Feds bust $2.5 million football survivor betting pool

Suvivor pool betting

It’s Sunday afternoon in America, meaning millions (still) are watching National Football League games

Millions more also are betting on them. Unless, that is, they were participants in Ron & Mike’s Football Pool.

It’s one of the largest football survivor pools in the country and it was shut down last week after federal agents seized documentation and the money the pool organizers collected, according to an article by Darren Rovell, senior writer for ESPN.

In case you’re not a gambler, survivor pools require a bettor to pick one team that is going to win each week of the football season without using the same team twice. Once a team that is picked loses, that person is eliminated.

All the Ron & Mike’s pools combined had more than 23,000 entries, reports Rovell, with a collective value that surpassed $2.5 million.

You guessed it. I’m going with $2.5 million as this week’s By the Numbers figure.

Biggest busted betting pool to date: The Ron & Mike’s shutdown is the biggest pool bust since 2010, writes Rovell. That year, prosecutors in New Jersey arrested John Bovery, a Garden State schoolteacher, for running a $100-per-entry survivor pool that had roughly 8,000 entries and charged him with promoting gambling and money laundering.

In this latest case, pool organizers Ron Kronengold and Mike Bernstein had been running the operation for at least the past eight years.

If the men merely ran the pools and took no share of the winnings, it would not be illegal, per New York state law, write Rovell. However, he notes that if they did receive a cut of the winnings, which is usually 10 percent, they could be charged with bookmaking and profiting from a gambling activity.

The pair’s attorney, Joe Conway, confirmed that the website was voluntarily shut down, but that neither he nor his clients have been furnished with any information from the government, other than a search warrant.

Taxes due on gambling winnings: While we wait for the Ron & Mike’s pool to progress through the legal system — and its former clientele to find other ways to bet their money — let me take advantage of the situation to remind folks that all gambling income is taxable.

The Internal Revenue Service doesn’t care if your winnings came from a survivor pool, a friendly office pool arrangement or game/player bets made online via fantasy leagues like FanDuel or DraftKings or in person legally only in Nevada … until the Supreme Court of the U.S. decides the New Jersey sports betting case it just heard.

True, only places like casinos and horse race tracks across the country and Vegas, baby, sports books will give you, and the IRS, documentation of your winnings. But even without those official winnings, and sometimes tax withholding, forms, you should report all your gambling income on your 1040.

You don’t want to end up like John Daly, having to reconstruct your betting activities, in order to answer a tax auditor’s questions.

You also might find these items of interest:

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Source: http://www.dontmesswithtaxes.com/2017/12/football-survivors-pool-betting-2-point-5-million-busted.html

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3 tax tips for office holiday party hosts

But some firms, especially if they specialize in lobbying lawmakers, have other considerations in mind for their annual end-of-year festivities.

Office-Party-movie_trailer screenshot

The holiday season is here at offices, too. That means office parties. Oh, yay!

OK, some people love office Christmas parties. Anything for free food and libations. And they actually like most of their co-workers.

But if you’re not one of them, go anyway.

Surely you can fake it for a few hours. And, again, free refreshments.

Plus, opting out of implicitly required conviviality could hurt your career.

Tax-free thanks: Offices throw these parties as a way to thank workers for all they’ve done during the year.

And the present for the businesses is that they can deduct the annual year-end event as long as they follow Internal Revenue Service rules.

Here are three tax things to remember is you’re planning your office’s holiday soiree:

1. Invite everyone: The key component is the guest list. A holiday party’s cost is fully deductible as long as it’s only for employees. And this means all employees. You can just invite the sales or tech departments or your fellow executives.

Also, your employees don’t have to come alone. They can bring their spouses or significant others without adversely affecting the party-giver’s tax break.

2. Be reasonable: Also, don’t go overboard. A lavish event is likely to prompt IRS questions.

As with many tax-related things, what’s lavish or extravagant in the IRS’ eyes dependents on the workplace’s circumstances. What a very profitable Silicon Valley firm might find reasonable as far as feting worker probably won’t be the same as an event help by a small business in Peoria.

An excessive party also is likely to make your workers wonder how you could pony up for an event at the fanciest restaurant in town with steak and lobster and live entertainment, but not come up with raises or added workplace benefits during the year.

3. Don’t invite clients: If you invite customers, that might help next year’s sale numbers, but it will reduce how much you can deduct. The no-invite list also includes independent contractors, vendors or any other business-related associates.

Partying with these folks falls under the 50 percent limitation applied to business meals and entertainment expenses.

Most companies’ holiday parties easily meet these tax-deduction rules.

Lobbying’s different issues: Some firms, however, don’t worry about totally deductible Christmas parties. They’ve got other fish to fry. Big fish.

That’s the case for many of Washington, D.C.’s lobbying firms.

“The annual tradition of serving limitless supplies of free hors d’oeuvres and wine [for legislators and their staff] has gone on for years, uninterrupted by any administration or Congress, despite Democratic and Republican promises to crack down on special-interest influence,” writes Lee Fang in The Intercept.

Today’s Saturday Shout Out goes to Fang’s article, which includes a list of several of the lobbyist party invites sent to Capitol Hill this holiday season.

They include holiday events hosted by CropLife America, the trade group representing the pesticide industry; the Financial Services Roundtable, a lobby group for banks such as Citigroup and JPMorgan; and Lockheed Martin, the world’s largest defense contractor.

Drain the swamp promises notwithstanding, Fang notes that although ethics rules prohibit lobbyists from taking lawmakers and staff out to dinner or lunch, nothing prevents a lobbyist from throwing a reception or holiday party.

The House Ethics Committee requires that events must be attended by 25 people and “relate to the Members’ or employees’ official duties.” The committee also notes that food must be served in small portions.

And while event invitations often include a disclaimer that the reception or party “has been planned to comply with congressional ethics rules for such events,” Fang says there’s little stopping interest groups from hosting luxurious events designed to please public officials.

Full disclosure: When I worked on Capitol Hill, I attended such holiday parties. And when I moved to the private sector, I was part of offices that hosted such events.

I enjoyed them from both sides of the lobbying coin and can assure you that, at least in my personal experience, very little changing of minds or political positions was accomplished during the events.

That said, I’d love to be a fly on the wall this year at the National Association of Broadcasters Holiday Reception. This upcoming event could get exciting if some guests with the “fake news” mindset attend and imbibe, despite the House Ethics Committee’s portion mandate, a bit too much.

And speaking of imbibing, the party this year I’d like to attend is the one thrown by the Wine & Spirits Wholesalers of America. Those folks have got to have the best potent potables in town!

You also might find these items of interest:

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Source: http://www.dontmesswithtaxes.com/2017/12/3-tax-tips-for-office-holiday-party-hosts.html

Casualty loss tax deduction elimination fires up some California lawmakers

Man rescues rabbit from SoCal wildfire_RMG-NJcom-Reuters via YouTube

A driver pulled over in La Conchita, California, the evening of Dec. 6 to save a rabbit he spotted scurrying amid flames from the Thomas Fire in Ventura County. Click image to watch full video posted on YouTube by RMG News/Reuters/NJ.com.

California is on fire. Literally. Again.

Just two months after the northern part of the Golden State was ablaze, deadly wildfires are raging across Southern California.

And while residents right now are simply trying to stay safe and, if possible, save as much of their personal possessions as they can, in a few weeks or months, they’ll be trying to recover.

In the past, the tax code offered help. But under tax reform that’s now being worked out in a Congressional conference committee, that assistance could be gone.

Casualty loss claim eliminated: The House and Senate tax reform measures now being reconciled would eliminate the deduction for uninsured personal losses from wildfires, tornadoes, floods, earthquakes and other natural disasters.

In fact, it does away with the current itemized tax break that, in addition to covering damage from an angry Mother Nature, allows for tax loss claims in the case of things such as accidents, thefts or vandalism.’

H.R. 1, the Tax Cuts and Jobs Act tax reform bill approved by the House in mid-November, axed the casualty loss deduction along with most other Schedule A claims. It retains, however, the tax break in areas declared major federal disaster areas.

That means that losses from the recent hurricanes that devastated the United States, notably Harvey in Texas and Irma in Florida and other parts of the southeastern United States, as well as the from the October wildfires that charred Northern California wine country, would get the tax relief.

But victims of the fires still burning in Southern California would be out of luck unless the areas are declared major disasters.

And if that designation doesn’t happen for all of the latest fires or the final tax reform bill doesn’t change and/or keep the general casualty loss provision, many Southern Californians would be affected.

Special, but not likely, action required: Congress would have to pass special one-off legislation to provide tax and fiscal relief for residents who sustain damages from destructive and but not deemed large-scale enough disasters to get the major, tax-deductible status.

Such special bills have been approved in the past, for example some added tax measures were approved for Hurricane Katrina and Rita victims.

But as we’ve seen during more recent debates over special appropriations for hard-hit areas, such as Hurricane Sandy, politics has come more into play.

Points of view have become even more stringent and Capitol Hill relationships have grown even more strained, so such special relief, tax and otherwise, could be hard to accomplish.

It also could be complicated further by fiscal considerations in the wake of the $1.5 trillion deficit the tax reform legislation will produce.

“Non-major” victims hurt: And such bills would be nigh impossible to pass for smaller scale destruction that doesn’t affect as many, but is still devastating to the relatively fewer victims, Rep. Brad Sherman (D-California) told the Los Angeles Times.

“Let’s say your home burns down and it isn’t a disaster that CNN covers,” Sherman said. “You’re affected the same way, whether it’s nine of your neighbors or 900 of your neighbors that lose homes.”

Rep. Mike Thompson, another California Democratic federal lawmaker, called elimination of the deduction “cruel” and “heartless.”

Many California fires — as well as blazes in other states, particularly in the western part of the country — do not get the major disaster designation.

House Minority Leader Nancy Pelosi, whose Congressional district covers San Francisco, criticized Republican members of the California delegation for approving a tax bill that could adversely affect many of their state’s residents.

“They actually voted for that bill,” Pelosi said during her weekly news conference on Dec. 6. “[The members] voted to discriminate against victims of fire. We certainly want to have the deduction for victims of hurricanes and the rest, but why are they doing this to our state?”

Other bills, conference hope: House Majority Leader Kevin McCarthy (R-California, specifically Bakersfield) notes that his GOP colleague Rep. Mimi Walters of Irvine is pushing to get relief for the most recent California fires passed this year.

Another Californian, Republican Rep. Devin Nunes, also is a member of the tax bill conference committee. So is Democratic Rep. Raúl Grijalva of Arizona, a state that sustains its share of wildfire destruction every year.

Will those lawmakers be able to tweak the tax reform bill in a way to help their constituents? If that happens, will it then open the door to more requests for state or district-specific needs to be addressed in the tax bill?

If so, that could bog down the whole conference process.

But without some concessions, getting a final tax reform bill through the House and Senate yet another time could be harder.

Who knew tax reform debate could be so fiery? And hard.

You also might find these items of interest:

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Source: http://www.dontmesswithtaxes.com/2017/12/casualty-loss-tax-deduction-fires-up-some-california-lawmakers.html

Tax reform conferees named. Let the tax mixing begin!

Capitol_Senate side_by Scrumshus via Citypeek-Wikipedia

The House and Senate have officially agreed to hash out their respective tax reform differences.

Both chambers passed their own versions of H.R. 1, the Tax Cuts and Jobs Act. Rather than one side accepting the other’s bill, they now must come up with a new piece of legislation that incorporates some parts of both.

That job falls to 14 Senators and 15 Representatives selected by their Party’s leadership.

Let’s get this tax negotiation party started!

House conferees: On the House side, Speaker Paul Ryan of Wisconsin selected nine GOP Representatives. They are:

  • Kevin Brady of Texas (chair of the House Ways and Means Committee),
  • Diane Black of Tennessee (chair of the House Budget Committee and member of Ways and Means),
  • Greg Walden of Oregon (chair of the House Energy and Commerce Committee),
  • Rob Bishop of Utah (chair of the Natural Resources Committee),
  • Don Young of Alaska,
  • John Shimkus of Illinois
  • Devin Nunes of California,
  • Peter Roskam of Illinois and
  • Kristi Noem of South Dakota.

Nunes, Roskam and Noem also are Ways and Means members.

On the other side of the aisle, Minority Leader Nancy Pelosi of California selected five Democrats:

  • Richard Neal of Massachusetts (ranking Ways and Means member),
  • Sandy Levin of Michigan,
  • Lloyd Doggett of Texas,
  • Raúl Grijalva of Arizona and
  • Kathy Castor of Florida.

Levin and Doggett also sit on the House’s tax-writing Ways and Means panel.

Senate conferees: Across Capitol Hill, Senate Majority Leader Mitch McConnell of Kentucky named the following eight Republicans:

  • Orrin Hatch of Utah (chair of the Senate Finance Committee),
  • Mike Enzi of Wyoming (chair of the Senate Budget Committee),
  • Lisa Murkowski of Alaska (chair of the Senate Energy and Natural Resources Committee),
  • John Cornyn of Texas,
  • John Thune of South Dakota
  • Rob Portman of Ohio,
  • Tim Scott of South Carolina, and
  • Pat Toomey of Pennsylvania.

Those last five GOP conferees all are members of the tax-writing Finance Committee. Cornyn and Thune also are, respectively, the second and third ranking Republicans in the Senate.

On the Democratic side, Senate Minority Leader Charles E. Schumer of New York selected the following seven Senators to represent the Democrat’s tax views:

  • Ron Wyden of Oregon (ranking member on the Senate Finance Committee)
  • Bernie Sanders of Vermont (an Independent who caucuses with the Democrats and ranking member on the Senate Budget Committee),
  • Maria Cantwell of Washington (ranking member on the Energy and Natural Resources Committee and also a Finance Committee member),
  • Debbie Stabenow of Michigan,
  • Robert Menendez of New Jersey,
  • Tom Carper of Delaware, and
  • Patty Murray of Washington.

Stabenow, Menendez and Carper sit on the Finance Committee. Murray is a Budget Committee member.

Pre-Christmas goal: These 29 Senators and Representatives are looking at a self-imposed Dec. 22 deadline so that they and Capitol Hill staff can get out of Washington, D.C., and back home in time for the holidays and end-of-year celebrations.

Is that enough time to come up with a version of ostensible tax reform that will satisfy the majority of their colleagues?

The GOP is hopeful. And while the bills are similar, there still are some major sticking points.

And resolving them won’t be quite as easy as the current commander in chief apparently thinks.

Mixing up a tax bill: Those of us of a certain age remember Schoolhouse Rock’s animated explanation of how a bill becomes a law.

Maybe Donald J. Trump was a bit too old to watch that simplified civics lesson sandwiched between Saturday cartoons back in the day. Trump instead has referred to the bill creation process, at least at the conference stage, as a mixer, as in the kitchen appliance used to meld ingredients.

Maybe Trump was just hungry when he came up with that analogy, but it’s not that simple.

KPMG tax experts during a recent tax reform update webcast offered this gameboard-like path to tax reform. Right now, we’re at the Joint Conference square.

As for that conference — not mixing — process, David Hawkings, senior editor at Roll Call newspaper, has an instructive whiteboard presentation on how two bills become one law.

How conference committees work_Roll Call David Hawkings whiteboard video

Roll Call senior editor David Hawkings explains the various means Congress has used to reconcile disagreements between House and Senate versions of a bill. Click screenshot to watch the full video.

As Hawkings notes, during conference much of the work typically happens behind closed doors. It also often is done, at least in early stages, in negotiations between leadership and committee staff.

But as soon as the conferees come up with a recipe that can be baked into a politically palatable tax bill, I’ll let you know.

Now I’m off to grab a late-afternoon snack!

You also might find these items of interest:

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Source: http://www.dontmesswithtaxes.com/2017/12/tax-reform-conferees-named-let-the-tax-mixing-begin.html

Sexual harassment settlement tax deduction eliminated in tax reform bills

Time persons of the year 2017Time‘s person of the year for 2017 is a lot of people.

The magazine selected all the women and men who who publicly spoke about being victims of sexual harassment and abuse as a way to stop it and help others who have been victims.

Ironically, today’s announcement of Time‘s 90th most notable person (called Man or Woman of the year until 1999) was overshadowed by the continuing sexual harassment controversy in the political world.

Sitting and wannabe Senator troubles: There are, of course, the allegations against Roy Moore and his reported interest in teenage girls when he was a 30-something district attorney.

The charges from several women have become a central issue in Moore’s quest of Attorney General Jeff Session’s former Senate seat. Alabama voters will decide on Dec. 12, so we’re in for extensive coverage of the race until then … and probably well after election day, too.

Then there’s already sitting Sen. Al Franken. The Democrat from Minnesota today faced calls from more than two dozen in his Party to resign his seat in the wake of more charges of improper sexual advances.

Capitol Hill self-disciplinary, legislative actions: Congress already has taken steps to police itself, with the House and Senate in the process of establishing training sessions to educate members on how to not sexually harass or assault other people. (I never thought I’d ever have to type such a sentence.)

In addition, lawmakers have reacted legislatively after learning that some of their colleagues settled sexual harassment lawsuits or threats of legal action by using federal dollars to pay accusers.

Rep. Tom Marino (R-Pennsylvania) on Nov. 28 introduced H.R. 4458, which would prohibit members of Congress from using taxpayer funds in sexual harassment settlements.

This week (Dec. 5), Marino followed up that bill by introducing H.R. 4540. This companion piece of legislation would require that members of Congress who already have made such taxpayer-funded sexual harassment settlements pay that money back, with interest, from their own bank accounts.

“Congressmen and Senators should not be allowed to play by a different set of rules and held to a different set of standards than the American public,” said Marino. “Sexual harassment in the workplace is unacceptable by anyone and taxpayers should not be on the hook for the actions of others.”

Tax reform axes harassment deduction: The issue of sexual harassment also made it into the tax reform bills that have passed the House and Senate and are awaiting action by a conference committee to meld them into one piece of legislation to be voted on again by both chambers.

The original House version of H.R. 1, the Tax Cuts and Jobs Act, and its Senate-amended version each include a provision that would disallow tax deductions on sexual harassment legal settlements.

Current tax law allows many payouts and legal fees resulting from these types of cases to be written off as business expenses.

The tax bill language came from an amendment, authored by Colorado Republican Rep. Ken Buck, that was added during House debate of H.R. 1 last month. The addition to the bill, noted Buck in a press release, would eliminate “the business expense deduction for hush money associated with sexual assault and sexual harassment cases.”

For all y’all tax policy wonks, the tax bill’s specific language, found on pages 188 and 189, says:

Sexual harassment settlement tax deductions axed in tax reform bill

Sexual harassment settlement tax deductions axed in tax reform bill2

In case you can’t read that image above on your mobile device, here’s the text version:

SEC. 13307. DENIAL OF DEDUCTION FOR SETTLEMENTS SUBJECT TO NONDISCLOSURE AGREEMENTS PAID IN CONNECTION WITH SEXUAL HARASSMENT OR SEXUAL ABUSE.

    (a) DENIAL OF DEDUCTION. — Section 162 is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection:

    “(q) PAYMENTS RELATED TO SEXUAL HARASSMENT AND SEXUAL ABUSE. — No deduction shall be allowed under this chapter for —

    “(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or

    “(2) attorney’s fees related to such a settlement or payment.”

    (b) EFFECTIVE DATE. — The amendments made by this section shall apply to amounts paid or incurred after the date of the enactment of this Act.

Given all the other things the House and Senate tax bill conferees must resolve, I suspect this identical section in both versions of the bill will make it into the final measure and ultimately into law.

You also might find these items of interest:

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Source: http://www.dontmesswithtaxes.com/2017/12/sexual-harassment-settlement-business-deduction-axed-in-house-and-senate-tax-reform-bills.html

Loss of exemptions could cost some taxpayers

Family photo vintage_Forks Timber Museum-Flickr-4647372649

U.S. families have been getting smaller in recent years, but some still have lots of children and they could end up being adversely affected by the tax law changes now under consideration. (Photo from the Forks Timber Museum Collection via Flickr)

In selling their tax cuts to the American public, Republicans emphasize that the standard deduction amount is almost doubled.

That sounds good. But that’s not the whole story.

You’ll lose personal exemptions.

For taxpayers, exemptions are excellent. That’s especially the case for filers who have lots of dependents.

Under current law, a tax exemption helps reduce your income so that you get to a smaller taxable amount. And exemptions — dollar amounts allowed for a filer, his/her spouse if married and qualifying dependents — are in addition to the deduction method, either standard or itemized, that you use.

Trading exemptions for upped deductions: H.R. 1, the Tax Cuts and Jobs Act, that both the House and Senate have passed in different forms, does away with exemptions in order to increase the standard deduction amount.

While the proposed larger deductions are impressive when compared with the current (or inflation adjusted for tax year 2018) amounts, they aren’t so appealing when you count the loss of exemptions.

Under the tax bill approved by the House, the standard deductions would be $12,200 for single filers, $24,400 for married couples filing a joint return and $18,300 for head of household taxpayers. The Senate’s numbers are slightly less: $12,000 for singles, $24,000 for couples and $18,000 heads of households.

And here are the 2018 standard deductions under the current tax laws, which I’m using since any tax changes would take effect next year:

  • $6,500 for single filers,
  • $13,000 for married joint filers and
  • $9,550 for head of household taxpayers.

So yes, the proposed tax changes for standard deductions would be substantially larger.

How exemptions add up: But you also have to take into account the personal exemption amount, which is $4,150 in 2018.

Under the tax code now in effect, if you are married and filing a joint return, have three kids and claim the standard deduction, you’ll get to subtract $33,750 from your adjusted gross income to get to the earnings amount upon which your tax bill is calculated.

That $33,750 comes from the $13,000 married filing jointly standard deduction plus five exemptions ($4,150 x 5 for the children and parents) totaling $20,750.

But if the tax changes that are being hammered out do become law, you would get the proposed larger standard deduction amounts — in this family scenario $24,400 (House) or $24,000 (Senate) — but no exemptions, either personal as a taxpayer or for dependents.

Credits could help, but…: The tax changes propose to make up the loss of dependent exemptions by offering filers some new tax credits.

The House bill says taxpayers with children younger than 17 would get a $1,600 per-child credit. A $300 credit would be allowed for children older than 17 and non-child dependents, such as an elderly parent who’s part of your household. Both these credits would phase out for joint taxpayers earning over $230,000 and single taxpayers earning over $115,000.

The Senate’s dependent tax credit would be $2,000 and available to taxpayers with children younger than 18. A $500 credit would be allowed for non-child dependents. These credits would phase out for taxpayers earning more than $500,000.

True, a tax credit is more valuable than deductions or exemptions that simply reduce taxable income. A tax credit is a dollar-for-dollar reduction of any tax bill you owe.

And yes, lower tax rates could mean that a taxpayer’s eventual tax liability under the proposed changes would come out with a smaller tax liability even with the loss of exemptions.

But generally speaking the loss of exemptions even with an increased standard deduction would be a tax negative — that is, a tax bill increase — for larger families.

Undercutting simplicity: It also would belie the tax simplification process for these bigger broods.

They would face more paperwork, actual or digitally via tax software, in calculating credits for dependents versus the current system of simply entering family members on tax returns (along with their Social Security numbers) and multiplying that number by the exemption amount.

And then there are the folks who now itemize. The elimination of most Schedule A claims will push them into the standard deduction category.

But if it turns out their itemized claims are more even under tax reform’s larger standard amounts, they still will be out the exemptions they now use to reduce their income.

Know your numbers: The bottom line is that taxes are intensely personal.

The New York Times analyzed how the House bill would affect a wide range of taxpayers classified as middle class. CBS News looked at how four different hypothetical households would fare under the Senate’s bill. And a CNBC look at possible changes indicates that single parents may lose out under proposed tax changes.

Some folks will do better under the House and Senate tax bills than under the current tax system. And some will, despite promises during the presidential campaign, from the Trump Administration and during the tax debate, do worse.

Some more tweaks could come once House and Senate conference committee members meet to reconcile the two bill’s differences. But in a couple of weeks, we’ll likely know where we stand as far as future taxes go.

And before you can say whether you will or won’t benefit, you need to know what you’ve been paying in taxes, what’d you’d pay if no changes are made and what you are likely to pay once a tax bill.

The only thing for sure is that tax professionals are going to be busy in 2018 explaining the intricacies of any tax changes to their clients, both current and the new ones they’ll probably get next year.

You also might find these items of interest:

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Source: http://www.dontmesswithtaxes.com/2017/12/loss-of-exemptions-could-cost-some-taxpayers-tax-reform.html

Tax reform’s $10K property tax deduction is worthless

Property-Tax-house-tax-price-tag

Many homeowners breathed a sigh of relief when the Senate’s version of tax reform followed the House’s H.R. 1, the Tax Cuts and Jobs Act, and included a tax deduction for property taxes.

But it might be time to start hyperventilating again.

While both chambers would keep the itemized deduction for the local real estate taxes that every homeowner faces each year, they will reduce its tax value. Each bill caps the deduction amount at $10,000.

Most homeowners’ taxes covered: For many homeowners, that limit is cool. Their property tax bills are high, but not into five digits, so it means they can keep claiming them on Schedule A.

Others, however, do get bills from their tax assessor/collector offices each year that are more than that.

Still, at least they’ll still get some break on this major cost of homeownership, right?

Right?

Well, in both cases, maybe. But in many instances, probably not.

Only a few itemized expenses remain: The problem is that the property tax deduction, along with the mortgage loan interest write-off (limited more by the House plan than the Senate’s version) and charitable donations are the only three things that both bills (right now) agree will stay on Schedule A.

The option to claim medical expenses as an itemized deduction might make it into the final tax bill to be hammered out by a House-Senate conference committee.

That itemized deduction is in the Senate bill. It even says that for 2017 (yes, the return we’ll file sometime next year) and 2018 tax years, the threshold will drop from the current 10 percent of adjusted gross income to 7.5 percent of AGI, making it easier for many to claim.

But the medical write-off is not guaranteed to become law.

And even if it does, filers will have to make the same deduction decision under any new law that they make now. Specifically, they will claim the deduction amount, either standard or itemized, that is larger.

Deduction decisions, now and in the future: With both bills calling for substantial increases to the current standard deduction figures, which differ based on your filing status, many folks will find that itemizing won’t be worthwhile.

The House bill would up the standard deduction to $12,200 for single filers, $18,300 for heads of household and $24,400 for joint filers.

The Senate’s amounts are $12,000 for single filers, $18,000 for heads of household and $24,000 for married couples filing jointly.

$10,000 won’t matter: More than two-thirds of taxpayers already claim the standard deduction under current tax laws. Larger standard deduction amounts are likely to increase that number.

Why? Because even with an allowable 10-grand itemized property tax claim, more taxpayers likely will find that their tax-reform-hiked standard deduction is more than the total on their Schedule A.

That math is because itemizers under the proposed tax code changes will have fewer options.

Under tax reform, they will need substantial mortgage interest or charitable contributions — or medical expenses if that provision is included in any new tax law final conference version — to get an itemized amount that’s more than the increased standard deductions.

One hypothetical return: Let’s look at theoretical home-owning couple’s return under tax return.

Jim and Jane Taxpayer’s residence is at 234 Expensive Home Road in Hometown, New Jersey. I selected the Garden State for this example since it has some of the highest property taxes in the country. New Jersey is among six states (the others are California, New York, Illinois, Texas and Pennsylvania) that, according to a Tax Foundation analysis of IRS data, where residents claim more than half of the value of all state and local tax (SALT) deductions.

Jim and Jane’s local N.J. property tax bill is $12,000. They paid $5,000 in interest on their high-dollar home’s loan. They gave $3,000 to charity. And they and their kids are healthy, so they didn’t have enough medical expenses to clear 7.5 percent of their AGI.

That gives this example-only N.J. couple $20,000 in itemized deductions. That’s less than either the proposed House $24,400 or Senate $24,000 standard deduction amounts for jointly filing married couples.

So Jim and Jane will take their $24,400 or $24,000 or whatever amount the tax reform conferees come up with and merrily go along filing their taxes without itemizing.

No sympathy for the tax devils: That’s generally a good thing. Use of the standard deduction is easier not only for taxpayers, but also for the IRS, which won’t have to hassle with added forms to double check.

But some homeowners, especially in states with expensive real estate markets, are not going to be happy.

I know that if you live in a less expensive area or are a renter, it’s hard to muster much sympathy for owners of mini-mansions who’ve been getting help from Uncle Sam for their housing.

And I know that regardless of your tax situation, it’s darn near impossible to muster any sympathy for the IRS.

But some folks, and not just Jim and Jane’s peers, are not thrilled with the proposed tax reform changes.

Housing, real estate industries upset: The shift away from itemizing decreases the value of such deductions. And it’s why the housing industry and charitable organizations oppose both the House and Senate tax plans.

These sectors are worried about the ramifications when millions of taxpayers across the United States follow Jim and Jane’s example and opt for the larger standard deduction under the proposed tax code changes.

Without the associated itemized tax breaks, argue housing and philanthropic representatives, people will stop buying homes and limit their charitable giving.

Maybe that will happen. Or maybe not.

The United States is one of the few major industrialized nations that subsidizes homeownership through the tax code and yet folks buy homes all over the world.

What America’s home-related tax benefits do, say the residential tax break opponents, is encourage people to borrow more than they could afford to buy a house that’s bigger than they need. This, they argue, is what led to the bursting of the housing bubble and the start of the 2008 recession.

I generally agree with that, but I’m compelled to add that greedy lenders knowingly securitizing unwise loans was as big, if not bigger, contributor to the economic downturn. But back to tax reform.

For sale sold sign in my neighborhoodAnd both tax bills still offer homeowners a change to cash in on their residences when they sale.

The House and Senate proposals retain the law that lets sellers keep tax-free up to $250,000 in profit if they’re single or $500,000 if married and jointly filing. The only change here is that owners would have to live in the house a big longer, for five out of the eight years before the sale, before getting this tax break.

Nonprofits not happy either: As for charities, folks who claim the standard deduction still give. And they’re doing so because they want to, not for a tax break.

But it is true that of the about 30 percent of filers who itemize, these usually higher-income individuals represent about 80 percent of giving. Some of those folks might not donate if they’re not getting any tax benefit for it.

I’d prefer that the Internal Revenue Code offers some sort of tax credit to all taxpayers, regardless of which deduction method they use, for donating to qualified charities. This could keep folks who’ll lose this itemized deduction giving, as well as finally give a tax break to those standard deduction filers who’ve never received any tax benefit for their generosity.

My preference is not likely to show up in the tax reform conference discussions. But it’s something to think about after this round of tax code finagling is done.

And yes, there will be future tax law changes.

Members of Congress, their donors and the lobbyists they hire will fiddle around with our tax laws long after whatever version of the Tax Cuts and Jobs Act is signed into law.

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Source: http://www.dontmesswithtaxes.com/2017/12/tax-reforms-10k-property-tax-deduction-is-worthless.html