deadline” at DON’T MESS WITH TAXES.
 
* One more reminder to check out the August “issue” of BOBSERVATIONS, if you have not already done so.
 
Please share it with your friends, family and colleagues.  And let me know your thoughts and comments.
 
* The NATP BLOG tells us “Congress passes Inflation Reduction Act of 2022. Here are 6 tax takeaways.”
 
I am waiting for the NATP to produce a summary of the Act.  When they do I will post on what this means for 2022 Forms 1040 and 1040-SR in more detail.  
 
* Jim Blankenship explains “Your Social Security Benefits Statement” at GETTING YOUR DUCKS IN A ROW.
 
You should check this statement every 3 years to make none of your earnings are missing.  Years ago, clients, coincidently officers of the Social Security employee’s union, discovered their small annual wages from the union were not included in their statements.
 
* Andy Ives discusses the rules related to the “Year-Of-Death RMD” at the SLOTT REPORT.
 
THE LAST WORD

In 2022 you can either support and defend democracy, the Constitution and the rule of law OR you can vote Republican.
You CANNOT do both!
 
Only a Party of morons would continue to support and defend the most ignorant, incompetent, corrupt, crooked, and totally self-absorbed national politician in US history.
 
TTFN

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

Great news about the raid on Mar-A-Lago.  Let us pray this is truly the beginning of the end of Trump.

FYI – I mailed my paper 2021 Form 1040-SR to Sam on February 26^th.  The “Where’s My Refund” online tool reported that my refund was approved on August 6^th. 
 
* Once again Kay Bell, author of the DON’T MESS WITH TAXES blog, begins the BUZZ, this time with a reminder why you should NEVER automatically pay a balance due notice received from the IRS or a state tax agency – “IRS again issues potentially wrong tax-due notices”.
 
This always bears repeating – if you receive a notice from the IRS or a state tax agency give or send it to your tax preparer IMMEDIATELY!

* When Roe v Wade was overturned and states began to ban abortion, I said that these states now must provide a personal exemption on the state tax return, and other state tax benefits, for each unborn fetus.  I never imagined they might actually do this.

In a totally ridiculous, and fiscally irresponsible, move “Georgia residents can now claim embryos as dependents onstate taxes” -

“A taxpayer who ‘has an unborn child (or children) with a detectable human heartbeat’ after July 20, when the ruling came down, can claim a dependent or dependents on 2022 taxes. . . Residents will get $3,000 {deduction, not credit – rdf} for each unborn child.”  

* Returning to Kay Bell, she reports “Kentucky flood victims get new Nov. 15 tax deadline” (highlight is mine) -
 
“Individual and business taxpayers in the parts of Kentucky hit by the disastrous weather that initially began on July 26 now have until Nov. 15 to file various tax returns and make tax payments.
 
The affected Bluegrass State counties in the major disaster area are Breathitt, Clay, Floyd, Johnson, Knott, Leslie, Letcher, Magoffin, Martin, Owsley, Perry, Pike and Wolfe. If other counties subsequently are added by FEMA and the IRS extends relief those residents, too, you can find the additional areas at the tax agency's disaster relief webpage.
 
The tax filings by Kentucky taxpayers that now have a mid-November deadline include 2021 tax year returns for which affected filers got an extension. This year's Oct. 17 deadline to submit tax returns now is a month later.”
 
* We end with a trifecta for Kay, as she reminds us “16 back-to-school sales tax holidays in August”
 
The 16 states offering sales tax holidays on certain purchases are Arkansas, Connecticut, Florida, Illinois, Iowa, Maryland, Massachusetts, Missouri, New Jersey, New Mexico, Ohio, Oklahoma, South Carolina, Texas, Virginia, and West Virginia.
 
The NJ holiday is on computers less than $3,000, school computer supplies less than $1,000 and school supplies (no price limit).  It runs Aug. 27 through Sept. 5
 
THE LAST WORD
 
Absolutely nothing is more important for the future of America than voting against EVERY Republican candidate in EVERY election at EVERY level this November.
 
The Republican Party is the greatest threat America faces today.  I very sincerely and seriously believe that if the Republican Party does not does not suffer substantial losses in the 2022 elections – on a federal, state and local level – it will be the beginning of the end of American freedom and democracy.
 
TTFN

2022 DRAFT 1040

 

The Internal Revenue Service has released, early this year, the draft versions of the 2022 Form 1040 and accompanying schedules.  Click here.  The draft 2022 Form 1040-SR has not yet been released.

The 2022 Schedule A appears to be exactly the same as the 2021 Schedule A.  I haven’t reviewed the other 1040 schedules (and have no real desire to do so at this point). 

But there have been several changes to the Form 1040 –

* The virtual currency question has been refined for those involved with BitCoin and other “virtual” or “digital” investments.

* While the amount of content on each page has expanded the 1040 still does not completely cover a normal 8½ x 11 page (as the pages of the 1040-SR do).  God only knows why.

* Line 1 to report wages, salaries, tips, etc, from Form W-2 has expanded, for some unknown reason, to 10 “sub-lines” to separately report a multitude of obscure wage-based income items.  If separate identification was needed why is it not added to Schedule 1?  These new lines are a waste of 1040 space and only add to taxpayer confusion.

* A Line 6c under the reporting of Social Security benefits has been added as a checkbox to indicate the taxpayer is making a “lump sum election” for Social Security reporting.

* The line – 12b last year – for claiming the “non-itemizer” charitable deduction has been removed since this deduction has expired and is not available for 2022. 

* The sub-lines for Line 27, where the Earned Income Credit is claimed, have been eliminated as the special considerations applicable on the 2021 return that necessitated these additional sub-lines have expired and are not available for 2022. 

* Line 30 – used in 2021 for the Recovery Rebate Credit – remains on the 2022 Form 1040 identified as “Reserved for future use”.

The final Form 1040 may be different from this initial draft version – which represents tax law in existence as of this writing.  Who know if Congress will, as they often do, FU things by passing retroactive tax legislation late in the year?

TTFN

WHAT THE US TAX CODE SHOULD AND SHOULD NOT BE

 

FYI, here is what I believe the US Tax Code should look like -

First and foremost -the one and only purpose of the Tax Code is to raise the money necessary to fund the government.  

The Tax Code SHOULD –

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

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

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

(4) Encourage savings, investment, and growth.

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

The Tax Code SHOULD NOT –

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

(2) Encourage or discourage certain economic decisions (other than savings, investment, and growth), or provide exclusive benefits for specific industries, business activities, or classes of taxpayers.

(3) Contain any refundable credits, or any phase-outs, exclusions or adjustments based on Adjusted Gross Income or Modified Adjusted Gross Income.  

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

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

Your thoughts?

TTFN

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

 

* Kay Bell reports “Inflation prompts 16 states to issue stimulus checks” at DON’T MESS WITH TAXES -

 

“They are sending their residents checks, some as much as $1,500, to help them cope with the current higher cost of living.

The states are California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Massachusetts, New Jersey, New Mexico, Oregon, South Carolina, and Virginia.”

New Jersey residents with at least one qualifying dependent have started to receive rebate checks worth up to $500. The rebates are being sent by paper check.  For more information on the NJ Middle Class Tax Rebate program click here.

Unfortunately, I no longer live in New Jersey (not really unfortunately) and do not have any dependents (also not really unfortunately).  Here in Pennsylvania Governor Wolfe had wanted to send residents with income under a certain threshold $2,000 each out of excess federal recovery money, but this did not happen.

* Professor Annette Nellen discusses a bill introduced by Republican Senator Grassley, the Middle-Class Savings and Investment Act, in “New Inflation Adjustments Proposed for Some Tax Rules” at TWENTIETH CENTURY TAXATION.

The bill would add annual inflation adjustments to the current dollar amounts for the Child Tax Credit, Other Dependent Credit, Child and Dependent Care Credit, American Opportunity Credit, Lifetime Learning Credit, the student loan deduction and the deduction for charitable mileage.

 

I do believe ALL allowable deductions and credit should be indexed for inflation.  The Child Tax Credit and Other Dependent Credit should most definitely be indexed.

 

The 14-cent per mile charitable mileage deduction, unchanged for decades, should also most definitely be indexed.  It should be made equal to the deduction for medical and moving mileage.

 

I agree with Professor Nellen when she says the American Opportunity Credit for college tuition needs –

 

“ . . . perhaps even removal from the tax law since there are non-tax laws to help low-income individuals attend college . . . Why not use those funds to provide larger Pell grants?”

 

In general, I personally oppose using the Tax Code to deliver government welfare and other benefits.

 

The bill would extend the $10,000 SALT deduction limit through 2026 to help cover the costs of inflation adjustment.  I oppose the $10,000 SALT cap altogether.

 

* It’s here!  Check out the August “issue” of BOBSERVATIONS – and share it with your friends, family, co-workers, and colleagues.

 

* According to a summary of the proposed “Inflation Reduction Act of 2022” the Act (highlight is mine) - “ . . . also provides $15,000,000 of funds for the IRS to prepare and deliver a report to Congress on the cost of developing and running a free direct efile tax return system.”  
 
This is good news.  I wholeheartedly support the IRS developing and running a free direct efile tax return system, which does not involve third party commercial preparers, and have done so for years.  But I don’t want just a report – I want implementation.

* We began this installment with Kay Bell - so let's end with her.  Kay suggests "4 tax moves to make this August".   

THE LAST WORD

Correct me if I am wrong, but isn’t the main belief of true Conservative politics a limited/minimal involvement by the government in the personal and business lives of citizens?

 

Today’s Republican Party, controlled by the repressive and racist Religious Right, wants the government to dictate how citizens must live their lives based on extreme Christian fundamentalist distorted and erroneous interpretations of the teachings of Christ and the Scriptures.

 

The policies and agenda of today’s Republican Party is directly contrary to true Conservative policy.  Republicans are NOT Conservatives!

 

TTFN