Tax Guru – Ker$tetter Letter

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Retroactive 2017 Extenders

Posted by taxguru on February 13, 2018

How is this for another illustration of how screwed up things are in DC?  As has been covered extensively, our royal rulers passed a huge and very complicated mess of a tax law near the end of December 2017 that takes effect in 2018.  Then, after that, in February of 2018, they passed a law that retroactively, as of January 1, 2017, extends several tax breaks that had expired as of the end of 2016.

It’s like the popular story telling technique used in so many movies and TV shows nowadays, where everything is revealed in strange convoluted order.  Doing things in normal chronological order seems to be too old fashioned for people in these here modern times. 

These extensions are good news for the folks on the TaxBook discussion board, who have been panicking about what to do for their early filing clients and whether or not to charge them for amending returns to pick up the newly restored deductions that they couldn’t claim before now. 

The University of Illinois Tax School has a good eight page PDF summary of this newest retroactive tax law that will affect many 2017 tax returns.  I will post links to other useful explanations and summaries of this newest tax law, as I discover them around the ‘net.

How these retroactive Federal tax changes will affect State tax returns, many of which automatically conform with Federal law, is yet to be seen; but will be certain to add to the confusion of this current Tax Season.

Anyone in DC, Dimm or GOP, who claims that our tax system has been simplified is a 100% certifiable moron.

More info this retroactive legislation:

   From Congress – H.R.1892 – Bipartisan Budget Act of 2018

   From TheTaxBook6 page PDF summary

   From The Tax Foundation: Budget Deal Would Retroactively Extend Several Expired Tax Provisions

   From Intuit’s Tax Pro Center: Government Shutdown Averted and Tax Provisions Providing Tax Relief Passed

Posted in NewTaxLaws | Comments Off on Retroactive 2017 Extenders

Tax Scammers Are Multi-National

Posted by taxguru on February 8, 2018

Tax Season is also Scammers Season.  A number of clients have told us about receiving phone calls from people claiming that the police were coming for them due to tax evasion charges.  A few days ago, we received a couple of those calls, with a robotic voice and each with different Caller ID info, making the same claim. We didn’t waste time calling them back, but I did block their numbers.  I’m sure, just as with many similarly reported scams, they would have demanded payment of the fictitious taxes via some kind of gift cards, which should be a dead tip-off to everyone that this is a huge con job.

Earlier today, I was watching the latest episode of The Checkout, a very funny consumer protection show from Australia.  Illustrating that the phone scammers we have been fighting against here in the USA are pulling the exact same tricks in other countries, it has this segment showing a sweet little old lady purchasing iTunes gift cards in order to pay off a phony tax debt.

Posted in scams | Comments Off on Tax Scammers Are Multi-National

Checking out the new tax law…

Posted by taxguru on January 31, 2018

I intentionally avoided discussing the new tax law over the past several months as it went back and forth between the House and the Senate and was lied about in the press. Besides the heavy doubts surrounding the ability of the GOP in DC being able to pass any significant legislation, it would have been a big waste of everyone’s time dissecting and analyzing provisions that wouldn’t become part of the actual law.

With all of the promises that this latest reform of the tax code would make everything so simple and fair that doing our taxes would be so much fun, this gave me such a case of deja vu because it exactly mirrored the analogy I have been using for decades to describe how tax laws are created and the changes they undergo as they move through the legislative processes.  The poster I designed decades ago to graphically illustrate this is just as relevant to this latest handiwork by our rulers as it was back in the 1980s.     

Now that a unified bill has been passed and signed into law, it’s time to take some serious looks at exactly what it contains.  Just like our rulers in DC who voted on this bill, those of us in the real world don’t have time to read and try to interpret all 500 or so pages of the actual legislation; so we rely on professionals who have done that and produced easy to follow summaries.

While there is a very good chance that many people will save some money on their tax returns because of the new law, the actual amounts will vary on a case by case basis.  The figures being bandied about by our rulers in DC, as well as the calculated "costs" of the new law have been pulled out of their recta, as are all such predictions from everyone in DC, including the GAO, OMB, CBO, WTF, et al.  They have never been right when it comes to comparing their supposedly detailed calculated predictions with the real world results and there is there is absolutely no reason to expect these latest predictions to be any more accurate.   

One thing is certain.  This new law does not simplify the tax game one bit.  As always, every attempt by our rulers in DC to make taxes so simple that we practitioners will have no more work ends up doing the exact opposite.  It’s another case of increased job security for those of us in the tax profession.  All of these new changes to the Tax Code actually give us many more more opportunities to help clients structure things to save on the amount of taxes they pay. 

There may be some different rules for the Tax Game, but there are still plenty of ways to "game the system," to borrow a favorite phrase of the Left.  Even with robots and other forms of automation taking over various occupations, there is no way any kind of artificial intelligence can replace the tax saving abilities of a skilled and knowledgeable professional tax advisor, especially one who utilizes the tax savings strategies of the TaxCoach system

As I have done in previous years when significant new tax laws have been enacted, I am planning to post links to handy summaries of those laws to share with readers.  If anyone has seen a good summary that they would like to share, please send me a link to it and I will include it here. 

While the pickings are a bit sparse right now, during the traditionally slow holiday season, I do know that most tax research services, including the fine folks at TaxCoach, are planning to release their analyses in the early part of January.

Here is what I have come across so far:

From my favorite tax reference service, The TaxBook19 Page PDF Summary

From Forbes: Tax Geek Tuesday: Making Sense Of The New ‘20% Qualified Business Income Deduction‘ (31 page PDF version)  Thanks to Ohio CPA Dana Stahl for passing this along to me.

From TaxCoach: They are planning a lot of detailed guides, which I will be sharing here.  Here is their first one page summary.  

From RIA (another thanks to Dana Stahl):

Special Study on Business Tax Changes in the "Tax Cuts and Jobs Act" (20 page pdf)

Special Study on Individual Tax Changes in the "Tax Cuts and Jobs Act" (23 page pdf)

Special Study on S corp, partnership & other changes in the "Tax Cuts and Jobs Act" (11 page pdf)

A new two page brochure from The TaxBook.

The National Association of Realtors has published an analysis of the new tax law as it affects Realtors, homeowners and real estate investors.  I learned about this 1/31/18 from the weekly marketing webinar with the TaxCoach group, which has been on the forefront of learning how to utilize the new tax law to help clients minimize their taxes. 

     23 Page PDF downloadable version

     Web Version

From Intuit: Tax Reform Law: What Clients Should Know  (1 page PDF)

Posted in NewTaxLaws | Comments Off on Checking out the new tax law…

CRA-App

Posted by taxguru on January 30, 2018

Americans aren’t the only ones who love to joke about their tax agency, as we can see in this skit from a recent episode of the CBC’s news satire show, This Hour Has 22 Minutes

I have never had any first-hand experience dealing with the CRA, but it does appear that there are some similarities to our IRS.

Posted in CRA, humor, video | Comments Off on CRA-App

Tax Day is April 17 This Year

Posted by taxguru on January 9, 2018

Everyone has long recognized April 15 as the official tax return filing and payment deadline because it’s been beaten into our heads for all of our lives.  It signifies the official end of the year’s fifth season, Tax Season.  However, because of the calendar, with weekends and an obscure holiday that is only recognized in the nation’s power center, it’s been a number of years since the deadline has actually fallen on April 15.

That’s the case once again for 2017 individual income tax returns (1040) according to this recent press release from IRS.

April 17 Filing Deadline
The filing deadline to submit 2017 tax returns is Tuesday, April 17, 2018, rather than the traditional April 15 date. In 2018, April 15 falls on a Sunday, and this would usually move the filing deadline to the following Monday – April 16. However, Emancipation Day – a legal holiday in the District of Columbia – will be observed on that Monday, which pushes the nation’s filing deadline to Tuesday, April 17, 2018. Under the tax law, legal holidays in the District of Columbia affect the filing deadline across the nation.

Posted in TaxDay | Comments Off on Tax Day is April 17 This Year

Prepaying Taxes

Posted by taxguru on December 28, 2017

The new tax law does include a lot of changes; some good and some not so good.  Remember that the word “Reform” just means to change shape, not always as an improvement for the better.  This latest reformation-reformulation of our taxation policies does, surprisingly, eliminate and reduce a lot of deductions that have been around at least since many years before I started preparing tax returns in 1975. 

I don’t have time to discuss too many of the changes right now, as I have been busy doing a lot of year-end consulting with clients.  However one big change does need to be covered ASAP.  In fact, the following is based on some emails I sent to clients earlier today, who had asked about the idea of prepaying their property taxes before the end of this month.

As has been widely publicized, the new tax law, effective for 2018, puts a $10,000 cap on Schedule A deductions for State and Local taxes, including property taxes on personal use property.  There is no such limit on deducting taxes on business or rental properties, which are shown on different schedules with the 1040.

For those in high tax states such as Calif, this upcoming limit does have many people choosing to prepay some of their State and Local taxes before the end of 2017 in order to claim them without the limit on their deductibility.

There are special rules for deducting property taxes that do prevent too much prepayment.  The taxes paid and deducted have to be actually assessed and thus a true current liability. In Calif, the current year 2017/18 taxes are payable half by October 10, 2017 and the other half by April 10, 2018.  This means you can send the county the money for the 4/10/18 installment by 12/31/17 and deduct it on your 2017 1040. 

This is also the case for other states that allow their property taxes to be paid in multiple payments, such as Oklahoma that has due dates of December 31, 2017 and March 31, 2018 for their2017/18 tax assessments.   

Since taxes for the 2018/19 and future years have not yet been assessed, any payments sent in for those years are not legally deductible.  This has been such a hot topic that IRS issued a press release on this issue yesterday.

IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017

Income Taxes

While the above discussion focuses on property taxes, it also applies to payments of State income taxes, which are included in the new $10,000 limit.  The final 2017 estimated tax payments for both IRS and the States are technically due January 16, 2018.  For the past few months, with the threat of this new limit looming, I have been advising clients to send in their final 2017 ES payment by 12/31/17 in order to definitely be able to claim it.  Since Federal income tax payments are not deductible anywhere, making that final payment for 2017 in December or January makes absolutely no difference of any kind.

Just as with the issue of timing of a deduction for property taxes, a similar concept applies to State income tax payments.  Since 2017 is almost over and income taxes on what you earned are already accruing, you are allowed to deduct payments for your 2017 State income taxes.  You re not technically allowed to prepay in 2017 for what you expect your 2018 income taxes to be because as of 12/31/17, you have no legal liability for any 2018 income taxes. 

However there is an easy way around this little technicality if you are desperate to maximize your 2017 State income tax deduction.  You could send your State a huge check postmarked by 12/31/17 for thousands more than your 2017 taxes could possibly be and have it all applied to your 2017 account with the State.  Later on, when you file your 2017 State income tax return, have the overpayment rolled over to your 2018 account. 

I should point out that this discussion also applies to those folks who are lucky enough to reside in one of the cities that require their residents to pay separate City income taxes.

 

 

Taxes Are Not Donations

While this limit on deducting State and Local taxes was being debated over the past few months, some people suggested just claiming those payments as charitable donations on their tax returns as a way to avoid the $10,000 limit.  That idea would not fly for some very basic reasons. 

While it is true that governments do qualify as charities and deductions can be taken for voluntary contributions paid to them, that isn’t how tax payments work.  First is the fact that a legitimate deductible charitable donation has to be completely voluntary with no strings attached and nothing of value can be received back in return for the payment.  Nobody can say with a straight face that paying property and income taxes is in any way voluntary, or that nothing is received in return for those payments.  Paying those taxes allows you to keep the property and stay out of prison. Those are quite valuable things you receive in exchange for the “contributions” paid to the State and County.  Anyone who tries that trick will hasten their trip to the hoosegow. 

 

TaxCoach Software: Are you giving your clients what they really want?

Posted in Deductions, NewTaxLaws, PropertyTax, StateTaxes | Comments Off on Prepaying Taxes

2018 IRS Mileage Rates

Posted by taxguru on December 17, 2017

As we all get ready for the transition to living in the year 2018, IRS has released its official standard mileage deduction rates to be used on 2018 tax returns.  While the 2018 tax returns won’t be prepared until the 2019 Tax Season, these figures are more currently relevant since most businesses use the IRS rates for reimbursing their employees for business related trips in their personal vehicles.

From the IRS news release:

Beginning on Jan. 1, 2018, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 54.5 cents for every mile of business travel driven, up 1 cent from the rate for 2017.
  • 18 cents per mile driven for medical or moving purposes, up 1 cent from the rate for 2017.
  • 14 cents per mile driven in service of charitable organizations.

 

As always, I want to encourage everyone who uses their vehicles for business purposes to keep track of their actual expenses because they are frequently much higher than the IRS’s standard rate, especially for more expensive vehicles that get lousy gas mileage. 

This article on the AAA website shows their calculations of typical annual operating costs for different types of vehicles.  Using 15,000 miles per year, AAA came up with annual operating costs ranging from $6,354 (42.36 cents per mile) for small sedans to $10,054 (67.03 cents per mile) for pickup trucks.  

Posted in IRS, Vehicles | Comments Off on 2018 IRS Mileage Rates

More Tax Refugees Flee Illinois

Posted by taxguru on December 13, 2017

It always makes me feel good when I see stories like this…

Illinois Drives People Away. The taxpayer migration continues from the Land of Ever Higher Taxes.

…because it gives me hope that eventually, people will reach their breaking point in terms of accepting being fiscally raped by their State Rulers.

As is the case with other high tax states (Calif, New York, New Jersey, et al) the Leftist Rulers will once again illustrate their ignorance of basic real world economics and attempt to remedy their financial shortfalls by soaking the remaining residents even more, as per the fantasy world teachings of their mentor, Karl Marx.  They never seem to have enough foresight to see where that leads – to even more people fleeing to lower or no tax states.

TaxCoach Software: Finally! Plain-English Tax Planning That Builds Your Business!

Posted in StateTaxes | Comments Off on More Tax Refugees Flee Illinois

Catching Phony IRS Scammers

Posted by taxguru on December 4, 2017

I doubt there is anybody left in this country who hasn’t received a phony demand for money from scammers posing as IRS agents, whether by phone, email or snail mail.  I have been forwarding at least one such scam email to IRS’s special email address (phising@irs.gov) each week. 

Just as with other such scam emails, I have always been curious as to whether the crooks are ever caught.  This recent story about the arrest of three men in Georgia (USA, not Russia) and one in Illinois, with connections to a bigger organized crime operation in India, is a good sign that at least a few of the bad guys are being caught. 

With fake IDs, three Georgia men collected $666,537, prosecutors say

What is most mind boggling about these scammers is the fact that they allegedly conned 7,314 people to send them a total of almost $3.5 million for fictitious taxes.  Considering that this was just one gang, there have to be several others running the same kind of scam.  With all of the publicity about these scams, it’s a bit amazing that there are so many gullible folks who fall for it.  

IRS has a useful guide to dealing with these scams on their website that has been growing in size as more and more people get into this extremely lucrative criminal activity.

Tax Scams / Consumer Alerts

Posted in Crooks, IRS, scams | Comments Off on Catching Phony IRS Scammers

2018 Federal Inflation Adjustments

Posted by taxguru on October 25, 2017

Every year, some parts of the tax code, such as the beginning and ending points for the various personal income tax brackets, are adjusted for the change in the government’s official Consumer Price Index (CPI) as of August 31.  This is supposed to prevent “bracket creep,” where people whose income is just keeping pace with inflation are pushed into the higher percentage brackets.

Not all tax related amounts in the Tax Code adjust automatically for inflation.  There are scores of tax related figures in the Tax Code that do not ever get adjusted and have been the same for several decades, waiting for an official Act of Congress to be adjusted for the effects of inflation.

As has been the tradition, tax publishers are the first to do the calculations and release the inflation adjustments for the next year.  IRS will release their official inflation adjustments for 2018 in the next month or so, assuming those IRS employees are still around in IRS HQ.

The first such report with 2018 adjusted amounts that I have come across is this 16 page pdf from Thomson Reuters.

Projected 2018 Inflation-Adjusted Tax Brackets and Other Key Figures

As I have done in previous years, I will post links to other such reports, as I learn about them.

Update 10/25/2017:  IRS has announced their official inflation adjustment figures in the following two news releases.

IRS Announces 2018 Pension Plan Limitations; 401(k) Contribution Limit Increases to $18,500 for 2018

In 2018, Some Tax Benefits Increase Slightly Due to Inflation Adjustments, Others Unchanged

One key adjustment that I didn’t mention earlier is the fact that, after several years at $14,000, the annual Gift Tax exclusion will rise to $15,000 per donor per donee for 2018.  This exemption is only increased in $1,000 increments, so it normally takes a few years of cumulative inflation before it’s enough to trigger the $1,000 increase.

Posted in inflation | Comments Off on 2018 Federal Inflation Adjustments