SCHEDULE A FORMS, SCHEDULES AND WORKSHEETS OFFER

Over the past 40 years I have developed a collection of forms, schedules and worksheets that have proven very helpful in my practice.

I have compiled a special package of these forms, schedules and worksheets especially for taxpayers who itemize their deductions on Schedule A, which I am offering for only $3.00.  The price will be increased to at least $4.00 in January of 2013. 

You can use these unique forms, logs and worksheets to help document your Schedule A tax deductions and to help organize and gather the tax information needed to give to your tax professional.

Please be aware that this is copyrighted material and for your internal use only.

This package includes -        

·      MEDICAL EXPENSE WORKSHEET

·      MEDICAL EXPENSE ANALYSIS

·      MEDICAL MILEAGE LOG

·      SUPPLEMENT TO SCHEDULE A

·      CHARITABLE CONTRIBUTION RECORD

·      CHARITABLE CONTRIBUTION LISTING

·      GOODWILL VALUATION GUIDE

·      CHARITABLE MILEAGE LOG

·      MISCELLANEOUS ITEMIZED DEDUCTIONS

·      EMPLOYEE BUSINESS EXPENSES (GENERIC)

·      CONVENTIONS, CONFERENCES AND EDUCATION

·      AUTOMOBILE EXPENSE WORKSHEET

·      AUTO MILEAGE LOG

·      BUSINESS TRAVEL RECORD

·      SUMMARY OF CASINO GAMBLING ACTIVITY LOG

The package will be sent as a “word document” email attachment, so you may edit and revise them as you see fit to personalize them for your specific situations and to update the forms for annual COLAs or tax law changes.

Send your check or money order for $3.00, payable to TAXES AND ACCOUNTANTS, INC, and your email address to -

SCHEDULE A FORMS PACKAGE

TAXES AND ACCOUNTING, INC

POST OFFICE BOX A

HAWLEY PA 18428

 

TTFN

GIT 'ER DONE!

It is almost December.  When dealing with the potential “fiscal cliff”, now is not the time to consider long-term issues. 

The first, and most important, thing to do ASAP is to extend the AMT patch through the end of 2012 (or, more better, through the end of 2013) so that the processing of 2012 tax returns and refunds are not delayed, and middle class taxpayers are not hit with possible tax increases of between $3,000 and $4,000.

The second thing to do is to extend all of the various tax benefits that will expire on December 31, 2012, for one more year (through the end of 2013), and perhaps also the various popular “extenders” that expired on 12/31/11 along with the AMT patch (except for the 2% Social Security reduction).  The reason for doing this is so that we do not begin 2013 with uncertainty concerning proper withholding.    

The time for considering serious long-term tax reform is January 2013, when the new Congress (which is really not that new) convenes.  This is when legislators should be considering whether to do away with or limit various tax loopholes and expenditures, and whether to raise or lower tax rates – while there is almost a full year before any tax legislation must be passed (not that they should wait until the last minute, as has become the custom).

Congress has wasted away 2012, and must be made aware that their actions, or rather inactions, have consequences.  They must put aside ridiculous partisan battling and consider the American people for a change.

TTFN  

LOCK IN 2012 MEDICAL DEDUCTIONS

As you probably already know, medical expenses can be deducted on Schedule A of your 2012 Form 1040 only to the extent that the total allowable expenses for the year exceed 7½% of your Adjusted Gross Income (AGI).  If your AGI is $70,000 and your medical expenses total $6,000 you get a tax deduction of $750.  If your expenses total $5,000 you get no tax benefit.

But did you know that beginning with tax year 2013 the AGI exclusion increases to 10% for taxpayers under age 65?  In the above example there would be no tax deduction if your total expenses for 2013 totaled $6,000.  Taxpayers age 65 and older can continue to use the 7½% exclusion rate through tax year 2016. 

The increase comes via the Patient Protection and Affordable Care Act signed into law in March of 2010.   

If you expect to be able to itemize on your 2012 Form 1040 here is what you should do.  Sit down and estimate what your AGI will be for 2012.  Then add up all of your qualified medical expenses to date.  If your expenses come close to, or already exceed, the projected 7½% of AGI exclusion you should incur as many allowable medical expenses between now and the end of December.

Schedule medical and dental check-ups and procedures, renew prescriptions, purchase medical supplies, pre-pay related insurance premiums, and pay any outstanding balances.  If you do not have the cash available to pay for the accelerated medical expenses you can charge them to a bank credit card.

When adding up medical costs be sure to include travel to and from doctors, dentists, therapists, treatments, etc., using the standard mileage allowance of 23 cents per mile if you drive.

The increasing AGI limitation on medical deductions makes it even more important to seriously consider participating in an employer-sponsored medical Flexible Spending Account.  FSA contributions effectively provide an “above-the-line” income tax deduction for qualified medical expenses from dollar one.  And they can reduce your Social Security and Medicare tax liability as well.

Unfortunately, also thanks to the healthcare reform Act, effective with tax year 2013 you will be able to put aside only $2,500 per year, indexed annually for inflation, in a Flexible Spending Account.

One caveat – under the Alternative Minimum Tax medical expenses are already subject to a 10% of AGI exclusion.

TTFN

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

Enough already!

I am sure you are getting tired of “listening” to me whine about the idiots in Congress.  Just as I am getting tired of calling the idiots out.  It really accomplishes nothing.

We all know that it is a proven fact that the members of Congress are incompetent and ineffective idiots with no concern for the American public who are incapable of compromise or of independent thought.  Saying it over and over ain’t going to make it not so.

The voting public knows all this – and yet still re-elected the cafones for two or six more years of doing nothing.

So I promise to say as little as possible about these fools from now on – here in the BUZZ or in “regular” posts.

* Check out the Tax Foundation’s weekly map of “AMT Filers by State”.

I moved from the #1 state – New Jersey, with 6.41% of residents falling victim – to the #10 state (Wash DC is included in the top 10 locations, though not a state) – Pennsylvania, with 2.57%. 

* The “IRS Warns Consumers of Possible Scams Relating to Hurricane Sandy Relief” -

“Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Such fraudulent schemes may involve contact by telephone, social media, email or in-person solicitations.”

The Service provides the following good advice –

• Donate to recognized charities (i.e. Red Cross, Salvation Army, etc – and a special word of warning based on a local scam here in PA, the Salvation Army does not solicit donations door-to-door or via telephone; do not give money for SANDY relief to any person who rings your doorbell).

• Be wary of charities with names that are similar to familiar or nationally known organizations.    

• Don’t give out personal financial information — such as Social Security numbers or credit card and bank account numbers and passwords — to anyone who solicits a contribution from you.  

• And most important - Don’t give or send cash.  Contribute by check or credit card only to provide documentation of the gift (you will need the documentation in order to claim a tax deduction).

* And on Veteran’s Day the IRS “tweeted” about its page of “Tax Information forMembers of the Military”. 

As I have said before – whatever you think of the IRS, its website is chock-a-block with good information and resources.

* The Tax Foundation has published “The Fiscal Cliff: A Primer”, a Special Report that outlines what will happen January 1, 2013, if Congress does nothing (I am tempted – but will resist).

* Dan Bottner of the Bond Beebe accounting firm reports at the firm’s blog that “Virginia Announces Changes to Issuing Tax Refunds” –

“Virginia will begin to issue tax refunds via debit card or direct deposit only starting with refunds issued in 2013 for the 2012 tax year.  Virginia is making the change in hopes of saving money by reducing check printing and mailing costs.”

This is actually a good idea.  Many states offer the direct deposit option, which I encourage my clients to take advantage of.  It saves the state money and gets the refund to the taxpayer faster.

In New York, if you do not elect direct deposit it will take months for a paper check to arrive (the refund is purposefully delayed). 

Unfortunately in New Jersey the direct deposit option is only available if you use the online NJWebFile system, which I encourage clients to let me use, or file electronically (for which flawed and expensive tax preparation software is required).  NJ taxpayers who file paper returns cannot elect direct deposit, which is a costly mistake on the part of NJ.

* Joe Arsenault continues the ongoing discussion of Long Term Care Insurance that I have included in various BUZZ installments by answering “Five Questions About Long-Term Care” at the Arbor Retirement Solutions, PLLC blog.

* Kay Bell tells of the tons of money wasted in the recent election in her post “SuperPAC Donations: $1.3 Billion, American Crossroads Winners: 0, Snarky Donald Trump: Priceless” at DON’T MESS WITH TAXES.

And Kay, an astute judge of character, came up with something that seems almost impossible (highlight is mine) –

“One such dubious PAC observer is the jackass provocateur jackass Donald Trump, who for some reason got overly political in 2012.

I never thought I'd find anything the New York loudmouth had to say worthwhile, much less worth repeating, but it's been that kind of election year.

And tRump nailed it when, via Twitter, he called out Karl Rove and his Crossroads GPS group the day after the election:

‘Congrats to @KarlRove on blowing 400 million this cycle. Every place @CrossroadsGPS ran ads in, the Republicans lost. What a waste of money.’”

Believe me Trump knows a waste of money when he sees one.  He fills his pockets via a total waste of money - the pile of excrement titled “The Apprentice” (hey - I never said I would stop bitching about so-called “reality tv”).

* TaxGirl Kelly Phillips Erb teaches a class in Taxes 101 in “Making Sense of Income and Tax Terms” at FORBES.COM, explaining the various tax terms.

* At ABOUT.COM Bill Perez gives us the word that “TIGTA Reveals Cause of Refund Delays that Occurred in Early 2012” –

“•The IRS experienced problems with its identity fraud detection filters, and

•The IRS experienced problems with the ability of its Modernized E-File system to create properly-formatted data files.”

There will be a different reason for the possible delay in refunds in early 2013.

TTFN

LET'S DO SOMETHING RIGHT FOR A CHANGE

There has been a lot of talk lately about “tax expenditures” and the 47% of Americans who either pay absolutely no federal income tax or actually make a profit by filing a tax return (thanks to “refundable” tax credits). 

Over the years the idiots in Congress have created a mucking fess of the Tax Code by making it the method of delivery for various social welfare benefits and to encourage certain beneficial purchases, which has created the 47%.  This is certainly not the best, nor the most efficient, way to deliver or distribute these benefits – but it is easy.  And, as we all know, the idiots in Congress are all for choosing the quickest and easiest way to do things rather than actually having to sit down and think.

While there are many “tax expenditures” that should be completely done away with, many of the social and societal benefit programs run through the Code are actually good and have merit.  But they should be delivered and distributed separately out of the budget of the appropriate cabinet department – and not on the 1040.

As I have posted here before, doing this is much “more better” for many reasons -

(1) It would be easier for the government to verify that the recipient of the subsidy or hand-out actually qualified for the money, greatly reducing fraud. And tax preparers would no longer need to take on the added responsibility of having to verify if a person qualified for government funds.

(2) The qualifying individual(s) would get the money at the “point of purchase”, when it is really needed, and not have to go “out of pocket” up front and wait to be reimbursed when they file their tax return.

(3) We would be able to calculate the true income tax burden of individuals.  Many of the current 47% would still be receiving government hand-outs, but it would not be tied into the income tax system so they would actually be paying federal income tax.

(4) We could measure the true cost of education, housing, health, welfare, etc programs in the federal budget because the various subsidies would be properly allocated to the appropriate departments and not be reported as a part of net income collected via income tax.

(5) The Tax Code would be much less complicated, the cost to the public for preparing a tax return would be reduced, and the IRS would have much less to process and to audit.   

Item (2) is a very important one.  A major problem with using the Tax Code to distribute government benefits via tax deductions and credits is that the benefits are provided “after-the-fact” and not at the “point of purchase”.

Let’s look at the deductions and credits for tuition and fees.  In order to claim these tax benefits the student, or more likely his/her parents, must spend the money for tuition and fees and then wait until they file their tax return to get the “student financial aid” from the government.

These students, and parents, need the money when the tuition and fees are due.  If they do not have it at the point of purchase they often turn to borrowing, placing themselves further in debt.   

There is currently in place a process for providing student financial aid at the point of purchase.  And this aid is based on student and family income, using information from tax returns.  Instead of giving those who qualify a tax deduction or credit on their Form 1040 a year or more later, why not give the same benefit, based on the same income formula, as part of the existing student financial aid system.  This way the student, or parents, gets the money upfront to pay for college expenses or, better yet, the money is distributed directly to the college - and there is no need for additional borrowing.

In the past there have been credits for purchasing energy-efficient products and improvements, and some still exist.  But again, the money is provided after-the-fact – as much as a year or more after the purchase.  I would think more individuals would be encouraged to purchase these items if the money was provided upfront as a point of purchase discount.  Again individuals who want to take advantage of the eventual tax credit may be forced to borrow money to make the qualifying purchase, creating more debt.

The “Cash for Clunkers” program of a few years back proves that this can be done relatively efficiently. 

And, as I have said over and over again, the Earned Income Tax Credit, refundable and otherwise, and refundable Child Tax Credit, which, if you call a spade a shovel, are really forms of welfare, would be better distributed via the Aid to Families with Dependent Children program – and with substantially less fraud.

Unfortunately, with BO re-elected and the members of Congress being the idiots they are, don’t expect any changes in the current system any time soon.

TTFN

A SIMPLE FIX

The Washington Post article “Middle Class Faces Quick Impact from Fiscal Cliff in Form of Alternative Minimum Tax” explains (highlight is mine) -

“Unless Congress acts by the end of the year, more than 26 million households will for the first time face the AMT, which threatens to tack $3,700, on average, onto taxpayers’ bills for the current tax year. Because those people have never paid the AMT, they have no idea they are in its crosshairs — put there by a broader stalemate over tax policy that has kept Congress from limiting the AMT’s reach.

Forget about the much-publicized tax hikes set to take effect for 2013 — if you have a couple of children and annual income over $75,000, chances are good that your taxes are on track to go up substantially for 2012.

Residents of high-cost urban areas, including Washington, would be hit hardest, with about 2 million households in Maryland, Virginia and the District in line to face the AMT for the first time, by official estimates.

Unlike most tax increases in the fiscal cliff, including the expiration of the George W. Bush-era income tax cuts, the AMT bill would come due almost immediately. And tax experts say it would be extremely disruptive to try to fix the AMT after the 2012 tax year closes Dec. 31.”

It appears that both the Democrats and the Republicans support extending the dreaded Alternative Minimum Tax (AMT) patch –

“Lobbyists and aides in both parties say it is hard to imagine Congress letting the new year arrive without legislation to restrict the AMT.”

It seems easy to fix.  All the idiots in Congress have to do is draft a bill to do nothing more than extend the AMT patch through at least December 31, 2012.  Period.  And have it passed by both houses.  Simple.  It can be done in one or two days, and in time for the IRS to be able to adjust its software and “go to press” with the appropriate forms and instructions before year-end.

But of course the members of Congress are incompetent and ineffective idiots who have absolutely no concern for the American taxpayer.  So don’t hold your breath. 

TTFN

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

 

* Just as I was about to “go to press” with this installment of the BUZZ, Christopher Rowland of BOSTON.COM told us “House Speaker John Boehner is Calling for a One-Year Delay in Fiscal Cliff; Obama to Speak Friday Afternoon” –

“Speaking just two hours before President Obama was scheduled to issue remarks on the subject from the White House, House Speaker John Boehner convened a press conference Friday to say he would prefer extending all Bush-era tax cuts until 2013, including cuts for the wealthy.

That would give lawmakers enough time to develop a comprehensive tax overhaul and deficit-reduction plan, the Republican speaker said.”

I wholeheartedly agree.  And not only the so-called “Bush” tax cuts, but also the AMT patch and perhaps the other “extenders”. 

Of course the second paragraph of the quote is of vital importance – the idiots in Congress MUST get off their arses and “develop a comprehensive tax overhaul” plan in 2013!

* Unfortunately, according to “Obama: Americans Agree With My Approach On Deficit” at YAHOO NEWS, BO said in his Friday afternoon address that “he won't accept any approach to federal deficit reduction that doesn't ask the wealthy to pay more in taxes”.

 

So the battle begins - or rather continues!

* More SANDY relief from the IRS - “IRS Expedites Charity Applications and Urges Use of Existing Charities”.

“As part of the administration’s efforts to bring all available resources to bear to support state and local partners impacted by Hurricane Sandy, the Treasury Department and the Internal Revenue Service today announced an expedited review and approval process will be offered for organizations seeking tax-exempt status in order to provide relief for victims of Hurricane Sandy.  The IRS also continues to encourage people to use existing organizations currently working on immediate aid efforts.”

* Read the “Prepared Remarks of IRS Commissioner Doug Shulman Before the AICPA, Washington, DC” as he says farewell on the day after the election.

* The TAX FOUNDATION gives us the word on the success or failure of various state tax-related ballot initiatives and questions.  Click here.

* Sterling Raskie provides “A Nifty Little Trick to Increase Savings” in a guest post at GETTING YOUR FINANCIAL DUCKS IN A ROW -

“ . . . once a debt is paid off, still treat that payment as a bill – but now direct that bill payment to your bank account, IRA, or employer sponsored plan.”

* USATODAY tells us that “Fiscal Cliff Spurs Early Dividend Payment” by at least one company so far –

“Leggett & Platt said Thursday it would pay out its fourth-quarter dividend to shareholders in December instead of January. The reason: they want to spare their investors from having a bigger bite of their dividend income eaten up by taxes, which are slated to rise next year from 15% to the higher individual tax rates unless Congress votes to extend the Bush-era tax cuts.”

Chances are other companies may also decide to do this.

* Also at USATODAY, Rhonda Abrams’ list of “8 Ways Obama Can Help Small Businesses” includes a truly horrible idea that I have not heard proposed before –

“A self-employment standard deduction. Instead of having to keep piles of receipts and track every expense, set a sliding scale of standard deductions that sole proprietors can take based on business income up to a set amount, say $75,000 or $100,000.

That would get rid of a lot of paperwork.”

A terrible idea indeed!  Small business owners should NOT be discouraged from keeping receipts and tracking expenses.  It is often hard enough to get them to do so as it is.  Small business owners MUST keep records and track expenses for a variety of very important reasons – preparing their tax return is only one, and not the most important one at that.

* Michael Townsend of CHARLES SCHWAB speculates on the results of the election in “Election 2012: Takeaways for Investors”.

The item’s introduction indicates that perhaps the members of Congress are not the only idiots in America (highlight is mine) -

“The election seemingly did nothing to change the balance of power in Washington: President Obama was reelected, Democrats retained control of the Senate and Republicans maintained control of the House of Representatives. So, despite all evidence that Americans are frustrated with policymakers' inability to come together and solve problems, the election produced the outcome least likely to change that—the same polarized dynamic that has tied Washington in knots for the last two years is likely to continue.”

He indicates what many, myself included, agree will most likely happen (again, highlights are mine) –

“Congress returns to Washington November 13, but most of the energy that week will be devoted to leadership elections, orientation for newly elected members and practical things like allocating office space for the new Congress. Lawmakers will then return home the week of Thanksgiving and reconvene on November 27, which is when the serious discussions will likely begin. It may be the third week of December before we see a resolution.

And despite negotiations, we don't think there will be any ‘grand bargain’ before the end of the year. There is neither the time nor the inclination in Washington to try to forge any kind of broad agreement on taxes, spending and entitlement reform in the coming weeks. Instead, we think the debate in Washington through the end of the year will focus on ways to put off as much of the fiscal cliff as possible into 2013.”

One result of the election is that the upcoming 2013 tax filing season will certainly be FU-ed.

* The internet’s TaxMama “tweeted” a great suggestion -

“If legislators cannot legislate, why should the people pay them? Let their parties pay their wages and pensions.”

It has my support.

* Martin Sullivan suggests some principles for tax reform in “Tax Reform 2.0” at TAX.COM.

While all of his principles are good – his third one is, in my opinion, perhaps the most important -

“Third -- and perhaps I am the one being naïve here -- we need to constantly place simplification at the forefront. Get rid of the AMT. Simplify rules for pensions and retirement saving. Simplify education incentives. And in our effort to maintain distributional neutrality, don't reinstate the Pease provision and personal exemption phaseout (as proposed by Obama). And don't install new phaseouts of itemized deductions (as suggested by Romney).”

THE LAST WORD –

Regular visitors to TWTP know that I do not think David Lettermen’s late-night show, or his lame “bits”, are funny, with the possible exception of the occasional Top Ten List.

But Letterman hit the nail on the head with the following observation on Wednesday night (I heard this in a promo – I do not watch the show) –

“President Obama defeated the Republicans.  You know what that means - four more years of partisan gridlock!”

TTFN

RETIRE A MILLIONAIRE!

A “tweet” from GETTING YOUR FINANCIAL DUCKS IN A ROW author Jim Blankenship, an Enrolled Agent, led me to his post “How To Turn $5,000 A Year Into a $33 Million Legacy” from August of 2009.

Forget about the $33 Million.  Let us look at the beginning of the example he uses (the highlights are mine) -

“Once upon a time, there was this guy named Joe.  He was 20 years old, working part-time making decent money, finishing up college, just generally living large (by a 20-year-old’s definition).  On the advice of his father (yes, some 20-year-olds listen to their fathers!), he opened up a Roth IRA, funding it with $5,000.  The account was invested in a fixed 5% yield instrument of some sort (not important what the investment is, just assume a 5% annual yield).

Using the Roth IRA is advantageous to Joe because his tax rate is very low at this stage of his life – presumably tax rates will be increasing for him in the future.  Any growth on this account is tax-deferred and most likely tax-free, as long as any future distributions are for qualified purposes.

Each year thereafter, Joe contributes an additional $5,000 to the Roth account.  After he completes college, he starts working at an entry-level job.  Not long after, he marries his high school sweetheart Jane, and they settle into their life.  As life goes, they soon have children in their household, and even though money is tight, Joe continues to contribute the $5,000 each year into his Roth IRA.  This goes on for a while.

And then… 20 years pass

At age 40, Joe launches his own business.  During this time in his life, tax deductibility becomes more important to him since he’s making a lot more money and is in a higher tax bracket – and so he stops contributing to the Roth IRA.

All this time, his investments in the Roth account have been steadily growing at that fixed 5% rate – and the balance is now up to $165,329 – on 20 years’ worth of $5,000 investments, for a total of $100,000 contributed.  Pretty nice, right?

Joe just sets the Roth account aside at this point, forgetting about it altogether for quite a while (other than those pesky quarterly statements).  Not much happens here for a long, long time, other than compounding interest, time passing, and continued tax deferral.

… and another 50 years pass

Joe is now age 90.  His business has flourished through the years, and now his children are reaping the benefits of having worked there, and now retiring.  His grandchildren have taken over the business, and he and Jane are enjoying their great-grandchildren.  A couple of years later, little Jolene is born, and this great-granddaughter quickly becomes the apple of Joe’s eye.

It is along this time that Joe remembers that long lost Roth IRA account.  To this point it has grown to over $2 million – from that original series of $5,000 contributions that amounted to a total of $100,000.”  

This is a great example of the effects of tax-free compounding.  Joe has built up $2 Million that he can pass along to his beneficiaries income tax free.

Think what the account would be worth if he had continued to make the maximum annual contribution (including catch-up amounts when he turned 50) from age 40 to age 65, then retired and began to take tax-free distributions from the account.  He would have a humungous retirement nest-egg for him and Jane to enjoy in their “golden years”, and still have a substantial tax-free legacy to leave to the children and grand-children.

Parents take note – when your children begin to have part-time after-school and summer jobs - if you can afford to do so - open a ROTH account for them and deposit the maximum allowed.  Continue through their first few years of full-time employment after graduation until they can begin to make the maximum payments themselves.

Of course the story of Joe assumes that the idiots in Congress do not FU the ROTH IRA in the future. 

TTFN 

DEDUCTING SANDY

Hurricane Sandy was the most devastating and expensive natural disaster to hit the East Coast. 

It has been estimated that Sandy will end up causing about $20 billion in property damages and $10 billion to $30 billion more in lost business.  At least 56 people in the U.S. were killed.  More than 4 million people were without power for more than a week. 

While I was lucky to escape the effects of Sandy, just about every one of my New Jersey friends and clients, no matter where they live in the Garden State, was, or still is effected in some way.

If you are a victim of Sandy, you may be able to deduct losses as an itemized deduction on your Schedule A.  Worth repeating – you must be able to itemize to claim any tax deduction for your losses.

Casualty losses are reported on Form 4684 (PDF), Casualties and Thefts, before being transferred to Schedule A.

A casualty is damage, destruction or loss of property that results from an identifiable sudden, unexpected or unusual event – such as a car accident, earthquake, fire, flood, hurricane, storm, tornado, and the like.

Your loss is the lessor of –

•  the adjusted basis of the property before the casualty or theft, or

•  the decrease in fair market value of the property as a result of the casualty or theft.

You cannot deduct the “replacement cost” of an item totally destroyed in a casualty.  If you lost an item that originally cost you $500, but will now cost $700 to replace, your deduction for that item is NOT $700 – it is $500.  The “adjusted basis” of a personal item is generally its original cost.

You must first reduce the loss by any insurance or other reimbursement you receive, or expect to receive. 

If your reimbursement is more than your allowable loss you may have taxable income.  If you receive an unexpected reimbursement in a subsequent year, or if a reimbursement received after your return claiming the loss has been filed is not what you had expected when calculating the allowable deduction, you may need to make an adjustment on a subsequent Form 1040.

Next you reduce the resulting net amount by $100.  This $100 reduction is per incident.  If there is only one casualty or theft during the year the reduction is $100.  If there are two separate incidents, one casualty and one theft, the total reduction is $200.

The total amount of all net casualty and theft losses for the year, after subtracting actual or anticipated reimbursements and the $100 per incident, is then reduced by 10% of your Adjusted Gross Income (AGI).  The remaining amount is what can be deducted.

If the total amount of net casualty and theft losses for 2012 is $9,500 and your AGI is $105,000, you get no deduction ($9,500 - $10,500 = $0).  

If you have a deductible casualty loss in a disaster area, as would be the case with Sandy, you have the option of claiming the loss on the return for the year in which the casualty occurs – your 2012 Form 1040 - or the previous year.  This means that you do not have to wait until next year to get the refund generated by the casualty loss – you can amend your 2011 Form 1040 and get a refund now, when you need the money to replace and repair.

In the past the idiots in Congress have passed special tax breaks related to victims, and those who provide help to victims, of high-profile natural disasters.  While the idiots in our current Congress could not act properly and timely on the expired and expiring tax breaks, they may enact some Sandy relief before year-end, which could alter the rules discussed above. 

Perhaps they will address the “extenders” in the Sandy relief legislation?

On the income side, BUSINESS INSIDER tells us that “There Are Some Hidden Tax Benefits for Hurricane Sandy Victims” –

·   “Storm-related workers compensation: Workers who receive storm-related compensation from their employers won’t face a tax liability. The payments include a number of expenses such as funeral costs.

·   Payments from charities and state programs: Payments from charities, state programs and the Federal Emergency Management Agency (FEMA) will also be tax-exempt, according to the IRS.

·   401(k) loans: Taxpayers will be allowed to borrow funds from their 401(k) retirement savings in to make storm repairs, or under other specific circumstances, without the usual penalties.”

Of course if you were a victim of Sandy you should contact your tax professional for more information and advice.

TTFN

GOOD LUCK, MR PRESIDENT

In his acceptance speech BO said –

“You elected us to focus on your jobs, not ours.  And in the coming weeks and months, I am looking forward to reaching out and working with leaders of both parties to meet the challenges we can only solve together: reducing our deficit, reforming our Tax Code, fixing our immigration system, freeing ourselves from foreign oil. We’ve got more work to do.”

Let us hope that the President was telling the truth.  And let us hope that when he says “reforming our Tax Code” he means real substantive reform.

The problem is that, even if Obama is truly sincere about “reaching out and working with leaders of both parties”, and I have no reason to doubt he is, the leaders of both parties may not be as ready to “reach out” and work together. 

The leaders of both parties that the President speaks about are the same idiots who have been leading the worst and most incompetent and ineffective Congress in history for the past four years.  And, with most incumbents being re-elected, there is no indication that Congress will not continue to be incompetent and ineffective, and that the idiots on Capitol Hill will not continue to be incapable of compromise or independent thought.

I wish you luck, Mr. President.  But I expect you already know that you will need lots of it when dealing with the idiots in Congress.

TTFN

 

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

It is finally over!  By now you know that BO has won re-election.  So gone is any hope for substantive tax reform for another four years. 

And despite the horrible job done by Congress, and historical public dissatisfaction with the idiots, it looks like most incumbent Congresspersons were re-elected so they can continue to accomplish nothing.

I voted for the first time as a PA resident yesterday.  It was different from voting in NJ – no machines (I mean voting machines and not the Hudson County Democratic “machine”).  My first paper ballot.

* I am sorry I missed this interview on 60 Minutes.  Check out “An Exasperating Interview with Senate Leaders”

* “Robert D. Flach's take on the DOMA same-sex marriage issue” was included in “In the Blogs” (weekly roundup of the best of posts from the tax blogs), TAXPRO TODAY’s version of the BUZZ!

* The RED CROSS has advice for victims of SANDY with “Recovering Financially”.

I will be posting about deducting a casualty loss here at TWTP tomorrow.  This tip from the item will help you with your tax filing as well as with your insurance claims –

“Prepare a list of damaged or lost items and provide receipts if possible. Consider photographing or videotaping the damage where it occurred for further documentation to support your claim.”

* New Jersey has announced some tax relief for victims of SANDY –

“Taxpayers who cannot meet normal filing and payment deadlines because of the storm now have until November 7, 2012, to file returns and tax payments that would have been due October 30 and 31.

Filings and payments covered by the state extension include Form NJ-927, Employer’s Quarterly Report; Form DSF-100, Domestic Security Fee Quarterly Return; and Form TMF-10, Transporter of Motor Fuels Report.”

Click here to read the press release.

As for Pennsylvania, I found the following from a general release –

“In general, Pennsylvania will follow Internal Revenue Service rules outlined in recent news releases ( IR-2012-82) that extended federal tax deadlines to Nov. 7.

The 2012 Pennsylvania disaster recovery deadline extension generally applies to inheritance tax, employer withholding and motor carrier road tax/IFTA tax filings and payments with due dates between Oct. 29 and Oct. 31. The deadline extension also applies to unemployment compensation tax filings for third quarter 2012 that were due Oct. 31. Such filings may now be filed as late as Nov. 7.”

And this from the PA Dept of Labor and Industry website -

“Employers covered by Pennsylvania UC Law are required to file reports and remit contributions for the third quarter of 2012 by Oct. 31, 2012. The Department of Labor & Industry is granting employers an extension until Nov. 7, 2012 to file reports and remit contributions normally due on October 31 to allow additional time for employers affected by Hurricane Sandy to file and remit timely payments.”

* Robert W Woods’ post on “Key Facts about Donating Cars to Charity” at FORBES.COM includes a tip that did not occur to me in my writings on the subject -

“Charities and fundraisers are subject to state law on transfers of title. Generally, state charity officials suggest that the donor transfers title himself to terminate his liability. In most states, this involves filing a form with the state DMV. To help avoid liability, donors should also remove license plates before the donation, unless state law requires otherwise.”

* Jason Dinesen continues with his tale of “Taxpayer Identity Theft” with Part 9 and Part 10 at DINESEN TAX TIMES.

* The EQUIFAX FINANCE BLOG looks at the question “Long-Term Care Insurance—Is It Worth The Cost?” and seems to come to the same conclusion I did, as per an item in a previous BUZZ installment –

“’You can really look at long-term care as a form of asset protection and not health care,’ said Sandy Praeger, Kansas insurance commissioner and chair of the National Association of Insurance Commissioners’ Health Insurance and Managed Care Committee.

‘Long-term care insurance is really for people who have assets to protect,” Praeger said. “If you have fewer than $100,000 or $50,000 in assets, you wouldn’t want to be paying the premium.’”

I did added that you do not necessarily need LTCI if you do not have a spouse or children to leave your assets to.

* Kay Bell got “Tax Carnival #108: Election 2012” up at DON’T MESS WITH TAXES before the polls closed.  My post on “Evaluating Tax Rates” is included.

TTFN