Monday, January 15, 2018


OOPS! They did it again!  The NJ chapter of the National Association of Tax Professionals held another truly “famous” State Tax Seminar at the APA Hotel in Iselin (formerly the Woodbridge Hilton).

In the 25+ year history of this annual event, always at this hotel (a good central and easily accessible location and I hope it will continued to be held here), I have missed only 2, due to snow.  As I have always said, this seminar is a “must attend” for any tax professional who prepares NJ state individual or corporate income, payroll, inheritance, and/or sales tax returns.

As an aside, after registering in the morning I came across Tony Ferrara, a colleague from my days in Jersey City, who operated a tax practice across the street and up the block from my Newark Avenue office.  He had continued the practice began by his father, just as I had continued the practice started by my mentor James P Gill, and his ongoing practice is probably older than my ongoing practice.  I often see Tony at this seminar.  He told me he had recently attended a Gear-Up tax update seminar where the instructor mentioned me by name, citing my reputation for preparing all my 1040s by hand.  I am curious to discover the name of this instructor, which Tony promised to send to me. 

Obviously, as I said last year, the value to the tax pro of this seminar usually depends on the degree of changes to the tax law that affect current and ongoing filings.  While there was not much new with NJ taxes and property tax benefit programs for 2017, there was obviously a huuuge change to federal income taxes going forward at the end of 2017.  While the theme of this seminar is “state” taxes, and I have always believed it should be limited to state tax changes and issues, it has often included some federal updates.

The event always includes a buffet breakfast, in the seminar area, a buffet lunch, previously in another room in the hotel, and an afternoon dessert break.  The meal offerings have always been very good – with the full buffet breakfast among the best of those offered at tax seminars I have attended over the decades. 

This year the lunch, limited to salads and sandwiches, was also held in the seminar area.  I thought this change was “more better” than moving to a separate room, as it saved time and allowed for more of it to be devoted to the true “meat” of the day - the tax presentations.  I would, however, preferred if the lunch buffet had included hot items, as it always had in the past.  There was no afternoon dessert break this year, with minimal dessert choices offered as part of the lunch buffet.  I would prefer the separate dessert break – and I missed the “diabetic-friendly” sugar-free cookies that had been available in the past.

As always, following greetings from new chapter President Mary Rose Martino and seminar chairperson Tony Manziano, the presentations got underway with the “keynote” speaker, always the current Director of the Division of Taxation or a representative.  This year we heard from Acting Director John Ficara. 

I have always felt that over the years, with very few exceptions, these presentations have been of no real substantive value to the tax pros in the audience.  I do accept that this practice is probably a good and necessary one, and, thankfully, very little time in the schedule is allotted to the Director’s presentation.  Mr. Ficara, was a good and obviously knowledgeable speaker and talked in general about what is going on with the Division to modernize and improve services   But there was really nothing of consequence to “take away”.  There was no time for audience questions or comments, and he did not address real systemic issues with the Division, such as its continued unethical practice of remaining “silent” on taxpayer overpayments or unidentified payments.

Perhaps for the future seminars registrants could be asked to submit to the chapter in advance written systemic questions and concerns for the seminar chair to present to the Director instead of the nice but mostly useless keynote address.

What followed for most of the rest of the day was the real reason we all came – the presentation from “Jake and Company”, aka the Division’s “Taxation University”.  Jacob Foy was charged with discussing “tax updates”, and began by telling us that, once again, NJ refunds will NOT begin to be issued until March 1st

He went on to clarify that homeowners who chose to prepay some of their 2018 property tax payments in December 2017 due to the changes for 2018 in the GOP Tax Act will not lose any of their tax deduction on the NJ-1040 or with regard to the property tax relief programs.  For NJ-1040 purposes, the state only cares that what is considered the calendar year’s tax assessment – taxes due on February 1, May 1, August 1, and November 1 - are paid in full.  They do not care in what year these assessments are paid.  You can only deduct up to $10,000 (coincidentally the same limitation used in the GOP Tax Act) in 2017 property taxes on the 2017 NJ-1040, and you can only deduct taxes due in 2018 on the 2018 NJ-1040 , regardless of when you actually gave the money to your municipality.  So, prepaying 2018 taxes in 2017 does not increase your 2017 NJ-1040 deduction, and it does not reduce your 2018 NJ-1040 deduction.

Jake also spent time on the increased Retirement Income Exclusion and the new tax credit for honorably discharged veterans that affect the NJ-1040.  He said the Division will be flexible in considering documentation of a taxpayer’s veteran status, and will accept copies of the DD214, DD256, and a driver’s license with veteran status – which is a license which has the word “VETERAN” on it.

I was pleased that Jake announced the state’s corporate business income tax return (CBT) e-file “mandate” has once again been suspended, as NJDOT is not yet able to allow corporations to submit their CBT-100 and CBT-100S returns directly to the state online, as it does with 1040s via the NJWebFile system.

He also discussed the new totally redone format of the NJDOT website.  Unlike the recent IRS website redo, the NJDOT changes are very much an improvement, and, in my opinion, “more better” than the old website.  Jake asked us to provide our comments on the new format via the “Give Us Your Opinion) feedback option on the website.

Next up was the tag team of Abra Watson, from TU, and Robert Skala, a NJDOT auditor, who gave a good and informative presentation on the calculation of the NJ-1040 credit for taxes paid to other jurisdictions.  Nothing new here, but a helpful, and apparently enlightening to many, review of the rules.

A discussion of the Property Tax Relief programs – the NJ Homestead Benefit and the Property Tax Reimbursement Program – by frequent TU presenter, and friend of NJ-NATP, Alexis Reid was scheduled next.  Unfortunately, Alexis took ill and had to leave, so Abra was asked to fill in at the last minute.  She did a great job with the subject.  Again, nothing new here – just a review of ongoing rules, especially for homeowners who should have been in the PTR program for several years but are just joining now, and those who were in the program but, although still qualifying, for some reason did not submit applications for a couple of years and want to get back in.  If a qualified homeowner has never filed a PTR application, but should have been doing so, he or she should file a separate PTR-1 application form or each of the past missing years.  No checks will be issued for missed years, but a correct base year will be established.

After lunch we returned to NJ state taxes with a presentation on the NJ Inheritance Tax, now the only “death” tax assessed by NJ since the state estate tax was repealed effective January 1, 2017, by Michael Rosen, Chief Auditor for the Inheritance Tax Branch of NJDOT.  While Michael is a witty and knowledgeable speaker, although not a particularly “vibrant” one, I personally have absolutely no interest in the Inheritance Tax return – I do not prepare them and I no longer live in NJ – so I pretty much “zoned-out” during his discussion, as if it were an “ethics” presentation.

As another aside, one voice that was definitely missed at this year’s seminar was that of John Kelly, a former NJDOT employee and frequent speaker at this event in the past, who had become a member of the audience a few years ago after retiring from his state position.  In the past couple of years he provided helpful insight and historical perspective on the NJ issues being presented from his seat in the audience.

Alexis was supposed to talk about NJ Sales Tax next, but as she had left this presentation was cancelled to provide more time for Kathryn Keane of New York, another NJ-NATP favorite speaker, to give a brief presentation of NY State Tax Updates – there were basically none – and, of perhaps more interest to the audience, a federal tax update.  I also have no interest in NJ Sales Tax issues, so this was ok with me.

What we really wanted to hear from KK was a review of the Tax Cuts and Jobs Act.  Unfortunately, she began with, for many in the room a redundant (we had already heard this “stuff” at the NATP Annual Conference, the NATP Tax Forum, and/or the NATP year-end 1040 Update) talk of some other federal developments.  This took time away from what, as I previously said, we really wanted to hear.

To be fair, an hour and a half at the end of the day is certainly not sufficient time to discuss in detail, and provide any true guidance or insight on, the new GOP Tax Act.  KK did a yeoman’s job – but she was not even half-way through her presentation by the scheduled 4:40 PM end of the seminar.  She stayed on and continued, but due to travel requirements, many audience members, myself included, had to leave at this point so we missed much.

If NJ-NATP is going to devote time to the GOP Tax Act, and it should if national NATP is not going to offer a specific seminar throughout the US relatively soon after the end of the tax filing season, it should offer a separate half-day, or more appropriately full-day, seminar, perhaps led by KK or John Sheeley, in May – maybe it’s regular May offering expanded to a full day.  Or maybe it can join with NY-NATP and PA-NATP for a joint full-day seminar on the topic.

For future January state tax seminars, I would like to see presentations on SUI, SDI, and FLI taxes from the NJ Division of Revenue and Enterprise Services or the Department of Labor.  These taxes have been ignored in past years.  Just a thought.

That said, I certainly once again give my “kudos” to NJ-NATP and Jake and Company for another excellent “famous” state tax seminar.  It certainly did what it attempted to do – and, as usual, did it well.


Monday, January 8, 2018


The IRS has announced the schedule for the 2018 Nationwide Tax Forums

Atlanta Marriott Marquis
July 10-12, 2018
Gaylord National Harbor
July 17-19, 2018
Town and Country Resort
August 7-9, 2018
Hyatt Regency Chicago
August 21-23, 2018
Hyatt Regency Orlando
September 11-13, 2018

Registration will open in March 2018!

The Forums provide an excellent opportunity for earning CPE.  Sessions are taught by tax professionals belonging to NATP, NSTP, NAEA, and other tax pro membership organizations as well as by IRS employees. 

A keynote presentation by a high-ranking IRS official is also included, as well as the opportunity to review individual cases with IRS personnel.  And you can visit with representatives of various membership organizations, software providers, and other tax-related vendors.

One advantage of this over the NATP Forums is that you get the IRS perspective on many important tax issues and developments.



+ For those of you who are members of NATP, I recently got the word from Cindy Hockenberry -

The research team is ready and able to answer any question regarding the new tax law. Questions will be billed as research questions.”

+ I submitted my questions about the deduction for interest under the GOP Tax Act and learned, despite what I had thought, that the itemized deduction for investment interest is NOT gone.  It has survived the Act.  The NATP Research Department told me -

Investment interest will continue to be reported on Form 4952 and carried to Schedule A, line 14, part of the interest you paid section.”

+ The GOP Tax Act totally did away with the itemized deduction for home equity interest.  There is no “grandfathering” of existing home equity debt.  This makes it truly vital for all homeowners with both new and existing mortgages to keep separate track of acquisition and home equity debt going back to day one of the purchase of the property

After having some items confirmed by the NATP Research Department I am just about ready to “go to press” with my revised “Mortgage Interest Guide” and a special report on deducting mortgage interest under the GOP Tax Act for my clients.  Both of these include my worksheets for keeping separate track of acquisition and home equity debt and a detailed example. 

Reprint rights to both of these items will be available for fellow tax professionals to give to clients for ONLY $24.95.  Members of NATP receive a 25% discount – so the cost is only $18.70.

I will email you a pdf copy of these reports for your review if you email me t with SAMPLE MORTGAGE REPORTS in the “subject line”.

The reports will be delivered as a “word doc” email attachment.  The signed reprint rights agreement will be sent via postal mail.  Send your check or money order, payable to TAXES AND ACCOUNTING, INC, and your email AND postal address (and membership number if a NATP member) to –

HAWLEY PA 18428 

+ The new IRC Section 199a Qualified Business Income Deduction is truly a convoluted mucking fess that adds much unnecessary complexity to the Tax Code.  Tony Nitti of FORBES.COM has tried to explain this new deduction here and here.

I have already received an email from a client asking if he should change from being an employee to an independent contractor to take advantage of this new loophole.  While this is a valid question, although one certainly cannot simply go from being an employee to being an independent contractor by just saying “make it so” and changing the method of payment, and one that needs to be answered now, I have neither the time, nor the desire, to properly “digest” this new deduction now, considering that I need to get ready for the upcoming tax filing season.

A request for my fellow tax professionals – I expect the IRS will no doubt create a detailed worksheet to make sense of the convoluted mess and properly calculate this deduction when it gets around to writing the instructions for the 2018 tax returns – much later this year.  But we need such a worksheet now.  Does anyone have, or has anyone seen or heard of, a Section 199a Deduction Worksheet that is available to download NOW, either free or at a minor charge?  If so, please email me at with SECTION 199a WORKSHEET in the “subject line” with the information. 

I will share the link or links to acquire such a worksheet in a subsequent post here.


Tuesday, January 2, 2018


HAPPY NEW YEAR!  May 2018 be less taxing.

While the new limitations on the mortgage interest deduction in the GOP Tax Act simplifies the Tax Code, it greatly complicates recordkeeping for taxpayers and potentially for tax professionals

As we know, under the Act interest on home equity debt, regardless of the amount of the debt principal, is no longer deductible.  Period.  There is grandfathering of existing acquisition debt interest rules – but there is NO grandfathering of existing home equity debt

I do believe in the original House version of the bill all existing mortgage debt was “grandfathered” – including home equity debt.  While I can understand, and agree with, the philosophy of limiting deductible mortgage interest to acquisition debt, for practicality sake I wish that existing home equity debt had been included in the grandfathering.

Going forward, it will not be a big problem for new home purchases made after December 15, 2017.  Taxpayers need to keep track of only acquisition debt on these mortgages – and perhaps new regulations for reporting information on Form 1098 may take care of this to a degree.  But taxpayers with existing mortgage debt incurred before December 16, 2017 will definitely need to separately track acquisition and home equity debt going back to day one! 

Taxpayers have always been required to keep separate track of acquisition and home equity debt, but, if my clients are any indication, I expect that few actually did - due to the allowance of a deduction for interest on up to $100,000 of home equity debt.  And how many of us have actually been doing this for our clients on an ongoing basis?   

I also expect that with the new law, clients will expect us as their tax preparer to keep track of their debt at least going forward.  And many will also want us to create separate schedules of acquisition and home equity debt for their existing mortgage loans so the proper amount of interest can be claimed. 

This is an opportunity for us to generate post tax-season income this year – when preparing an applicable client’s 2017 return we can explain the new mortgage rules and offer to generate separate historical debt schedules after the filing season, and a brief period of recuperation, for, of course, an additional hourly fee.   

I hope, and expect, that the existing rules and regulations for who can deduct mortgage interest - when it comes to situations like multiple owners making unequal individual payments and “equity ownership” - will remain in effect under the new Act, as well as the current rules and regulations for determining what is home equity debt. 

Currently any additional closing costs of a refinanced mortgage that are added to the principal of the new loan is considered home equity debt.  For example - clients purchased a home in 2011.  They have had only one mortgage, from the original purchase, and no home equity debt.  They refinanced the original mortgage in 2015 to get a better rate.  The principal balance on the original mortgage was $197,374.  The principal balance of the refinanced mortgage was $200,000.  They did not take any money “out”, and paid a little over $1,000 at the closing.  The difference is the closing costs for title insurance, inspections, fees, etc. etc.  These clients have acquisition debt of $197,374 and home equity debt of $2,626.    

And, also currently, if you have refinanced mortgage debt that combined both previous acquisition debt and home equity debt., the home equity debt is considered to be paid down first.  A client refinanced a mortgage to combine the purchase mortgage balance of $197,374 and the balance in a home equity line of credit of $90,000.  During a year he paid down $6,000 of the refinanced loan principal.  The $281,374 remaining principal is considered to be $197,374 of acquisition debt and $84,000 of home equity debt.

Finally, I hope, and expect, that taxpayers will still be able to elect to treat home equity debt secured by a personal residence as not being secured by the residence – so the interest on the debt is treated as deductible business interest on Schedule C or a deductible rental expense on Schedule E instead of home equity interest.  Unfortunately, investment interest is, at least I think (can anyone verify?), no longer deductible on Schedule A.

I will be rewriting my Mortgage Interest Guide, which includes worksheets for keeping track of mortgage debt and a detailed example of how to use them, to reflect the new rules for 2018 and beyond, and will be offering reprint rights of this guide to fellow tax pros.  I will also be creating a special report to give to my clients with existing mortgages, which will also include the worksheets and example, that will explain the new rules and remind them of their responsibility to keep separate track of acquisition and home equity debt.  Reprint rights to this report will also be available.  I will let you know here when they are available.

So, we should prepare for additional work, and a new opportunity for increased income, for clients with mortgage debt.

Any thoughts or comments?


Monday, December 25, 2017


While I think the tax filing season is the most wonderful time of the year - this is a close second!
From The Wandering Tax Pro and Turbo

Wednesday, December 20, 2017


Implementation of The Tax Cuts and Jobs Act changes to tax law certainly raises a multitude of questions for tax professionals.

(1) As I previously discussed in “A Nightmare on Tax Street”, will the Form 1098 form to report mortgage interest be revised and will additional recordkeeping requirements be placed on bank and mortgage companies? 

Will existing IRS regulations on acquisition debt and home equity debt – treatment of closing costs of refinancing included in principle, application of payments of principle on consolidated mortgages, etc. - remain, or will new ones be written?

(2) What about the revised dreaded Alternative Minimum Tax (AMT)?  The exemptions and exemption phase-out ranges have been changed, but I have read of no change to the “preferences”, other than because miscellaneous expenses subject to the 2% of AGI threshold are no longer deductible on Schedule A this will no longer be a preference. 

In the “old” AMT personal exemptions were a tax preference, and not deductible in calculating Alternative Minimum Taxable Income.  And the Child Tax Credit is allowed as a credit against AMT.  We will no longer have a personal exemption deduction – this deduction is replaced by an increased Child Tax Credit and a new “non-child” dependent credit.  Will the enhanced and new credit be allowed in full as a credit against AMT?

(3) How will the new Schedule A report the specific components of real estate taxes and state and local income or sales taxes that make up the $10,000 maximum if this maximum is applied?  This information will be important in determining if any portion of state tax refunds are includable in taxable income in the subsequent year. 

I would think the first line in the tax section of Schedule A would be to identify real estate taxes paid, up to the $10, 000 maximum.  A second line would report either state and local income taxes or state and local sales taxes allowed (with a box check like on the current Schedule A), up to the combined maximum, if the property taxes paid are less than $10,000. 

(4) We know that the 20% deduction of “pass-through” business income will not be deducted directly on Schedules C or E or as an “adjustment to income” to reduce AGI, but will be deducted from AGI to determine net taxable income.  But will this deduction also be applied in determining “net earnings from self-employment” subject to the self-employment tax.

And the list goes on.

With a law written and passed in such a hurry there will be lots of issues that will need to be addressed, many in additional “Technical Corrections” legislation.


Monday, December 18, 2017


I am sure you have been, and will be, getting emails and phone calls from 1040 clients asking if they can prepay their 2018 taxes to claim a 2017 deduction, considering the potential $10,000 limitation on the deduction for 2018.

The conference bill specifically states that "an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017."

So, it appears you can deduct prepaid real estate taxes, but not prepaid income tax. 

What exactly is prepaid state income tax? 

The actual amount of state income tax liability is based on the information on the final 2017 tax return – and will not be known until 2018.  The amount of state income tax withheld is based on the state withholding tax tables and a person’s W-2 wage income. 

And for the most part quarterly state estimated tax payments are based on either the prior year’s liability or the current year’s anticipated income.  The 4th quarter 2017 payment is not due until mid-January of 2018; is making this payment in December of 2017 considered to be a “prepayment”, even though the tax payment is being made for 2017 income?

Obviously, if your normal 4th quarter payment would be $2,000 but you send a payment of $10,000 in December you are making a prepayment of 2018 taxes.  But what about the normal $2,000 payment.  And if you do not make quarterly estimated state tax payments, having your anticipated state tax liability covered in full by withholding, but you make a 4th quarter 2017 estimated tax payment of $5,000 in December, this $5,000 is clearly a prepayment.

What about a person who can control his state tax withholding in real time, like a sub-S business owner who pays himself a year-end bonus in December?  He or she can have an excessive amount of state income tax withheld from the bonus paycheck, which would, to me, clearly be a prepayment.  But what if that person anticipates excessive year-end dividends and capital gain distributions?  This could also apply to the person making only a 4th quarter state payment.  These amounts are often not known until January when the December brokerage statements arrive.  As with anything, specific facts and circumstances would, or should, apply.    

Of course, if a person substantially overpays his or her state income tax for 2017 by whatever method he or she is only temporarily postponing paying federal income tax.  The resulting refund of excessive withholding or estimated payments would be included in taxable income on the 2018 return – although this money would be taxed at a slightly lower tax rate, and the taxpayer would get the potential benefit of the money earned on the deferred taxes if properly invested.

Any thoughts on the question?