ROBERT D FLACH'S 1040 EMAIL LETTER SAMPLE ISSUE

  

ROBERT D FLACH’S

1040 EMAIL LETTER

AUGUST 1, 2020

 

DEAR SUBSCRIBER:

The latest from the IRS on refund delays for manual returns (highlight is mine) –

We continue to process electronic and paper tax returns, issue refunds, and accept payments. We’re experiencing delays in processing paper tax returns due to limited staffing. If you already filed a paper return, we will process it in the order we received it.

Do not file a second tax return or call the IRS.”

I heard from a client whose return was mailed on 3/17/2020 and its receipt was finally acknowledged by the IRS via the online “Where’s My Refund” tool on 7/21/2020.  But, of course, the refund has not been received yet.

A reminder –

THERE IS ABSOLUTELY, POSITIVELY NOTHING YOUR TAX PREPARER CAN DO TO EXPEDITE THE PROCESSING OF YOUR 2019 FEDERAL INCOME TAX RETURN OR THE ISSUANCE OF YOUR 2019 FEDERAL REFUND.  If you have not received your federal refund yet you just need to be patient.

+ Paper 1040 taxpayers, like my clients, are not the only ones experiencing delays with refunds.  The WASHINGTON POST reports “Tax Refund Delays Hit e-filers Too”

https://www.washingtonpost.com/business/2020/07/28/tax-refund-delay-efiling.

+ FYI, I posted my review of the 2020 tax filing season – for filing 2019 tax returns – at http://wanderingtaxpro.blogspot.com/2020/07/that-was-tax-season-that-was-2020.html.

+ Kay Bell, the yellow rose of taxes, explains “It's time for post-filing tax record keeping” at DON’T MESS WITH TAXES (https://www.dontmesswithtaxes.com/2020/07/tax-record-keeping-documents-timetable.html).

She makes one point up front that I have been saying this for years (again, highlight is mine) –

The main record everyone should have and keep forever — more on how long you need to keep tax material later — is your actual form 1040.”

You should also keep all your W-2s forever.

Here is my take on the subject -  https://www.findataxprofessional.com/HOW%20LONG%20MUST%20I%20KEEP%20MY%20TAX%20RETURNS%20HANDOUT.pdf.

+Fellow tax blogger Kelly Phillips Erb, aka “TaxGirl”, gave us “30+ Tax Tips From The Tax Pros” at https://www.forbes.com/sites/kellyphillipserb/2020/07/16/30-tax-tips-from-the-tax-pros/#76fc59564ca5

+ I have added a new special report to my DOLLAR STORE – “Everybody Ought To Have An IRA”.  Check it out -  http://wanderingtaxpro.blogspot.com/2020/07/a-new-addition-to-my-dollar-store.html.

+ Ed Slott answered the “Top 12 RMD Waiver Questions” at https://www.irahelp.com/slottreport/top-12-rmd-waiver-questions.  

+ Here is what NATP (National Association of Tax Professionals) is teaching about the new charitable deduction for non-itemizers.

FYI, The Coronavirus Aid, Relief, and Economic Security (CARES) Act created a special tax deduction for up to $300 of charitable contributions for taxpayers who do not itemize – which is now most taxpayers.  NATP tells us that the $300 limitation applies to each “tax-filing unit”.  The $300 applies “per return” and not “per taxpayer”.  A married couple who files a joint return is considered one “tax-filing unit” and the non-itemizer charitable deduction allowed on their joint return is limited to $300.  But a married couple filing two separate returns is considered two “tax-filing units” and can each claim up to the maximum $300 on their separate return.  Be advised that when filing separately, if one spouse itemizes the other spouse must also itemize, regardless of the amount of itemized deductions.    


MY BEST ADVICE FROM 48 YEARS AS A TAX PROFESSIONAL

 

I referenced a blog post from Kelly Phillips Erb above that provided tax tips from tax pros.  Want to know my best tax tips?


As a veteran tax professional who has been preparing 1040s for individuals in all walks of life since 1972, I am often asked by friends, family, clients, readers, and cocktail party guests, “What is your best tax advice?”

 

As an answer I have written a compilation of my best tax advice to share wisdom accumulated from my 45+ years of preparing 1040s.

 

This book does not discuss specific deductions (well, I do talk about gambling losses and IRA contributions), credits and “loopholes”, which are revised, changed, deleted and reinstated frequently at the whim of whichever political Party is in power.  And it is not specific to 2018 or 2019 or any individual year’s tax returns.  It is concerned with universal tax planning and preparation concepts and advice that remain constant year after year.

 

It also includes the best tax advice of fellow tax bloggers and a listing of online tax planning and preparation resources, a section on “Cool Tools” (online tax planning and preparation resources), a history of taxes in America, and a basic introduction to the federal income tax.  

 

Here is what some fellow tax pros have said about this book –

 

The . . . pages of tax advice within the e-book (a pdf document) are full of good, common-sense advice . . . any individual who follows Robert’s advice will be far, far better off than those who don’t.

 

Russ Fox, EA of Nevada – author of TAXABLE TALK

 

I think your book is great. What I like most is that it is in plain English. You are not trying to appear like a ‘know-it-all’.  It is simple enough for non-tax professionals to understand. However, it is informative enough to help tax preparers learn something new.”

 

Jamaal Solomon, EA of JS Tax Corporation


The cost of this book is only $8.95 sent as a pdf email attachment.  A print version sent via postal mail is available for $11.45

 

Send your check payable TAXES AND ACCOUNTING, INC, and your email or postal address, to –

 

TAXES AND ACCOUNTING, INC

TAXSMARTS

PO BOX A

HAWLEY PA 18428

MY DOLLAR STORE


TAKING ADVANTACE OF THE 0% CAPITAL GAINS RATE

By now you should be aware that some investment income is taxed at a lower “capital gain” tax rate, which could be 0%.

Yes, that is a “zero percent” tax rate - $1,000.00 taxed at a “0”% tax rate is $0.00 in tax!

The Jobs and Growth Tax Relief Reconciliation Act of 2003 originally reduced the long-term capital gains tax rate from 20 percent to 15 percent. For taxpayers who were in the 10-15 percent income tax bracket, it reduced the rate to 5 percent and then to zero in 2008. The Tax Increase Prevention and Reconciliation Act of 2005 extended the lower capital gain and dividend tax rates, including the 0% rate, through tax year 2010.  The American Taxpayer Relief Act of 2012 made the lower capital gains rates permanent, and added a new 20% rate for those in the top bracket.   

The GOP Tax Act kept the special capital gains tax rates – but based on what would have been the “old” tax brackets and not the new lower brackets.

The special reduced tax rates apply to Adjusted Net Capital Gains (ANCG), which is –

* net long-term capital gains (property held more than one year) less net short-term capital losses (property held one year or less), whether from transactions by the taxpayer himself/herself or passed through to the taxpayer on a Form K-1,

* capital gain distributions from mutual funds, and

* “qualified” dividends.

ANCG income does not include gains from collectibles or “Section 1250” depreciation recapture.

The special tax rates on ANCG for 2020 apply to net taxable income as follows –

 

 

RATE

SINGLE TAXPAYERS

MARRIED FILING JOINT

HEAD OF HOUSEHOLD

MARRIED FILING SEPARATE

0%

Up to $40,000

Up to $80,000

Up to $53,600

Up to $40,000

 15%

$40,001 - $441,450

$80,001 - $496,600

$53,601 - $469,050

$40,001 - $248,300

20%

Over $441.450

Over $496,000

Over $469,050

Over $248,300


While ANCG is taxed separately at the special capital gain tax rate it is important to remember that it is included in Adjusted Gross Income (AGI) and can therefore impact items of income, deduction and credit that are affected by AGI. 
So, in reality income separately taxed at a 0% tax rate may actually increase your tax liability.  For example, the tax on $1,000 of ANCG income subject to the lower 15% rate could be more than $150.  

There are a multitude of deductions and credits that are reduced, phased out, or disallowed based on one’s AGI.  These include:

  deductible traditional and spousal IRA contributions,

  the ability to contribute to a ROTH IRA,

  student loan interest,

  the deduction for tuition and fees

  medical and dental expenses,

  the Credit for Child and Dependent Care Expenses,

  the American Opportunity and Lifetime Learning education credits,

  the Retirement Savings Contributions Credit,

  the Child Tax Credit and Other Dependent Credit,

  the Adoption Credit,

  the Earned Income Credit, and

  Coverdell Education Savings Account contributions.     

And as AGI increases so does the taxable portion of Social Security and Railroad Retirement benefits, and the deductible loss from rental real estate is reduced or phased out.  In the case of Social Security and Railroad Retirement benefits, an additional $1.00 of AGI can increase taxable benefits by as much as 85 cents.   And even $10 in ANCG income could cause a taxpayer to lose the $2,000 deduction for tuition and fees.

Before year end calculate your anticipated net taxable income, after deductions, for 2020.  Then add up your anticipated Adjusted Net Capital Gains.  If you have room for additional ANCG income that will be taxed at 0% you may want to sell investments at a gain to take maximum benefit from this rate.  Be aware that you can sell the stock or fund shares on Monday and turn around and buy them back on Wednesday. The “wash sale” rules only apply to the sale of stock or mutual fund shares that results in a loss - it does not apply if the sale results in a gain.

But don’t forget to consider how additional ANCG income will impact income, deductions, and credits that are affected by increased AGI.  And remember that while the additional income may be tax free on the federal return you will be paying state and local income tax on the gains.

And, of course, also remember the first criteria for evaluating any transaction, strategy, or technique you are considering should always be financial.  Taxes are second.

 

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Please feel free to share this issue with friends, family and co-workers.  You can subscribe to this free monthly e-letter by sending an email to rdftaxpro@yahoo.com with ROBERT D FLACH’S 1010 EMAIL LETTER in the subject line.

“Talk” to you next month. 

ROBERT D FLACH

 













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