Tuesday, December 10, 2019

THIS JUST IN!


The updated 2019 version of my e-book for Kindle AN INTRODUCTION TO SELF-EMPLOYMENT: THE BASICS OF SCHEDULE C is now available at Amazon.com for ONLY $7.99.

Click here to check it out.














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



The Justice Department announced today that it has filed a complaint with a U.S. District Court in Norfolk, Virginia, seeking entry of a court order requiring Franchise Group Intermediate L 1 LLC, (Liberty) the national franchisor and owner of Liberty Tax Service stores, to refrain from specific acts, enact enhanced internal compliance controls regarding the detection of false tax returns, and pay for an independent monitor to oversee Liberty’s compliance with the proposed court order. Separately, the United States and Liberty filed a joint motion and proposed order that, if adopted by the court, would resolve the matter.”

I have consistently over the years advised taxpayers not to use the services of “fast food” commercial tax preparation chains like Liberty, Jackson Hewitt and Henry and Richard to prepare their tax returns.  If for no other reason – these guys ain’t cheap.  You pay fancy restaurant prices for fast food service.

My apologies to McDonald's, Burger King, etc.  I have often received good service and value for price from fast food franchisees. 

* Jason Dinesen explains “Self-Employment Tax Calculation When Income is Over the Social Security Wage Base” at DINESEN TAX TIMES.

* Sam Brunson of THE SURLEY SUBGROUP blog provides us with “Taxing Student Athletes: An Explainer”.

*  Jeff Stimpson quotes me in his article “Take it away: Helping clients with withholding” at TAXPRO TODAY.

* A timely warning for the season from the IRS – “Taxpayers should watch out for gift card scam”.

* For those who are interested, KIPLINGER.COM lists “15 Things Snowbirds Can Do to Be Taxed as a Florida Resident”.

* Check out my latest post at AMERICANS FOR COMMON SENSE.  I explain why “The Tax Code Must Be Destroyed.  

TTFN

























Monday, December 9, 2019

THE 2020 FORM W-4


The IRS has released the final version of the 2020 Form W-4 – Employee’s Withholding Certificate, to, hopefully, properly reflect the changes enacted by the GOP Tax Act (i.e. the Tax Cuts and Jobs Act).

The major change to this form is that the concept of “withholding exemptions” no longer exists.  And, of course, it is now a full page instead of just coupon-sized.

Every single employed taxpayer will need to file a 2020 Form W-4 with their employer.

The form at one point is concerned that “more tax than necessary may be withheld”.  While for the financially prudent taxpayer owing Sam $1,000 or less at tax time is actually beneficial – excess withholding is an interest-free loan to the government, and owing a small amount means that you had full use of your money during the year – most taxpayers are more concerned with having less tax than necessary withheld, and would prefer a cushion to avoid a balance due on their 1040.  For peace of mind if nothing else being over-withheld is better than being under-withheld.  And many taxpayers have historically used a substantial tax refund as a form of “forced savings”. 

In Step 1 you enter your name, address, Social Security number, and filing status.  There is no long the option to claim “Married, but withhold at higher Single rate”.  And the new W-4 includes the Head of Household status option, which was not on the old W-4.  

As a point of information - claim “Head of Household” status on your W-4 only if you file your Form 1040 each year as a Head of Household.  I learned very early in my career that while some people may consider themselves a “head of household”, the IRS does not.  For IRS purposes a “household” does not consist of one person.  There are very strict and specific rules for this filing status.  Perhaps the best explanation of what the IRS considers a true “Head of Household” is a single parent with a dependent child.

Step 2 of the new W-2 finally recognizes the possibility that the job for which the W-4 is being submitted may not be the taxpayer’s only source of income, especially if he or she is married.  If you have more than one job, or you are married and your spouse also has a job, check the box at item (c) in Step 2.

The complexity of the new W-4 lies in the “Multiple Jobs Worksheet” on Page 3 of the W-4 packet.  Do not use this worksheet – it will very likely have your head spinning.

If you are using withholding as savings, do not make any entries in Step 3 for any dependents you are claiming.  If this is not an issue, as a safety matter claim only half the number of actual dependents – if you have two children under age 17 claim only $2,000 here for one dependent; if you have two children age 17 or older claim only $500.  For a married couple only the spouse with the higher W-2 income should claim any amount for dependents.  If you are married and both spouses work and one or both of the spouses has a second job neither of you should claim anything for dependents in Step 3.

Most definitely include any taxable non-W-2 income on line 4(a) in Step 4.  This includes interest and dividends, capital gains, K-1 pass-through income, net self-employment income from Schedule C or C-EZ (after any adjustments to income for health insurance and pension contributions and the Section 199a QBI deduction) and any amounts that would be included on Line 8 of Form 1040 Schedule 1.  You can use your 2019, or in January the 2018, tax return as a guide for completing this Section.  If you are receiving IRA. Pension or Social Security income you do not have to include this income here.  You can request a specific percentage be withheld for federal income tax for these sources – and you should have federal income tax withheld from each source. 

It is my recommendation that you do not include anything for “Deductions” on line 4(b) of Section 4 – even if you will be able to itemize or are entitled to any additional deductions.  Here is another opportunity to provide a cushion.

As for entering any “Extra withholding” on line 4(c) – on the initial 2020 W-4 filing you can leave this blank.  If after a month of withholding under the new W-2 you think you may need more withheld you can submit another W-4 with the same entries you made on the original but adding an additional amount on 4(c).  After preparing your 2019 return you may want to submit a revised W-4.

It is important that you keep a copy of every 2020 Form W-4 you give to an employer for your records.

Looking at the form there is no place on the form for an employee to indicate “EXEMPT”, as there was on the old W-4.  Dependent children with summer and after-school jobs do not need to have any income tax withheld.  However, the instructions tell you to write "'EXEMPT' on Form W-4 in the space below Step 4(c)".  Do not enter anything in Steps 2 and 3 or elsewhere in Step 4. 

While the 2020 Form W-4 is more involved, I believe it is actually “more better” than the old method of calculating withholding, especially under the GOP Tax Act.

TTFN













Sunday, December 8, 2019

NOW AVAILABLE AT AMAZON!


The updated 2019 edition of the Kindle e-book version of THE JOY OF AVOIDING NEW JERSEY TAXES is now available for purchase at Amazon.com!

Click here to order the book - only $9.99!  















Wednesday, December 4, 2019

THE 2019 PNC CHRISTMAS PRICE INDEX




It’s that time of year again – time for the 36TH annual PNC Christmas Price Index!  

The PNC Christmas Price index reports the cost to purchase the gifts included in the classic holiday song “The 12 Days of Christmas”.

PNC tells us it has “ . . . calculated the 2019 price tag for The PNC Christmas Price Index at $38,993.59, a negligible $67.56 or 0.2% more than last year's cost, but less than the government's Consumer Price Index, which increased 1.8% through October in year-over-year measurement before seasonal adjustment.

The major differences in the included items are –

* a 20% drop in the cost of turtle doves, “the first drop in price since 2004”.  

* a 10% increase in the price of 5 gold rings.  After falling in 2018 due to less demand and fluctuations in gold prices, Gold Rings rebounded” in 2019.  

* a 7.7% jump in laying geese “largely due to an increase of interest in backyard farming”.

* a 4.5% drop in the cost of one partridge in a pear tree, resulting from a $10.00 drop in the price of the tree.

Once again, the labor unions for musicians, dancing ladies and leaping lords proves to be better than the milking maid union.  The milkers were paid the minimum wage of $7.25 per hour for 2017 through 2019.  After the individual partridge, costing $20.18, the $58.00 price tag for 8 milking maids was the lowest on the list.  Leaping lords got $1,000 each, slightly more than dancing ladies.  The musicians got a small .8% raise for 2019.  

The chief economist of a bank in Philadelphia, which eventually became part of PNC, began estimating the cost of the 12 Christmas gifts in 1984 as a holiday client letter.  This year’s price is about 95% higher than the first index from 34 years ago.

For those who prefer the convenience of online shopping the Index also calculates the cost of the gifts purchased on the internet.  As online costs are higher due to travel and shipping, the total cost is $42,258.91, $3,265.32 more than “in store” purchases.

The actual true cost of every gift in the song (with each previous day’s purchases repeated over the 12 days) is $170,298.03 in store and $194,502.72 online.

There appears to be some discrepancies in the 2018 numbers reported in this year’s press release and table from PNC and the numbers from the 2018 chart that I had reported in last year’s post.  PNC tells us the 2018 prices were “adjusted to better reflect open market pricing”. 

Click here for the press release that includes the full chart.

TTFN 











Monday, December 2, 2019

FROM THE EMAIL MAILBAG – CHARITABLE GIVING


A client recently emailed me to ask about charitable giving, specifically if she should use more than her Required Minimum Distribution (RMD) for a Qualified Charitable Distribution (QCD), since one is allowed to make QCDs of up to $100,000 per year, and if it is truly beneficial to donate appreciated securities instead of cash.

To find out just what a QCD is see my 2016 post “Wunnerful Wunnerful”.  Click here to learn more about Donor Advised Funds (DAF).  And I discuss contributing appreciated securities in “A Great Tax Saving Strategy for Charitable Taxpayers”.

In my answer I gave the following example.

You are a resident of the Garden State – New Jersey.  For 2019 you have $17,000 in interest and dividends and $55,000 in capital gains for $72,000 in investment income.  Because of this $22,000 of Social Security is taxed.  You also have a total of $47,000 in RMDs from IRA accounts and $20,000 in RMDs from employer pension accounts, like a 401(k) or 403(b).  So, the total income subject to tax is $161,000.  You make QCDs of the entire $47,000 in IRA RMDs, so AGI is $114,000.  You contribute $34,000 in appreciated stock to a Donor Advised Fund, which reduces taxable income to $80,000.  Additional allowable itemized deductions reduce taxable income further.

By definition, an RMD is required - you need to take the RMD by law – so by basically wiping out your IRA RMD, a $47,000 QCD reduces taxable income.  If you wanted to make a QCD from the IRA of $70,000 your gross income from the IRA would be $70,000, increasing gross income by $23,000, but AGI would remain the same. 

The additional $23,000 QCD did reduce gross income by $23,000 – but it is a “wash” in that the $23,000 needed for the additional QCD increased gross income by $23,000.  While there is technically a “tax benefit” from the additional QCD, it does not reduce your net taxable income.  Your net taxable income after contributions remains $80,000.  

This additional $23,000, while not taxed by Sam, is taxed on the NJ-1040 state income tax return.  And if other NJ gross income was less – say there was not $55,000 in capital gains – so that your NJ gross income was under $100,000 a QCD in excess of the RMD could eliminate any available Retirement Income Exclusion.  Bottom line – using more than your IRA RMD for a QCD increases your NJ state income tax.

Making contributions of appreciated shares of stock or mutual funds instead of cash to a DAF or directly to charities does provide a definite additional tax benefit. 

You want to give $20,000 to a charity or DAF.  If you donate 100 shares of stick with a value of $20,000, but which you paid $10,000 for 5 years ago, you reduce your net taxable income by $20,000.  If instead you sell the shares and give $20,000 in cash to the charity you still have a $20,000 tax deduction, which reduces net taxable income by $20,000, but you have $10,000 in capital gains that increases your gross taxable income by $10,000.  So, the net effect is reducing your net taxable income by only $10,000.  In our example doing this would increase net taxable income after contributions by $10,000 to $90,000 and you would pay an additional $1,500 in federal income tax (capital gain rate of 15%) as well as additional NJ state income tax.

You can sell investments that have gone down in value and would generate a capital loss to generate the cash.  Doing this you can deduct the capital loss from other capital gains and perhaps against up to $3,000 in ordinary income.

One other consideration when donating appreciated securities to a DAF or charity – the current deduction is limited to 30% of AGI.  The deductions of securities in excess of this amount are not “lost” – they are carried forward to future tax years and available for deduction, within the annual calculation of the charitable deduction limitation.  

What does all this mean? 

* Make QCDs only to the extent of annual IRA RMDs, 

* Contribute stock to a DAF or directly to a charity within the 30% of AGI limit (difficult to know the actual final AGI before the end of the year because of year-end dividends and capital gain distributions), and

* Donate the balance via cash from existing sources without selling additional appreciated investments to generate the cash.  

One possible strategy to consider.  The taxpayer in the above example could rollover all the money in employer pension accounts to an IRA account to make 100% of the source of RMDs an IRA account.  So, the $67,000 total RMDs in the example – from both an IRA and pension accounts – would be all from an IRA account and QCDs of the $67,000 would totally wipe-out all RMD income from AGI and, in the example, reduce net taxable income after contributions to $60,000, assuming, of course, the taxpayer would still contribute $34,000 in appreciated securities to charities or a DAF.

I hope this is not too confusing.  Let me know if you have any questions.

TTFN













Friday, November 29, 2019

JUST IN TIME!


Just in time for Black Friday shopping, and year-end tax planning, I have updated my THE JOY OF AVOIDING NEW JERSEY TAXES, the only book available that I know of that discusses in details NJ state income taxes, for tax year 2019.

A new section on Tax Benefits for Veterans and their Caregivers has been added.

Most NJ taxpayers concentrate on their federal tax return and spend minimal time on their NJ return, simply taking numbers from the 1040 and putting them on the NJ-1040.  As a result, they are paying more NJ state tax than necessary, often paying tax on income that is not even taxed by NJ.  By becoming informed on NJ state tax law and using proper tax planning you can make sure that you pay the absolute least amount of NJ Gross Income Tax possible for your particular situation.

Whether or not you use a professional tax preparer, the more you know about NJ taxes the more you will be able to properly structure your financial transactions during the year to minimize taxes and the better prepared you will be when giving your “stuff” to your preparer at tax time.

I will send you this valuable book as a pdf email attachment for only 11.95.  The cost of a print version, sent via postal mail, is $15.45.

The e-book version for Kindle available from Amazon should be updated by Cyber Monday (December 2nd) – wait till then to order.  This version does not include the forms, schedules and worksheets included in the versions ordered directly from me.

To order send your check or money order payable to TAXES AND ACCOUNTING, INC to –

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

TTFN