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

* Tax pros – what do you have to say about “The Mortgage Interest Dilemma”?

* Have you ever wondered “Does your State Have an Estate or Inheritance Tax?”  The TAX FOUNDATION provides the answer – (highlight is mine)

“Currently, fifteen states and the District of Columbia have an estate tax, and six states have an inheritance tax. Maryland and New Jersey have both.”

What does tell us?  Don’t die as a resident of New Jersey or Maryland – especially New Jersey! 

* Can you help with any of my “Unanswered Questions”?

* As if the Service wasn’t in enough trouble.  We now discover, thanks to ACCOUNTING TODAY, that a new TIGTA report found the “IRS Didn't Fire Hundreds of Lawbreaker Employees” –

“Nearly a thousand Internal Revenue Service employees who willfully violated the tax laws received suspensions, reprimands or counseling over a 10-year period instead of being fired, according to a new report.

The report, by the Treasury Inspector General for Tax Administration, found that the IRS mitigated proposed terminations in over 60 percent of the cases involving willful tax noncompliance by IRS employees and did not clearly identify the reasons why some of the employee terminations were reduced to lesser penalties.”

* CCH HEADLINE NEWS reports “Four New Delivery Services Added to IRS’s List of Private Delivery Services and Five Removed”.

* And CCH also tells us about “Tax Relief Available for Victims of Severe Storms, Tornadoes, Flooding, Landslides and Mudslides in Kentucky”.    

* Trish McIntire explains a basic concept of taxation that you need to understand in “No Income Is Taxed Alone” –

“The problem is that no income is taxed alone. It’s added to the rest of your income and taxed that way.”

 

Perhaps I will write in depth on this topic in a future TWTP post. 

* Kay Bell, the yellow rose of taxes, provides still another reason why refundable tax credits are a bad idea in “IRS Issued $5.6 Billion in Erroneous Education Tax Credits” at DON’T MESS WITH TAXES (highlight is mine) -

“The Internal Revenue Service issued $5.6 billion in erroneous education tax credits, primarily the American Opportunity Tax Credit (which is a temporary replacement of the Hope Credit through 2017) and the Lifetime Learning Credit, in connection with claims on 3.6 million returns filed for the 2012 tax year, says TIGTA.

Around $2.5 billion of the wrongly issued credits were refundable, meaning the money went to taxpayers even if they owed no tax bill. The remaining $3.1 billion in erroneous credits were nonrefundable.”

 

TTFN

ADDITIONAL THOUGHTS ON THIS YEAR’S TAX FILING SEASON

Some more comments on “That Was the Tax Season That Was 2015”.

+ When I made my first library visit in late January to look for 2014 tax forms (specifically the 1040, 1040A, Schedules A, B, and D, and Form 8949) I came across a notice taped to the front door that said due to IRS budget cuts the availability of 2014 tax forms would be minimal, if at all.  So this was the first year that I got all of my federal tax forms from the IRS website. 

I miss the days, not too many years ago, when I would go to my local Post Office in January and grab a generous handful of the above forms, returning to that source when I needed more.  Actually the local PO employee in charge of putting out the forms knew of me and my business and gave me a heads up when the forms had arrived.

And I still remember when, during the first years of my apprenticeship, I would make a run to a warehouse in Newark NJ and fill up a suitcase with tax forms.

+ I had, and continue to have, more emails from clients telling of delays in receiving refunds this year than any other tax season I can recall.  Apparently the returns were all actually received by the IRS, but the delay arises in the “processing”.

I was aware that the IRS was doing a more thorough check before issuing refunds, in an attempt to combat identity theft and fraudulent returns.  And I was also aware, as pointed out by the Commissioner before the beginning of the season, that budget cuts would take a toll on “customer service”.  

Some delays were the result of more than just excess “processing”.  I talked about some of the weird reasons in an earlier post (click here).  And the length of the delay speaks to more than just being careful.  Some clients who mailed out their returns in early February have still not received their check, or direct deposit of their refund. 

Just a word to any readers who are also experiencing delays.  Don’t expect your tax preparer to do anything – there is nothing he/she can do.  You have to call the IRS, and wait on hold for perhaps more than an hour, and ask them to explain the reason for the delay.  And you have to keep after them.

Back in the day when a client would complain to my mentor Jim Gill that a refund was late Jim told them to call their Congressman.

TTFN

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

Sorry to be a day late – but not a dollar short – with the BUZZ.   

* Attention tax pros – THE TAX PROFESSIONAL is back as a weekly blog.  I discuss “The Mortgage Interest Dilemma”.

* And Bob (that’s me) is babbling again!  Check out the return of BOB’s BABBLINGS.  I discuss “Unanswered Questions”.

* Ken Riter reminds us “2015 Brings a Big Jump In the Penalty For Not Having Health Insurance” at the interestingly titled blog TAXBUZZ (highlight is his) -

“The law included an increase to that penalty that would take effect in 2015, and the jump is significant. In 2015 the penalty will be the greater of $325 per adult and $162.50 per child with a maximum penalty allowable totaling $975, or two percent of household income minus the family’s tax filing threshold amount.”

You will note that the penalty is the “greater of” the fixed amount or “two percent of household income minus the family’s tax filing threshold amount”.  The 2% of household income can add up to a substantial amount.

* According to the “Return Preparer Office Federal Tax Return Preparer Statistics” as of April 1, 2015, only 43,588 “previously unenrolled” tax preparers were issued a Annual Filing Season Program “Record of Completion”.  This is only 10.75% of the “unenrolled” PTIN-holders.

As I expected this program was certainly not a success – it was basically a big waste.

I still believe that there is a need for a voluntary and independently administered tax preparer credential with actual value. 

* The Tax Foundation’s TAX POLICY BLOG explains “How the Government Spends Your Tax Dollars”.

You will notice in the “pie-chart” of “Federal Revenue by Source as a Percent of Total Revenue, 2014” that the federal estate and gift taxes make up less than 1% of the total federal revenue.

* Jason Dinesen gives us the “Basics of Doing Business in Other States” at DINESEN TAX TIMES.

* This is not good.  CPA PRACTICE ADVISOR reports “Nearly 1/3 of Americans Have No Retirement Savings, Says Survey”.  

What about you?

* But here is some good news from Jeff Stimpson at ACCOUNTING TODAY – “Fewer Returns for Large Tax Prep Chains”.

“Major tax prep chains Liberty Tax Inc. and H&R Block reported that the number of returns they prepared this tax season were flat or down slightly.”

So I guess Henry and Richard’s ridiculous ad campaign about getting your billions back was not a success.  Perhaps the stupidest commercials I have seen in years. 

* Unfortunately, Jeff’s colleague at ACCOUNTING TODAY, Michael Cohn, tells us “Jackson Hewitt Sees Strong Tax Season”.

“Jackson Hewitt Tax Service reported the best results it has seen in over five years this tax season, in contrast with competing tax prep chains H&R Block and Liberty Tax.”

TTFN

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

A short BUZZ today – not much to share.  However I hope you agree with me that some BUZZ is better than no BUZZ.

* MARKETWATCH.COM reports on the “Maryland 2015 Tax Amnesty Program - September 1, 2015 to October 30, 2015” – (highlight is mine)

“The 2015 tax amnesty period will be September 1, 2015 to October 30, 2015. The Program will waive civil penalties and one-half of any interest on taxpayers who failed to file, underreported, or did not pay the tax liability for Maryland state and local income tax, withholding taxes, sales and use taxes, and admissions and amusement taxes due on or before December 31, 2014. In order for the penalties and one-half interest to be waived, the taxpayer must (1) file delinquent returns and pay the tax, including one-half of any interest, due under the return; (2) pay the tax, plus one-half of any interest, due on a previously filed return; or (3) enter into an agreement with the Comptroller to pay the tax and one-half interest. Taxpayers who were granted amnesty under prior Maryland Tax Amnesty Programs held between 1999 and 2014 are not eligible.”

One of the criticisms of amnesty programs, and a reason there has never been a federal amnesty program, is that officials fear taxpayers will put off paying outstanding taxes due between amnesty programs because they know they can avoid interest and penalties when the next one comes around.  This program does not allow those granted amnesty in past programs to use the current one to avoid penalty and interest.

* Jason Dinesen begins a new series of posts on the question “Are HRAs Always Appropriate for Sole Proprietors?”.

* Bond Beebe’s IT’S TAXING blog suggests a way to avoid tax on a “backdoor” ROTH IRA contribution in “Reverse Rollover: A Bridge over the Backdoor Roth Trapdoor”.   

* Kelly Phillips Erb, FORBES.com’s TaxGirl, gives us “10 Tips To Help You Stay Married To A Tax Professional”.   

* An IRS twitter account - ‏@IRStaxpros – has been “tweeting” the following lately – “Tax Pros: #IRS launches directory of qualified return preparers. Are you listed?”. 

THIS IS NOT TRUE! 

The directory referenced in the “tweet” is NOT a directory of “qualified return preparers”.  It is a directory of return preparers who have a recognized designation, such as CPA, JD, EA, or who hold an AFSP certificate.

The directory itself is titled “Directory of Federal Tax Return Preparers with Credentials and Select Qualifications” – and I would question the term “select qualifications”.

As I have responded to the tweet – there are tens of thousands of qualified return preparers who are not on the list!

When looking for a tax preparer you should most definitely not limit your search to those included in this directory.

TTFN

THIS JUST CAME TO ME

Here is something that came to me as I was preparing a GDE. 

The taxpayer, a NJ resident, purchased insurance for her and her dependent college student child for 2014 via the Obamacare Marketplace and received an advance premium credit that was applied to her monthly premium payment.

Health insurance premiums are deductible on the federal return if you itemize and the total of all allowable medical expenses exceeds 10% (or 7 ½%) of your Adjusted Gross Income (AGI), and also on the NJ-1040 state income tax return if the total of all allowable medical expenses exceeds 2% of your NJ Gross Income.

If a person receives an advance premium credit the amount that is deductible on the federal and state returns is the net “out of pocket” payment after deducting the advance premium credit – the amount the person has actually paid each month for the insurance coverage.  

If a taxpayer received an advance premium credit he/she must reconcile the amount of credit applied to the premium charges during the year, based on projected 2014 household income, to the actual credit to which he/she is entitled based on actual 2014 household income when filing his/her 2014 federal income tax return.  If the taxpayer is entitled to an additional credit it increases the refund or reduces the balance due on the tax return.  If the advance credit received during the year is more than the actual credit allowed the taxpayer must pay back the excess credit by reducing his/her refund or increasing his/her balance due.   

An additional credit that is paid to the taxpayer via the tax return reduces the “out of pocket” cost of the health insurance premiums for 2014 and, if the taxpayer itemized in 2014, represents a refund of a previously deducted item – and may be taxable income for 2015 under the tax benefit rule for recovery of a previously deducted item. 

If the taxpayer has to pay back all or part of the advance premium credit applied during 2014 then the pay back is an additional “out of pocket” cost for health insurance premiums, and is a deductible medical expense for 2015.  

My client had to pay back over $1,500 of advance premium credits applied in 2014 on her 2014 Form 1040 by reducing the requested refund on the return.  In effect she paid an additional $1,500+ for health insurance premiums.  If she will be able to itemize she can add this $1,500+ to the medical expenses she reports on Schedule A, subject to the in this case 10% of AGI exclusion. And she can most definitely add the $1,500+ to the medical expenses claimed on her 2015 NJ-1040.

So if you had to pay back all or part of the Obamacare advance premium credit on your 2014 tax return all is not lost – you may be able to deduct the pay-back on your 2015 federal and/or state income tax return.

I do not recall anyone discussing or writing about this anywhere when talking, teaching, or writing about the Obamacare premium credit.

Comments?

TTFN

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’ – TUESDAY EDITION

Today is Ann Margaret’s 74^th birthday!  And Bobby Rydell was 73 on Sunday.  Perhaps I should watch BYE BYE BIRDIE to celebrate.  I saw Ann Margaret’s live act twice – in Vegas and in NYC.

* No surprise here.  TAX GIRL Kelly Phillips Erb tells us that the “Top 10 Most Expensive Real Estate Tax Bills Found In Just 2 States”.  Guess which state had 7 of the 10 most expenses counties.

* And Kelly brings back “Fix The Tax Code Friday” asking for responses to the question “Should We Repeal The Federal Estate Tax?”.

My answer would be yes – but if doing away with the federal Estate Tax also does away with the step-up in basis for inherited assets it is no.  Doing away with stepped-up basis would create a nightmare for tax preparers and taxpayers.

* Jason Dinesen continues his series on “Marriage in the Tax Code” with “Part 7: 1920s Court Battles”.

* Another no surprise here. NJ 101.5 tells us “Worst Tax Systems in the US? New Jersey Ranks Second”.

The ranking comes from the report “Business Tax Index 2015: Best to WorstState Tax Systems for Entrepreneurship and Small Business” put out by by the Small Business & Entrepreneurship Council (SBE Council).

“In the five years that we’ve done the small business tax index New Jersey has either been 49th or 48th. This year the state is 49th,” said Ray Keating, chief economist for SBE Council and author of the report. “You can always count on California being at the bottom. If there’s something that you want to do wrong on the tax front California is the example and you just don’t want to follow that state, but unfortunately New Jersey hangs right there with them.”

The article goes on to say –

“New Jersey scores low in most of the tax measures looked at in the study, including:

Property Tax (50th)

Personal Income Tax (46th)

Individual Capital Gains Tax (47th)

Corporate Tax (45th tie)”

In case you are interested –

“According to the survey, South Dakota, Nevada, Texas, Wyoming and Washington have the five best state tax systems in the U.S.  In addition to New Jersey and California, Minnesota, Iowa and Hawaii also rank in the bottom five for the worst state tax systems in the country.”

* Another reason not to use tax preparation software from Kay Bell at her other blog (BANKRATE.COM) – “Turbo Tax Faces Tax ID Theft Lawsuit”.

“Two taxpayers have filed a federal lawsuit alleging that the leading individual tax preparation software company didn't do enough to prevent the theft of their tax identities.”

TTFN

YOU CAN'T MAKE THIS STUFF UP

I thought I had heard everything.

A client, a widower who was filing his 2014 return as a Single individual for the first time after the passing of his wife in 2013, sent his return to the IRS on Feb.7^th requesting a refund.  No refund ever came.  Finally on April 25th he received a letter from the IRS saying that they had received the return but was unable to process it.  The letter explained –

"Our records indicate that the person identified as the primary taxpayer or spouse on the tax return was deceased prior to the tax year shown on the tax form. Our records are based on the information received from the Social Security Administration. Based on this information, the tax account for the individual has been locked.”

The IRS was writing to the taxpayer to tell him that he is dead and so they were not going to process his refund.

This is very literally the strangest thing I have heard from the IRS or a state tax agency in 44 tax seasons.

A contact number was provided in the letter.  I told the client to call the number and tell the IRS he was not dead.

Earlier I had learned that the IRS had held up the refund of a client’s unmarried college student son because an injured spouse form was attached to the son’s documents and his return was forwarded to that department for processing.  Where the injured spouse form came from is anyone's guess.  Certainly not from me or the taxpayer

I knew that taxpayer service had suffered as a result of the IRS budget cuts – but this is ridiculous.

TTFN

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

BUZZ, BUZZ – the BUZZ is back!

Sorry I have been late in returning to regular posting.  I have been working away on the GD extensions – and have made some good progress.  I want to have all of the returns for which I have information done by the end of April.

Are you celebrating?  Do you know what day today is?  The TAX FOUNDATION tells us “Tax Freedom Day® 2015 is April 24th”!

Here are some items of interest that appeared during my tax season hiatus, and some more recent BUZZ-worth stuff.

* Barbara Weltman reminded me of some history that I had forgotten on one of “The President’s Tax Proposals” at BARBARA’S BLOG (highlight is mine) -

“The concept of carryover basis for inherited property was created by the Tax Reform Act of 1976 and was set to take effect for property inherited from decedents dying in 1977 and later. Heirs and tax practitioners soon realized that it was unworkable - it was impossible in many/most cases to know what a decedent had paid for property or whether that property had originally been acquired by gift or inheritance, and whether any improvements that would increase basis had been made. A moratorium was in place until 1978; it was repealed in 1979.”

* Professor Jim Maule tells us “Using the Tax Law to Administer Health Care: An Unwise IdeaAgain Proves Itself Unwise” at MAULED AGAIN.

Some wise advice from the Professor -

“ . . . the Internal Revenue Code ought not be used to accomplish goals that ought to be spelled out in other legislation.”

Speaking of the 1095-A FU Jim correctly states -

“If it is outrageous that the IRS has caused problems for almost a million taxpayers, is it not even more outrageous that the IRS was put in this position because the Congress was unwilling to charge HHS with the responsibility for administering the Affordable Care Act?”

* And Jim brings to our attention a recent survey on “Testing Tax Knowledge”.

While not the intention of the post, it gives a good reason why relying on a box (tax preparation software) to prepare your return is a bad idea.

“According to a report on a recent NerdWallet survey, ‘[m]ost American adults get an ‘F’ in understanding income tax basics’. The survey posed 10 questions to 1,015 people. The average score was 51 percent.”

Professor Maule has an excellent suggestion -

“It would be fun to require members of Congress and candidates for that office to take this survey, or one like it. I cannot imagine the outcome would be any better than that achieved by the 1,015 survey takers.”

I expect the outcome would be worse.

* Over at DON’T MESS WITH TAXES Kay Bell advised taxpayers “Don't Bet on Fooling IRS with Bought Losing Lottery Tickets”.

 

I know of tax preparers who had stockpiled losing lottery tickets for clients to use in audits.

I have also been advising clients for years that if they are hoarding losing racetrack tickets to substantiate claimed losses make sure they do not have shoeprints on them.

* And I joined Kay in “Taking a Peek at Obama, Biden 2014 Tax Returns”.

* Let’s make it a Kay Bell trifecta with “IRS Telephone Tax Help Was a Dismal 38.5% this Filing Season”.

The IRS leadership chose to give taxpayer service the biggest hit from the budget cuts, hoping this would anger taxpayers and cause them to complain to the idiots in Congress.

In 44 years I have never called the IRS.  I conduct all my business with the Service via written correspondence.

* ACCOUNTING TODAY discusses one reason why IRS telephone tax help was so dismal in “IRS Accused by Congress of Diverting Funds from Customer Service”.

“The House Ways and Means Committee released a new report Wednesday on the Internal Revenue Service’s declining level of customer service during the 2015 tax-filing season, blaming the IRS for diverting funds away from taxpayer service to finance other priorities such as implementation of the Affordable Care Act.”

The report found that -

“ . . . the IRS made a 73 percent reduction in user fees allocated to customer service, and a 6 percent decrease in total funding for taxpayer assistance. On the other hand, the IRS awarded $60 million in bonuses to its employees, at a time when the IRS did not yet know what its budget would be for fiscal year 2015. The amount of time IRS employees spent on union activity would allow for over 2 million additional taxpayer-assistance calls, according to the report.”

* Jason Dinesen joins me in reviewing the 2015 tax filing season, identifying some trends he noticed in “Tax Season Recap 2015: What a Strange Season, Part 2 (Trends I Noticed)”.

Jason agrees that the new Obamacare tax return requirements were not such a big deal after all –

“The ACA wasn’t really that big of a deal. I keep reading all these horror stories online about accountants saying this was the “worst season ever” because of the ACA. Yes, it meant asking more questions and possibly filling out more forms, but I don’t get what was so horrific about it from a tax-preparation standpoint.”

* ACCOUNTING TODAY reported that “IRS Commissioner Thanks Tax Pros for Surviving Tax Season”.

While Commissioner Koskinen did “thank all the tax professionals and other partners who have helped to make a challenging filing season run as smoothly as we could have hoped”, he specifically identified –

“The work of attorneys, Certified Public Accountants and Enrolled Agents as well as the software industry and payroll community has been extremely helpful—and essential—to running the tax system and helping the nation.”

Obviously Enrolled Agents need to be thanked.  But attorneys?  I can’t imagine anyone using an attorney to prepare a 1040, unless it was extremely complicated and involved unique legal issues.  The cost would be prohibitive.  And why single out CPAs but forget the tens of thousands of competent and qualified “unenrolled” preparers.  These preparers are more essential and helpful to running the tax system than the CPA industry.  Further erroneous perpetuation of the urban tax myth that CPAs are automatically 1040 experts.

 

Now – back to the GDEs!

TTFN

THAT WAS THE TAX SEASON THAT WAS 2015

Before it began the 2015 tax filing season, for filing 2014 tax returns (my 44^th season as a paid tax preparer), was expected to be the worst tax season ever, at least by IRS leadership.

“The filing season is going to be the worst filing season since I’ve been the National Taxpayer Advocate,” said Nina Olsen.

And IRS Commissioner John Koskinen predicted that the 2015 tax filing season “will be one of the most complicated filing seasons we’ve ever had.”

Why?  To begin with the idiots in Congress once again waited until literally the last minute to extend the perennial “tax extenders” for tax year 2014, which would, despite IRS assurances to the contrary, almost assuredly cause processing delays.  The IRS budget was cut - also attributable to the idiots in Congress - and, of course, taxpayer service took the hardest hit.  And the cuts came just as the IRS began its new added responsibility of administering the Affordable Care Act, aka “Obamacare”. 

As a result of Obamacare taxpayers had to indicate on their 2014 Form 1040 (or 1040A) whether or not they had “adequate” health insurance coverage, and could be subject to a penalty if they did not.  It was suggested that tax preparers would need to spend excessive time on “due diligence” to verify that their clients did indeed have adequate coverage.

Taxpayers who acquired insurance through the Obamacare Marketplace and received an “advance premium credit” to help pay for their insurance during 2014 had to calculate the correct amount of the credit to which they were entitled as part of the filing of their tax return and reconcile the actual credit to the advance credit.

As it turned out, at least for me, the tax filing season was no worse, or better, than any other.

To begin with, for the past 40+ years the tax filing season has always started for me on February 1^st.  And this season was no different.

For the most part I was able to tell whether or not my clients had health insurance coverage without even asking the question.  I could tell from the DD entry in Box 12 of Form W-2, or a reference to Section 125 pre-tax health insurance coverage in Box 14.  Or the deduction for Medicare Part B premiums identified on Form SSA-1099.  Or the amount of the “above-the-line” self-employed health insurance deduction listed on the worksheet of a Schedule C filer.

For the very few clients where the above did not apply all I had to do was ask.  I had no legal or ethical responsibility to personally verify a client’s coverage.  A simple yes or no answer was enough.

I only had a handful of clients who did not have the required coverage, and most were able to avoid the penalty via the “unaffordable” exemption.  Only two clients had to actually pay a penalty.  And only three clients had received an advance premium credit (one a GDE). 

The two that I did during the season initially received erroneous 1095-As.  One client received a corrected form – after holding up the preparation of the return for at least a month – and one has not yet received a correction.  I prepared the second return with the incorrect information so as not to hold up the client’s refund, and will amend for an additional refund when the corrected 1095-A finally arrives.  

Other than the two Obamacare items there was really nothing new for 2014 returns.

The new reporting requirements for Form 1099-B have been around for 4 years now, so more transactions were considered to be “covered” this year.  And overall 1099-B reporting by brokerage houses continued to be more consistent and easy to follow.  

I was happy to take advantage, where possible, of Lines 1a and 8a on Schedule d, which allowed me to enter totals for covered transactions without adjustments and avoid listing each sale individually on Form 8949 or supplemental statements thereto.  However, I do wish that the IRS would allow these lines to be used if the only adjustments to be reported are category “W” (for wash sale) - as a $1.00 wash sale adjustment on one transaction currently forces me to cut and paste dozens of pages of sales on supplements to Form 8949.

And I continue to believe that brokerage houses should be allowed the option of reporting the cost basis of “non-covered” sales to the IRS on Form 1099B if the investment was purchased by the same firm that is reporting the sale, expanding the use of Lines 1a and 8a.

It seemed that the initial Consolidated 1099 Tax Reporting Statements from brokerage houses were mailed out later than usual this year – with some houses totally ignoring the February 17^th deadline – and the sometimes multiple corrected 1099s also arrived later.  I was notified by a client’s broker of corrected 1099 statements for two accounts on March 24^th, literally the day after I had hand-delivered the finished 1040 to the client, with news of another corrected form for the same account a week later.  One of the corrected statements contained absolutely no changes, but the others did.  I chose not to revise the finished return, but instead will file an amended 1040 after I am done with the GDEs.

The extended deadline for issuing the initial 1099, and the apparent need for multiple corrections, started with the introduction of the “qualified dividend” back in 2003.  The financial industry has had more than a decade to create software that would properly identify qualified dividends on a more timely basis.  I see no reason why we should still have to wait until mid-February for certain 1099 statements, and then wait until mid-March or later for corrected statements.

The stock market apparently did great in 2014.  Dividends and capital gain distributions, and gains on investment sales, were substantially higher for many clients – resulting in some hefty balances due to Sam and Chris.  Most of this increased income arrived in late December, so there was no “warning” during the year.  One client received over $25,000 in dividends and capital gain distributions from a single mutual fund in late December.

When breaking the bad news to these clients I reminded them of what my mentor, Jim Gill, always used to say – “If you owe taxes you must have made money somewhere.”

The increased investment income also raised an issue for clients who make estimated tax payments.  Do we schedule higher 2015 estimated payments using the “safe harbor” method, or base the payments on more “normal” returns?  In a couple cases the increased investment income kicked AGI over the $150,000 mark, which makes the 2015 “safe harbor” 110% of 2014’s total liability.

While NJ state tax law did not change, I now had to attach a signed NJ-1040-O “opt-out” form to all manually prepared NJ-1040s, as well as keep signed copies on file.  I do not use flawed and expensive tax preparation software, and never will, so I cannot submit all NJ returns electronically.  Whenever possible, and unless the client specifically opts out, I use the NJWebFile system, which allows me to submit NJ-1040s directly to the Division of Taxation online, but this system has many limitations, and I am often forced to submit manual returns.  I was pleased to learn that the ability to claim excess Family Leave Insurance contributions was finally added to the NJWebFile system, allowing me to use it for more returns this season.

Beginning with the 2014 NJ-1040 the Division of Taxation allowed taxpayers to submit filled-in NJ-1040s online.  This initially appeared to be an excellent alternative option for me.  But I discovered that a separate username and password/pin was required for each individual submission.  I used this new option for three returns early in the season and then stopped.  I had no intention of having to create and keep track of dozens of separate and distinct usernames and passwords.  Hopefully the Division of Taxation will change this policy in the future and permit multiple submissions from a single username and password.

This new requirement added more time, and paper, to the process of completing many NJ-1040s.

Of course the NJ Division of Taxation could always follow New York State’s lead and exempt tax preparers who do not use software from the electronic filing mandate.  I won’t hold my breath.

Also new for the 2014 NJ-1040 - homeowners were required to enter on their return the Block and Lot numbers of the residence for which they were claiming a property tax deduction or credit.  NJ has not asked for this information since the early 2000s, when the Homestead Rebate application was part of the NJ-1040 filing.  In many cases the client included the postcard from the city, borough, or township that indicated the property tax assessment, and the block and lot numbers, with their “stuff”.  For others I had to dig through past years’ return copies in my files to search for the numbers.  This, too, added more time to the NJ return completion process. 

Thankfully there were no “technical difficulties” involving my computer or printer, my car, or the weather to contend with this tax season.

As usual I ended the season with too many GDEs (the “E” is for extension – and the GD is for exactly what you think it is for).  Though less were due to workload.  I was again “more better” at self-enforcing FIFO – first-in, first-out. 

More than 2/3 of the GDEs I mailed out on April 14^th were submitted because the client’s package was received after my new earlier deadline (my January client letter instructed “If you want me to complete your tax returns in time for the April 15th deadline your stuff must be in my hands - not postmarked - by end of business on March 21st”), or because there was missing, or no, information.  It is my hope to finish all the GDEs for which I have all the necessaryinformation by April 30^th.

I do need to thin the herd going forward to cut down on GDEs, and in preparation for my eventual retirement after completing 50 tax seasons.  Sadly the herd was thinned a bit this year by the passing of several long-time clients, originally of JP Gill.

As usual the tax season ended for me not on April 15^th but on April 14^th.  For those of you who do not know why, fellow tax-blogger Peter J Reilly from Forbes.com explains here.  And on April 16^th I headed to the Jersey shore to recover.

So there it is.  That was the tax season that was.  It certainly wasn’t the worst, or the best, in my 44 years.  Any questions?

TTFN

THANK GOD IT'S OVER!

Tax season's over!

My face it has a big smile.

And so, it's off to the shore -

1040s no more!

At least for a while.

OL' MAN RIVER

I gets weary,

and sick of taxes.

I’m tired of 1040s,

but feared of extensions.

So, like Ol' Man River, I keep on rolling along!

WHERE THE FAKAWI?

For my clients, and those who are interested -

The, or I guess my, 2015 tax filing season (February 1 – April 14) is 1/3 over!

I have completed and mailed out 63 returns – which is not bad for the first third of the season.  I don’t remember if I saved my last year’s daily log – and if I did I don’t know where to put my hands on it easily – but I think I am, if not at the same point, a bit ahead of last season at this time.

I have either done, received in the mail, or made arrangements with 49% of the names on my mailing list – which I am sure is ahead of last year.

The “to be done” box is not “chock-a-block” yet.  And there are only a few “red files” (need more information), and they are completed as soon as the missing information arrives.

I have yet to do a return where I did not check the “full-year coverage” box, although there may be one in the red files.  And I have not done any returns, other than my own, that involved a Form 1095-A.  I received one, and was about to start it, when the client emailed to tell me his 1095-A was one of the 800,000 FUs.

We were told this was going to be one of, if not the, worst tax filing seasons ever – but it is actually been one of my better ones so far (as far as smoothness of operations). 

I do not accept any new 1040 clients.  But if I did I would most definitely not accept any new clients who would be applying for the Earned Income Credit or who did not have “full-year coverage”.

Let us hope I continue to be productive, and things continue to run smoothly, so that I can give a similar positive “where the fakawi” at the half-way mark.

TTFN

LBCD ALERT!

This post is for my 1040 clients.

 

I will be locked behind closed doors through Thursday this week to catch up.  My phone machine will be turned off until Friday morning.

 

FYI – A “Where the Fakawi” is coming on Wednesday!

 

TTFN

BREAKING NEWS

This just in -

 

Oi vey!  Michael Cohn reports “800,000 Taxpayers Received Wrong Tax Info from Health Insurance Marketplace” at ACCOUNTING TODAY!

The government tells us –

“About 20 percent of the tax filers who had Federally-facilitated Marketplace coverage in 2014 and used tax credits to lower their premium cost —about 800,000 (< 1% of total tax filers) —will soon receive an updated Form 1095-A because the original version they were issued listed an incorrect benchmark plan premium amount.”

And -

“We are advising them to wait until the first week of March when they receive their new form or go online for correct information before filing. For those who have filed their taxes—approximately 50,000 (< 0.05% of total tax filers) —the Treasury Department will provide additional information soon.”

It seems this FU “only affects people who signed up through one of the 37 states using HealthCare.gov” and “taxpayers whose forms were affected will receive a phone call about the problem from the Marketplace by early March, in addition to letters and emails with additional information about the status of their forms.”

To find out if you received a FU-ed Form 1095-A you can check your account at www.HealthCare.gov.  

 

So far I have only had one client with a Form 1095-A - and he was told his Form 1095-A was FU-ed, so we have to wait to file his return.  I had been hoping to complete his 1040 this week-end.  When I first reviewed his 1095-A something seemed amiss - because even though his actually income was more than that estimated when applying it looked like he was due an additional credit.

 

FYI - I have only had one client so far who did not have "full-year coverage" for all members of his household (currently "red-filed" - need more info). 

And BTW - a “Where the Fakawi” for my clients is coming soon.

TTFN

THE TWELVE DAYS OF TAX SEASON

Now it is time for what you have been waiting a year for - the annual first business day of February tradition here at THE WANDERING TAX PRO of posting “The Twelve Days of Tax Season” -

 

On the first day of tax season my client gave to me a Closing Statement for the purchase of a home.

On the second day of tax season my client gave to me 2 W-2 forms.

On the third day of tax season my client gave to me 3 mortgage statements.

On the fourth day of tax season my client gave to me 4 Salvation Army receipts.

On the fifth day of tax season my client gave to me 5 Form K-1s.

On the sixth day of tax season my client gave to me 6 1099s for dividends.

On the seventh day of tax season my client gave to me 7 cancelled checks.

On the eighth day of tax season my client gave to me 8 useless items.

On the ninth day of tax season my client gave to me 9 medical bills.

On the tenth day of tax season my client gave to me 10 stock sale confirms.

On the eleventh day of tax season my client gave to me 11 employee business expenses.

On the twelfth day of tax season my client got from me a finished tax return, 11 employee business expenses, 10 stock sale confirms, 9 medical bills, 8 useless items, 7 cancelled checks, 6 1099s for dividends, 5 Form K-1s, 4 Salvation Army receipts, 3 mortgage statements, 2 W-2 forms, and a Closing Statement for the purchase of a home.

And, of course, on the thirteenth day of tax season the client gave to me a corrected Consolidated 1099 from Wells Fargo Advisors!

 

TTFAW