THE YEAR IN TAXES 2021 - PART TWO

The only other legislation with tax components passed in 2021 was the Infrastructure Investment and Jobs Act, signed into law on November 15^th.  However, the few tax aspects of this Act really do not affect many 1040 filers.  

The House passed the Democratic Build Back Better legislation at the end of November, but the Senate will not deal with the bill until 2022.  The legislation mostly affects 2022 tax returns – but the House version did include an increase in the SALT itemized deduction limit from $10,000 to $80,000 (no increase in the current Senate version) – so we will have to wait until a final Act is signed into law, assuming a Senate version actually passes, before we can complete 2021 Schedule A’s.

No issues for me with state returns.  I continued to use, and appreciate, the new “New Jersey Online Income Tax Filing” system to electronically submit directly to the NJDOT free of charge almost all of the NJ-1040s for my clients.  And I continued to use, and appreciate, the “enhanced” fill-in forms available at the New York State Department of Taxation and Finance website. 

In 2021 the New Jersey legislature finally addressed the issue of the income threshold for claiming the Retirement Income Exclusion, although not in the way I had hoped and expected.  Beginning with 2021 returns a partial exclusion is now allowed for NJ taxpayers with gross incomes between $100,001 and $150,000.   New Jersey also expanded and enhanced the state’s Earned Income Credit and Child and Dependent Care Credit for 2021. 

Reviewing my tenure as a tax professional I believe the thrill is gone.

Dealing with the IRS is becoming impossible. While it has always been somewhat frustrating, it appears the IRS has now become incompetent – thanks mostly to the excessive COVID-19 shut down. 

The tax season never ends.  GDEs continue.  Just when I think the season is finally over there appear new IRS or state correspondence and notices, mostly incorrect, to deal with.  And with Congress constantly fucking with the Tax Code, often at year-end, and continuing to erroneously use the Code to distribute government benefits, there are more and more complications, and agita, for clients, and preparers, and more and more questions from clients. 

Getting all the correct information from clients during the season has gotten more difficult and generates more agita and wasted time – often a result of Congressional Code-fucking. 

My favorite times as a preparer, when preparing taxes was truly fun, were the first 29 working with Jim Gill in a storefront office first on Sip Avenue and a dozen years later moving to Newark Avenue between the Court House and Dickinson High School (my alma mater).

It is truly time to retire.

Before I go – the usual question I ask my fellow tax pros.  Did I miss anything?

TTFN

 

THE YEAR IN TAXES 2021 – PART ONE

It is time again for my annual review of the year in taxes.

The 2021 tax filing season – for filing 2020 returns – was my 50^th!  My first year preparing 1040s was 1972 – preparing 1971 returns – as an apprentice with my uncle’s tax preparer James P Gill on Sip Avenue just off Journal Square in Jersey City, having no prior knowledge of or experience with tax returns.  Back then I had no idea this would become my career for 50 years.

I posted a series looking back on my 50 YEARS OF PREPARING 1040s here at TWTP that included –

* HOW IT ALL BEGAN

* MY FIRST 1040

* THE GREAT UNWASHED

I am now officially retired!

The start of 2021 found us in the height of the COVID-19 pandemic.  The entire season was spent in the office, leaving only to go to the Post Office, buy food and dine out locally.  I am not complaining – I was pleased with this.

The tax filing season began for me, as it always does, on February 1st, ended on May 17th.  For the second year in a row, and, as far as I know, only the second time in history, the initial tax filing, and paying, deadline was extended.  The season actually ended on May 16th, as I never work the last day.

The big issues of the filing season had to do with pandemic relief.  It was truly the rare federal return that I could complete in one sitting.

First, taxpayers were required to reconcile the first two Economic Impact Payments on their 2020 Form 1040 (or 1040-SR).  If a taxpayer received less than they were entitled to based on actual 2020 income they could claim the shortage as a refundable Recovery Rebate Credit on their return.  If they got more than they were entitled to they did not have to pay back the excess.  I had to waste too much time trying to get the amount of the stimulus payments, if any, clients received in 2020 and early 2021 (this second payment should have been reconciled on the 2021 return), despite my specifically asking clients to tell me what, if anything, they received in EIPs in my January letter.

While the Recovery Rebate Credit was good for many clients – putting more money in their pockets – the fact that the IRS worksheet for the credit reconciled each of the two Economic Impact Payments separately, rather than combining both payments, was stupid (for the government) and financially imprudent (again for the government).  If a taxpayer got more than they were entitled to in the first payment but less than they were entitled to in the second payment, the first payment excess was not applied to the second payment shortage. 

For example, if a taxpayer got $200 too much in the spring of 2020 but $200 too little in January 2021 it was not a wash.  The $200 overpayment from 2020 was ignored and the taxpayer got the full $200 shortage for 2021 as a refundable credit on their tax return.  While the reality is between the two payments the taxpayer got exactly what he/she/they was/were entitled to, the taxpayer actually ended up with $200 more than he/she/they was/were entitled to.

And second, the American Rescue Plan Act, with two provisions that affected 2020 returns, was not signed into law until March 22, 2021.   

The 2020 tax return changes were -

1) The first $10,200 of unemployment benefits received in 2020 was tax free on returns with an AGI of less than $150,000.

2) Taxpayers who received excess advance Premium Tax Credit payments in 2020 did not have to repay the excess.

I was aware of the potential 2020 changes in February, and had to hold up completing federal returns for clients who received unemployment and advance Premium Tax Credits until the law became official and the IRS told us how to properly report the unemployment exemption on the return.         

Thankfully there were no auto, computer, equipment, or weather issues of consequence for me during the 2021 filing season.  The only concern was the slowness of the Post Office in delivering work to and from me and payments to me – an ongoing effect of the attempts by Trump and his lackey DeJoy to destroy the postal service to sabotage mail-in ballots during the 2020 Presidential election.

The biggest tax-related issue of the year was the results of the truly humungous backlog of correspondence, 2019 Form 1040s (and 1040-SRs) and amended returns filed in 2020 that was caused by the IRS closing its doors for too many months due to COVID in 2020.  During the many months IRS offices were completely shut down in 2020, the Service did not process tax returns or taxpayer and tax professional correspondence.

When the IRS finally opened up again its system continued to spew out automatic intimidating balance due notices based on the information in the system prior to the closure.  However, much of the backlog of unopened and unprocessed correspondence were responses by taxpayers and tax professionals to erroneous balance due assessments, explaining the IRS error or correcting a taxpayer error.  Many taxpayers receiving collection notices paid the IRS what it asked for, despite having previously written, or had their tax professional write, to the IRS to explain errors in the assessment. 

Responses to the continued erroneous mailings create more correspondence and increase the already humongous backlog.  And taxpayer erroneous overpayment of incorrect assessments had to be addressed by taxpayers and tax pros, creating more correspondence to add to the pile, compounding the problem.

As I said in a July TWTP post - what the IRS should have done, and should do now, is put a temporary hold on all open balance due accounts and cease from sending out automatic notices and other collection activities for these accounts until the backlog of correspondence is processed.  As correspondence regarding a taxpayer notice is acknowledged in the IRS system the hold must be continued until the issue is resolved.

Making things worse, dealing with the backlog caused delays in the processing 2020 federal returns.  Many taxpayers have still not received their 2020 refunds, despite having filed their returns on time.  Thankfully, as it did in 2020, the IRS is paying interest on delayed refunds.  

TO BE CONTINUED . . .

TTFN

THE YEAR IN TAXES 2020

2020 was a year unlike any other.  The COVID-19 virus affected the lives of every single person in America. 

 

It was the first year in my tenure, and probably in history, that the mid-April initial filing and paying deadline for federal, and most state, income tax returns was extended – to July 15, 2020.  Taxpayers had until July 15^th to file their 2019 federal returns and pay any tax due, without penalty or interest, and to make the first two quarterly federal estimated tax payments.

 

The 2020 tax-filing season – my 49^th - ran smoothly for me, despite the pandemic.  There were no auto, computer, equipment, or weather issues of consequence.  I have been working at home for more than a dozen years, so the “stay at home” order issued at the end of March did not affect me.  And my business did not suffer financially from the virus – clients continued to send me their stuff, although some later than usual, and money continued to come in.  But much less was going out.  My business and personal expenses were greatly reduced.

 

I ended the extended tax filing season with only 7 GDEs (the “E” is for “extension”) - obviously due to the extended deadline - and ended the year preparing 12 less sets of returns than I did in 2019.

 

There were no real changes to tax law that affected returns prepared in 2020, other than the last-minute retroactive extension of the now infamous “extenders” by Congress at the end of 2019, a common practice, which affected very few of my clients. 

 

The big change in federal forms for the year was what I call the return to sanity.  The completely ridiculous “postcard” format of the 2018 return was gone and the 2019 Form 1040 was most certainly “more better”, with a return to a more logical flow of information.  There was a new Form 1040-SR for senior filers, created for no other reason than it was required by the Bipartisan Budget Act of 2018, which was line-for-line exactly the same as the 2019 Form 1040 except it has bigger print and included a Standard Deduction chart.  And the previous 6 supplemental schedules to the 1040 was reduced to 3.

 

Thankfully, the excessive federal under-withholding FU for 2018 was for the most part fixed for 2019 income.  As a further correction to the problem, at the beginning of the year the IRS issued a new Form W-4 for calendar year 2020 withholding which completely did away with the concept of “withholding allowances”. The revised format, while more involved and complicated, appears to be, in my opinion, an improvement - but I will have to wait until the 2021 filing season to find out if it caused any under-withholding issues.

 

There was no change for me to New York State return filing, but there was a change to my NJ filings.  The NJ Division of Taxation did away with its online NJWebFile system, which I had used whenever possible to submit NJ returns in the past.  But it was replaced with a superior “New Jersey Online Income Tax Filing” system, which allowed me to electronically submit all 2019 NJ-1040s (NJWebFile had many limitations), and request direct deposit of refunds when applicable, online free of charge without the need for separate email addresses and passwords for each return.  I used this system for just about every NJ return I prepared, except for a few balance due returns.

 

The biggest issue for 2020 was the excessive IRS delay in issuing refunds, regardless of how the return was filed.  The IRS offices were closed due to the pandemic from the end of March through mid-July and nobody was opening the mail or processing returns.  When the offices finally opened up again there was a huge backlog of returns and correspondence to process.  However, when refunds were finally issued they did include interest from April 15^th until the issuance of the payment. For the most part, state refunds, at least for my clients, were not similarly delayed.

 

There was one major piece of tax legislation affecting 1040s that was signed into law (on March 27^th) in 2020 – The Coronavirus Aid, Relief and Economic Security Act (aka CARES).  Among other things, including business and payroll tax credits and benefits, the Act provided for –

 

* “Recovery Rebate” stimulus payments of up to $1,200 per taxpayer and $500 per qualifying child, phased-out based on AGI,

 

* penalty-free withdrawals of up to $100,000 from retirement accounts for “coronavirus-related distributions”,

 

* a waiver of 2020 Required Minimum Distributions (RMDs) from retirement accounts (no RMD was required for anyone for 2020), and

 

* an “above-the-line” deduction on the 2020 Form 1040 (or 1040-SR) of up to $300 of qualifying charitable contributions for taxpayers who do not itemize.

 

The stimulus payments were to be calculated based on 2019 tax return information, but due to the closing of the IRS offices and the delay in processing 2019 returns many were based on 2018 information.  The payment will be reconciled on the 2020 tax return and those who did not get a full, or any, payment can claim a refundable credit for any shortage when filing their 2020 return.

 

As of this writing deplorable and despicable Trump has refused to sign the second bi-partisan COVID economic stimulus legislation (part of the “‘‘Consolidated Appropriations Act of 2021’’) - passed just before Christmas - which would provide $600 stimulus payments, extended unemployment checks and eviction protection, and extend and refine some tax benefits – after it had been announced that he would.  His action was definitely NOT because he cares about Americans getting $2,000 instead of $600 - but because Trump wants to punish McConnell for not publicly endorsing and supporting his demented election delusions.  We will need to see if Congress will override any veto – stay tuned here at TWTP for updates.  THIS JUST IN - idiot Trump has finally signed the legislation.  Look for a review of the 1040 components of the ACT here in a few days.

 

The 2020 election – Biden’s win a true victory of intelligence and patriotism over ignorance and hate – put an end to our national nightmare (i.e. the Trump presidency).  The Democrats maintained control of the House, but we will need to wait until the special Georgia election in January 2021 to see if the Republicans lose control of the Senate.  If Republicans remain in control there will be little to no chance of any substantive non-COVID related tax legislation being enacted until at least 2023.

 

So, my fellow tax pros, as I ask you each year at the end of my year in review – did I miss anything important?

 

TTFN

THE YEAR IN TAXES 2019

2019 was the first year that we prepared tax returns under the multitude of changes enacted by the GOP Tax Act.

As I said in my review of the tax season, regardless of how long a person has been in “the business” there is always the challenge of dealing with changes in tax law resulting from new legislation, often illogical and inequitable and reflective of the ignorance and agendas of those who actually write and pass tax law.

I had been well-educated on the tax law changes during 2018.  And last tax season when preparing my clients’ 2017 tax returns, I calculated the tax on their income and deductions using the new tax law and rates of the GOP Tax Act.  However, it took a while to get used to the flow of the ridiculous new “postcard 1040” and the accompanying new Schedules 1 through 6 (although I only used 1 - 5).  The idea of a tax return that fits on a postcard is a gimmick – and a gimmick totally lacking in legitimacy and with no basis in reality.  It is very literally impossible to have an individual income tax return that fits on a postcard under our current Tax Code. 

Otherwise the 2019 tax filing season ran smoothly.  There were no auto, computer, equipment, or weather issues.  The season began, for me as always February 1^st, and ended on time, again for me the day before the statutory April 15^th filing deadline.  I ended the season with only 26 GDEs – the same as last year.  Although I actually prepared 16 less sets of returns by season-end than last year.

As expected, very few of my clients were able to itemize on their 2018 Form 1040, due to the increased Standard Deduction and the limitations on and elimination of allowable deductions.  Since almost all of my clients live in New Jersey or New York they were substantially affected by the new $10,000 limit on the “SALT” deduction – some losing $10,000 - $20,000 in allowable itemized deductions.  The few clients who could itemize were those with excessive medical expenses, single filers with mortgages, and couples with recent new home purchases. 

On the NY state income tax returns residents and non-residents were able to itemize using the “old” pre-GOP Tax Act rules, and could itemize on the state return even if they could not on the federal.  So, in some instances I still needed information on home equity loans and investment and unreimbursed employee business expenses.

Last year I had advised my clients of the importance of keeping separate track of acquisition debt and home equity debt going back to their original purchase mortgage, provided instructions and worksheets on how to do it, and offered to do it for them during the year.  No client contacted me about this issue last year, and no client provided me with information on the source of their 1098 interest when giving me their 2018 “stuff” this year.  They totally ignored this issue.  Luckily because most clients were not able to itemize this issue only applied to a handful of returns.  For some, since I keep copies of every return I have ever filed for current clients as well as some back-up documentation, I was able to easily determine or estimate the amount of acquisition debt interest.

This year the Form 1098-T sent to college students by universities was finally no longer the equivalent of tits on a bull.  It actually provided the information necessary to calculate the education tax credits – “the total payments received by an eligible educational institution in 2018 from any source for qualified tuition and related expenses less any reimbursements or refunds made during 2018 that relate to those payments received during 2018”.  Previously these forms only told us what the college billed, which was totally useless.  

The biggest issue of this tax season was the occasionally disastrous results of what I called “the IRS withholding FU”.  As I explained to clients in my explanatory memo, last February the IRS revised the federal withholding tables to reflect the reduced tax rates.  But they did it too “liberally” – on purpose I believe so it would look like the GOP Tax Act benefited taxpayers more than it really did.

Almost every taxpayer whose 2018 withholding was based on the federal tables – and not a flat amount as with most IRA withdrawals and Social Security benefits – was under-withheld.  This was especially disastrous with multiple sources of withholding – like two-income couples, taxpayers with more than one job, and those receiving both pension and W-2 income.  I had clients owing $4,000, $9,000 and $20,000 because of the IRS withholding FU.

It was déjà vu all over again.  Once again, the idiots in Congress reminded me why I call them “the idiots in Congress” by waited until the very last minute to pass retroactive tax legislation.  At the end of December, a temporary retroactive extension of a laundry list of expired tax benefits and special interest loopholes, the now infamous “extenders”, was included in the government funding bill. 

Constantly and retroactively temporarily extending specialized tax benefits and loopholes every year or every other year is totally ridiculous.  If the idiots in Congress think a tax benefit is appropriate it should be included in permanent tax legislation.  But then – they are idiots who do what they are told by lobbyists and Party leadership.

Also included in the funding bill was “The Setting Every Community Up for Retirement Enhancement (aka SECURE) Act of 2019” which made some big changes to retirement savings account rules, most effective beginning with tax year 2020.  These changes are, for the most part, actually good and welcomed.

The only other significant tax legislation passed in 2019 was the “Taxpayer First Act”, which dealt with taxpayer protections and identity theft prevention.   

In the fall of 2019, the IRS issued a revised Form 1040 and corresponding numbered supplemental schedules for 2019 and created a new 1040-SR for senior citizens, which was mandated by the Bipartisan Budget Act of 2018.  The new 1040 is a 2-sided form that is 2/3 of a full 8½ x 11 sheet, instead of a ½ a full sheet like the ridiculous 2018 “postcard” version.  The content of the new 1040 and 1040-SR are exactly the same – line for line and word for word.  The only difference is that the 1040-SR has substantially bigger print and includes a Standard Deduction Chart.  The revised format is clearly much better than the 2018 Form 1040, with a more logical flow of information.

The previous 6 supplemental schedules have been cut to 3 – Schedule 2 and 4 are combined in the 2019 Schedule 2, Schedule 3 and 5 are combined in Schedule 3 for 2019, and the information previously reported on Schedule 6 is now on the 1040.  Reporting Schedule D income or loss has been moved from Schedule 1 to a line on the 2019 Form 1040. 

.

And the IRS also issued a new Form W-4 effective for tax year 2020.  The major change to this form is that the concept of “withholding exemptions” no longer exists.  The new form requires taxpayers to enter a lot more information, and is now a full page instead of just coupon-sized.  While it is more involved and perhaps complicated, I believe it is actually “more better” than the old method of calculating withholding considering the changes made by the GOP Tax Act, and fixes “the IRS withholding FU”.  I provided my advice on filling out this new W-4 here.  Unfortunately, the FU was still in place for 2019 returns to be filed in 2020.  I anticipate under-withholding for many clients again on 2019 Form 1040s. 

So, fellow tax professionals, as I ask each year - did I miss anything important?

Let me end with the same wish I had at the end of 2017 and 2018.  Let us pray that the new year will bring the removal of mentally unstable malignant narcissist Donald T Rump from the White House, either via impeachment or the 2020 election.

TTFN

THE YEAR IN TAXES 2018

2018 was truly another terrible year for America and the world – with dangerous, deplorable, despicable, incompetent, ignorant, and mentally unstable malignant narcissist Trump still in the White House.  But this post is about taxes. 

The big tax story of 2017 was the year-end passage of the “Tax Cuts and Jobs Act” (officially “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”), more appropriately known as the GOP Tax Act.  The GOP Tax Act did not affect 2017 returns filed in 2018, with minor exceptions (specifically returning the AGI exclusion threshold for medical expense to 7½%), but it certainly dominated tax preparer CPE in 2018.  I attended 4 separate events throughout the year, from May to November, that were either totally or partially devoted to the new tax laws – two from the National Association of Tax Professionals, one from the NJ chapter of NATP, and one from a new, for me, independent commercial CPE provider.  For the most part the presentations were redundant, as few new developments in the official interpretation and application of the law were released during the year.    

Three things continued to be reinforced by the GOP Tax Act presentations I attended -

(1) There is still a lot we don’t know yet about how many of the provisions of the Act will be interpreted and implemented.

(2) Because the Act was basically written overnight, the wording of the law is often defective, confusing and unclear.  “Technical corrections” legislation is clearly needed.

(3) It is very obvious that those who actually write tax law and the members of Congress who vote on it have absolutely no concept of the practical implementation of the tax legislation they write and pass, or of the actual preparation of tax returns.

I published a book on THE GOP TAX ACT AND THE NEW 1040.

As for the 2018 tax filing season, like the 2017 filing season, it ran smoothly.  This season I got an answer to the question posed by the Beatles decades ago (at least for me) – my 1040 clients still needed me, and some of them still fed me, now that I was 64!

The IRS announced it would begin accepting and processing 2017 tax returns on January 29^th (later than last year’s January 23rd start date), but, as always, the season officially began for me on February 1^st.  I ended the season on April 16^th (the day before this year’s filing deadline of April 17 – I never work on the actual last day), with only 26 GDEs (by now I expect you know what this stands for) – similar to the previous 2 years.  I prepared about 20 less sets of returns during the season this year, for a variety of reasons.  

The tax filing deadline was extended from April 17 to April 18 at the last minute when the IRS encountered “system issues” early on the morning of the 17th.

No auto, computer, equipment, or weather issues during the 2018 filing season.  And only a couple of IRS or state refund or processing delays or FUs in 2018, as usual mostly with NJ returns.

There was a small difference in my practice this filing season.  I was truly “locked behind closed doors” for the entire season.  I was up at my desk each morning between 4 and 5 AM during this time, and when February 1st came around, I forgot to plug my phone in at 9 AM each morning.  After about a week I got spoiled – I enjoyed working through the day without the interruption of the phone (even though I have always screened calls) – and never plugged the phone in (unless I was expecting a specific call).  I did, however, constantly check my email accounts, and responded promptly when appropriate.  I found that, from my point of view, not having the phone on did not adversely affect the preparation of returns.

After preparing each tax return this season, I calculated the tax on 2017 income and deductions using the new tax law and rates of the GOP Tax Act, to see how clients would have fared if the Act had been effective for 2017, and shared the result with the client.   I found that most would have paid less – ranging from $2.00 to several thousand dollars – but a handful would have paid more.  One thing I learned from this exercise is that many returns will be much simpler next season and beyond because many clients would no longer be able to itemize under the new law.  I am NOT complaining. 

Taxpayers could no longer remain silent on full-year health insurance coverage, as they could last year, and I actually had to calculate a pro-rated Obamacare individual responsibility penalty for 2 clients (my first time using this procedure).  A handful of clients had to reconcile advance premium credits, and I was able to save a married couple $1,500 by having them make a $1,000 deductible IRA contribution.

Once again, despite the fact that Congress required that IRS Form 1098-T issued by colleges and universities actually contain the correct information necessary to properly claim education tax credits and deductions beginning with tax year 2016, the IRS erroneously delayed this requirement.  In most cases 2017 Form 1098-Ts continued to be as useful as tits on a bull.  Thankfully it appears that this will not be the case with 2018 1098-Ts issued in 2019.

On the state side, I used NJWebFile to electronically submit NJ returns whenever possible, and permitted by the client, and used the state’s somewhat enhanced fill-in form when needed.  I took full advantage of the excellent NY state truly enhanced fill-in Forms IT-201 and IT-203.   

There were really no new tax developments during 2018 that did not involve the GOP Tax Act.   

The IRS released a draft version of the new 2018 “postcard” Form 1040 and 6 new schedules at the end of June.  The final versions are now available at the IRS website.  What once could be fit on two well-crafted pages must now be entered on 7 separate forms.  This new 1040 is probably the stupidest thing I have ever seen in my almost 48 years in the tax preparation business.  

There is now a Schedule 1 for additional income and Adjustments to Income, a Schedule 2 for one group of other taxes, a Schedule 3 for nonrefundable credits, a Schedule 4 for another group of other taxes, a Schedule 5 for refundable credits, the totals of which would be carried over to the “post-card”, and a Schedule 6 for a foreign address and the information for a third-party designee,

This new “1 form into 7” was certainly not the idea of the IRS.  It makes no sense for administration and processing of return filings.  The Service was told to create a post card and it did.  Idiot Trump promised his core cult a post-card sized 1040, so he must deliver a post-card sized 1040, regardless of whether it has any real value, legitimacy or appropriateness.

On the legislative front, the Bipartisan Budget Act of 2018, signed into law in February, expanded the foreign earned income exclusion and extended some residential energy credits through 2021.  The House passed 3 bills that made up what they called “Tax Reform 2.0” at the end of September, including a bill that would make the provisions of the GOP Tax Act set to expire in 2025 permanent, but nothing has been done in the Senate.  It is doubtful that the Senate will even consider the “2.0” bills – so they are pretty much dead.

In the 2018 mid-term elections the Democrats took control of the House (a truly good thing for the country considering the current state of the Republican Party), but Republicans maintained a majority in the Senate.  So, for the next 2 years there will very likely be no legislation of any substance enacted on taxes – or anything.  What the Democrats pass in the House will not make it through the Senate, and vice versa.  Again, a good thing – none of Trump’s nonsense will become law.       

So, fellow tax professionals, did I miss anything important?

Let me end with the same wish I had at the end of 2017.  Let us pray that the new year will bring the removal of mentally unstable malignant narcissist Donald T Rump from the White House.

TTFN

THE YEAR IN TAXES 2017

And so, another year has come to an end.  An eventful year for taxes.  Or more appropriately – taxes of the future.

The big story of 2017 was, of course, the year-end passage of the “Tax Cuts and Jobs Act” (officially, it appears, “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”), along strict Party lines. 

The Republican Party, despite having control of both houses of Congress, was not able to accomplish anything in terms of legislation during 2017 – thanks for the most part to the fact that arrogant arsehole Donald T Rump was in the White House.  But they did finally manage to pass major tax legislation, and arsehole Trump signed it into law on December 22, 2017. before he left for one of his resorts (so he could unethically pocket even more of the American taxpayer’s money), in time for Christmas.  Whether or not it is a true Christmas present depends on your individual facts and circumstances. 

The GOP tax plan began as a couple of basic concepts – nothing more than scribblings on the back of a cocktail napkin.  It was expanded a bit to a written “framework”.  Actual details were eventually revealed just in time for the House vote.

Trump, of course, claimed a victory.  However, it was obvious, at least to me, that the fool didn’t give a rodent’s hind quarters what was actually in the bill (as long as it benefited him financially) – he just wanted ANY bill passed before the end of the year so he could say “look what I did for you”.   

And, despite what serial liar Trump said about this legislation, it was NOT a massive tax cut for the middle class, and Trump and his family most certainly WILL receive a massive tax cut.  As I have said in previous posts, the Act is not as good as the Republicans claim and not as bad as the Democrats insist.  In my opinion there is good in the legislation and there is bad in the legislation.  What is true about the new Tax Act is that it will affect every single taxpayer.  And it can truly be called the new “Accountants’ Full Employment Act”.

As for the 2017 tax filing season, it once again ran smoothly.  Despite an advertised slight delay in the date the IRS would begin processing returns - Monday, Jan. 23^rd - the season officially began for me, as it always has, on February 1st.    

There were no auto, computer, equipment, or other issues.  The weather did impact the season on one occasion – a 30+ inch blizzard in mid-March literally buried my car and I could go nowhere for almost 2 weeks.  I have always said that I welcomed a huge snow storm in March so I could catch-up without interruption – and I got my wish this year.  

I had no issues with late-issued corrected Consolidated 1099 Tax Statements from brokerage houses this year.  The returns of several clients who usually had to wait until late March to send me their “stuff” were done earlier than usual.  And more cost basis information was provided, to both taxpayers and the IRS, for long-term transactions.

Despite the fact that Congress required that IRS Form 1098-T issued by colleges and universities actually contain the correct information necessary to properly claim education tax credits and deductions beginning with tax year 2016, the IRS erroneously delayed this requirement – so with only minor exceptions, 2016 Form 1098-Ts continued to be as useful as tits on a bull.

The IRS did much better processing returns this year.  I did not hear of any excessive refund delays or other processing FUs.  NJ announced in January that no refund, regardless of how submitted, would be issued until March 1st, due to additional identity verification - and I advised February filers with refunds of this fact.

Beginning with the 2017 tax filing season the ridiculous excessive additional “due diligence” requirements for tax professionals, forcing us to be social workers as well as tax preparers, was expanded to include returns for clients claiming the American Opportunity Credit and the Child Tax Credit.  I did absolutely nothing different or additional this season regarding the due diligence of EITC, AOTC, and CTC claims than I had done in past years.  I was surprised and happy to find that Form 8867 was reduced to 2 pages this season and wasted less of my time to prepare.  My biggest issue with this form was having to remember to include it for taxpayers claiming the Child Tax Credit.

The Obamacare “individual mandate penalty” was not an issue for me this season.  Nor was the advance premium tax credit reconciliation.  Forms 1095-A, B, and C arrived earlier this season, though the late receipt of Form 1095-B or C would not hold up my preparation of a return.  Information on W-2s and Social Security statements and client representations are enough for me to indicate full-year health insurance coverage. 

There was only one client who would have been subject to the shared responsibility penalty – but the IRS announced that it would not delay processing of returns that were “silent” on full-year health insurance coverage (did not check the box to verify full-year coverage and did not include Form 8965), so, believing “silence is golden, I completed the return without checking the box and without completing Form 8965.  As of this writing it appears the IRS had not requested any additional information from this client. 

On the state side – I continued to be extremely pleased with New York’s new “enhanced” online Form IT-201 and IT-203 “fill-in” (but manually filed) forms.  I also continued to use NJWebFile to electronically submit NJ-1040s directly to Trenton free of charge whenever possible (unless specifically forbidden by the client’s request).   I did not encounter any issues with NY or NJ returns, other than normal processing FUs by the state tax departments.  

I ended the season with only 22 GDEs (the “E” is for “extension” – you can guess what the “GD” is).  This is lower than the 24 from last tax season, which at the time was the least amount of GDEs since I took over my mentor’s practice in 1999.  All GDEs were the result of client delays - not a single one was due to my workload!  Every single return received in my hands by March 18th was completed and returned to the client, as were several received after that date.  

At the end of July, the Treasury Department decided to end the myRA program, which had been initiated in 2014, due to a lack of participation by taxpayers.  I thought this program was a good idea to help lower income individuals begin to save for retirement, with a minimal contribution needed to open and minimal allowable ongoing contributions, and was sorry to see it go.

And 2017 saw the initiation of the IRS being forced by Congress to once again use private agencies to collect outstanding tax debt, despite the failures of this practice in the past and the serious concerns of the National Taxpayer Advocate.  Using outside collection agencies is a bad idea, another example of the apparent practice by the idiots in Congress of “if at first it fails, do it again”.  As in the past, I advised taxpayers who receive a notice from an outside collection agency to tell them that they refuse to deal with a private agency and will only deal directly with the IRS.

Once the GOP Tax Act was passed I received numerous emails from clients asking me if it was a good idea to pre-pay their 2018 real estate taxes, if possible.  The Act specifically prohibited a deduction for prepaid state and local income tax, but said nothing about real estate tax.  As with anything else tax related, the answer depended on the client’s individual facts and circumstances, and I advised accordingly.  One client who prepaid told me there was a long line at the municipal tax office of others waiting to do the same thing.

2018 will be a busy year – with taxpayers, tax pros and the IRS trying to figure out how to implement and deal with the many changes made by the Act and the anticipated, and required, “technical correction” legislation.  Keep visiting TWTP during 2018 for all the details. 

Let us pray that 2018 will also bring the removal of mentally unstable malignant narcissist Donald T Rump from the White House.

 

So, there you have it – 2017, the year in taxes.  Fellow tax professionals, did I miss anything important?

TTFN

THE YEAR IN TAXES 2016 – PART II

Because of the Presidential campaign there was no tax legislation of any substance in 2016.  There were a few bills that dealt with limited tax matters for special situations, but really nothing of consequence for the 1040.

 

One bad law of note was the “US Appreciation for Olympians and Paralympians Act of 2016”, which excludes from income the value of any Olympic or Paralympic medals or winnings for certain athletes.  As was pointed out in a list of worst tax developments of 2016, “the exemption is a windfall for professional athletes but does little or nothing for struggling amateurs”.  Why should only Olympic and Paralympic winners be exempt.

 

And one good tax provision in the “21st Century Cures Act”.  A company with fewer than the equivalent of 50 full-time employees, and therefore a business not subject to the Obamacare employer mandate to offer insurance coverage to employees, can reimburse employees' for purchasing individual health insurance as if it were directly paying the premiums on a group health policy under a qualified small business health reimbursement arrangement.  Previously most employers who did this were subject to a penalty of up to $100 per day for each employee.

 

There were a few non-legislative tax developments of note in 2016.

 

In the 2015 Year in Taxes post I praised a provision of the PATH Act, explaining –

 

“Educational institutions are required to report only qualified tuition and related expenses actually paid, rather than choosing between amounts paid and amounts billed as is currently allowed (most institutions historically report only amounts billed), on Form 1098-T, beginning with calendar year 2016.  So, beginning with forms for tax year 2016 issued in January of 2017, the Form 1098-T students receive from colleges will actually provide important and needed information, and will no longer be as useful as ‘tits on a bull’.”

 

Unfortunately the week-day daily "Checkpoint Newsstand November 18, 2016" brought some bad news on my 63rd birthday (highlights are mine) -

 

“No penalty for 2017 Forms 1098-T. IRS will extend the relief from penalties under Code Sec. 6721 and Code Sec. 6722, as described in Ann. 2016-17, to 2017 Forms 1098-T. Eligible educational institutions, therefore, will continue to have the option of reporting either the amount of payments of qualified tuition and related expenses received in Box 1 of Form 1098-T or the amount of qualified tuition and related expenses billed in Box 2 of Form 1098-T for the 2017 calendar year without being subject to penalties.

 

This relief is limited to 2017 Forms 1098-T required to be filed by eligible educational institutions by Feb. 28, 2018 (or Apr. 2, 2018, if filed electronically) and furnished to recipients by Jan. 31, 2018.”

 

What happened?

 

“Representatives of eligible educational institutions have informed IRS that, despite diligent efforts, the changes to accounting systems, software, and business practices that eligible educational institutions must make to implement this law change cannot be accomplished in time to apply these changes for calendar year 2017.”

 

So now the bulk of 2017 Form 1098-Ts will continue to be totally worthless.

 

There were three other developments, thankfully all good news. 

 

The IRS issued final regulations related to the tax treatment of same-sex marriage – states must recognize a marriage between two people of the same sex when the marriage was lawfully licensed and performed in a state where such marriage is legal, regardless of where the couple currently resides.

 

I will let other tax writers explain the other two (again highlights are mine) -

 

From “2016 Year in Review for Retirement Accounts” by Sarah Brenner of THE SLOTT REPORT -

 

“Self-Certification – The New Fix for Late Rollovers

 

On August 24, 2016, the IRS released Revenue Procedure 2016-47, which provides a new and cost-free way for you to complete a late 60-day rollover of retirement funds using a self-certification procedure. The new self-certification procedure is available for missed rollover deadlines for both IRAs, including Roth IRAs, SEP IRAs and SIMPLE IRAs, and company plans. It is a game changer because it will spare many taxpayers from having to go through the costly and time-consuming process applying for a Private Letter Ruling to get late rollover relief.”

 

And from “The biggest tax stories of 2016” by Bill Bischoff of MARKETWATCH.COM -

 

“Unmarried co-owners are entitled to separate home mortgage interest debt limits: 

 

For federal income tax purposes, you can generally deduct the interest on up to: (1) $1 million of home acquisition debt (mortgage debt taken out to acquire, build, or improve your principal residence and one other residence, such as a vacation home) and (2) $100,000 of home equity debt (mortgage debt that is secured by your principal residence or one other residence).  In a controversial 2012 decision, the U.S. Tax Court concluded that these home mortgage debt limitations to be shared by unmarried individuals who co-own expensive homes. In other words, according to the Tax Court, when two unmarried individuals co-own a principal residence (and maybe a second residence too) the combined home acquisition debt limit for the two co-owners is only $1 million, and the combined home equity debt limit is only $100,000--for a total combined debt limit of only $1.1 million (same as for a married couple).

 

In contrast, if the debt limits can be applied on a per-taxpayer basis, each unmarried co-owner would be entitled to a separate $1 million limit for acquisition debt and a separate $100,000 limit for home equity debt (for a total combined debt limit of $2.2 million for two unmarried co-owners).

 

When unmarried folks co-own expensive homes with big mortgages, this issue is a big deal.  So it was good news when the Ninth Circuit Court of Appeals in 2015 reversed the Tax Court’s decision and allowed the two unmarried co-owners in the case to benefit from separate debt limits. In 2016, the IRS threw in the towel by accepting the Ninth Circuit’s pro-taxpayer decision. I don’t say this very often, but thank you IRS!”

 

As for the election.  With the Republican Party in charge of the White House (not really – nobody is in charge of Trump but Trump, and Trump does whatever he wants to do, regardless of what the Republican Party wants; he will do what is best for Donald Trump and not what is best for the Republican Party or the country) and controlling both houses of Congress I expect that there will be tax reform legislation passed relatively early in 2017.  We will very likely see lower tax rates and reduced itemized deductions.  And hopefully the end of the dreaded Alternative Minimum Tax and also possibly the federal estate and gift taxes.

 

While the PATH Act made most of the “appropriate” former “tax-extenders” permanent, some items will expire on Saturday.  Congress adjourned for the year without dealing with theses expiring provisions.  However this is appropriate.  There was no need to extend the expiring provisions before the year end when there will be substantive tax reform legislation proposed early in 2017.

 

So that was the year in taxes 2016.  Fellow tax pros - did I forget anything?

 

TTFN