WHAT'S THE STORY?

So what’s the story?

During the 3rd week in January I begin to visit various Post Offices (Jersey City, Union, Summit, Berkeley Heights, North Bergen) to gather federal and NJ tax forms. This is usually where I get my supply of 1040s, 1040As, Schedule As and NJ-1040 and NJ-1040NR booklets.

This year I have had to get all my federal forms from the local IRS offices - where I have to sneak as many forms as possible in my briefcase without getting caught (there is a 10 form maximum). While there were plenty of NJ packages (as I file as many NJ-1040s as possible online at NJWebFile I do not need a lot of NJ-1040 packages), there were no 1040s, 1040As or Schedule As at any Post Office I visited! I found a few 1040A instruction books and, at the North Bergen PO, a pile of Form 8913s (Credit for Federal Telephone Excise Tax Refund), though no 1040EZ-Ts.

Since I still do all my federal returns by hand I need a steady supply of at least 1040s, 1040As and Schedule As.

I remember when I first started out 35 years ago my boss would send me with a suitcase to a warehouse in Newark where we could stock up on all federal forms. Now the IRS doesn’t even print a “Package X” anymore!

I hope this is just a delay by the IRS, and that the forms will appear in Post Offices soon.

TAFN

NJ TAX FILING DUE DATE IS APRIL 17, 2007

The NJ Division of Taxation has announced that New Jersey will follow the IRS and extend the due date for NJ state income tax returns and payments to April 17, 2007.

Under N.J.S.A. 54A: 54A:8-1, the Director of the NJ Division of Taxation may extend either the filing or payment due date, or both, for any return under the New Jersey Gross Income Tax Act to coincide with a similar extended filing or payment due date established for federal personal income tax returns and may adopt the same terms or conditions specified by federal law or regulation for any such filing extension or payment due date.

Therefore, the due date for filing and payment of the 2006 New Jersey Gross Income Tax returns corresponds with the Federal Income Tax of April 17, 2007. Any New Jersey income tax form, instruction or publication that currently shows an “April 16, 2007” due date should now be read as “April 17, 2007”.

TAFN

THE DFBs!

Yesterday I did my first 2006 Form CBT-100 (New Jersey Corporation Business Tax Return) for a calendar year corporation.

And for the first time I used the new Minimum Tax amount, based on NJ gross receipts, and the 4% surcharge!

The 2006 CBT-100 instructions state, “For privilege periods beginning on or after January 1, 2006, the minimum tax is assessed based on the New Jersey Gross Receipts.”

The return I prepared was for a medical services corporation that I always “zero out” each year by making “management fee” payments to another medical corporation, both of which are 100% owned by the same doctor. So the corporation had a “0” net taxable income. However, because the “New Jersey Gross Receipts” were $360,900.00, the minimum tax was $1,000.00 (“$250,000 or more but less than $500,000”). To that I added the 4% surcharge of $40.00.

So a corporation with “0” net taxable income paid $1,040.00 in NJ state corporate income tax!

The doctor also has another corporation that brings its net taxable income to “0” via management fee payments, and this corporation will also pay $1,040.00 to “Uncle Jon” for 2006.

The corporation to which the management fees were paid is also “zero-ed out” each year by a salary bonus paid to the doctor-owner. So this corporation also has a net taxable income of “0”. Yet it will pay $2,080.00 in NJ state corporate income tax because of its gross receipts!

The State of New Jersey will get a total of $4,160.00 in corporate income tax on a total combined taxable income of “0”. Plus it will get Gross Income Tax from the doctor on the salary bonus, some of which will be taxed at the “millionaire tax” rate of 8.97%.

And that is not all. Because the minimum tax payment for each of the corporations is more than $500.00 they will no longer be allowed the convenience of making a one-time 50% “Installment Payment” on the CBT-100 in lieu of quarterly corporate estimated tax payments. Each corporation must make quarterly payments.

As per the instructions, “If the 206 Total Tax Liability, before the 4% surtax, is greater than $500, the taxpayer must make installment payments toward 2007. These payments are to be made on Form CBT-150 and are due on or before the 15th day of the 4th, 6th, 9th and 12th months of the year.”

So the tax been substantially increased and we have been given more work to do. The DFBs!!!

TAFN

STUFF AND SUCH

* The 2007 National Association of Tax Professionals Annual Conference will be held in Las Vegas at Caesars Palace from July 23 - 26. The special NATP room rate for the conference is $143.00.

The 2008 Annual Conference will be at the Atlanta Marriott Marquis from July 7 – 10.

* The NJ Division of Taxation has published a Summary of 2006-2007 Tax Legislation on its website. The site also contains a portal page for 2006-2007 changes.

* NYS Dept of Taxation and Finance Publication 58 “Information for Income Tax Return Preparers” discusses rules and regulations, requirements and penalties that relate to preparers of NY tax returns.

A New York tax preparer must efile if he/she prepared more than 100 “original” NYS returns in 2006 and uses tax preparation software to prepare NYS returns. The second condition would let me off the hook if I were a NY based preparer.

TAFN

THE NJ-NATP ANNUAL NEW JERSEY TAX SEMINAR

Yesterday I attended the NJ TAX SEMINAR sponsored by the NJ chapter of the National Association of Tax Professionals, held as it is each year at the Woodbridge Hilton (Exit 131A on the GSP).

The seminar had an excellent line-up of speakers, with one exception (a lawyer who gave an excellent presentation on the final 1040, the federal 706, and the NJ Inheritance Tax and Estate Tax returns) all from either the NJ Division of Taxation or Division of Revenue. The “keynote” speaker, and as it turned out the least effective of the NJ agency speakers, was Maureen Adams, the new Acting Director of the NJ Division of Taxation.

Her predecessor, a frequent speaker at the annual NJ-NATP seminars, had to leave office because it was discovered that he and several colleagues had taken an excessive amount of “inappropriate” gifts from vendors of the NJDOT.

Ms. Adams’ was overwhelmed by complaints and comments from the audience on tax-related problems, mostly involving business clients, with the State of New Jersey. Many of the frustrations expressed by those present really had to do with the Division of Revenue, often mistaken for or erroneously considered a part of the Division of Taxation, and many of Ms. Adams’ responses were basically “that’s not my division”, which, while true, sounded like a typical cop-out.

While I keep my business clients to an absolute minimum, I can attest that more than 75% (I am being conservative) of the balance due notices my 1040 and business clients received from either the DOT or DOR in 2006 were, for lack of a better word, pure garbage.

Some of the comments reinforced my belief that, while you can toss the back-up documentation for 1040s, 1120s, NJ-1040s, CBT-100s, etc after four (4) full years, you should keep a copy of the actual tax returns, whether personal or business, forever.

Prior to being besieged by questions and comments, Ms. Adams reported on Governor Corzine’s proposal to replace the current NJ FAIR Rebate for homeowners with a direct property tax credit, like the rebate based on NJ gross income:

· $100,000 or less = 20% credit – up to $1,200
· $100,001 to $150,000 = 15% credit – up to $1,000
· $150,001 to $250,000 = 10% credit – up to $700

While legislation on this change has not yet been introduced, Adams expects that the direct property tax credit will replace the rebates that would be sent out this fall. The proposal does not effect the “Property Tax Reimbursement” (aka “Senior Freeze”) program, which will remain in effect.

One of the NJ speakers discussed NJ’s relatively new Taxation Data Warehouse program, which gathers all taxpayer information from all sources (such as federal tax data, other NJ agency data, and NJ tax return data) in one centralized location. This is a great idea, as many of the comments directed at the Acting Director indicated that “the left hand does not know what the right hand is doing” when it comes to the various NJ taxes and fees.

What would be even “more better” is that, as all information will be located in one place, there should also be one centralized collection program. The individual agencies such as DOT, DOR, Commercial Recording, etc should not each have separate collection activity.

And New Jersey should cease from using an outside collection agency to dun allegedly delinquent taxpayers, just like the IRS should. There were several comments on abuses by the current collection agency.

Andrew Pantelides (andy.pantelides@sos.state.nj.us), the Assistant Director of the Division of Revenue, made a presentation on the streamlined corporate dissolution process, which, unlike anything else in NJ government, is truly streamlined and, in my experience, works properly.

There was also an excellent presentation on the new additions to products and services subject to NJ Sales Tax – which was part of the annual 11th-hour “nickel and dime-ing” of NJ residents to balance the budget. NJ legislators, fat from supping at the public trough, continue to make it more expensive to live and work in NJ rather than cutting the pork and excesses in the budget. Another example is the ridiculous increases in the corporate minimum tax. I was disappointed that this 2007 tax change was not addressed by any of the speakers on Saturday.

The most entertaining speaker, Jim Gordon (jim.gordon@treas.state.nj.us), discussed the topic that most of us came to hear about – the new withholding requirement for construction contractor services (see my Thursday, January 4th posting).

The only parties exempt from this new withholding requirement, which became effective January 1, 2007, are government entities (I do believe a Business Registration Certificate is already required for all vendors who do business with the State of New Jersey), and homeowners and tenants who are hiring the contractor to make repairs and improvements to their personal residence.

Jim pointed out that the requirement will apply for repairs and improvements directly made to a home office, even though the home office is a part of a personal residence, and made on rental property, even if the rental property is part of the same structure as your personal residence, as in a two-family house. So this requirement pertains to Schedule E filers as well as Schedule C filers!

Businesses and landlords that withhold the required 7% from unincorporated contractors who do not provide them with a NJ Business Name Certificate will remit the withholding on a monthly basis on a new Form NJ-550. A copy of the NJ-550, or some other documentation, should be given to the contractor to verify the withholding.

For purposes of this new law, a Sales Tax Certificate is not the same as a Business Registration Certificate. The unincorporated (this, for some unknown reason, includes contractors organized as a sub-chapter S corporation) contractor must give the client an actual Business Registration Certificate. You can get a copy of a Business Registration Certificate at the NJ Business Gateway Services website.

Mr. Gordon did not say, nor was he asked, how the NJ Division of Taxation will know if a business owner or landlord does not comply with this new requirement. It would seem the only way they would find out is if they were doing an income tax audit on the tax return of a business or landlord and the tax return indicated a deduction for repairs or improvements to real property, or if an audit was being conducted on an unregistered contractor - most of whom are under the radar anyway.

This new procedure is a real pain in the arse. And it is a pain in the arse on purpose. I can sympathize with the reasoning behind the law. What NJ is trying to do is put the illegal aliens, and US citizens, who are part of the “underground economy” (i.e. they pay no taxes or fees, and hire workers who pay no taxes) out of business by making it excessively inconvenient and burdensome to hire these kind of contractors.

I only learned about this law as a result of an email from the National Society of Tax Professionals, and a subsequent posting on the NJ Division of Taxation website, and only because I am a tax preparer. I doubt very much that the general public has any idea that this new requirement exists.

TAFN

NSTP CONTINUING EDUCATION PROGRAMS

Once again, instead of having one annual convention, the National Society of Tax Professionals will have a “Regional Conference” prior to four (4) of the six (6) IRS National Forums.

The dates and locations of the 2007 Regional Conferences are:

· Atlanta, George – July 15 and 16
· Chicago, Illinois – July 29 and 30
· Lax Vegas, Nevada – August 19 and 20
· Orlando, Florida – September 16 and 17

The conferences will be held at the same hotels as the IRS Forum. See my previous posting on the IRS Nationwide Forums.

As more information on the conferences becomes available I will let you know.

Speaking of NSTP, this year’s 2-day Special Topic Workshop will be “Meeting the Challenges of the 1040 Schedule C”. It will be taught by popular NSTP instructor Paul LaMonaca and held in Williamsburg, VA.

The workshop will address the following Schedule C issues:

· Business vs Hobby
· Start-Up Costs
· Basis
· Benefits and Burdens
· Business Use vs Personal Use of Assets
· Depreciation and Recapture
· Conversion from a Sole Proprietorship to Another Entity
· Filing Requirements
· Employment of Family Members
· Office in the Home
· Retirement Planning
· Self-Employment Tax
· Ordinary and Necessary Business Expenses
· Audits

The cost of the 2-day workshop is $190.00 for members and $240.00 for non-members. If you register before May 1st you will save $15.00. The first day is 8 hours and the 2nd day is 4 hours.

For more information call 1-800-367-8130 or click on the above link.

BTW, tomorrow (Saturday) I will be attending the annual State Tax Seminar of the New Jersey Chapter of the National Association of Tax Professionals. I will report on the seminar in a future posting.

TAFN

IRS 2007 NATIONWIDE TAX FORUMS

The IRS has announced the dates and locations of the 2007 Nationwide Tax Forums:

ATLANTA, GA – JULY 17-19, 2007
HILTON ATLANTA
255 COURTLAND STREET NE
ATLANTA GA 30303

CHICAGO, IL – JULY 31 – AUGUST 2, 2007
HILTON CHICAGO
720 SOUTH MICHIGAN AVE
CHICAGO IL 60605

LAS VEGAS, NV – AUGUST 21-23, 2007
RIO ALL SUITES HOTEL
3700 WEST FLAMINGO
LAS VEGAS NV 89103

NEW YORK, NY – AUGUST 28-30, 2007
HILTON NEW YORK
1335 AVENUE OF THE AMERICAS
NEW YORK NY 10019

ANAHEIM, CA – SEPTEMBER 11-13
HILTON ANAHEIM
777 CONVENTION WAY
ANAHEIM CA 92802

ORLANDO, FL – SEPTEMBER 18-20
DISNEY’S CORONADO SPRINGS RESORTS
1001 WEST BUENA VISTA DRIVE
LAKE BUENA VISTA FL 32830

As more information becomes available I will keep you informed.

WHAT THE …?

This information release was just sent to me via email from the National Society of Tax Professionals. I immediately went to the NJ Division of Taxation website – it was not included in the What’s New? Page.

I see that homeowners (I assume a homeowner includes the owner of residential rental property) and tenants are exempt from this new requirement – but it will apply to a NJ business who pays a contractor to repair or improve business property.

The worst part of this is the requirement, toward the end of the notice, that NJ businesses that contract for repairs or improvements are also responsible to make sure that the contractors and sub-contractors withhold from their individual sub-contractors. What a mess!

“New Withholding Requirement for Construction Contractor Services Effective January 1, 2007:

Chapter 85, P.L. 2006 requires persons, other than a governmental entity, homeowner or tenant, maintaining an office or transacting business in New Jersey and making payments for services to certain unregistered, unincorporated construction contractors to withhold New Jersey Gross Income Tax at the rate of 7% from those payments. See N.J.S.A. 54A:7-1.

The purpose of Chapter 85, P.L. 2006 is to ensure that the income taxes of persons engaged in businesses are properly withheld and paid over to the State of New Jersey pending the filing of a New Jersey Gross Income Tax or Partnership Return. The Act takes effect immediately, but applies to payments made on or after January 1, 2007.

For purposes of the new law:"Contractor" means a person entering into a contract for services to construct, improve, alter, or repair a building, structure, or improvement to real property and includes a subcontractor, but shall not include professional services as defined in section 1 of P.L.1960, c.40 (C.17:16C-1)."Unincorporated contractor" means an individual contractor or a contractor organized as a sole proprietorship, a partnership, or any other business form not taxable as a corporation for federal tax purposes.

Withholding on the remuneration is not required if the person making the payment has obtained from the person receiving the payment proof of the construction contractor’s registration with the Division of Revenue, Department of Treasury. A Business Registration Certificate serves as proof of a valid business registration with the Division of Revenue. Unincorporated Construction Contractors with no business tax or employer obligations may register with the Division of Revenue using Form REG-A instead of Form NJ-REG in order to obtain the Business Registration Certificate. Proof of the construction contractor’s registration with the Division of Revenue should be retained by the person making the payment.

The owner of real property to which construction or repair is being made that is required to deduct and withhold tax under the new law is also made liable for that contractor's withholding from a subcontractor, or the subcontractor's withholding from a lower tier subcontractor on that contract. Failure to withhold and make payment to the Division of Taxation will result in the imposition of penalties currently provided for other failures to withhold income tax from employee pay. See N.J.S.A. 54A:7-6.The contractor, subcontractor or lower tier subcontractor may be excused from that withholding if they have proof of registration with the Division of Revenue.

Please continue to check this page. Additional information will be added as it becomes available.

For more information regarding income tax withholding, please contact the Customer Service Center in the Division of Taxation at (609) 292-6400. If you have questions regarding services subject to the New Jersey Unemployment Compensation Law, N.J.S.A 43:21-1 et seq., you may contact the Division of Employer Accounts in the New Jersey Department of Labor and Workforce Development at (609) 777-4315.”

Oi vey!

2006 NJ-1040-O ONLINE!

Just to let you know that the 2006 Form NJ-1040-O “OPT-OUT” form is now available to download at the NJ Division of Taxation website – so you, like me, can now mail out the forms to your clients!

INCREASED FEES FOR INSTALLMENT AGREEMENTS

William Perez at Taxes.About.Com reminds us in his Sunday, December 31, 2006 posting that the IRS has increased the “user fee” to set up an installment agreement for 2007. The new user fees are:

· $52.00 for a direct debit installment agreement (payments are directly deducted from the taxpayer’s bank account),

· $105.00 for setting up a new installment agreement (without direct debit),

· $45.00 for restructuring an existing or reinstating a defaulted installment agreement, and

· $43.00 for taxpayers with income at or below the poverty level.

TAFN

2006 NJ GROSS INCOME TAX FORMS ONLINE

The 2006 NJ Gross Income Tax forms and schedules are now available online at the NJ Division of Taxation website. However, the 2006 NJ-1040-O "OPT OUT" form is not yet available to download.