MY JULY 4th MESSAGE

 

On this 4^th of July, with Trump in the White House and in control of the government, American can no longer claim to be the greatest country in the world.

This I know to be true beyond any doubt –

Trump is a totally worthless piece of garbage, completely devoid of intelligence, integrity, honor, humanity, sympathy, and empathy, who does not possess a single redeeming positive human quality or value, and who has never performed a single totally unselfish act in his entire adult life.  He does not care one ounce about anyone or anything but himself.

It is vital for the future of America, American freedoms and democracy, and true American values that Trump and today’s Religious Right controlled and Trump embracing Republican Party be stopped.   

If not, next year at this time we will not be celebrating 250 years of American freedom and democracy but instead mourning its death.

TTFN

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

 

* The TAX SCHOOL BLOG of the University of Illinois discusses Medicare’s IRMAA rules in “How MAGI Impacts Your Clients’ Costs” –

“Medicare premiums for 2025 will be based on 2023 MAGI.  MAGI for Medicare IRMAA determination is calculated as adjusted gross income (AGI) plus tax-exempt interest.  If MAGI exceeds $212,000 for married couples filing jointly or exceeds $106,000 for individual taxpayers, Medicare Part B and D premiums will include a surcharge ranging from $74.00 to $443.90 per month on top of the standard Part B premium of $185.” 

It is important to take the IRMAA into consideration when deciding whether to file separate returns.

* Editor Dan Hood explains in his editorial in the latest issue of ACCOUNTING TODAY – “ . . . my guess is this has to be the best time in all the history of the income tax and the Internal Revenue Service to cheat on your taxes.”

He quickly follows that statement with “Not that anyone should cheat, of course.”

This is indeed a great time to cheat, thanks to the deplorable and despicable Trump Administration and its equally deplorable and despicable so-called Department of Government Efficiency.

Dan goes on to explain that the IRS “has been hobbled so comprehensively that if you were actually planning to create an environment for tax evasion, you could hardly do better.”

* Kay Bell, the yellow rose of taxes, gives us “A 6-point tax checklist for newlyweds” at DON’T MESS WITH TAXES.

#1 on the list is very important –

“If either new spouse opts to legally change their name, they need to report it to the Social Security Administration (SSA) by filing Form SS-5, Application for a Social Security Card.

The Internal Revenue Service matches what's on your Form 1040 with the SSA data every filing season. If your new name on your return doesn't match the official SSA info, it could delay any refund from your first post-wedding tax filing.”

* The IRS informs us “Long sworn in as the 51st IRS Commissioner”.

As with any Trump appointee I am concerned about his competence, qualifications, and integrity.  The one and only requirement for any Trump appointee is that he or she pledges fealty to and kisses the ring and arse of Trump.

* For those of you who are interested – check out what “I Believe” at BOBSERVATIONS.

TTFN

TALKING TAX REFORM

 

Tax “reform” is once again in the news – as the GOP TAX ACT 2 attempts to make permanent the provisions of the original GOP TAX ACT.

Tax reform discussions rarely touch on actual "reform" or the many inequities and basic “unfairness” in the US Tax Code.  And they usually minimize the growing complexity.  What the politicians call "tax reform" legislation actually continues to add complexity to the Code – and the current big allegedly beautiful bill working its way through Congress is no different.

As a retired veteran tax professional I am well aware that the Internal Revenue Code has grown into a convoluted “mucking fess”.

The major source of tax return errors, by both paid tax preparers and taxpayers who self-prepare, and tax fraud is the excessive complexity of the Tax Code.

As I have said often in the past, like Frankenstein in the Hammer film, the Internal Revenue Code must be destroyed!  The current US Tax Code, as revised by the recent tax legislation, must be totally shredded, and rewritten from scratch.

The new Internal Revenue Code MUST acknowledge and confirm the fact that the one and only purpose of the federal income tax system is to raise the money necessary to fund the government. 

The Tax Code MUST –

(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 MUST 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 current “Alternative Minimum Tax”).

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

I discuss in some detail my personal recommendations for actual tax “reform” in my book THE JOY OF PREPARING TAXES – and also reminisce about my 50 years as a tax professional.

I will send you a copy of this book – as a pdf email attachment – for only $3.00!

Send your check or money order payable to Taxes and Accounting, Inc – and your email address – to:

TAXES AND ACCOUNTING, INC
THE JOY OF PREPARING TAXES
POST OFFICE BOX A
HAWLEY PA 18428

TTFN

WHERE HAVE I HEARD THAT BEFORE?

 

The $5,000 tax deferred savings account for newborns in the “Big but not so Beautiful Bill” – actually not a bad idea (except for the two names it had been given) – sounded awful familiar to me.  A Google search told me where I had heard it before.

“Clinton Floats $5,000 Baby Bond” from ABC News in September of 2007 tells us -

“Sen. Hillary Clinton, D-N.Y., floated the idea Friday of giving every child born in America a $5,000 'baby bond' from the government to help pay for future costs of college or buying a home.

‘I like the idea of giving every baby born in America a $5,000 account that will grow over time,’ said Clinton, ‘so when that young person turns 18 if they have finished high school they will be able to access it to go to college or maybe they will be able to put that down payment on their first home, or go into business.’"

The GOP TAX ACT 2 (my name for it) creates “Trump accounts” – a truly despicable and blatant arse and ring kissing example of fealty to deplorable and despicable Trump by today’s equally deplorable and despicable Republican Party – which CNN recently explained in “How the $1,000-per-baby ‘Trump accounts’ would work and who would benefit most” -

“Under the proposed ‘Trump accounts’ — initially called ‘Money Account for Growth and Advancement’ (MAGA) accounts — the federal government would put $1,000 into individual accounts for babies born between January 1, 2025, and December 31, 2028.

The family and others may make annual contributions to the account so long as combined they don’t exceed $5,000 a year, although nonprofits may be able to donate more.

The money must be invested in a low-cost, diversified US stock index fund or equivalent, and no withdrawals may be made until the child turns 18. Taxes are deferred on growth until the money is withdrawn.

The account is intended for expenses tied to higher education or “post-secondary education credentialing,” buying a home or starting a small business.”

The ABC News item from 2007 also reported –

“The idea floated by Clinton was rebuked Friday by the Republican National Committee, which called it a ‘budget busting baby fund,’ and by Republican presidential candidate Rudy Giuliani who called it evidence that Clinton is running a campaign ‘based on pandering.’"

How interesting that today’s Republicans steal an idea (which they opposed when originally presented) from Democrat (and Trump’s 2016 opponent) Hillary Clinton and name it after their self-absorbed Fuhrer.

TTFN

SECTION 529 COLLEGE SAVINGS PLAN

 

Recently I was asked about the tax consequences of contribution to a Section 529 College Savings Plan.
 
The IRS website tells us a Section 529 plan is -
 
“A plan operated by a state or educational institution, with tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training, or for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school for a designated beneficiary, such as a child or grandchild.”
 
And -
 
“Earnings are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses of the designated beneficiary.”  
 
You can contribute as much as you like to a 529 plan, as there are no annual contribution limits under federal law. Technically the contribution is limited to “the amount necessary to provide for qualified expenses of the beneficiary”.  However, individual plans may set a lifetime contribution limit.   
 
Contributions to a 529 plan are considered “gifts” under the federal Estate Tax rules.  However, you can contribute up to five years of excluded gifts in a single year, with the contribution spread equally across five years.  Any additional contributions during the year will be considered “taxable” and applied against the lifetime Estate Tax exclusion (currently $13.99 Million).  In any case, if this option is chosen a Gift Tax return would need to be filed (due same time as the Form 1040).   
 
The gift tax exclusion for 2025 is set at $19,000 per recipient.  You could contribute up to $95,000 in 2025 under 5x annual exclusion rule - $19,000 per year for 2025, 2026, 2027, 2028 and 2029.  If the annual gift tax exclusion increases to, for example, $20,000 for 2026 you can contribute $1,000 to the 529 plan in 2026 as an “excluded” gift, and so on going forward.  
 
Many states have 529 plans and allow for a state tax deduction for a portion of the contribution by a resident to the state plan.  For example, you can deduct up to $10,000 of contributions made during the calendar year to an NJBEST account on your NJ-1040.
 
Qualified education expenses include -
 
· Tuition and fees
· Books
· Required school supplies
· Room and board — the beneficiary must be at least a half-time student; includes off-campus housing up to the cost of on-campus room and board
·Computers and related accessories, such as printers, internet access and educational software primarily used by the beneficiary
· Up to $10,000 per year in tuition for K-12 schools
· Up to $10,000 (lifetime) in principal and interest payments on qualified education loans
 
Annual distributions that are more than qualified expenses paid during the year are considered taxable income to the beneficiary student (not to the contributor) and the amount that is considered “earnings” (interest, dividends, gains on the money invested) may be subject to a 10% penalty.
 
An unused balance after completing the beneficiary’s education may be able to be rolled-over to a ROTH IRA for the beneficiary.
 
If you are considering making a contribution to a Section 529 plan for a child or grandchild, you should consult your tax professional.
 
TTFN 

ONE BIG, BUT NOT SO BEAUTIFUL, TAX BILL

 

The House Ways and Means Committee has “marked up” the tax component of what has been called One Big Beautiful Bill”.  Click here for the TAX FOUNDATION’s analysis of the bill.

The bill would basically make the GOP Tax Act, set to expire on December 31, 2025, permanent, with some adjustments.

As I posted when the GOP Tax Act was first past, it contains good, bad, and ugly.  Here, from a post from last year, is a look at the major tax provisions of the Act affecting Form 1040 that are expiring, and my thoughts on whether they should be renewed.

ABOVE THE LINE:

1. Reduced tax rates.

I would support keeping the lower tax rates and revised brackets of the Act.

2. Replacement of the deduction for Personal Exemptions with an increased Standard Deduction and Child Tax Credit.

I personally preferred the “old” personal exemption deduction, but I would not object to continuing without it and keeping the increased Standard Deduction amounts and the increased Child Tax Credit.  However, while I have no problem with a carryover of excess credits, I strongly oppose all refundable credits, and therefore oppose any unused portion of the Child Tax Credit being refundable.

3. The higher exemption amounts and phase-out ranges of the dreaded Alternative Minimum Tax (AMT).

I support keeping these increases.  I oppose the existence of the AMT and would like to see it totally repealed.

4. The larger lifetime Estate and Gift Tax exemption.

I support keeping these increases.  I am not really a fan of the Estate or Gift Tax – however I support keeping it if it maintains the step-up in basis for inherited assets.

5. Limiting the deduction for job-related moving expenses to members of the military.

I oppose this limit and would welcome the return of the adjustment to income for all job-related moving expenses.  I would not object if this deduction was moved to Schedule A.

6. The Section 199A 20% Qualified Business Income deduction.

I see no reason for this deduction and would not continue it.  I do not believe QBI (basically self-employment income) should be taxed any less or differently than wages, pensions, or other “ordinary” sources of income.

BELOW THE LINE:

1. The $10,000 SALT (state and local tax) cap.

I strongly oppose this limitation on the deduction of state and local income or sales tax and property tax.  This deduction is one way of “geographically equalizing” the income tax (see my commentary “The SALT limitation from a different perspective”).  If it must be continued, the $10,000 limit should be increased to $20,000 on joint returns (and $10,000 for each spouse on separate returns) to make it fair.  FYI, the current bill increases this deduction to $30,000, with a complicated phase down to the original $10,000 limit. 

2. The limitation of the deduction of mortgage interest to acquisition debt.

I do not oppose the elimination of the deduction for up to $100,000 of “home equity” debt and would not object to keeping the mortgage interest deduction limited to “acquisition” debt.  I also have no problem with keeping the lower $750,000 principal limit on the deduction.

3. The elimination of the deduction for theft losses and the limitation of the deduction for casualty losses to those occurring as the result of a federally declared disaster.

I really do not care if this elimination and limitation remains or goes away, although if forced to provide an opinion I think I would support reinstating the casualty loss deduction for all casualties.

4. The elimination of Miscellaneous Itemized Deductions that were previously subject to the 2% of AGI exclusion – employee business expenses, investment expenses, tax preparation costs, etc.

I support allowing these types of itemized deductions and would want this deduction reinstated.  I oppose the 2% of AGI exclusion on these deductions.

5. The elimination of the reduction of total itemized deductions based on AGI.

I oppose reducing total allowable itemized deductions based on AGI (a “back door” tax increase) and would want to keep this provision of the Act.

The bill would also eliminate tax on tips – a stupid “gimmick” used by Trump during the campaign to “buy” votes.  Clearly, as previously posted (click here), I oppose this.

Your thoughts?

BTW – my book THE JOY OF PREPARING TAXES includes a detailed discussion on how I would rewrite the US Tax Code.

TTFN

 

THE JOY OF PREPARING TAXES

 

Most regular readers know that I retired from preparing income tax returns a few years ago after completing my 50th consecutive tax filing season.

I have written a book about my 50 years as a paid tax preparer titled THE JOY OF PREPARING TAXES.

In addition to reminiscing about my 5 decades in “the business” I also provide my best advice, debunk some tax myths, talk about the benefits of blogging, and end with a detailed discussion of how I would rewrite the US Tax Code to make it more fair, equitable, and simple.

I will send this book to you as a pdf email attachment for only $3.00!

Send your check or money order for $3.00 payable to “Taxes and Accounting, Inc”, and your email address, to –

THE JOY OF PREPARING TAXES
TAXES AND ACCOUNTING, INC
PO BOX A
HAWLEY PA 18428

TTFN