Wednesday, April 25, 2018

THOSE WERE THE DAYS!




Those were the days, my friend.

For about the first third of my tenure as a professional tax preparer we would tell our clients that if they itemized Uncle Sam would reimburse them for a substantial percentage of our fee – up to 50%.  This was obviously before the introduction of the 2% of AGI exclusion for Miscellaneous Expenses. 

Even after the exclusion became law, many clients could still be reimbursed by the US government for a part of our fee.

Unfortunately, thanks to the GOP Tax Act, I can no longer say that.  As you know, all Miscellaneous Expenses subject to the 2% of AGI exclusion are no longer deductible.  This includes the cost of preparing your tax returns or defending yourself in an IRS or state audit.

And back in “the day” we could also “pull a rabbit out of a hat” and save clients literally thousands of dollars in federal income taxes by using Income Averaging or 10-Year Averaging.  Unfortunately, these two tax benefits were put to death via the Tax Reform Act of 1986.  

Yet it seems that each year at least one long-time client asks me about income averaging when faced with a big jump in income and a corresponding big tax bill.  And, remembering that for one year only decades ago the IRS permitted itemizers to deduct their sewer bill as a tax, each year two or three clients continue to give me their sewer bills along with their tax stuff. 

It seems that while taxpayers can often forget to report income, they never forget a deduction or tax saving trick!

Oh well.  

BTW - did you see my "review" of the 2018 tax filing season?  Click here.

TAFN

Thursday, February 8, 2018

LET ME MAKE THIS PERFECTLY CLEAR


I’m back again.  I just want to take this opportunity to clarify some of the points I had intended to make in my ACCOUNTING TODAY commentary “Some Truths About the GOP Tax Law”.

Under tax law prior to the passing of the Tax Cuts and Jobs Act the 2018 personal exemption was $4,150.  For a person or couple in the 15% tax bracket this represented a reduction of tax liability of $623.  For a taxpayer in the 25% bracket this represented a reduction of tax liability of $1,038.  And so on.

For a dependent child under age 17 the Child Tax Credit, previously $1,000, is increased to $2,000.  The additional $1,000 credit is presumably to make up for the loss of the tax savings from the elimination of the personal exemption deduction.  A taxpayer with a “qualifying” child in the 15% bracket comes out ahead.  But a taxpayer in the 25% bracket does not.

The GOP Tax Act does increase the AGI threshold for claiming the Child Tax Credit – so it will be available to many more taxpayers than it was under prior law.  It is true that many married couples in the 25% tax bracket received a reduced Child Tax Credit or no credit at all under “old” law.  In these situations, the increased credit more than makes up for the loss of the dependency deduction.

But taxpayers can only claim a $500 credit for a dependent child age 17 or older, in many cases college students.  A taxpayer in the 10% bracket would have saved $415 for such a dependent under prior law, so that person benefits.   But taxpayers in all other tax brackets end up with increased net taxable income.  If we look at the new tax rates – 12% of $4,150 would be just about $500, but 22% of $4,150 is $913, and so on.  So, under the GOP Tax Act dependents under age 17 have more value than those over age 16 as well as non-child dependents such as elderly parents.

The elimination of the dependency deduction also adversely affects taxpayers who had been able to itemize in the past but will no longer itemize for 2018 through 2025 due to the increased Standard Deduction amount.  A married couple with no dependents who would have been able to claim $26,000 in itemized deductions and $8,300 in personal exemptions will be taxed on $10,300 more in net taxable income if their itemized deductions are reduced to below $24,000 by the $10,000 limit on the deduction for taxes and the elimination of miscellaneous deductions subject to the 2% of AGI exclusion.  Granted the tax rates are lower, but the increase in net taxable income can substantially reduce or eliminate the benefit of the lower rates.  A taxpayer in the 15% marginal bracket under “old” law could be in the 22% bracket under the GOP Tax Act.

And if I may add an observation on the corporate tax rate change - it appears that the new 21% corporate tax rate is a flat rate (correct me if I am wrong), and replaces the previous progressive scale.  So smaller corporations who had previously paid 15% in federal income tax on corporate profits will get a tax increase and now pay 6% more in tax.  

The bottom line is that the GOP Tax Act is not a “massive” tax cut for the middle class.  Whether or not a taxpayer will benefit from the Act, or actually pay more federal income tax, depends on their individual facts and circumstances.  As I said at the end of my AT commentary – “In reacting and responding to the changes made by the Tax Cuts and Jobs Act, one must look carefully at what the new law actually says and not rely on the “party” line that is being presented in the press.”


TAFN








Wednesday, February 7, 2018

THE GOP TAX ACT AND THE TAX PREPARATION INDUSTRY



The tax filing season is off to a relatively slow start, as usual.  As I receive returns in the mail I am getting them out, with only a 1-day turnaround.  So, I have some time to comment on this topic.

My fellow tax blogger Jason Dinesen has posted his thoughts on how the GOP Tax Act will affect tax preparers in “How Will the New Tax Law Affect the Preparer Industry” at DINESEN TAX TIMES.

I do agree for the most part with his comments on “What I Think Will Happen”.  Any tax law change, good, bad or indifferent, results in increased business.  So, 2017 and 2018 will see an increase in the use of paid tax preparers.  However, I agree that what follows, at least until 2025, will be a drop in basic 1040 and Schedule A clients.

However, the increased complexity of the new Section 199a deduction will most definitely increase business from self-employed taxpayers, be they Schedule C filers, partners, or owners of closely-held corporations.  This will more than make up for the loss of itemizers.  And the complexity of having 2 separate tax rate schedules for investors who benefit from the lower qualified dividend and capital gain rates will keep investors in “the fold” and perhaps add new ones.  So, tax preparers will lose clients on the lower-end of the fee schedule and gain clients on the higher-end.  And existing business clients will be paying higher fees for the increased complexity and calculations.

So, the bottom line is that the tax preparation industry in general will benefit from the new Act.  How it will affect the industry is that preparers will need to increase their continuing education and training in the area of business returns – sole proprietorships, partnerships, “regular” and sub-S corporations – and become conversant with Section 199a, and focus their practice development efforts on these self-employed taxpayers.

I do still think there is a market for the returns of those who cannot itemize.  I have always said I would make more money, have less GD extensions, reduce the potential for error, and experience much less agita and aggravation if I did nothing but 1040A returns all day during the tax season.  Preparers will need to be aware of pricing issues, and keep their fees for these simpler returns reasonable.

From a personal standpoint, the GOP Tax Act will not affect my 1040 practice one iota.  None of my clients will leave me to prepare their own returns due to increased simplicity.  I do not accept any new clients, period, and am actually attempting to “thin the herd” as I head toward retirement after 4 more filing seasons (once I can say I have been preparing 1040s for 50 tax seasons).  I am actually somewhat pleased that the Act will actually reduce the complexity, and potential for agita, of the returns for many of my clients (I have truly minimal business clients).   

So, what are your thoughts on the subject.  Will the GOP Tax Act help or hurt your practice?


TAFN







Thursday, February 1, 2018

THE TWELVE DAYS OF TAX SEASON



And now what you have been waiting a year for – my annual posting of:

--------------------

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!

--------------------

And so the 2018 Tax Filing Season – my 47th - officially begins.  Open the floodgates and bring on the 1040s!

As is my custom, due to the demands of the filing season I will be taking my annual “tax season hiatus” from posting to THE WANDERING TAX PRO and THE TAX PROFESSIONAL. 

Between now and April 17th I will barely have time to relieve myself let alone blog!  Nor will I have time to respond to comments. If a comment requires a response I will do so after April 17th.

TAFAW












Monday, January 29, 2018

HORN TOOTIN'



Before I begin my annual tax filing season blog post hiatus – I do not post either here or at THE WANDERING TAX PRO during my tax filing season of February 1 – April 17, except for occasional tax season updates at TWTP – let me “toot my own horn” a bit and talk about some publications I offer to fellow tax pros.

Click on the below titles to read more information about the publications and ordering information -




Please note that members of NATP receive a 25% discount on publications ordered from me (pdf versions or print versions).  Please include your membership number with your order.

The first two books are available as an “e-book” to be read on Kindle from Amazon.com.  Click here for my Amazon.com Author Page.

The NJ state tax book includes several forms, schedules and worksheets that are not included in the Kindle e-book version.  If you order this book from Amazon.com email proof of purchase to me at rdftaxpro@yahoo.com with THE JOY OF AVOIDING NJ TAXES in the “subject line” and I will send you via return email, in word format, the NJ forms, schedules and worksheets.

On February 1st I will post both here and at TWTP my annual “Twelve Days of Tax Season”.  That will be my last TTP until after the April 17th filing deadline.


TAFN











Monday, January 22, 2018

THE “EA” DESIGNATION IS NOT YOUR ONLY CHOICE


Did you know that EA is not the only initialed designation that tells people the person with the initials is competent and knowledgeable and current on 1040 tax issues?  There is also -

Accredited Tax Preparer® (ATP) - The ATP credential is for practitioners who have a thorough knowledge of the existing tax code and the preparation of individual tax returns. Their expertise covers comprehensive 1040 issues (including supporting schedules, self-employed returns, etc.) and ethics. 

Accredited Tax Advisor® (ATA) - The ATA credential is for practitioners who can handle sophisticated tax planning issues, including planning for owners of closely held businesses, planning for the highly compensated, choosing qualified retirement plans and performing estate tax planning. Their expertise covers tax returns for individuals, business entities, fiduciaries, trusts and estates, as well as tax planning, tax consulting and ethics.  

These designations are issued and maintained by the Accreditation Council for Accountancy and Taxation® (ACAT).  ACAT “was established in 1973 as a non-profit independent testing, accrediting and monitoring organization. The Council seeks to identify professionals in independent practice who specialize in providing financial, accounting and taxation services to individuals and small to mid-size businesses. Professionals receive accreditation through examination and maintain their accreditation through commitment to a significant program of continuing professional education and adherence to the Council's Code of Ethics and Rules of Professional Conduct.  ACAT programs are governed by a Board of Directors that includes practitioners, educators and a public member. “

FYI, as part of the voluntary IRS Annual Filing Season Program   holders of the Accredited Tax Preparer (ATP) credential issued by the Accreditation Council for Accountancy and Taxation –

(1) are exempt from the Annual Federal Tax Refresher Course and testing requirements,

(2) automatically qualify for the AFSP - Record of Completion (with a valid PTIN, CPE and Circular 230), and

(3) as Record of Completion holders, will be included in the IRS public database of tax return preparers 

The Council’s website identifies the 3 Steps to Earn an ACAT Credential -

1. Register for an ACAT Exam: After registering you will receive an email with details on scheduling your exam date and time.  If you are scheduling your exam late in the testing window there may be limited testing availability.  

2. Pass the Exam: Get the Study Materials and Locate your PSI Testing Site.

3. Earn Your Credential:
After passing the ACAT exam you will receive information on how to activate your credential.

For more information on these designations, visit www.acatcredentials.org or contact ACAT at 888-289-7763 or email: info@acatcredentials.org


TAFN








Monday, January 15, 2018

THE NJ-NATP "FAMOUS" STATE TAX SEMINAR




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.

TAFN