THE WANDERING TAX PRO

THE TWELVE DAYS OF TAX SEASON

2012-02-01T05:00:00.000-05:00

Now it is time for what you have been waiting a year for - the February 1^sttradition here at THE WANDERING TAX PRO of posting “The Twelve Days of TaxSeason” -

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

On the second day of tax season my client gave to me2 W-2 forms.

On the third day of tax season my client gave to me3 mortgage statements.

On the fourth day of tax season my client gave to me4 Salvation Army receipts.

On the fifth day of tax season my client gave to me5 Form K-1s.

On the sixth day of tax season my client gave to me6 1099s for dividends.

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

On the eighth day of tax season my client gave to me8 useless items.

On the ninth day of tax season my client gave to me9 medical bills.

On the tenth day of tax season my client gave to me10 stock sale confirms.

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

On the twelfth day of tax season my client got fromme a finished tax return, 11 employee business expenses, 10 stock saleconfirms, 9 medical bills, 8 useless items, 7 cancelled checks, 6 1099s fordividends, 5 Form K-1s, 4 Salvation Army receipts, 3 mortgage statements, 2 W-2forms, 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 acorrected Consolidated 1099 from Wells Fargo Advisors!

TTFAW

SO LONG, FAREWELL, AUF WIEDERSEHEN, GOOD NIGHT!

2012-01-31T05:00:00.000-05:00

Joyto the world - tax season’s here.

I’llsoon be flush with cash!

Letevery client be organized,

andgive me all I need, and give me all I need,

andgive me all I need to prepare their returns!

My41st tax season will officially begin tomorrow - let the deluge begin!

Asis my custom, due to the demands of the filing season I will be taking myannual “tax season hiatus” from posting to THE WANDERING TAX PRO, the NJ TAXPRACTICE BLOG, and THE TAX PROFESSIONAL.

Betweennow and April 16th I will barely have time to relieve myself let alone blog! Iwill NOT be answering emails fromnon-clients, nor will I have time to respond to comments. If a comment requiresa response I will do so after April 17th.

Areminder – I am NOT accepting anynew 1040 clients (or any other kind of tax preparation clients). So don’t email me asking if I can prepareyour 2011 tax returns.

Iwill be publishing a WHERE THE FAKAWI post at least every other week here atTWTP to keep my clients up-to-date on my progress during the season and toreport changes or additions to my tax season policies and procedures. Clientscan also keep track of my tax season progress by following me at TWITTER(rdftaxpro).

Irealize that I am abandoning you at a time when you may need me the most – butI need to make a living!

Ifind it a bit amusing that the period of time when TWTP gets the most “hits” isduring the tax filing season when I am not posting.

“Talk”to you when it is all over!

TTFN

BTW– be sure to stop by tomorrow for the annual posting of my TWELVE DAYS OF TAXSEASON!

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ - BONUS EDITION

2012-01-30T16:00:00.000-05:00

Somelast minute BUZZ before my “tax season hiatus” begins -

+Trish McIntire talks about a certain unnamed “tax chain” in her post “Listening to the Complaints” at OUR TAXING TIMES.

Sheasks the IRS –

“So IRS, are you investigating these offices?It’s your rule; returns can’t be e-filed without the W-2s, W-2Gs and 1099R toback up the income. Are you contacting the taxpayers in the stories to get moreinfo? Are you contacting, or investigating at all, reports from other preparersabout tax offices filing with pay stubs? Have you contacted the news outletswith educational materials about filing before the taxpayer has their W-2s andwhat to do if it happens? Are you running reports for returns rejected becausea prior return was filed and looking for trends?”

Whateveryou do, please avoid using a “tax chain” to prepare your 2011 returns. Seek out a competent independentpreparer. You will get much betterindividual service and probably pay less!

+Speaking of “tax chains” – just got an ad in the mail from Jackson Hewitt thatsaid in big letters “GET $1,500 IN AS LITTLE AS ONE DAY!”. How? Apply for a Refund Anticipation Loan!

Thead did not say that JH could correctly prepare your federal and state taxreturns. Or that its employees werecompetent and experienced tax preparers. Just come in and get $1,500. Itdid mention “Free Accuracy Guarantee with paid tax preparation”. So normally you would have to pay anadditional fee if you wanted an accurate return?

Theyoffered a $40 OFF coupon (tax preparation fee only – not good for “financialproducts, online tax preparation products or other services”). If that is the discount I can imagine thefee!

Onceagain – this tax season avoid “tax chains” like the plague!

+Kelly Phillips Erb, the tax blogoshpere’s TAX GIRL, presents “Tax Trivia Giveaway #1: Top Tax Rates” at FORBES.COM.

Thefirst trivia question is – What was the top income tax rate during World War I?

Doyou know the answer? You could win freetax software!

+The IRS’s National Taxpayer Advocate, Nina Olsen, has started a blog! Check out her first post – “Welcome to the National Taxpayer Advocate's Blog”. Wewelcome Nina to the “tax blogosphere”!

AsNina says – “So, here’s to the opening ofa dialogue about tax administration, taxpayer rights, and taxpayer burden”.

+And Kay Bell brings us “Tax Carnival #96: Dealing With Tax Dragons” at DON’TMESS WITH TAXES.

Iremembered to submit an item this time! I end the Carnival with "Don't Be In Such A Hurry".

TTFN

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

2012-01-28T05:00:00.000-05:00

+Check out the January issue of LOIS.

+My tax tip this week at MAINSTREET.COM was “How to Prepare Your Tax Preparer”. And then there was “How to Correct an Error on Your W-2”.

+Go to the MISSOURI TAXGUY blog and look for my Robert F page at the “Store”.

+The Tax Foundation has issued its “2012 State Business Tax Climate Index”,which presents the tax climate of each state as of July 1, 2011, the first dayof the standard 2012 state fiscal year.

The10 best states in this year’s Index are, from 1 to 10 – Wyoming, South Dakota, Nevada,Alaska, Florida, New Hampshire, Washington, Montana, Texas, and Utah.

The10 worst states are, from 41 to 50 – Iowa, Maryland, Wisconsin, North Carolina,Minnesota, Rhode Island, Vermont, California, New York, and New Jersey.

Onceagain, like Oliver Twist the Garden State is last on the list –

“New Jersey scores atthe bottom by having the third-worst individual income tax, the fifth-worstsales tax, the 13th-worst corporate tax, and the second-worst property tax.”

+Darren Mish has a two parter titled “Claim Tax Deductions from your Hobby” athis IRS PROBLEM SOLVER BLOG. Click onPart 1 and Part 2.

+The WASHINGTON POST tells us “Amid Calls for Tax Fairness, Government Report Shows Federal Workers Owe $3.4B in Back Taxes”.

“The data showed that 467 employees of theHouse of Representatives, or about 4.2 percent of the workforce, owed more than$8.5 million. In the Senate, 217 employees, or about 3 percent of theworkforce, owed $2.13 million.

Obama’s staff was notimmune, either, with 36 people in Obama’s executive office of nearly 1,800workers — about 2 percent — owing the government $833,970 in back taxes.”

+Trish McIntire celebrated “Earned Income Awareness Day” (12/27/12) with adiscussion of the troublesome fraud magnet known as the Earned Income TaxCredit over at OUR TAXING TIMES.

Trishlikes the EITC. While I may support thebasic concept behind the credit, I have written and spoken out against itsinclusion in the Tax Code for years. Itis a refundable credit – and refundable credits = rampant fraud.

+Kay Bell talks about the delays in sending out refunds for early birds in “Tax Refunds Delayed By Fraud Fine-Tuning” at DON’T MESS WITH TAXES.

Thiswill probably be the last BUZZ until after the “tax season”.

TTFN

WHAT'S THE USE?

2012-01-27T07:59:00.000-05:00

Justabout every state resident tax return now has a line for the taxpayer to enter “UseTax on Out of State Purchases”. It isline 44 on the NJ-1040 and line 59 on New York’s IT-201. Many states require that you make an entry onthis line – even if it is 0.00.

Theinstructions for the 2011 NJ-1040 tell us –

“If you were a New Jersey resident and youpurchased items or services that were subject to New Jersey sales tax, you areliable for use tax at the rate of 7% of the purchase price {the normal NJsales tax rate – rdf} if sales tax hasnot been paid. If sales tax has beencollected out of State, use tax is only due if the tax was paid at a rate lessthan 7%, based on the difference.”

Theinstructions provide the following examples –

“You purchased acomputer for $1,500 from a seller located outside of New Jersey and no salestax was collected. Your use taxliability to New Jersey on this item is $105 ($1,500  .07 = $105).

♦ On a trip to Maine you purchased an antique desk for$4,000 and paid Maine sales tax at the rate of 5%. The difference, $80 (2% ofthe purchase price), is due to New Jersey as use tax.”

If you do not know the exact amount of use tax that youwould owe some states will provide an “Estimated Use Tax Chart”. For example, if your NJ Gross Income is between$75,001 and $100,000 the state suggests you claim $53 in use tax.

I expect that at least 98% of all US taxpayers do notclaim any use tax on their state return. And a great majority of the 2% or less who do are employees of a state taxagency. In my 40 years in the business Ihave never had a client voluntarily pay state use tax on their state residentincome tax return.

There are those who purposefully shop for big ticketitems out of state and have the items shipped to their nonresident address in orderto avoid paying state sales tax at the point of purchase. When this is done the purchaser is liable foruse tax on the purchase in his home state.

The at the time Director of the NJ Division of Taxation RobertThompson told the NJ-NATP annual Famous State Tax Seminar a story several years ago where an attempt to avoid payingsales tax backfired.

The NJ Division of Taxation has had success in sales anduse tax enforcement. In one instance theDivision got a hold of the names and addresses of NJ residents who hadpurchased jewelry from a store just over the border in NY and had the itemsshipped to their NJ address, and therefore did not pay NYS sales tax.

The NJDOT send a letter, and a use tax bill, to each nameon the list. One of these mailings wasopened by the wife of a NJ doctor who thought there was an error on thebilling. The wife called the NJ Divisionof Taxation and told them –

“You have made a mistake on your billing. My husband only purchased one diamond bracelet.”

The husband, who apparently purchased matching diamondbracelets for his wife and his mistress, should have paid the sales taxupfront!

If you were a totally honest taxpayer, and in 2011 you did pay use tax on outof state purchases you made, and youchoose to deduct state and local sales tax instead of state and local incometax on your 2011 Schedule A, and youelect to deduct the actual tax paid instead of using the optional tables youcan also deduct the use tax you paid. According to the instructions for Schedule A (highlight is mine) –

“Generally, you candeduct the actual state and local general sales taxes (including compensating use taxes) you paid in 2011”.

TTFN

TAXES AND THE STATE OF THE UNION ADDRESS

2012-01-26T05:00:00.000-05:00

While I have not yet read it through carefully (nor did Isit through it), there appears to be nothing new on taxes from BO in the State of the Union address. No mention that Ihave seen of the need to totally rewrite the mucking fess that is our currentTax Code. Just more of the same –continue to complicate the Tax Code with more targeted deductions and credits.

The “Buffet Rule” and the general concept of taxing therich more because they can afford it was one of BO’s themes -

“Tax reform shouldfollow the Buffett rule: If you make more than $1 million a year, you shouldnot pay less than 30 percent in taxes. And my Republican friend Tom Coburn isright: Washington should stop subsidizing millionaires. In fact, if you'reearning a million dollars a year, you shouldn't get special tax subsidies ordeductions. On the other hand, if you make under $250,000 a year, like 98percent of American families, your taxes shouldn't go up.”

"Millions ofAmericans who work hard and play by the rules every day deserve a governmentand a financial system that do the same. It's time to apply the same rules fromtop to bottom. No bailouts, no handouts, and no copouts. An America built tolast insists on responsibility from everybody."

"Do we want tokeep these tax cuts for the wealthiest Americans? Or do we want to keep our investments ineverything else, like education and medical research; a strong military andcare for our veterans? Because if we're serious about paying down our debt, wecan't do both."

Millionaires don’t get the Child Tax Credit, for example,or any of the tuition tax benefits. Manytax benefits are wiped out based on Adjusted Gross Income (AGI) or ModifiedAdjusted Gross Income MAGI) well below the $1 Million mark. Millionaires are taxed on 100% of net capitalgains in successful years, but are limited to a deduction of $3,000 in netcapital losses in unsuccessful years.

Millionaires with excessive dividend income pay a lowertax rate on corporate dividends, but only because, due to unfairdouble-taxation, this income has already been taxed by the federal governmenton the corporate level as high as 35%.

Does insisting on “responsibility from everybody” meanthat almost half of Americans do not have to pay any federal income tax?

And BO calls for the extension of the payroll taxreduction

“Right now, ourmost immediate priority is stopping a tax hike on 160 million working Americanswhile the recovery is still fragile. People cannot afford losing $40 out ofeach paycheck this year. There are plenty of ways to get this done. So let'sagree right here, right now: No side issues. No drama. Pass the payroll tax cutwithout delay.”

To be sure, extending this for only 2 months was totallyridiculous, and, as long as it is in place for part of 2012 it should be all ornothing. But we should also addresswhether or not this kind of political trick is good tax or financial policy inthe first place.

To give BO credit, he does make one good suggestion thatI noticed -

“Put Americans towork today building the infrastructure of tomorrow.”

And he talks about corporate tax reform – but that is notmy interest at this point nor is that the focus of this blog.

TTFN

MITT'S 1040

2012-01-25T05:00:00.001-05:00

So now we haveseen Mitt Romney’s tax return.

We already knewhe was rich – now we know just how rich.

What did Mittdo? Certainly nothing illegal. He invested his money for the best return, asyou or I would do. It is just that hehas a lot more to invest than we do.

Did heparticipate in any shady tax dodges or shelters? Not that I can see. He invested in stocks and earned a ton ofdividends, most of which were taxed at a special rate of 15%. And he his investments did well – resulting inhumungous long-term capital gains. Didhe do anything sneaky to get the special 15% rate? No. The Tax Code allows for a 15% tax ratefor “qualified” dividends and long-term capital gains. If you or I invested in the same, or similar,stocks we, too, would pay 15% on qualified dividends and long-term gains. Actually some of us would pay 0% tax on allor part of the and capital gain income.

Romney alsogave close to $3 Million to church and charity, about 1/7 of his AGI, which, beingdeductible, reduced his taxable income. Would he have given the same $3 Million away if he did not get a taxdeduction? I think probably so, or atleast almost as much. But the Tax Codeallows for a deduction, under both regular tax and the dreaded AMT, forcontributions to church and charity. Youand I would get the same tax deduction.

Because he wasa victim of the dreaded AMT he got no tax benefit for his substantial state andlocal income tax and real estate tax payments and his also very high investmentexpenses.

He paid $3Million in income taxes! More than youor I did. More than anyone I have everknown did (I believe the most a client of mine has ever paid is a little over $1Million). Again about 1/7^thof his AGI. Almost half of Americanseither paid absolutely nothing or actually made a profit from filing a taxreturn. Should he have paid more tax soa higher percentage could pay 0? Why?

His return wasindeed voluminous – over 200 pages and attachments. And he filed forms and schedules that I havenever even heard of in 40 years in the business, let alone ever prepared. But they were due to the nature of hisinvestments.

Here is somemore info on presidential candidate tax returns -

• The TAX HISTORY PROJECT provides links to thetax returns of Obama and Biden and Romney and Gingrich, as well as those offormer Presidents and candidates.

• The WASHINGTON POST compares the basics of thetax returns of BO, Newt and Mitt in “Tales of the 1040s”.

• TAXGIRL Kelly Phillips Erb has reviewed Mitt’sreturn and tells us “Romney's Tax Returns are Remarkably... Unremarkable”. I agree with Kelly’s bottom line -

“The returns are – as predicted – remarkably unremarkable. Are we okaywith moving on now?”

TTFN

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

2012-01-25T05:00:00.000-05:00

+Check out the January issue of LOIS.

+ I suggestyou read my NJ TAX PRATICE BLOG post “Everybody Wants To Get Into The Act”.

+Go to the MISSOURI TAXGUY blog and look for my Robert F page at the “Store”.

+The WISDOM JOURNAL, by Ron, lists “57 Avoidable Tax Mistakes”.

Rondoes a good job in listing mistakes to avoid when preparing your taxreturn. However there are some errors.

Forone thing, “many of these mistakes areeasily avoidable if you use {tax preparation software} to prepare your taxes” is a false statement. Tax preparation software is no substitute forknowledge of the Tax Code, and certainly no substitute for a competent taxprofessional. If you don’t know the taxlaw you are bound to make these mistakes.

Mistake#10 is very important to note, and provides excellent advice– “Failing to read your entire return to checkfor accuracy. It is ultimately up to youto make certain everything is accurate. Double and triple check your return.”

Howeverthe statement “If you use {software} you shouldn’t have this problem” is again totallyfalse. It is even more important to double and triple check computer generatedtax returns!

Mistake#19 is “Failing to correctly handle the‘Making Work Pay’ tax credit”. Whilethis was a very frequent mistake on 2009 and 2010 tax returns, you do not haveto worry about this on your 2011 Form 1040, as the credit has expired and wasnot extended. There is no Making WorkPay credit on the 2011 Form 1040.

AndI disagree with #50 – “Failure to useCertified Mail when you mail your return to the IRS”. Unless you are mailing the return on April 17^thand need to guarantee the postmark this is an unnecessary added expense.

+The INTUIT SMALL BUSINESS BLOG tells us “5 Things You Should Never Say to the IRS” in an audit.

Hey,just because I do not recommend tax preparation software doesn’t mean a blogwritten by a software company does not have good information.

+Trish McIntire tells you what has happened if your anticipated refund isreduced by “Debt Offset” at OUR TAXING TIMES.

+Kay Bell gives us the “2011 and 2012 Tax Rates, Tax Brackets” and discusses marginalvs. effective taxes at DON’T MESS WITH TAXES.

+And you can “Win 'Your Income Tax 2012'” (from JK Lasser) in Kay’s “No TaxContests 2012” contest.

“If you also feel the urge now and then to goa bit old school with your taxes, leave a comment below on the tax break youfind the most confusing.

Or if you prefer, youcan tell me via Twitter (I'm @taxtweet) or post your thoughts on Don't MessWith Taxes' Facebook wall.

Whichevercommunication route you choose, please do so by 8 p.m. Central Time on Friday,Jan. 27. That evening I'll randomly select the winner from all the comments andtouch base with him or her about how to send the tax book, via snail mail, toits proud new owner.”

+Two items regarding the release of Newt’s tax return – Jeanne Sahadi of CNNMONEY goes “Inside Newt Gingrich's Tax Return”, and then there is “Gingrich and Medicare Tax - Pig Maybe - Hog Not - Geithner Definitely Not” from Peter JReilly at FORBES.COM.

Petermakes an interesting observation (highlight is his) -

“What is impressive, given the not shabby 3mil plus income, is the alimony deduction. Lessthan $20,000. Who is his divorceattorney? That is someone who should notbe wanting for business in the future.”

+Peter’s FORBES.COM colleague Kelly Phillips Erb, aka the TAXGIRL, quizzes anotherRepublican candidate I never heard of before on his tax policies in “Tax Talk 2012: Tom Miller”.

Accordingto his website Tom Miller is “a 46 yearold single dad who has been a career flight attendant for over 23+ years.”

+William Perez tackles three tax issues that probably generate the mostquestions in “Differences between Dependents, Head of Household, and Earned Income Credit” at ABOUT.COM-TAX PLANNING: US.

+And Bill continues the discussion in another item titled “Tips for Resolving Disputes over Dependents”.

+Trish McIntire provides a good list of the types of income you need to reportand the information returns that you (and the IRS) will receive in her post “Income and Their Forms” at OUR TAXING TIMES.

THEFINAL WORD

NewtGingrich, who led the crusade to impeach Bill Clinton over being serviced byMonica Lewinsky while at the same time he was shagging one of his own interns,thinks that asking a question about his former wife’s contention that he wantedan “open marriage” at a Presidential debate is “despicable”.

WhileI would agree that one’s marital infidelities should not preclude one fromserving as President, it also seems to me that serving your first wife withdivorce papers while she was in the hospital recovering from uterine cancer is alsoa bit despicable.

TTFN

GETTING READY TO PREPARE YOUR RETURN

2012-01-24T10:42:00.001-05:00

Another timely updated year-beginning post re-run:

You should have begun to receive the various forms neededto prepare your Form 1040. Employers, banks, brokers, mortgage companies,mutual funds, etc. are required to provide taxpayers with W-2s, most 1099s and1098s by January 31, 2012. Some 1099sare not required to be delivered until mid-February. If you have not received all your informationreturns by February 15th, contact the employer, bank, broker, or whoever andarrange to receive a duplicate copy.

When you receive your W-2s and 1099s check the figuresagainst your own records to make sure the amounts reported are correct.Carefully compare the gross federal and state wages, federal, state and localincome tax withheld, and Social Security and Medicare taxes withheld numbers onyour W-2s to the amounts on your paystubs or other records. Also verify thatthe Social Security numbers on the forms are correct. If you find an error ordiscrepancy, contact the appropriate employer or financial institution for anexplanation or a corrected copy.

If the federal and state wages are not the same I alwaysattempt to reconcile the numbers. My home state of New Jersey does not allow adeduction from state wages for contributions to pension or deferredcompensation plans other than a 401(k), or for employee contributions toflexible spending accounts for insurance premiums, medical expenses anddependent care. Third-party disability pay, which is usually at least partiallytaxable for federal purposes, is exempt from NJ state income tax and will notbe included in the state wages amount.

If you do not receive a W-2 from an employer and youcannot contact the employer because it has gone out of business or disappearedall is not lost. You can use your paystubs or other records to reconstruct thevarious items of income and withholding and file Form 4852 “Substitute for FormW-2 Wage and Tax Statement” with your federal and state tax returns. In such asituation I recommend that you consult a tax professional.

A word of warning for taxpayers who have brokerage accounts. You should receive at least one“Corrected” Consolidated Year-End 1099 statement. It would be a good idea towait a few weeks after receiving the original 1099 information before havingyour return prepared.

Here is another heads up. Insurance company and telephonecompany dividend checks mailed out in December or January often have a Form1099-DIV attached. Do not separate the check and throw out the 1099-DIV bymistake thinking it is merely a check-stub. Conversely, check any 1099-DIV youreceive from an insurance company or telephone company to see if there is adividend check attached. I can’t tell you how many times I have found checksattached to 1099s given to me by clients at tax time.

Just because you receive a Form 1099-G for a state taxrefund does not mean that the refund is taxable. A state income tax refund isonly taxable to the extent you received a “tax benefit” from deducting stateand local taxes paid on your Schedule A.

Let us say your total itemized deductions on a joint 2010Form 1040 were $11,728, just above the standard deduction amount of $11,400.Included in this amount is a deduction for the state income tax withheld duringthe year of $1,723. Your 2010 state income tax return reported an overpaymentof $531 and you received a refund check for that amount in May of 2010. InJanuary you may receive a Form 1099-G from your state tax authority for the$531 refund. Only $328 of this refund is taxable on your 2011 Form 1040. Asyour itemized deductions exceeded the standard deduction by $328, you only receiveda “tax benefit” of $328 from your deduction for state income taxes.

If you did not itemize on your 2010 Form 1040, or youfiled a Form 1040A, a state income tax refund is not taxable. If you elected todeduct state and local sales tax instead of state and local income tax on your2010 Schedule A the refund is also not taxable.

FYI, many states have stopped mailing out paper Form1099-Gs. You must go to the website ofthe state’s Division or Department of Taxation or Revenue to download acopy. So just because you did notreceive a Form 1099-G in the mail does not mean that one was not issued by thestate.

The IRS is very picky about matching names to SocialSecurity numbers. If a Social Security number and name reported on your taxreturn does not match exactly the name in the files of the Social SecurityAdministration the IRS will remove the name and dependency exemption of thatperson and automatically recalculate the tax liability as Head of Household,Married Filing Separately or Single.

If you have changed your last name as a result ofmarriage or divorce during 2011 make sure to notify the Social SecurityAdministration of the change before filing your tax return. You do this bysubmitting a Form SS-5 to request a new Social Security card. Go to www.ssa.gov/ssnumber.

TTFN

A POLITICAL LESSON NOT LEARNED

2012-01-22T08:47:00.002-05:00

Itis important to learn from the past.

WhenJon Corzine was running against Republican Doug Forrester for Governor of NewJersey the race was tight. But Corzine wonafter a Republican ad quoting a negative interview by his ex-wife backfired.

NewtGingrich turned the tables again and used the negative interview by an ex-wifeto his advantage in the most recent debate, winning the South Carolina primary.

Forsome reason using the accusations of an ex-wife in a political campaign does nothingbut bring sympathy to the cheating candidate.

Itis also important to remember some things about Newt Gingrich.

Twicehe left his wife, who had each been diagnosed with a serious illness (accordingto Esquire, Gingrich served his first wife with divorce papers while she was inthe hospital recovering from uterine cancer), for a mistress, while espousinghis support of “family values”.

Gingrichled the charge against Bill Clinton on the Monica Lewinsky issue while he wasconducting his own affair with a congressional aide, who is now his wife. Coincidently I read that a woman named AnneManning admitted to having a relationship with Gingrich during his 1976campaign. "We had oral sex," she said. "He prefers that modusoperandi because then he can say, 'I never slept with her.'" I guess that is where Clinton got the idea.

FYI,while he was Speaker of the House Gingrich was penalized $300,000 by a 395–28House vote after extensive investigation and negotiation by the House EthicsCommittee. This was the first time inhistory a Speaker was disciplined for ethical wrongdoing.

Irealize that I have said I would prefer a snake to a faithful spouse in theWhite House– but Gingrich is too much of a hypocrite and sleaze even for me.

TTFN

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

2012-01-21T05:00:00.000-05:00

+Check out the January issue of LOIS.

+ This week’s TAX TIP installment atMAINSTREET.COM (by me) is “What’s New for the 2011 Form 1040?”.

+Go to the MISSOURI TAXGUY blog and look for my Robert F page at the “Store”.

+Many states are no longer mailing out Form 1099-G to refund recipients. You have to go online and download acopy. The MISSOURI TAXGUY tells us thisis the case in his home state in “The Missouri 1099-G in 2012”.

Thisis also true for New Jersey and New York. Click here to download a Form 1099-G for New Jersey. The NY online system is not available yet.

+Speaking of NJCHANNEL NINE reports on the governor’s State of the State Addressand tells us “Christie Calls For 10 Percent Income Tax Cut”.

+Elsewhere, according to the WASHINGTON POST, “Governor O’Malley’s Budget Raises Taxes on Maryland’s High-Earners”.

+Although Trish referenced this correction in a comment, I thought I wouldprovide it here as well – “RAL Bounce – Edited”.

+Howard Gleckman reminds us that “Congress Is Back, And So Are Its Battles Over Tax And Budget Policy” in BUSINESS IN THE BELTWAY over at Forbes.com.

“The least popular Congress in memory isback. I, personally, am thrilled.

After a year in whichlawmakers did almost nothing besides (barely) keeping the government running,this session promises hardly more. Taxpolicy will be at the center of much of the partisan squabbling, but it is hardto imagine Congress achieving more than a temporary truce in its ongoing battleover last year’s unfinished business.”

+Joe Kristan introduces us to a new Iowa-based tax blog in “A New Tax Blog Right Here in Town”. It is the Davis Brown LawFirm’s UPDATES AND ANALYSIS OF TAX LAW.

+EFILE.COM has a table listing “State Tax Filing Deadlines - Due Dates for State Income Tax Returns and Tax Extensions”.

+The “Tax Tidbit on Deducting Meals” that Kimberly Kislak posts at KISLAK TAX& NOTARY SERVICE’S BLOG involves the standard meal and snack rates for 2011and 2012 for day care providers.

+Don’t forget to check out my TAXPRO BUZZ over at THE TAX PROFESSIONAL.

THEFINAL WORD

Henryand Richard’s advertising slogan – “Don’t Settle For Less” – is confusing. It is as if they are telling you not to go toH+R Block to prepare your tax return. H+R will certainly provide less service, less quality, and less valuefor your buck. The only thing that willnot be “less” is the cost. Maybe that iswhat they mean.

TTFN

ASK THE TAX PRO - NY NONRESIDENT TAX

2012-01-20T08:27:00.001-05:00

Irecently received a question about NY non-resident taxation via a comment to anolder post.

“Hello,

I was wondering if Iwas to work from home 5 days a week for a company with a NYC address would Istill be liable for NY taxes?

Thanks.”

Aswith any question involving taxes the answer is “it depends”. It depends on the specific facts andcircumstances of your situation.

Youdo not indicate whether or not you are an employee or the company with the NYCaddress or if you are an “independent contractor”. I assume we are talking here about “telecommuting”.

InMay of 2006 the New York Department of Taxation and Finance addressed thisissue for employees in TSB-M-06(5)I “New York Tax Treatment of Nonresidents and Part-Year Residents Application of the Convenience of the Employer Test to Telecommuters and Others”. If you are anemployee I suggest you download and read in full this TSB Memo.

Nonresidentemployees of New York employers do not have to pay New York state income tax ondays worked physically outside of New York State. The allocation is made on Schedule A of FormIT-203-B (Allocation of Wage and Salary Income to New York State). The instructions for this Schedule providethat (highlight is mine):

“Work days are days onwhich you were required to perform the usual duties of your job. Any allowancefor days worked outside New York State must be based upon the performance ofservices which, because of necessity (not convenience) of the employer,obligate the employee to out-of-state duties in the service of his employer.Such duties are those which, by their very nature, cannot be performed at theemployer’s place of business.

Applying the aboveprinciples to the allocation formula, normal work days spent at home areconsidered days worked in New York State.”

TheTSB Memo notes (highlights are mine) -

“Under this rule, daysworked at home are considered New York work days only if the employee’s assigned or primary work location is at an established officeor other bona fide place of business of the employer (hereinafter, a bona fideemployer office) in New York State.”

For tax yearsbeginning on or after January 1, 2006, it is the Tax Department’s position thatin the case of a taxpayer whose assignedor primary office is in New York State, any normal work day spent at the homeoffice will be treated as a day worked outside the state if the taxpayer’s homeoffice is a bona fide employer office.

A combination of severalfactors are taken into account to determine if a taxpayer’s home office is a “bonafide employer office”. For example -

· If some of the core duties of employmentare performed at the home office, then the home office will meet this factor.For example, the core duties of a stock broker include the purchase and sale ofstock. Accordingly, if the stock broker executes stock purchases and sales fromthe home office, this would constitute performing some of the core duties atthe home office. However, if the stock broker merely reads businesspublications on the weekend, this would not constitute performing any coreduties at the home office.

· If an important part of theemployee’s duties include physically meeting with clients, patients orcustomers in the normal course of the employer’s trade or business, and those meetingsare performed on a regular and continuous basis at the home office, then thehome office will meet this factor.

· If the employer requires theemployee to work from his or her home office as a condition of employment, thehome office will meet this factor. For example, if a written employment contractstates the employee must work from home to perform specific duties for the employer,then the home office will meet this factor.

· If the employer does not provide theemployee with designated office space or other regular work accommodations atone of its regular places of business, then the home office will meet thisfactor.

Ifyou are a “self-employed” independent contractor, and your main place of business is your home, which is not locatedin New York, and the NY-basedcompany is one of your clients or customers, and you do the work for this client or customer exclusively at yourhome office I would say you do not have to pay NY state income tax on the feespaid by this company.

Doesanyone disagree?

FYI- NJ residents who regularly work as an employee at an office in New York donot have to pay NY state income tax on regular working days when you attend a job-relatedconference, convention, seminar, or other training activity, or visit a client,in another state. For example, youattend a training session in Connecticut, or spend two days at a client orcustomer’s office in New Jersey.

Byallocating your days outside of NY you will probably pay less net combinedstate income tax, because the tax rate is higher in NY than NJ on most levels. You would allocate out these days on ScheduleA of Form IT-203-B.

TTFN

IT JUST AIN'T FAIR!

2012-01-19T08:26:00.001-05:00

The Tax Code is full of inequities. Some are intentional, and some are a resultof the evolution of the mucking fess that the Code has become. The bottom line is that many taxpayers are slightly,or often royally, screwed.

Take, for example, the way gambling winnings and lossesare treated. Gross gambling winnings aretaxed upfront on Page 1, increasing AGI, but losses are deductible only as aMiscellaneous itemized deduction on Schedule A.

A retired taxpayer playing $5.00 per day, six days aweek, in the state lottery who wins $1,000 has actually lost $560 for the year,but could pay $150 or $250 more in federal income tax if he/she cannotitemize. Plus, this $1000 gross win couldadd an additional $850 to his/her taxable Social Security benefits, addinganother $125 to $213 in taxes. So the$560 net loss could end up costing$463 in tax!

Since gross winnings increase AGI, but loss deductions donot, the winnings could cause the taxpayer to lose some or all of a multitudeof other tax deductions and credits that are affected by AGI, so the tax onnegative income could be even higher.

Larger winners are royally screwed. While they can deduct their losses onSchedule A, if the win causes them to be a victim of the dreaded AMT thelosses, as a Miscellaneous deduction, are “lost” in the AMT calculation.

There has been some relief offered in the new regulationsfor reporting casino winnings, but the basic inequity in the tax treatment ofgambling winnings still exists.

Similarly unfair is the way “itemized deduction recoveries”,such as state tax refunds, are taxed. Arecovery is a return of an amount you deducted or took credit for in an earlieryear.

Here is how the IRS explained the federal tax treatmentof the former NJ Homestead Rebate check a while back -

“In this case, itis the deduction you took for your property taxes in 1999. Taxpayers whoitemized last year enjoyed the benefit of taking a deduction for the entireamount of their property tax payment. However, since they received part of thatdeduction back in the form of a property tax rebate, after they filed theirreturn, these taxpayers will have to report that rebate as income on thisyear's return."

New Jersey taxpayers were told to report the rebate onLine 21 of Form 1040. State tax refundsare reported on Line 10. Like grossgambling winnings, this, too, increases AGI, and can therefore also increasetaxable Social Security benefits and reduce various tax deductions and creditsaffected by AGI.

It is logical, and proper, that if you receive a taxbenefit for a deduction in one year, if you receive a refund of all or part ofthat deduction in a subsequent year you must pay back the additional taxbenefit that the original deduction provided. However you deducted the item “below the line”, reducing taxable income,but you must report the recovery “above the line”, increasing AGI.

A $500 state tax refund, which had provided a $125 taxbenefit in 2010, could, when reported as gross income on Line 10, cause amarried couple to lose a $2000 “above the line” deduction for tuition and feespaid for graduate school, resulting in “paying back” the IRS $500 more than the original tax benefit!

While the so-called “Bush tax cuts”, which are set expire,did make some progress in bringing relief, there still exists a “marriage taxpenalty”. A married couple, especiallywhere both spouses work, can pay substantially more federal income tax then ifthey remained single and just lived together, filing two separate Singlereturns. Married taxpayers who fileseparately are even more screwed, as many deductions and credits are reduced ornot allowed for those claiming this filing status.

Self-employed taxpayers are royally screwed when it comesto the deduction for health insurance premiums. The deduction is from gross income, and not from earnings fromself-employment, causing a Schedule C filer, or a partner, to pay “self-employmenttax” on the amount of premiums paid.

If the business was incorporated health insurance wouldbe an employee benefit. The amount ofsalary paid to the owner would reduce the amount of wages taken. FICA tax would only be paid on the amount ofsalary. So the owner-employee does notpay FICA tax on the amount of premiums paid.

The idiots in Congress fixed this inequity for one yearonly in 2010, but this fix was not extended.

And the list goes on.

Let us hope the many inequities in the Tax Code, like those Imentioned above, are addressed in the coming discussion of tax reform.

TTFN

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

2012-01-18T05:00:00.000-05:00

+Check out the January issue of LOIS.

+NJ tax pros might want to check out my “review” of the annual NJ-NATP “FamousState Tax Seminar” here and here.

+Go to the MISSOURI TAXGUY blog and look for my Robert F page at the “Store”.

+Kelly Phillips Erb, aka TAXGIRL, asks “Are You Ready for Government Prepared Tax Returns?” and is taking a poll at her FORBES.COM blog.

Iam not ready for a “Ready Return”. In additionto the reasons Kelly mentioned here is a very important additional one –

TheIRS sends a taxpayer a “Ready Return” showing only $100,000 of matchedincome. The taxpayer knows full wellhe/she had $150,000 in taxable income, but since the IRS only wants tax on$100,000 the taxpayer will leave it at that, thrilled that he/she avoided taxon $50,000 of income.

+And Kelly begins her series of interviews on taxes with Presidential candidatesin “Tax Talk 2012: Vern Wuensche”.

“With that in mind, I contacted each of thecandidates who has officially declared an intention to run for president. Tokeep it simple, I asked each of the candidates the same six tax-relatedquestions.”

Imust admit I had never heard of the Republican candidate, head of WoodmarkKitchen and Bath, Inc.

+MARKETWATCH.COM reports that “2012 Rapid Refund Checks BOUNCE”.

“All American Check Cashing announced todayseveral checks it cashed for customers of Instant Tax of Hattiesburg have beenreturned. The checks were issued to Instant Tax customers as part of a rapidadvance tax refund. The checks were issued by Tax Tree of Miami, Florida andwritten on Bank of America.”

Nospecific information is provided as to why the checks bounced.

Maybethis will finally mark the end of this reprehensible practice. The IRS should ban tax preparers fromoffering RALs.

+JOE TAXPAYER presents a BUZZ-like “round-up” of personal finance blog postsconcerning alleged “financial expert” Suze Orman, her pre-paid debit card scam,and her tweet rants in “A Sorry Suze Roundup”.

Ihave not had the time to review the many posts, but I will say that I haveabsolutely no use for Suze Orman, and do not listen to her rantings.

+Jason Dinesen, who responded to my THE TAX PROFESSIONAL blog post on measuringthe success of the tax preparer regulation regime in “Thoughts on Preparer Regulation”, answers the question “How to Claim Your Same-Sex Spouse as a Dependent” in his “Same Sex Monday” installment at the DINESEN TAX TIMES.

+Kay Bell, the yellow rose of taxes, discusses “Taxpayer Rights and Responsibilities” at DON’T MESS WITH TAXES.

Kayquotes Nina Olsen in suggesting taxpayers have responsibilities as well asrights -

“.. . the National Taxpayer Advocaterecommends in her latest report that Congress organize taxpayerresponsibilities under the following five principles:

1. Obligation to behonest.

2. Obligation to becooperative.

3. Obligation toprovide accurate information and documents on time.

4. Obligation to keeprecords.

5. Obligation to paytaxes on time.”

+And don’t miss Kay’s “Tax Carnival #95: Tax Filing Season 2012”. Oops! I forgot to submit to this one.

+FYI, Mary O’Keefe has posted Henry and Richard's 2012 Fee Schedule in “H+R Block Pricing This Year” at BED BUFFALOES IN YOUR TAX CODE.

THEFINAL WORD

FYI– the revival of ON A CLEAR DAY YOU CAN SEE FOREVER with Harry Connick Jr isclosing on January 29^th. Disappointing. I am glad I saw it when I did.

TTFN

DON'T BE IN SUCH A HURRY!

2012-01-17T05:00:00.000-05:00

Here is anotheryear-beginning post “rerun”, with an added warning and a "PS":

Icertainly don’t think you should wait till the last minute to prepare your taxreturn. I also don’t think you should rush to be among the first taxpayers ofthe year to have your taxes done.

For me the “tax filing season” officially begins on February 1st. I tell myclients not to come to me until then, and rarely prepare a tax return beforethe 1st of February unless both the client and I are sure that he/she hasreceived everything necessary to properly prepare the return.

The reason I chose February 1st is because, under federal law, all W-2s, 1099sand 1098s are required to be furnished to taxpayers by January 31st (unless the31st falls on a week-end). The instructions for these forms state that the“furnish” requirement will be met if the form is properly addressed and mailedon January 31st.

Plus, most banks, brokerages, mortgage companies, colleges and the like are notable to send out 1099s and 1098s until the end of the month because of thevolume involved.

Several years ago, when I still had a storefront office open to the public, along-time client came in on the morning of February 1st to have his returnprepared. He had received all the 1099s for interest and dividends for allaccounts and investments as well as the 1099s for Social Security and pensions.Upon reviewing the “stuff” he presented to me I found that he had a form for everysource of income he had reported on the previous year’s return. He told me hehad not sold any stock during the year, and that there had been no spin-offs,mergers or “cash in lieu” for fractional shares. So I prepared the federal andstate returns.

He left the office with the completed returns happy in the thought that he wasfinished with his “uncles” for the year and pleased with himself for being soearly. He returned home, signed the returns with his wife, and went directly tothe Post Office to mail the returns.

The next afternoon I got a call from the client. He had gotten another 1099-Rin the mail that morning! His wife received a pension from Lucent Technologiesand, while the amount of the annual pension generally remained constant, earlyin the year Lucent had made a special one-time distribution to its retireesfrom a fund other than the regular pension fund, and issued a separate 1099-Rfor this distribution.

The client returned to my office that afternoon and I prepared amended returns,for an additional fee, to claim the income and withholding from the new 1099-R.I instructed him to wait to mail the amended returns until he received therefund checks from the original returns, so as not to confuse the IRS and NJ byhaving two returns in the system at the same time. The bottom line is that theclient had to pay twice for filing his returns.

More recently another long-time client – a single mother with a daughter incollege – gave me what she thought was all her and her daughter’s “stuff” onJanuary 27th. I cautioned her that she should wait for a few more days to makesure she had received everything – but she assured me she had. She was, ofcourse, in a hurry to get the refunds, which she always had directly depositedinto her bank account.

LuckilyI did not rush to do the return. The next day she called to say that somethingelse had arrived in the mail – a W-2 for her daughter’s work-study, which shedropped off for me. Again I did not rush to put pen to paper. The next day shecalled again to say that still another tax form had arrived – a Form 1098-T forcollege tuition. It was a good thing I had waited!

If you have a brokerage account there is an excellent chance that you willreceive at least one corrected “Consolidated 1099 Statements” to report taxabledividends, interest and gross proceeds after the initial statement arrives inlate January. The final corrected 1099 may not arrive until mid-March.

And don’t get me started on K-1s. These forms from partnerships, LLCs and sub-chapterS corporations are not required to be distributed by January 31st, and many donot arrive until the end of March or beginning of April!

My instructions to clients clearly state:

“Do not give or send me your ‘stuff’ until you have received all the formsand information needed to complete the returns! That means every W-2, every1099, and every K-1. I do not want to receive your 'stuff' in installments. Ifyou are waiting for an information return such as a Form K-1, for details fromyour broker on the cost of stock sold during the year, or for anything else,please do not give or send me anything until you have everything in hand!”

And,whatever you do, DO NOT listen toerroneous ads that say you can file your return using your last pay-stub. THISIS NOT TRUE!

So – don’t be in such a hurry!

PS-Also do not wait until the last minute. For one thing, your tax preparer may have, as I do, a “cut-off date”after which he/she will not accept work to be completed in time for the April17^th filing deadline. Even ifyou expect to owe your “uncles” it is “more better” to have the return preparedearly – so you have more than a month to figure out how to come up with themoney you owe.

TTFN

THE RETURN OF MAYBE MY FAVORITE POST - CHOOSING A TAX PROFESSIONAL – DON’T ASSUME

2012-01-16T08:12:00.000-05:00

It’s that time of year again! Timefor one of my favorite all-time posts – and one of my most commented-upon – theone that tells you not to make assumptions when looking for someone to prepareyour tax return.

As usual, I begin with the episodeof the ODD COUPLE television series where Felix explains to Oscar what happenswhen you assume (you make an ass out of u and me), and tell you that makingfalse assumptions when choosing a tax preparer can be costly

1) Don't assume that because aperson has the initials "CPA" after his name he is an expert when itcomes to federal and state income taxes!

The CPA designation means that aperson passed a very difficult test at the beginning of his/her career,possibly many, many years ago. Only a very small part of this test dealt withfederal income tax, and usually with “entity” tax issues (corporate,partnership, estates and trusts) and not 1040 issues. It is certainly noguarantee that he/she is competent or current on federal and state individualincome tax law, or that he/she has actually prepared a Form 1040 for a clientsince passing the test.

Whenever I would get a new client(which I do not anymore – as I do not accept any new 1040 clients) I ask to seehis/her last three (3) years’ tax returns, to make sure I do not miss anycarryforwards and, more important, to see if there are any errors that I couldcorrect on an amended return. In my 40 years of preparing tax returns I havefound more mistakes on 1040s prepared by CPAs than by any other class ofpreparer, including the taxpayer himself.

Some 30 years ago I was a"para-professional" in the Small Business Services Department of oneof the then "Big Eight" CPA firms (Deloitte Haskins + Sells). Whilereviewing the prior year's federal and state tax returns of a client whosecurrent returns I was preparing I found a very obvious error on the state taxreturn that caused the client to pay more tax than necessary. Under the firm'spolicy, the return, which had been originally prepared by a CPA, was reviewedby his "manager" (also a CPA), and signed-off on by the head of thedepartment (a CPA) and a member of the Tax Department (a CPA). Not one of theseCPAs picked up the obvious error!

A student in one of the taxplanning/preparation courses I taught at local suburban adult schools manyyears ago asked me what was the difference between a tax return prepared by aCPA and one prepared by me (I am obviously not a CPA). My answer was "atleast $100.00" (that number needs to be seriously adjusted forinflation!). I have often said that having initials after one’s name oftencauses one to charge twice the price for half the service.

CPAs have higher overhead coststhan most currently “unenrolled” preparers, for malpractice insurance forexample. These higher overhead costs usually apply to their audit work, but arestill passed along to 1040 clients.

There has been some concern in thepast about the practice of CPA firms “outsourcing” the preparation of 1040s toIndia. This should not be a cause for concern. Between you and me - you aremuch more likely to have your 1040 prepared properly and accurately by acontracted preparer in India than by a CPA here in the United States!

Many of my fellow tax bloggers,who happen to be CPAs, will tell you that what I say in this post is correct. Forexample, in discussing the IRS decision to exempt CPAs and attorneys fromtesting and continuing education requirements in its proposal for regulatingthe tax preparation industry, a CPA tax blogger said –

“Being a licensed CPA or attorney is no guarantee of tax expertise. Thelicensing examinations do not emphasize tax law. Plus, neither is required totake any tax related continuing education to maintain their licenses. Truth ismany CPAs and attorneys have little tax experience. I should know. I preparetax returns for them.”

The post ends with - “Virtually every new client I get is anamended tax return waiting to happen. Guess who prepared the returns I’mamending…mostly CPAs!”

I have said it time and again –just because a person has the initials CPA after his/her name does not meanthat he/she knows his/her arse from a hole in the ground when it comes topreparing 1040s.

The only initials that have anymeaning when it comes to tax preparation are "EA" - Enrolled Agent (Iam also not an “EA”). The name is misleading. An EA is not an agent of theInternal Revenue Service, but a private tax professional who is "enrolled"to act as a taxpayer's "agent" in proceedings with the IRS and in TaxCourt. To become an Enrolled Agent one must pass a difficult test that is 100%federal tax law. In order to maintain their enrolled status, EAs must have amandatory number of continuing education credits in taxation each year. Boththe initial competency test and the CPE requirements are more strict than thoserequired of the Registered Tax Return Preparer.

While the IRS was right to exemptEnrolled Agents from the testing and CPE requirements of the new regulationregime, it was dead wrong to exempt CPAs (and attorneys). The higher ups at theIRS know full well that the initials CPA (or JD) have nothing to do withcompetency in federal income tax matters, but feel they are statutorilyrestricted from placing additional requirements on those with these initials.

As I have said before – once thereturn preparer regulation regime is fully phased in, only those individualswith the initials EA or RTRP will have proven competence and currency in 1040preparation.

2) Don't assume that H+R Block, orany other “fast food” commercial preparation chain, will charge a low, or evenreasonable, fee for preparing your tax return!

When my mentor and I got a hold ofthe H+R Block fee schedule back in the late 1980s we were in complete shock -Henry and Richard ain't cheap!

They, and others of their ilk, arevery expensive, especially considering the quantity and quality of the servicethey provide. They charge fancy restaurant prices for fast food service! Plusthey will attempt to squeeze even more money out of you by trying to push youinto unnecessary, but profitable to them, products like a high-fee H+R debitcard, or a Block-sponsored high-fee, low-yield investment that is practicallyguaranteed to lose money. Thankfullythey no longer attempt to force Refund Anticipation Loans (RALs) onlower-income clients.

While, like anything else, themarket affects the price of tax preparation, the major factor affecting thefees charged is overhead. Let’s look at the overhead of these chains.

Because the storefronts wherethese chains are located are usually in high traffic commercial areas, andoften shopping malls, the rent is generally very high. And an important factor– H+R and Liberty and Jackson Hewitt storefronts are only open during the tax filingseason, yet they must pay rent on the property for the entire year.

These chains have excessiveadvertising budgets during the season, spending millions of dollars on constanttv and radio spots as well as print advertising telling you not that they competentlyprepare accurate tax returns but simply to come into their office and walk outwith a check. Hey, doesn’t H+R advertise during the Super Bowl.

H+R Block et al are corporations,and have highly compensated upper level corporate officers and employees withgenerous employee benefits. A while back the Associated Press reported that “H&R Block Inc. CEO Russell Smythreceived compensation valued at $5.3 million in fiscal 2009, the year he tookover leadership of the nation's largest tax preparer”.

And,most notable of all, Henry + Richard, Jackson Hewitt, and Liberty need millionsof dollars for legal fees and the settlement payments for the many, manylawsuits for deceptive advertising and other unethical business practices.

With commercial preparation chainsI expect that the actual cost of preparing the return - salaries paid to theseasonal preparers and the training of these preparers - is one of the leastexpensive items in the budget.

Returns prepared by the employeesof Henry and Richard and the like are second to CPAs in terms of errors I havediscovered on 1040s over the years. My mentor always said that he wished H+RBlock would move next door to our office - we would make a fortune fixing theirmistakes!

A few years ago the GovernmentAccountability Office (GAO) conducted a study which resulted in a report toCongress titled “Paid Return Preparers: In a Limited Study, Chain PreparersMade Serious Errors”. The GAO sent undercover agents with two different taxscenarios to a total of 19 offices of 5 “fast-food” commercial tax chains,including H+R Block, in a metropolitan area. In only 2 instances was thecorrect refund calculated, but all 19 returns contained errors.

Some of the more serious errorsincluded –

• not reporting self-employmentincome in 10 of the 19 cases,

• claiming an Earned Income TaxCredit on an ineligible child in 5 of the 10 applicable cases,

• not claiming the educationbenefit (credit or deduction) that resulted in the least tax in 3 of the 9applicable cases, and

• not claiming all availableitemized deductions, or not itemizing at all, in 7 out of the 9 applicablecases.

I was told by the GAO that not oneof the 19 preparers in the study had asked to see the undercover taxpayer’sprior year’s return!

The GAO agents also discoveredunethical sales practices related to Refund Anticipation Loans (RALs). Theannualized interest rate for the RALs offered to the “taxpayers” ranged from380% to 470%.

Other undercover operations, byTIGTA, local tax agencies, and consumer protection organizations, have foundsimilar results. It was these studiesthat started the ball rolling on the preparer regulation regime.

When looking for a taxprofessional, as with any other professional, it is best to get a referral froma trusted friend or relative.

As always, I must be perfectlyfair. Over the years I have come across CPAs who were extremely competent andcurrent in 1040 matters, and even some who charged reasonable fees. But this isnot a “given” based on the initials only. And I am sure that there are probablysome competent, current, ethical and professional H+R Block preparers out theresomewhere (though you couldn’t prove it by me).

And I end on my usual caveat. Itmay actually be possible that the best tax preparer, at the best price, foryour particular situation is either a CPA or an H+R Block, or other fast-foodchain, employee. But this is only because of the education, experience,ability, temperament, and other factors that are specific to that individual preparer.

So bring on the comments!

TTFN

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

2012-01-14T05:00:00.000-05:00

Nowthis is better!

+Check out the January issue of LOIS.

+Did you see my piece “6 Things to Do While Waiting for Your W-2” atMAINSTREET.COM yet? Or “8 Questions to Ask Your Tax Preparer”?

+Go to the MISSOURI TAXGUY blog and look for my Robert F page at the “Store”.

+Professor Annette Nellin of 21^st CENTURY TAXATION is “Not Giving Up on Simplification” and says so in an article written for the AICPA, which alsoapplauds her publisher and IRS Commissioner Shulman for doing the same.

Herpiece includes some interesting statistics (highlight is mine) -

“Advocating for tax simplification in theface of growing complexity is a challenge. The IRS National Taxpayer Advocateobserves that there have been over 4,000changes to the Internal Revenue Code in the last decade, including 579 changesin 2010 (2010 report to Congress, page 4). The Joint Committee on Taxationreports that since the Tax Reform Act of1986, 34 public laws added 157 new special deductions, credits or exclusions tothe income tax system. (JCT 2011, pages 61 – 70).”

+Beware of self-obsessed and self-promoting so-called “financial experts”. 20 AND ENGAGED gives us one example in “Suze Orman’s 'Approved Card' Gets Denied; Thinks PF Bloggers Are Idiots”.

Intalking about Ms Orman’a latest scam the blogger says –

“Suze Orman, personal finance ‘extraordinare’has recently debuted a prepaid debit card called The Approved PrepaidMasterCard. Personal finance bloggers, including myself, were a littleperturbed. Other celebrities including Russell Simmons and the Kardashians havebeen criticized for making a buck off of lower and middle class with thesecards, so we didn’t quite understand why a finance guru such as Suze would beadvocating a prepaid debit card. With its $3 monthly fee, fees for payingbills, fees from withdrawing from the wrong ATMs, fees for paper statements,fees for additional customer service, the list goes on. Sure, there’s some freethings like opening the card and PIN transactions, but the fees outweigh thebenefits. Seems as if she wants us to be mindless sheep and agree witheverything she says.”

Iremember attending an NATP-sponsored tax workshop a few years back where theinstructor (a professional personal finance speaker and not a tax preparer)told us that Ms Orman didn’t know her arse from a hole in the ground. I have never come across anything to cause me to think otherwise.

+William Perez reminds us that “4th Estimated Payment Due on January 17”, andprovides some good advice for independent contractors who make estimatedpayments, over at ABOUT.COM TAXPLANNING:US.

+Over at the DINESEN TAX TIMES EA Jason Dinesen begins a new series of blogposts on “Taxation of Aspiring Authors: Sometimes It’s Taxing”.

“Are you thinking about writing a book? Thesedays it’s easier than ever to self-publish, especially with the advent ofe-books. What are the tax consequences? I’ll explore this issue in a series ofblog posts.”

+CNN MONEY talks about another finding of Nina Olsen’s report to Congress in“IRS on Autopilot”.

“In 2010, it flagged 10.6 million math andclerical errors, up from 4 million in 2005, according to a government reportfrom National Taxpayer Advocate Nina Olson released Wednesday.

The reason: The IRShas greatly increased its use of automated systems to ferret out mismatchesbetween what an individual reports on his return and the third-party data theIRS receives for that person, such as pay information from employers or datafrom the Social Security Administration.”

Thereport also found something that underscores one of my posts from last week(highlight is mine) –

“And the Making Work Pay credit accounted formore than half of the 10.6 millionerrors flagged in 2010, the IRS said.”

+ACCOUNTING TODAY gives us the word that “IRS Steps up Efforts to CombatIdentity Theft”.

”The Internal Revenue Service has increasedits battle against identity theft, creating a special section on its Web sitededicated to helping growing numbers of tax fraud victims.”

+INC.COMcorrectly explains that “The 2-Month Extension Does Nothing for Small Business”. The 2-month extension of the payroll taxreduction, that is.

“But small business owners, accountants, andsome politicians say the two-month extension may have done more damage thangood because they now don't know if the tax cut will extend beyond February,and the lack of certainty, like all economic policy, makes it hard to plan outfinancial (and hiring) decisions for the year ahead. Congress will vote againon the cut in 2012, and it could be extended—or it might not be.”

+My colleague at MAINSTREET.COM, Kristin Colella, discusses “10 Things You Might Not Know About Your Money” in a “slide show”.

+And here is a “slide show” from Shelly K. Schwartz at BANKRATE.COM on “6 Ways to Use an IRA You Haven't Thought Of”.

THEFINAL WORD

Areminder from the IRS - "Remember, no matter who prepares a taxreturn, the taxpayer is legally responsible for all of the information on thattax return."

TTFN

TO 1099 OR NOT TO 1099 - THAT IS THE QUESTION!

2012-01-13T05:00:00.000-05:00

A long-time friend and client, the Executive Director ofa membership organization for artists, recently asked me to whom does she haveto issue Form 1099-MISC for tax year 2011.

First of all -

Section 9006 of the “Patient Protection and AffordableCare Act” had expanded the 1099 reporting requirements to include all paymentsfrom businesses for goods and services aggregating $600 or more in a calendaryear to a single payee, including corporations (other than a payee that is atax-exempt corporation), starting with payments in 2012.

In April of 2011, the President signed into law the“Comprehensive 1099 Taxpayer Protection and Repayment of Exchange SubsidyOverpayments Act of 2011”, which repealedthe expanded Form 1099 information reporting requirements.

The expandedexcessive 1099 reporting requirements NO LONGER EXIST.

Here are some excerpts from the IRS instructions for Form1099-MISC on the reporting of “nonemployee compensation” for 2011 -

“Enter nonemployeecompensation of $600 or more. Include fees, commissions, prizes and awards forservices performed as a nonemployee, other forms of compensation for servicesperformed for your trade or business by an individual who is not your employee.

If thefollowing four conditions are met, you must generally report a payment asnonemployee compensation.

• You made the payment to someone who isnot your employee;

• You made the payment for services in thecourse of your trade or business (including government agencies and nonprofitorganizations);

• You made the payment to an individual,partnership, estate, or, in some cases, a corporation; and

• You made payments to the payee of atleast $600 during the year.”

What should you include on for Form 1099?

Report only payments for services provided, and not for thereimbursement of expenses submitted to you.

If an independent contractor, like the private detectiveson tv, charges “$200 a day plus expenses” (that $200 a day would now probablybe $500 a day) for his/her services, and you were presented with a detailedlist of specific expenses for travel, informant fees, research, supplies, etcfor which you reimburse the contractor, the amount of this reimbursement shouldnot be included in the amount you report on the Form 1099 you give to thecontractor. The 1099 should only includethe “$200 a day”.

If he/she worked 5 days and submitted a detailed expensereport to you for $527.36 the Form 1099 you provide should be for $1,000 only($200 x 5 days), and not the $1,527.36 that you actually paid. If the fee was $200 a day plus a flat $50 aday for expenses then the Form 1099 would be for $1,250.

Generally you do not have to issue a Form 1099-MISC fornonemployee compensation paid to a corporation. Payments to corporations are reported only if they are for medical,health care, legal or fishing activities.

At one point I was a one-member LLC (Robert D Flach LLC)opting for the default filing as a sole proprietor on Schedule C. Business clients who paid me $600.00 or moreduring the year had to issue me a Form 1099-MISC for my accounting and taxpreparation fees. I now operate as acorporation (Taxpro Services Corporation), so my business clients no longerhave to give me a Form 1099 for my fees.

If a business paid a self-employed photographer, WilsonPhotography, an unincorporated sole proprietor who filed a Schedule C (or if apartnership a Form 1065), $750.00 for taking publicity photos or photos used ina catalog it would have to issue a Form 1099-MISC. If the photographer was Wilson Photography,Inc. no Form 1099 would be required.

You must include the payee’s Social Security Number orEmployer Identification Number on the Form 1099. If you do not have it call the payee or sendhim/her a Form W-9 to fill out and return to you.

TTFN

IN LOVE WITH LISTS

2012-01-12T07:58:00.001-05:00

Ihave often pointed out, with examples, that bloggers love lists.

Apparentlyso, too, do information portals like MAINSTREET.COM, where I am the residenttax expert. They also like “slide shows”.

Checkout these two recent items of mine –

“6 Things to Do While Waiting for Your W-2”

“8 Questions to Ask Your Tax Preparer”

And be sure to check out my weekly Tax Tip column (which becomes daily in mid-March)!

NATIONAL TAXPAYER ADVOCATE ANNUAL REPORT TO CONGRESS

2012-01-12T05:00:00.000-05:00

National Taxpayer Advocate NinaOlsen has issued her annual report to Congress.

In the report Nina tells us –

“The most serious problem facing U.S. taxpayers is the combination ofthe IRS’s expanding workload and the limited resources available to the IRS tohandle it.”

The idiots in Congress continueto make the Tax Code more complicated, but do not provide the Service with thefunds to deal with the mucking fess they create.

Her Legislative Recommendations includethe usual (included each year) - Repeal the Alternative Minimum Tax forIndividuals and Simplify the Tax Code.

Under Simplify the Tax Code shesays -

“The Bipartisan Tax Fairness and Simplification Act of 2011 {S. 727,112th Cong. (2011)} generally incorporates many of these recommendations. Thebill would combine current education-related tax credits and deductions into asingle tax credit for all education expenses, including tuition, fees, andstudent loan interest. It would consolidate retirement savings plans into onecategory. It would eliminate manysunsets created by the Economic Growth and Tax Relief Reconciliation Act of2001 by permanently repealing phase-out provisions for the EITC, the dependentcare credit, the child tax credit, personal exemptions, and limitations on itemizeddeductions. It would further simplify the tax code by reducing the number of taxpreferences. In addition to general simplification provisions, the bill wouldmake the return filing process easier for taxpayers by providing any taxpayer,upon request, with a simplified pre-prepared tax return based on theinformation the IRS has received from third parties. Taxpayers also wouldreceive a one-page summary showing how the most recently available fiscalyear’s revenue was spent.”

This is the first I have heardabout this proposed Act. Here is what Ifound about it on the website of bill sponsor Democratic Senator Ron Wyden ofOregon -

“For individuals: Wyden-Coats reduces the number of individual taxbrackets from the current six to three: 15 percent, 25 percent, and 35 percentand eliminates the Alternative Minimum Tax completely. Middle-class and low-income taxpayers willbenefit from Wyden-Coats’ near tripling of the standard tax deduction, whichwill not only reduce tax bills but relieve Americans of the stress andresponsibility of maintaining the records and receipts needed to documentitemized deductions. These simplifications alone will make it possible for mosttaxpayers to file a simple one-page 1040 form that most Americans will be ableto fill out in less than an hour. Moreover, by eliminating tax breaks and loopholes that allow someAmericans to pay less than others, Wyden-Coats is able to hold down rates foreveryone. According to the Tax PolicyCenter, most families making up to $200,000 a year will pay the same or less intaxes under Wyden-Coats than they do today.”

Click here for more informationon the bill.

Don’t expect the idiots inCongress to act on this report any time soon.

TTFN

WHAT IS INDECENT?

2012-01-11T10:23:00.000-05:00

The Supreme Court is currentlyhearing arguments from broadcast television stations on the topic of what isindecency and whether the FCC should be regulating broadcast stations whencable tv is less regulated.

The arguments have been limited, asI understand it, to fines for brief partial nudity and the slipping of f and sbombs on live broadcasts.

But what about so-called “reality tv”shows – both broadcast and cable. Thesesteaming piles of excrement do more damage to society in general and our youthin particular than any wardrobe malfunction or slip of the tongue.

As a writer with what I believe issomething to say I am generally against censorship and a supporter of freespeech.

But those appearing on reality tvshows can barely utter the King’s English let alone have something to say,other than “Hey, look at me. I’m anidiot!”

We are just now beginning tounderstand the damage done to society by this type of reality tv.

Data compiled by the AmericanSociety of Plastic Surgeons found that In the US there has been an incredible59% increase in plastic surgery from the year 2000 to 2008.

Shows like THE JERSEY SHORE and THEREAL WORLD that glorify drunken promiscuity and fighting as the norm forsettling disputes certainly tell impressionable young viewers that suchbehavior is acceptable.

A news item recently reported –

“TheGirls Scouts are warning of the dangers of reality TV after a study by the GirlScouts Research Institute concluded that reality shows are having a negativeeffect on young women, TMZ.com reports.

Thestudy found that reality television ‘more frequently portrays girls and womenin competition with one another rather than in support or collaboration. Thisperpetuates a 'mean-girl' stereotype and normalizes this behavior among girls,’the story reports.”

The study concluded: “Teen girls who regularly view reality TVaccept and expect a higher level of drama, aggression, and bullying in theirown lives, and measure their worth primarily by their physical appearance."

And the monetary rewards and mediaattention paid to reality tv “performers” such as the Kardashians and Spookieand the other sluts and skanks of THE JERSEY SHORE and similar crap shows thatone does not need intelligence or ability or talent or hard work or courtesyor common sense or self-respect to be successful – all you need to do is drinkto excess, have sex with anything that moves, and basically just act like anidiot.

IRS ANNOUNCES TOP TAX RETURN ERRORS

2012-01-11T08:00:00.000-05:00

TheIRS has issued a report of the “Top Errors for Taxpayers and Paid Preparers on Return Submissions” for January 1, 2011 through December 28, 2011.

Regardlessof whether the return filed was a 1040, 1040A or 1040EZ, was prepared by a paidtax professional or the taxpayer himself/herself, or was submitted on paper ore-filed, the biggest error in all categories was –

“Based on information provided on your returnwe have determined you are eligible to claim the Making Work Pay and GovernmentRetiree Credit and have computed the credit for you.”

And,except for paper-filed returns prepared by taxpayers themselves, another toperror was –

“We changed the amount claimed as Making WorkPay. There was an error in the computation of the total amount.”

Firstthere were Dubya’s rebate checks, which caused massive confusion and error ontax returns.

UnderBO the rebate morphed into the Making Work Pay Credit, which in many casestotally FU-ed withholding, especially on pensions for taxpayers who were noteligible for the credit, resulting in surprise balances due, and, as evidencedabove, caused massive confusion and error on tax returns.

Thankfullythe latest evolution of the rebate, the payroll tax holiday, did not involvethe 1040 (or 1040A or EZ). Though I amsure it caused confusion and error by employers, especially so in its currenttwo month temporary extension.

Ido not recall ever seeing any concrete evidence that this political trick, basicallya form of buying votes, did any good in boosting the economy, in whatever formit took. Please let me know if I amwrong.

Asan individual I was thrilled to get the extra checks from the government, orpay less tax on my 1040, or withhold less Social Security from my wages. I can certainly put the money to better usethan the federal government. But as atax professional and concerned citizen I know that this was a mucking fess,consistent with the inability of the idiots in Congress to do anything right.

FYI- most of the IRS determined top errors concerned refundable credits. More evidence of what I have been saying foryears – refundable credits are bad tax policy.

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

2012-01-11T05:00:00.000-05:00

Notmuch BUZZ today.

+Check out the January issue of LOIS.

+This week’s Tax Tip column at MAINSTREET.COM (by me) is “Why You Should Make Your IRA Contribution Now”.

+Go to the MISSOURI TAXGUY blog and look for my Robert F page at the “Store”.

+The CLASS 5 TAX BLOG casts its vote for “The Most Misunderstood Question on the Tax Return”.

Actuallyit is not a question – but a check-off. It is the box where you can check to have $3.00 ($6.00 on a jointreturn) of your tax liability to go to the Presidential Election CampaignFund. As the box explains – “Checking abox below will not change your tax or refund”.

Thinkingback, I do not recall anyone of my, or my mentor’s, clients ever checking thebox. And, to be honest, I have neverchecked it myself. Perhaps I shouldconsider doing so this year.

+FYI – per CNN MONEY “Average Tax Refund Slips to $2,913 in 2011”.

+Let the customer beware! CBS news inRichmond VA warns “Walmart's ‘Free’ Offer Could Come With a Price”.

Sincethe free tax preparation offer at Walmart stores involves using either the H+RBlock or Jackson Hewitt fast food chain (depending on the store) you shoulddefinitely not have your tax return preparedat Walmart!

TTFN

KEEP YOUR HEAD DOWN!

2012-01-10T08:39:00.002-05:00

Manyyears ago I travelled cross country on an escorted rail trip on Amtrak. Among my fellow travelers was a retiredcouple from a suburb of our capital city of Trenton (TRENTON MAKES - THE WORLDTAKES).

Thehusband’s doctor had told him he needed to walk more. So every day he would take a walk through thestreets of his town. As he walked hekept his head down to see where he was going. In the course of a year he found about $123.00 literally “at his feet”! Money, coins and bills, on the ground.

Ido not walk much, now less than then, but once I heard that story I, too, beganto walk with my head down, looking for coinage on the street. In a year I had accumulated a little over$12.00 in found money. Hey – it equaledtwo free movie tickets at the time (when I went to the movies). And even today it’s a free ham and cheeseomelet breakfast at my local diner.

Whenyou go to the drive-up window of a fast food joint to pay do not park too closeto the window. Leave enough room to beable to open your door a bit – you will usually find coins on the ground underthe window.

Youcan also find coins, often quarters, on the ground underneath the basket attoll booths. When I would travel late atnight and come upon a Garden State Parkway toll that cost 35 cents I wouldoften be able to pay the toll and pocket 25 cents with what I found on the ground.

Sincethis is a blog about taxes, to justify this post perhaps I should discuss ifthis found money is taxable.

Yes,it would be income, and you would have to report it as miscellaneous income, muchlike gambling winnings or a prize won on a tv game show, on Line 21 of Form1040.

Generallyincreases in wealth are taxable. I dobelieve there is a Tax Court case concerning a "hidden hoard". A person bought a piano somewhere and laterfound a pile of money hidden inside, which was determined to be taxable.

Thebottom line - found value is taxable.

TTFN

FALL INTO THE GAP!

2012-01-09T08:04:00.001-05:00

The Internal Revenue Service has released a new set oftax gap estimates for tax year 2006. The$300 Billion number for net uncollected tax that we had been using now lookslike closer to $400 Billion.

“The new tax gapestimate represents the first full update of the report in five years, and itshows the nation’s compliance rate is essentially unchanged from the lastreview covering tax year 2001.

Thevoluntary compliance rate — the percentage of total tax revenues paid on atimely basis — for tax year 2006 is estimated to be 83.1 percent. The voluntarycompliance rate for 2006 is statistically unchanged from the most recent priorestimate of 83.7 percent calculated for tax year 2001.”

The IRS suggests taxpayers did not pay $450 Billion ontime in 2006. The tax agency eventually collects around $65 Billion wascollected via audits and late payments. The result is a net tax gap for 2006 of $385 Billion, $95 Billion higherthan the $290 Billion previously estimated for 2001.

The increased gap is largely due to “the growth in total tax liabilities. In addition, some growth in thetax gap estimate is attributed to better data and improved estimation methods.”

According to the Service -

"As was thecase in 2001, the underreporting of income remained the biggest contributingfactor to the tax gap in 2006."

The complete breakout:

•Under-reporting accountedfor an estimated $376 Billion of the gross tax gap in 2006, up from $285 Billionin 2001.

•Tax non-filing accounted for $28 Billion in 2006, upfrom $27 Billion in 2001.

•Underpayment of tax increased to $46 Billion, up from$33 Billion in the previous study.

The IRS found -

“Overall,compliance is highest where there is third-party information reporting and/orwithholding. For example, most wages and salaries are reported by employers tothe IRS on Forms W-2 and are subject to withholding. As a result, a net of only1 percent of wage and salary income was misreported. But amounts subject tolittle or no information reporting had a 56 percent net misreporting rate in2006.”

So increased 1099 reporting is to be expected, which hasalready begun with the new Form 1099-K.

The biggest single component, representing 27% of the$450 Billion estimate, is “business income” for individuals (on the Form 1040),which accounted for $122 Billion of the under-reporting amount – and area wherethere is minimal third-party reporting. “Smallcorporations” (assets less than $10 Million) under-reporting was only $19Billion. I expect most of this is fromunder-reporting on Schedule C.

There is no doubt from these findings that Schedule Cswill be an audit target, especially those with consistent losses.

However – I still believe it is bad advice to tell ALLtaxpayers who have a Schedule C business to incorporate.

As I have said in the past –

“The decision toincorporate a business requires careful review of all the specific facts andcircumstances of the individual situation. And taxes are not the onlyconsideration. In a majority of cases it is not financially beneficial, eitherin the short or long term, to incorporate.

Whileincorporating will certainly reduce one's 1040 audit risk, it is very often notthe best idea for the average sole proprietorship. Incorporation can generatemuch more paperwork, recordkeeping, federal and state tax filings, costs, andgeneral all-round "agita" than it is worth.

Theadvice that one should incorporate solely for the purpose of avoiding an auditseems to me to be saying, ‘If you want to cheat on your taxes you canincorporate and the IRS will not audit you’. It is not good tax or financialadvice.

An IRSaudit is not something that should be avoided at all costs. Tax returns shouldbe prepared, and decisions about choosing a business entity should be made, insuch a manner as to generate the absolute least amount of federal, state andlocal taxes (income and payroll) within the parameters of federal and statelaws. If you will pay less tax (income and payroll), fees and other costs byfiling a Schedule C you should do so, honestly and ethically, and not worryabout being audited.

If you are reporting all of your income, deducting onlylegitimate and documented expenses, and keeping good records then any auditshould result in “no change”.

Besides, as I previously reported – less than ½ of 1% of1040s are actually chosen for a “sit down” audit.

PS - Click here to see a larger version of the above map.

TTFN

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

2012-01-07T05:00:00.000-05:00

+Check out the January issue of LOIS!

+MISSOURI TAXGUY Bruce McFarland has a guest post by Shawn Ambrose that explainshow to “Negotiate Your Debts With the IRS”.

+While you are at the MISSOURI TAXGUY blog look for my page at the “Store”.

+MARKETING SUPPORT FOR ACCCOUNTANTS goes into more detail than I did on thesubject in its “IRS Forms Changes for 2011 Taxes” post.

+With Rick Santorum’s almost win in Iowa let us join Howard Gleckman of TAXVOX,the blog of the Tax Policy Center, in taking a look at “Rick Santorum’s Tax Plan” -

“Specifically, Santorum would:

•Replace the currentindividual rate structure with just two rates—10 and 28 percent

•Lower rates on capitalgains and dividends to 12 percent

•Triple the personalexemption for dependent children and keep the refundable earned income andchild tax credits

•Retain taxpreferences for charitable giving, mortgage interest, health care, andretirement savings

•Repeal theAlternative Minimum Tax”

Howardpoints out –

“However, because it cuts rates significantlybut does not eliminate tax preferences—and even expands a few—it would verylikely add trillions of dollars to the federal deficit.”

And-

“Interestingly, by using tax expenditures tosupport these families, Santorum would likely add significantly to the numberof households that pay no income tax.”

+TAX PROF Paul Caron tells us “Rick Santorum's Tax Plan Is Criticized From All Sides”.

+George Saenz responds to the oft-asked question “Is Cash Surrender Value of Insurance Taxed?” at the Dear Tax Talk column at BANKRATE.COM.

Ofcourse the answer is “It depends”.

+The IRS provides a good summary of what is new for 2011 in “2011 Changes Offer Tax Benefits to Almost Everyone; Special Tax Payment and Reporting Requirements Apply to Many”.

+Another "pennies on the dollar” advertiser bites the dust! The IRS HITMAN brings us the good news in hispost “JK Harris Bankruptcy: A Giant Tumbles”.

Hitmantells us that JK Harris, which he correctly describes as a giantcorporation that make its money bydeceiving those with a tax debt, suspended all operations as part of pursuingChapter 7 bankruptcy, which would liquidate all of its assets.

+We learn from ACCOUNTING TODAY that “Treasury Stops Selling Paper Savings Bonds”.

Insteadof selling the savings bonds on paper at banks, the Treasury will instead sellelectronic versions of Series EE and I bonds via www.TreasuryDirect.gov, a Web-based system operated by theBureau of Public Debt.

+The daily CCH tax headlines email newsletter says “House Democrats Call for Immediate Work on Payroll Tax Holiday”.

”The Democrats want to begin conferencenegotiations with GOP lawmakers and the Senate immediately, rather than waitingfor Congress to resume its regular schedule in early February following itswinter recess period, State of the Union address and party conferences.”

Goodluck with the idiots in Congress doing anything “immediately”. I only hope they pass the extension beforethe end of February.

+TAX GIRL Kelly Phillips Erb identifies “My Best Tax Advice Ever, Part I: Open Your Mail” at FORBES.COM.

Whileit is not my “best tax advice”, it is certainly up there on my list. Never ignore correspondence from the IRS or astate tax authority.

Butequally important - do not assume that a notice from the IRS or a state taxauthority is correct. More than half(maybe more than 2/3) of the time the notice is incorrect.

Assoon as you receive such a notice give it to your tax preparer IMMEDIATELY!

THEFINAL WORD

Thefascination that the great unwashed masses have for “undeserved” celebrity isnothing new.

TheCole Porter musical ANYTHING GOES, which was first produced in 1934, featured asub-plot about the then current fad of making celebrities out of members of theFBI’s Most Wanted list.

Today’struly “undeserved” celebrities are reality tv idiots – like Trump, theKardashians, the brain-dead “stars” of THE JERSEY SHORE and similar pieces ofexcrement, Paris Hilton, and the various bachelors and bachelorettes.

Whilethose on the FBI Most Wanted list of the 1930s at least had a talent for crime,today’s class of UCs have absolutely no talent at all!

Well,that is not completely true. Trump hasshown he has a talent for screwing his stockholders. And Kim Kardashian has demonstrated aproficiency in performing “the Lewinsky”.

TTFN

WHAT ARE YOUR CHANCES OF BEING AUDITED?

2012-01-06T08:25:00.000-05:00

TheIRS has just released its FISCAL YEAR 2011 ENFORCEMENT AND SERVICE RESULTS.

Thetotal “examination” results are as follows –

IncomeUnder $200,000 = 1.02%

Income$200,000 and higher = 3.93%

Income$1 Million and higher = 12.48%

Thenumber of examinations for those with income under $200,000 is down from theprevious fiscal year, but the other two categories are up.

Howeverthe number of examinations, or audits, is made up of two components – field auditsand correspondence audits. While thereport does not offer any introductory comments or explanation, I assume thatthe correspondence audit component represents the CP 2000 and similar notices,which are handled my mail or a phone call, while the field audits are theactual office audits.

Lookingat the individual components, just under .0023 (less than ¼ of 1%) of taxpayerswith income under $200,000 were subject to field audits, and only 1.76% ofthose with income of $200,000 and higher.

Thereport did show an increase in field audits in all categories – approximately 29,000more for under $200,000, 20,000 more for $200,000+, and 4,000 more for $1Million and over.

Iwas surprised to learn that correspondence audits were down in the under$200,000 category. It had seemed to me Iwas dealing with more CP-2000s than in past years.

Sothe chances of most of my clients being called for a “sit down” audit at theIRS office is less than ¼ of 1%, as it has been for a while now.

Inpractice, of the over 10,000 returns I have prepared over the years I can countthe number of actual sit down audits I have had to deal with on the fingers ofmy two hands – so my audit rate is less than 1/10 of 1%.

Iwould be curious to see the numbers for taxpayers with incomes under $100,000.

Doesanyone know if the “income” referred to in the study is gross income, AGI, ornet taxable income?

TTFN

THE WAIT IS OVER!

2012-01-05T14:29:00.002-05:00

The wait is over! The January 2012 issue of LOIS is nowavailable to download!

This issue includes –

· DID YOU KNOW – Actress Margaret Rutherford

· 2012 STANDARD MILE ALLOWANCE RATES

· SURFING USA

· THE FRUGAL OFFICE

· 200 STATIONS AND NOTHING ON

· RAMBLINGS OF A RELATIVELY SANE MAN

· STARTING THE YEAR OFF RIGHT

And, of course, I always leaveyou laughing.

Click here to download.

Be sure to share this great issuewith all of your friends and family!

TTFN

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

2012-01-04T05:00:00.000-05:00

Hereit is – the first BUZZ of 2012!

TheJanuary issue of LOIS should be up by the end of the week. I know you are waiting for it – and will letyou know when it is available.

+Check out the discussion on “Measuring the Success of Tax Preparer Regulation”at my THE TAX PROFESSIONAL blog.

+And the first installment of my 2012 tax season Tax Tip column atMAINSTREET.COM – “How to Start 2012 the Right Way”.

+And finally, check out THE MISSOURI TAXGUY’s “Store” page. There is an entire section of items “FromRobert F”!

+The votes are in – and Russ Fox has announced the “winner” of the coveted “2011 Tax Offender of the Year”.

Mycandidate won this year!

“This year’s winner has a proud history;indeed, without them we likely wouldn’t be here. I’m talking about the UnitedStates Congress, who have moved up from being runner-up the past two years.Congress, especially the Senate, has forsook its duties.”

AsRuss observes –

“Albert Einstein stated that, ‘The hardestthing in the world to understand is the income tax,’ and that was over 60 yearsago! The situation today is far, far worse and the blame is squarely withCongress.”

Iwonder who will accept for the idiots in Congress?

+Joe Kristan did his tax-year-in-review at GOING CONCERN - "The Year in Taxes:Sleepwalking Through 2011“.

+Also following my lead, Trish McIntire posted her tax-year-in-review at "OURTAXING TIMES”.– “2011-The Review"

+William Perez looks forward instead of back and talks about “the key tax issues that we'll be dealingwith this year” in “2012: A Preview of the New Tax Year” at ABOUT.COM-TAXPLANNING: US.

+Bill also looked back at 2011 in “2011 YEAR IN REVIEW”.

+Robert W Wood, blogging colleague of Peter J Reilly and Kelly Philips Erb atFORBES.COM, suggests some good “Taxing New Year's Resolutions”.

+Jason T. Dinesen, E.A. tells us “Win a Home on TV, Find a Tax Collector in the Attic” as he begins a series of posts on the tax consequences of winning a homein a giveaway at THE DINESEN TAX TIMES.

+Kay Bell started out the new year with “Tax Carnival #94: Happy New Tax Year”. It includes my 2011 tax year in review post.

+Back to Joe Kristan, who quotes an interesting observation from Clive Crook atthe Atlantic in his post “The Rich Guy Won't Be Buying in 2012 Either”.

“The awkward truth is that the U.S. incometax system is anomalous not because it taxes the rich lightly but because it taxeseverybody else lightly.”

+And let me end by wishing happy anniversary to Trish McIntire of OUR TAXING TIMES. She opened her tax business 9years ago yesterday!

Trish– you got a while to go to catch up to me. Continued good luck with the practice and the blog.

THEFINAL WORD

Thereis a line in the musical GYPSY that says if a vaudeville act plays burlesquetheir career is over.

Thesame can be said for actors, musicians, singers, athletes (who once evidencedactual talent) who appear on reality tv shows (I am NOT talking about DANCINGWITH THE STARS).

Takefor example the latest piece of excrement titled CELEBRITY WIFE SWAP. You have got to be really desperate forattention and exposure, and unable to get work elsewhere, to appear on suchcrap. To be honest, I have never heardof most of the “swappers” anyway.

Idare anyone to name a once legitimate actor, actress, or performer whose careerimproved, or respect within the industry did not diminish, after appearing on areality tv nonsense.

Whenwill the great unwashed masses finally get tired of this shit?

TTFN

THE TAX COURT WAS WRONG!

2012-01-03T05:00:00.000-05:00

I take exception to the recent decision in Olsen vCommissioner, T.C. Summary Opinion 2011-131, which for the first time upheldthe “Turbo Tax Defense”. In the pastthis defense only worked for high-level government officials.

Here are the facts of the case -

In 2007, the wife of the petitioner (a patent attorney)received interest income from a trust created by her mother’s estate. The wife received a Schedule K-1,Beneficiary’s Share of Income, Deductions, Credits, etc., reporting interestincome. Prior to this instance, the couple had never received a Schedule K-1,and the petitioner was unfamiliar with the form.

The petitioner prepared the couple’s joint income taxreturn for 2007 using tax preparation software. Because he had never dealt witha Schedule K-1 in the past, the petitioner upgraded his tax preparationsoftware to a more sophisticated version as a precaution to ensure proper treatmentof the unfamiliar form.

Using the upgraded software’s interview process, petitionercorrectly entered the name and tax identification number of the trust, properlyreporting the source of income. While transcribing the remaining information,however, he made a data entry error that prevented the amount of interestincome from being correctly reported on his Form 1040. The Petitioner reviewed the Federal tax returnbefore filing, including using the verification features in his tax preparationsoftware, but did not discover the error.

The Court found -

“We foundpetitioner to be forthright and credible, and we credit his testimony attrial. We conclude that he made anisolated error in transcribing the information from his wife’s Schedule K-1while using the tax return preparation software. It is clear that his mistake was isolated ashe correctly reported the source of the income, and he did not repeat anysimilar error in preparing his tax return.

We notethat petitioner holds a Government security clearance and is subject toperiodic background investigations, which, as he is well aware, provide substantialmotivation for him to properly report income on his tax return.

Themost important factor in deciding whether a taxpayer acted with reasonablecause and in good faith is the extent of the taxpayer’s effort to assess theproper tax liability. Under the unique facts and circumstances of this case, wehold that petitioner acted with reasonable cause and in good faith within themeaning of § 6664(c)(1). Accordingly, petitioner is not liable for the accuracy-relatedpenalty under § 6662(a) as determined by respondent in the notice of deficiency.”

Here is what I have to say -

(1) The back of the Form K-1 clearly indicates to the taxpayer on whichIRS form or schedule the individual information on the front of the form is tobe entered. Here it states that interestincome (from K-1 Line 1) is reported on Form 1040, line 8a. That seems simple enough for even a patentattorney to understand.

(2) Just because one uses a tax preparation software package to generatea Form 1040 does not mean that one does not have to carefully and independentlycheck and double check the return generated. You cannot just accept the return that has been generated to bemathematically or legally correct. Thetaxpayer indicated that he did indeed check the return, but it would seem to methat in the course of checking the return the taxpayer would have clearly seenthat the income from the K-1, apparently substantial (we're ain't talking about $36.00), was not entered anywhere.

By accepting the “Turbo TaxDefense” the Tax Court set a very dangerous precedent.

Just think of all the agita the taxpayer in this case wouldhave avoided, to say nothing of the costs of going to Tax Court, if he had usedthe services of a qualified and competent tax professional to prepare his 1040 inthe first place instead of relying on a box!

TTFN

TAX POLICY 2012

2012-01-02T05:00:00.000-05:00

Happy New Year!

It is obvious that temporary tax cuts, except possibly inresponse to natural disasters, are bad tax policy.

Bill Bischoff correctly points out in “Tax Literacy 202”(highlight is mine) -

“If all these breaks are really such greatideas, Congress should make them permanent. That would mean taking their true long-term cost into account forfederal budgeting purposes instead of continuing to conceal the true cost byextending them for a year or two at a time. If Congress is unwilling to embracehonest accounting for the extenders, they should eliminate them.”

However as it now stands almost the entire Tax Code istemporary – with the extension through 2012 of the so-called “Bush” tax cuts.

What should (and I say must) be done is a total rewritingof the Tax Code – along the lines of the recommendations of the Bowles-Simpsonreport. To this end it is important thatjust about everything (except perhaps the payroll tax reduction) that has alreadyexpired, or will expire on 12/31/12, is temporarily extended through tax year2014. And it is important that this bedone early in 2012 so as to avoid confusion and uncertainty. The idiots in Congress must certainly notonce again wait until December to pass extensions.

The idiots in Congress will not attempt to accomplishanything in 2012 (not that they accomplished anything in 2011), as it is apresidential election year. If there isto be any true tax reform the process will not even begin until 2013.

We know that the idiots in Congress are lazy. If the “Bush” tax cuts, and the extenders,are made permanent at this point then the fools will have no reason toseriously consider true tax reform, and will continue to put it off. So it is also important that the “Bush” taxcuts, and the currently temporary tax breaks, not be made permanent.

What do you think?

TTFN

2012-01-01T08:31:00.000-05:00

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

2011-12-31T05:00:00.000-05:00

Hereit is – the last BUZZ of 2011!

+If you have not already done so - check out the December issue of LOIS.

+And check out my “9 Tax Breaks Set to Expire This Week-End” slide show at MAINSTREET.COM.

+Have you visited THE MISSOURI TAXGUY’s “Store” page yet. There is an entire section of items “FromRobert F”!

+TAX PROF Paul Caron has an interesting video that tells us “Patriotic Millionaires Support Higher Taxes, But Won't Donate to Treasury”.

Clearlythese fools are just looking for publicity and are not willing to put theirmoney where their mouth is.

+Bill Bischoff teaches a brief course in “Tax Literacy 202”.

Hispost makes some good points –

Ontax extenders: “If all these breaks are really such great ideas, Congress should makethem permanent. That would mean taking their true long-term cost into accountfor federal budgeting purposes instead of continuing to conceal the true costby extending them for a year or two at a time. If Congress is unwilling toembrace honest accounting for the extenders, they should eliminate them.”

Healso explains why refundable credits and targeted tax breaks are bad taxpolicy.

Forthe basic tax course check out my “Taxes 101 for Politicians”.

+STATELINE.ORG reports “Minimum Wage Set to Rise in Eight States” –

“Workers in Arizona, Colorado, Florida,Montana, Ohio, Oregon, Vermont and Washington will see their salaries rise byanywhere from 28 to 37 cents an hour, according to the National Employment LawProject, which advocates for low-income employees and keeps track of minimumwages in all 50 states.”

+Peter Reilly tries to catch-up at year-end by discussing “5 Neglected Tax Developments of 2011” at FORBES.COM.

“When I say they were neglected, I meanneglected by me.”

+Pete’s fellow FORBES.COM blogger Kelly Phillips Erb, aka THE TAX GIRL, isrunning a year-end contest, which she explains in “Congress Needs Some Advice in 2012”.

“Clearly, {the idiots in Congress} need alittle direction for 2012 so I thought I’d ask you, my readers, what you hopeto see happen next year and we’ll make a contest out of it.”

Whatcan you win?

“So since Congress is so fond of pork… theprize is a small box of BBQ shipped directly to you.”

Itold Kelly what I would like to see happen next year – every single idiot inCongress who runs for re-election in 2012 is voted out!

+Over at OUR TAXING TIMES Trish McIntire talks about what to do “If Your Preparer Won't Do EITC".

Indiscussing the Earned Income Tax Credit she explains (highlight is mine) -

“Unfortunately, it is a fraud magnet. Accordingto TIGTA’s May 2011 report to the House Ways and Means committee (download), The IRS estimates between 23% and 28% ofthe EITC payments are improper. In 2009, this resulted in $11 to $13 billion inimproper payments. As part of a program to reduce the bad EITC claims, theIRS has begun to put more pressure on the tax professional community. If a paidpreparer doesn’t do adequate due diligence to make sure a client does qualifyfor EITC, they could face a $500 fine for each client they qualify but shouldn’thave.”

Ido not accept new clients, but will “do” EITC if it applies to an existingclient (I have less than a handful of EITC claims each year). I can clearly understand why a tax pro wouldrefuse to “do” an EITC claim if he/she questions whether a taxpayer qualifies –but if I were still accepting clients I would not refuse any EITC out of hand.

HoweverI can understand why a preparer would not want to be involved with theadditional agita and potential liability. I have been a vocal opponent of having the EITC, and other refundablecredits, in the Tax Code, and forcing tax preparers to add to theirresponsibilities the job of determining of a client qualifies for a federalwelfare program. We are tax preparers –not Social Workers!

+Karen L Ryan EA exclaims that “We’re Number 1” – when it comes to tax cheatsthat is – in her post at YOUR TAX COACH. (And Congress is Number Two - I couldn't resist)

“A recent study by the Tax Justice Network, aBritish think-tank dedicated to transparency in international finance, showsthe U.S. government lost $337 billion annually to tax evasion. We're followedby Brazil ($280 billion), Italy ($238 billion), Russia, Germany, France, Japan,China, U.K., and Spain. Overall, the study finds that worldwide tax evasiontops $3 trillion, or 5% of the world's economy.”

Iecho her bottom line -

“The irony here is that there are so manylegal ways to pay less tax that nobody needs to cheat. Proactive planning isthe key to paying less tax without having to hide in the shadows.”

+USA TODAY tells us “Prison Inmates Register With the IRS As Tax Preparers”.

“A total of 331 inmates were serving prisonterms when they got active or provisional tax preparer tax identificationnumbers from the IRS, according to an audit issued Thursday by the TreasuryInspector General for Tax Administration.”

Weare also told –

“Prisoner registration as tax preparers is anew twist in a long history of tax scams involving inmates.

For instance, USATODAY reported in February that prisoners in three states — Florida, Georgia andCalifornia — led the nation's inmate population by using false or fraudulenttax returns to scam nearly $19 million in IRS refunds during 2009.

That total was part of$39.1 million in unmerited federal tax returns the IRS issued to jail andprison inmates nationwide, according to an IRS report to Congress that wasincluded in a Treasury Inspector General for Tax Administration audit releasedin January.”

Ican’t wait for Joe Kristan’s reaction!

+Jim Wang gives the correct answer to the question “Should I Take Money Out of My Retirement Account to Pay Off Credit Card Debt?” at the TURBO TAX BLOG.

Jimadvises -

“In many cases, taking money out of yourretirement account has the potential to cost a great deal. Consider theviability of putting together a debt reduction plan before you withdraw moneyfrom your retirement account. If you do decide to take the money from youraccount, make sure you repay it as quickly as you can, and try to avoidpenalties and taxes.”

Hey– just because I do not use flawed and expensive tax preparation software likeTurbo Tax, or recommend the use of such software as an alternative to engagingthe services of a competent tax professional, does not mean I don’t read theirtax blog when they have something good to say.

TTFN

2011 – THE TAX YEAR IN REVIEW

2011-12-30T05:00:00.000-05:00

Letme end 2011 with my annual tax year in review post.

2011marked my 40^th tax season in “the business”. I have been preparing 1040s professionallysince February of 1972.

Andthis summer I celebrated the 10^th Anniversary of THE WANDERING TAXPRO blog. My first blog posting waspublished on Sunday, July 22, 2001.

Theyear began with a surprise recognition – I was named as the NationalAssociation of Tax Professionals January 2011 “Member of the Month”.

Laterin the year I was named the New Jersey chapter of NATP’s “2011 Chapter Memberof the Year” - “in recognition of youryears of dedication to the New Jersey Chapter of NATP and to your fellow taxpractitioners”!

AsI stated in my annual April THAT WAS THE TAX SEASON THAT WAS post –

“There was nothing special or significantabout this tax season.

No new tax ‘gimmicks’– just a repeat of last season’s refundable Making Work Pay credit; itcontinued to FU withholding, especially for those receiving pensions.”

Andclients continued to receive one or more “corrected” Consolidated Year-End TaxReporting Statements” from brokerage houses late in the season, which continuedto cause delays.

Thiswas the first year of the federal “e-file” mandate for tax professionals, butsince IRS regulations equated “file” with “mail” I did not have to e-file thereturns I prepared. To cover my arse Ihad my clients sign a brief statement that I do not “file” their returns forthem, I give them the finished return and they “file” the return themselves,and attached this to my file copy of the return. The IRS did not contact orpenalize me for not e-filing.

Ialso avoided having to comply with a new New York State tax preparer e-filemandate because I do not use flawed and expensive tax return preparationsoftware to prepare any of my returns, although I did have to make my annual$100 extortion payment to Albany, which I passed along to clients with NYreturns.

And2011 was the first year that only those individuals who registered with the IRSand received (or “refreshed”) a PTIN, as I did last fall, were permitted toprepare federal income tax returns for a fee under the new tax return preparerregulation regime – although I did not notice the IRS publicizing or emphasizingthis fact very much.

TheIRS pushed the beginning of the required annual 15 CPE in federal taxation forpaid preparers to 2012, and also put off any decision on the need forregistered preparers to be fingerprinted. I did, however, take 32 hours of continuing professional education infederal taxation and 8 hours in NJ state taxation in 2011, sitting through atleast 4 hours of ethics preaching.

The“beta testing” of the required (except for EAs, CPAs, attorneys, and“supervised” employees thereof) initial competency test began in the late fall– but no preparers have yet to be awarded the RTRP designation (I do not thinkthe IRS knows yet who has actually passed the test). Many EAs, exempt from the test, have decidedto sit for it anyway to be able to receive the RTRP designation. I am waiting until the summer of 2013 to sitfor the test, as I have until December 31, 2013 to pass.

AsCCH wrote in its year in review special report – “2011 had been predicted to be a quiet year in federal tax news – as itlanded between major tax legislation in 2010 and expected tax reform in 2012”.

Therewere no major Tax Acts passed in 2011. On April 14^th the “Comprehensive 1099 Taxpayer Protection andRepayment of Exchange Subsidy Overpayments Act of 2011” (now that’s a mouthful)was (finally) signed into law. The Act thankfully repealedexcessive expanded Form 1099 reporting requirements that were included in earlierActs. This was further proof that theidiots in Congress do not read in full the bills they vote for.

Onthe next day the “Department of Defense and Full-Year Continuing AppropriationsAct of 2011” became law, which repealed a provision of the so-calledhealth-care reform bill that was to become effective in 2014.

And,as has become a habit, the idiots in Congress once again waited until literallythe last minute to pass an extension of a temporary tax break. The 2% reduction in the employee’s share ofSocial Security tax withholding was extended for only two months (thru Februaryof 2012).

Butthe fools did not address the multitude of other tax breaks that expired onDecember 31^st – including the usual list of “extenders (i.e. thedeductions for educator expenses, tuition and fees, state and local sales tax,and the AMT patch). I expect that iswhat they will be extending, along with the “Bush” tax cuts, at the last minutenext December.

Speakingof the idiots in Congress – what I considered the biggest tax story of 2010 (“the total irresponsibility of the idiots inCongress”) continued and exacerbated in 2011. The current Congress has been called the most“vituperative and contentious” in recent history. As Leonard Burman, a former TreasuryDepartment official who teaches public affairs at Syracuse University in NewYork and frequently posts for the TAX VOX blog of the Tax Policy Center,observed about the idiots -

“I’ve never seen such a high level ofdysfunction in the 25 years or so that I’ve been paying attention to government.”

TheAmerican public has finally become fed up with their foolishness. 2011 polls by CBS and CBS/NY Times reportedthat only 9% of Americans approved of the actions of the current Congress,giving it a 83-84% disapproval rating. ARasmussen Reports national telephone survey found that just 9% of “Likely U.S.Voters” rate the job Congress is doing as good or excellent, while 63% viewCongress’ job performance as poor.

TheIRS, lawyers, Paris Hilton, the BP oil spill, and the idea of America turningCommunist were all more popular than Congress, which was only slightly morepopular than Fidel Castro.

Ispent a lot of time in 2011 posting about these idiots, and I am sick ofwriting about them. They have certainlyproven beyond any doubt that they are lazy, irresponsible, self-absorbed idiotsthat deserve nothing but contempt.

Thereis not much more that can be said about their constant failures that have notalready been voiced by me, my fellow tax bloggers, and other commentators andjournalists. I resolve to stopcomplaining about the idiots in 2012, other than to report on specific actionsor legislation.

Likethe weather, everyone was talking about tax reform in 2011, but nobody didanything about it.

AsKay Bell of DON’T MESS WITH TAXES said in her year-in-review post -

“Everyone agrees thatour tax code has gotten out of control.

And everyone agreesthat big changes need to be made.

But no one can agreeon just how to do that.”

Muchof the talk was a result of the Presidential election campaign, with themultitude of Republican wannabes presenting their tax proposals.

Itbegan with Herman Cain’s “9-9-9” plan – a 9% personal income tax, a 9% nationalsales tax, and a 9% corporate tax. Itwas said that this plan was based on the fact that the cost of a Godfather’spizza was $9.99.

Severalcandidates proposed a simple flat tax system, although a couple suggested theridiculous idea that taxpayers be given a choice between the current muckingfess and the flat tax. The simplersystems started by doing away with all “tax expenditures”, adding back onlydeductions for contributions, mortgage interest, and taxes. Other candidates merely proposed making the“Bush” tax cuts permanent. Many wantedto eliminate the dreaded AMT, the so-called “death tax”, and the tax on capitalgains and dividends.

AsI said in my recent review of the Republican candidates’ tax proposals –

“So no candidate gets a perfect score fromme. No candidate’s tax reform proposalis acceptable in full as offered.”

BOcalled for a “millionaires' tax”, which would create a new tax bracket forhigh-earners. A group called thePatriotic Millionaires also lobbied for an increase in the tax rates forhigh-income Americans. This call was basedon Warren Buffett’s oft-quoted, but misleading, statement that he paid lessincome tax than his secretary.

Myresponse to this was - “if certainmillionaires, probably guilty about the source of their wealth, want to paymore to the federal, or state, government they can always make a contribution”.

Sothat was the year 2011 in taxes. Did Imiss anything?

As2012 is an election year it is expected that nothing of any consequence will beaccomplished in the tax arena (or any other arena). Next February the idiots in Congress willprobably extend the payroll tax cut for the rest of the year, and, as Isuggested above, next December they will pass the usual year-end extenders billand also continue the “Bush” tax cuts for another year or two.

TTFN

WISE WORDS FROM THE BRITISH BENCH

2011-12-29T05:00:00.000-05:00

I have been enjoying watching “Judge John Deed” via myNetflix subscription. It is a Britishlegal television drama about a High Court judge produced by the BBC and starringMartin Shaw as the judge and Jenny Seagrove as a barrister that ran fromJanuary 2001 to January 2007.

The most recent episode I watched, titled “Popular Appeal”,involved something I predicted would happen years ago - an angry contestant ina British “Reality TV” show called “The Dungeon” kills another competitor oncamera, and the show's producers face charges of manslaughter in Deed's court.The prosecution contends that they acted recklessly and engineered conflict inorder to get higher ratings.

While some of the legal aspects of the series may bequestionable, it is a great show, good tv drama. This was a good episode and certainly hit thenail on the head when it comes to the steaming pile of excrement known asreality tv (which began in England and Europe before infecting Americanairwaves).

A psychiatrist working for the station that airs the showtestifies that the producers purposely look for psychologically flawed “contestants”who can be easily manipulated and angered (no news there).

Judge Deed, speaking to the producer of a reality TV showafter the jury has returned its verdict, provides one of the best descriptions everof so-called “reality tv”, and the making of its pathetic “stars” into “celebrities”(the highlight is mine) –

“Celebrity: the pursuit of the talentless by themindless. It's a common disease of the twenty-first century. It pollutes our society, and diminishes allwho seek it and all who worship it, and you must bear part of theresponsibility for foisting this emptynonsense onto a gullible public.”

What ever happened to broadcast stations’ “Standards andPractices”? These station functions triedto censure political protest on THE SMOTHERS BROTHERS SHOW and were shockedwith the Super Bowl halftime “wardrobe malfunction” of a few years ago – yetthey allow this much more potentially dangerous garbage to air unchecked!

TTFN

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

2011-12-28T05:00:00.000-05:00

+If you have not already done so - check out the December issue of LOIS.

+It’s that time of year again - “Nominees Due for Tax Offender of the Year” overat Russ Fox’s TAXABLE TALK.

“With just one week left in 2011, it’s timeagain for anyone to submit a nominee for the Tax Offender of the Year. To beconsidered for the Tax Offender of the Year award, the individual must do morethan cheat on his or her taxes. It has to be special; it really needs to be aBozo-like action or actions.”

Nominationsare due by tomorrow (Thursday) night.

Ido believe that they have come in a close 2^nd in the past – but Ithink this year the idiots in Congress have certainly earned the title.

+Over at FORBES.COM Kelly Phillips Erb, the TAX GIRL, tells us “What You Can Buy With Your Payroll Tax Cut From Congress”.

Since,as she explained, “The payroll tax cutwas extended for two months, saving the average taxpayer a grand total of $166”,she asked her fellow twits what they would do with an extra $166.

Onerespondant pointed out that, “It couldcost the small business owner more than $166 to comply with modified payrollreporting requirements for two months”, a statement with which Kelly agreed.

+And Kelly’s fellow FORBES.COM blogger Peter J Reilly gives us his list of “8 Unfair 2011 Tax Decisions”.

+Prof Jim Maule gets his 2+ cents in on the issue of the 2-month payrollreduction extention in “Punting On Taxes”.

Hisbottom line correctly observes -

“So long as the Congress continues to valueelectoral politics and re-election as more important concerns than fulfillingits fiduciary duties to the nation, the downward spiral will continue.”

+Do you want to know the “25 Richest Members of Congress”?

+Want to know what’s new for NY State personal income tax for 2011? Click here.

THEFINAL WORD

Ayear-end thanks to all the fellow tax bloggers, commentators, and journalistswhose posts, editorials, columns, and articles have appeared in the BUZZ forkeeping me, and you, up-to-date on the tax world.

Anda personal special thanks to Russ Fox and Bruce McFarland for your help with mySchedule A Guide.

Toall my readers – may 2012 be less taxing!

FYI- I am not done with 2011 yet – look for my TAX YEAR IN REVIEW on Friday!

TTFN

JUST A THOUGHT

2011-12-27T05:30:00.000-05:00

It has become a regular habit for the idiots in Congressto wait until literally the very last minute each year, after the IRS has goneto press with forms and instructions, to pass a temporary extension of atemporary tax break or benefit.

When they do this the IRS must incur additional costs toreprint forms, tables, and instructions to reflect the last minuteextensions. And I expect other federalagencies also incur additional expenses. This adds to the annual, and accumulated, budget deficit.

I propose that the total amount of these additional costs,a direct result of the idiots in Congress not doing their job properly, beadded up and subtracted from the compensation paid to these idiots.

Maybe if the fools take a personal hit in the pocketbookthey will decide to act more responsibly!

A NATIONAL TAXPAYERS’ AUDITOR OFFICE

2011-12-27T05:00:00.000-05:00

Since it is a proven fact that most of the idiots inCongress do not read in full the legislation on which they vote, we clearlyneed an independent taxpayers’ “Auditor” office (different from the IRS“Taxpayer Advocate” office) to review each and every piece of legislation inthe same way as Tom Coburn and his staff evaluated "every department and virtually every major government program"in preparing his “Back In Black” budget report.

Each proposed law should be looked at to discover componentsand provisions that are -

“• Not Needed — Serves no vital or essential federal roleor has outlived its intended purpose.

• Does Not Meet Any Need — Little or no evidence todemonstrate results or effectiveness achieving stated goals.

• Wasteful — Significant amounts of silly orunjustifiable expenditures.

• Duplicative — Duplicates or overlaps existinggovernment agencies or initiatives.

• Not a Priority at this Time — Mission cannot bejustified within today’s budgetary constraints.

• Not Cost Efficient — Benefits do not exceed the costs.

• Parochial — Serves a local or special interest with nooverriding federal role and exceeds the limited powers granted to Congressenumerated in Article 1, Section 8 of the U.S. Constitution.”

This office should also review each government program annuallyfor the above criteria, plus the following one –

“Mismanaged — Significant amounts of erroneous,fraudulent and improper expenditures, excessive overhead and administrativecosts, or otherwise poorly administered or implemented.”

The findings, both for individual legislation andyear-end program evaluations, should be openly published, as are the audits ofTIGTA (Treasury Inspector General for Tax Administration).

The cost of such an office would be more than paid for bythe savings it will generate.

TTFN

DON WE NOW OUR GAY APPAREL

2011-12-26T06:00:00.000-05:00

I could have titled this post “ON A QUEER DAY” – but thatwould be too easy.

Early last week I say the new revised production of ON A CLEAR DAY YOU CAN SEE FOREVER with Harry Connick Jr at the St James Theatre inNYC. As I previously mentioned – the newbook turns Daisy Gamble into David Gamble, in a relationship with a less quirkyWarren, although Melinda Wells remains a woman (but she is now a 1940’s jazzsinger).

As also previously mentioned – OACD was my highschool senior play, and I was in the chorus and had three minor roles,including a solo dance number.

Hey, Neil Patrick Harris, I thought you told us “Broadwayis not just for gays anymore” at this year’s TONY Awards.

While giving Daisy a penis (which is awkward and totallyunnecessary), the new book takes away the character’s ESP. This does not cause too many gaps, but itdoes make the doctor calling for Daisy/David to “Come Back to Me” from hisoffice a bit silly. The opening “HeyBuds Below” number is now set in a florist shop as David “talks” to the flowershe is arranging, instead of as a demonstration of her “power” in the doctor’soffice.

As I expected, the two songs from the Victorian Englandpast life are gone – including the very witty “Don’t Tamper With My Sister”, thelyrics of which include the politician’s credo - “A sin is not a sin until a sin is seen” (“so let us misdemean where lights are low”). While I missed this song, I can live with thechange in past life.

New songs, from Lerner and Lane’s movie ROYAL WEDDING andthe Barbra Streisand movie adaptation of the musical, are added. Those added to facilitate the new past lifefit in appropriately, as does a duet by David and his female roommate. But the “songlets” from the movie that aresung by Harry Connick Jr, like the sex change of the Daisy character, seem awkwardand unnecessary.

The book is not updated to present day, but an extradecade is added on to accommodate the past life timeline.

While I will agree that there was a problem with theending – in the original book Daisy leaves her fiancé Warren and she and thedoctor “unite to explore theirextraordinary future” – I do not recall there being much else wrong withthe story or its development. The newbook does good by making the doctor a widow who has not gotten over the untimelydeath of his wife, and fixes the ending (although it still needs a bit moretweak). And, as I said above, I canaccept the change in past life, with the doctor interacting more with the “previous”Daisy/David.

The gratuitous gaiety, while totally unnecessary, is not,thankfully, offensive. The gay coupleplays it, pardon the pun, straight. Neither one is overly “flamboyant”. And the Warren character works better as a “normal” beau, especially forthe ending. The sex change does add astrange and comic undertone to the song “What Did I Have I Don’t Have Now”,although it is still powerful.

I do not like the removal of the sub-plot about a Greekshipping magnate funding the doctor’s research so he can find out who his nextlife will be and leave his fortune to him, singing “When I’m Being Born Again”. The song remains, but now is song by thedoctor’s students.

So take away the penis, the plot device of using thestory as a case study presentation at a psychiatry conference, the awkward songletsfrom the movie, return the ESP and the Greek, and keep the change in past life,the revised Warren, the new female colleague pining for the doctor, and the rewrittenending and you will have a great production.

The bottom line – I liked the current revival better thanI thought I would. It certainly was notas bad as the reviews I read before seeing the show would lead you tobelieve. The actors are good and, ofcourse, the score is great (which I already knew). HCJ was better in THE PAJAMA GAME, but is okhere.

Let us hope changing the sex of musical comedy charactersdoes not become a trend. The last thingI would want to see is Miss Adelaide become Mr. Adelaide, and the Hot BoxDancers become an All Male Revue!

A NEW “RECAPTURE” TAX

2011-12-26T05:30:00.000-05:00

The IRS has pointed out a special new tax of the recently-passedAct that temporarily extended the payroll tax reduction.

“Under the termsnegotiated by Congress, the law also includes a new ‘recapture’ provision,which applies only to those employees who receive more than $18,350 in wagesduring the two-month period (the Social Security wage base for 2012 is$110,100, and $18,350 represents two months of the full-year amount). Thisprovision imposes an additional income tax on these higher-income employees inan amount equal to 2 percent of the amount of wages they receive during thetwo-month period in excess of $18,350 (and not greater than $110,100).

Thisadditional recapture tax is an add-on to income tax liability that the employeewould otherwise pay for 2012 and is not subject to reduction by credits ordeductions. The recapture tax would be payable in 2013 when the employee fileshis or her income tax return for the 2012 tax year.”

Of course if the idiots in Congress decide next Februaryto extend the payroll tax reduction through the end of 2012 this “recapture tax”will disappear.

REPUBLICAN TAX PROPOSALS REPORT CARD

2011-12-26T05:00:00.000-05:00

The TAX FOUNDATION recently issued a “Presidential Candidate Tax Plan Report Card” which rated the tax reform proposals of thevarious Republican candidates. JonHuntsman came out on top with a B+.

Here, from his official website, is Huntsman’s plan forreforming the 1040 -

“Simplify the Personal Income Tax Code andLower Rates

Gov.Huntsman supports a version of the plan crafted by the Fiscal Commission,headed by Erskine Bowles and Alan Simpson, commonly known as the ‘zero plan’.Rather than nibble around the edges of the existing tax code, he will introducea revenue-neutral plan that eliminates all deductions and credits in favor ofthree drastically lower rates of 8%, 14% and 23%. Eliminating deductions andcredits in favor of lower marginal rates will yield a simpler and moreefficient tax code, decreasing the burden on taxpayers.

Eliminate the Alternative Minimum Tax

Underthe new simplified plan, Governor Huntsman will eliminate the AlternativeMinimum Tax, which is not indexed for inflation and is penalizing an increasingnumber of families and small businesses. This tax is especially burdensome onthe majority of small business owners who file as individuals.

Eliminate the Taxes on Capital Gains and Dividends InOrder to Eliminate the Double Taxation on Investment

Eliminatingtaxes on capital gains and dividends would lower the cost of capital andencourage investment in the American economy to create jobs. Additionally, thesetaxes amount to a double-taxation on most individuals who choose to investsince they first had to earn that money and pay income tax on it. Taxing thesesame dollars again when capital gains are realized serves to deter productiveand much-needed investment in our economy.”

Huntsman wants not so much a “flat tax” as “flatincome”. There would be no “taxexpenditures” other than, I expect, some kind of Standard Deduction, butmutiple rates (I prefer one). And, tohis credit, part of this includes the death of the dreaded Alternative MinimumTax. He wants to eliminate the doubletaxation of corporate dividends by eliminating the individual tax on dividends.

How do I evaluate the various reform plans of theRepublicans?

First of all – Cain’s 9-9-9 Plan is out of thepicture. Cain has left the race, and noother candidate has supported his plan – so it is basically history at thispoint.

Several of the candidates call for the permanent extensionof the “Bush” tax cuts. This is not taxreform – it is simply a continuation of the status quo. Not acceptible.

A couple candidates call for a “choice” between thecurrent mucking fess and a simple flat tax system. This is ridiculous. While their simpler flat systems (not muchdifference between the two) are good ideas, the concept of choosing makes absolutelyno sense, and just creates more work for tax preparers and higher costs fortaxpayers. I call for a simpler flat taxsystem with minimal “tax expenditures”, no tax credits, and one tax rate forall.

Many want to eliminate the dreaded AMT, the so-called“death tax”, and the tax on capital gains and dividends. There is no doubt that the dreaded AMT mustbe destroyed. And doing away with thefederal estate tax is not a bad idea, as long as the step-up in basis forinherited property is maintained. Butdoing away altogether with federal income tax on capital gains and dividendswould certainly give the foolish Occupy Wall Street-ers something legitimate toprotest. Warren Buffett would truly paymore tax than his secretary – he would pay no tax!

I wholeheartedly support doing away with thedouble-taxation of dividends – but at the corporate level and not theindividual level. Corporations should beallowed to claim a “dividends paid” deduction. This would also, in effect, reduce the corporate tax, which mostcandidates support.

I do believe that the place to start is with theBowles-Simpson “zero plan”, I do support keeping some basic tax expenditures –such as for charitable contributions, mortgage interest and real estate taxes(on the primary principle residence only), and state and local incometaxes. As I have explained before,allowing a deduction for basic mortgage interest and real estate and stateincome taxes helps to “geographically equalize” the tax system (click here).

I have not discussed the candidates’ plans for corporatetax reform. I do support a lowercorporate tax rate – but also call for doing away with all tax preferences andloopholes for corporations (as well as doing away with depreciation on realproperty for all taxpayers – corporate and individual). And I do agree with the Tax Foundation thatthe top rate for corporations should not be more than that of individuals so asnot to erode the corporate tax base and distort business decision making.

So no candidate gets a perfect score from me. No candidate’s tax reform proposal isacceptable in full as offered. But itlooks like Huntsman gets the highest grade (although perhaps not as high) fromme as well.

TTFN

2011-12-24T11:11:00.000-05:00

MERRY CHRISTMAS!

CLICK ON THE PICTURE

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

2011-12-24T05:00:00.000-05:00

+If you have not already done so - check out the December issue of LOIS.

+Peter J Reilly starts off the year-in-review posts with “Of Thongs and Sheet Music - The Lamest Taxpayer Arguments of 2011”.

Iwill publish mine tax year in review piece in early January.

+Trish McIntire talks about “theexpectations we bring to choosing a tax pro” in “Expectations” over at OURTAXING TIMES.

+Richard Rubin and Steven Sloan remind us that a “Payroll Tax Tiff Times 25 Awaits Congress in ‘Utter Dysfunction’” at BLOOMBERG.COM.

“Unless Congress acts by the end of 2012,income tax cuts will expire, automatic reductions in defense and domestic spendingwill start and the alternative minimum tax will ensnare millions moretaxpayers. The same Congress that can’t find a way to extend the widelysupported payroll tax cut beyond Dec. 31 will be seeking to bridge long-heldideological differences.”

Nothingwill be done in 2012. I expect that nextDecember the idiots in Congress will extend the “Bush” tax cuts and theextenders for another two years.

Thearticle quotes Leonard Burman, a former Treasury Department official whoteaches public affairs at Syracuse University in New York, who agrees with mostof us who follow the idiots –

“I’ve never seen such a high level ofdysfunction in the 25 years or so that I’ve been paying attention to government.”

+ABC NEWS tells us that “Americans Frustrated by Congressional Stalemates”.

“Around the country, people of differentbackgrounds, incomes and political leanings say they're angry and downrightdisgusted by the posturing in Washington after the House rejected a two-monthextension of the payroll tax cut passed by the Senate, then both chambersadjourned for the holidays.”

Theitem quotes Greg Kirksey, a pastor in Little Rock, Arkansas –

“But I'm afraid because it's a political year... I'm not thinking anybody's really got the guts to make the hard decisions.They just keep putting a Band-Aid on, putting a Band-Aid on, kicking the candown the road a little farther."

+Joe Kristan provides a “Year-End Tax Tip for Iowans: Fund Your College Savings Iowa Plan” at the ROTH AND COMPANY TAX UPDATE BLOG.

“Iowa's state-sponsored Section 529 plan,College Savings Iowa, adds another benefit for Iowa taxpayers: a deduction onyour state tax return. Iowans can deduct up to $2,865 per donor, per donee for2011 contributions to CSI. For a couple with two children, that adds up to amaximum deduction of $11,460 for 2011.”

NJdoes not offer a similar state tax deduction, but several states do.

+And Joe also posts “Cedar Rapids Tax Preparer Gets Two Years for Helping Clients Report Too Much Income”.

Soyou can get in trouble for both under-reporting and over-reporting income!

+MISSOURI TAX GUY Bruce McFarland explains “What Should Non-Filing Taxpayers Do?”

THEFINAL WORD

Iwish you all a “successful” Christmas.

Exceptfor the idiots in Congress – they all deserve a large lump of coal in theirstockings!

TTFN

THIS JUST IN – WHAT FOOLS THESE CONGRESSPERSONS BE!

2011-12-23T11:24:00.002-05:00

The idiots in Congress have finally acted on extendingthe payroll tax reduction so they would not have to sacrifice any of their(certainly undeserved) holiday leave. Therewere back-to-back voice vote approvals of the measure by the Senate and Housethis morning. President Barack Obama isexpected to sign the new bill today before he heads to Hawaii to join hisfamily for what's left of the holidays.

I can’t describe this action any better than my fellowtax blogger TAX GIRL Kelly Phillips Erb - “When Dumb Meets Stupid: Payroll Tax Cut ‘Compromise’”.

“So months andmonths of debate on the payroll tax cut has resulted in this: a two monthextension.”

“But it’s paid for!” is the excuse of the idiots inCongress. Kelly correctly points out –

“You know what’snot paid for? The agita that employers, tax pros and the IRS will face tryingto sort out a bifurcated tax year.”

While I selfishly liked having to pay less SocialSecurity tax on my wages, I tend to agree with Kelly when she described themeasure –

“It was clearly avote-getting scheme to replace the confusing Making Work Pay Credit.”

And I agree with Kelly’s when she suggests that preparingthe 1st Quarter 2012 Form 941 will result in unnecessary agita for bothaccountants and the IRS –

“Those forms 941will be a joy, huh?”

It is relatively easy for employers to extend the payrolltax reduction for a 2 month period. Theycan identify what wages were paid during the first 2 months of the year. But what of the self-employed taxpayer filinga Schedule C? Does he now have toprepare 2 Schedule Cs – one for January and February and one for the rest ofthe year? Of will the reduction just bepro-rated on 1/6th of net earnings from self-employment?

I suppose that Congress will vote during the last week ofFebruary 2012 to extend the cut for another 2 months.

This action proves once again that the idiots in Congresscannot accomplish anything – even if both parties support an item (such as the extensionof the payroll tax reduction in this case). It also shows the idiocy of “temporary” tax cuts.

What fools these Congresspersons be!

2011 NJ STATE TAX FORMS

2011-12-23T10:30:00.000-05:00

The2011 New Jersey state income tax returns are now available to download at theNJ Division of Taxation website. Clickhere.

Thereappears that there are no changes to the Form NJ-1040 for 2011 – nor to theHomestead Benefit and Payroll Tax Reimbursement programs.

Thefiling deadline for 2011 state returns is April 17, 2012, set to coincide withthe federal deadline.

Todetermine the correct amount of property taxes paid on their New Jerseyprincipal residence homeowners must know whether they received a homesteadbenefit during 2011, the amount of the benefit, and whether the benefit waspaid as a credit on their 2011 property tax bill or in the form of a check.

•If you did not receive a homestead benefit during 2011, use the amount ofproperty taxes paid to your municipality on your principal residence for 2011.

•If you received a homestead benefit as a credit on your property tax billduring 2011, use the amount of property taxes paid to your municipality on yourprincipal residence for 2011 plus the amount of the adjustment youreceived onyour property tax bill for May 2011 for the homestead benefit.

•If you received a homestead benefit in the form of a check during 2011, use theamount of property taxes paid to your municipality on your principal residencefor 2011.

•If you do not know whether you received a homestead benefit during 2011, theamount of the benefit, or whether the benefit was paid as a credit or in theform of a check, you can “Check the Status (Amount) of Your Homestead Benefit”at the Division’s website.

Taxpayerswho converted an existing IRA to a rollover Roth IRA during tax year 2010 andmade a Federal election to report the income in equal installments in 2011 and2012, must report one-half of the amount that is taxable for New Jerseypurposes on their income tax return for 2011.