Tax tidbits

Is Rehabilitating a Former Cult Member a Deductible Expense?

Nov 15th 2019
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In sixteen previous columns, I discussed my use of “tax tidbits” to enliven conversations when

talking taxes with clients, speaking to groups like business owners, retirees, investors and home sellers, or teaching adult education courses at places like high schools and community colleges.

The tidbits discuss, among other things, IRS rulings, recently enacted law changes, proposed changes, court decisions and tactics that trim taxes for this year and even future ones.

I‘d like to share more of my favorites with you here.

How long to keep tax records. Make sure to file away those checks, receipts and other records that back up deductions for business expenses and other items on your return, as well as a copy of the 1040. Keep your records at least until the statute of limitations (legal-speak for a deadline) runs out for the IRS to undertake an audit.

Generally, that’s three years after the filing deadline—April 15, 2020, in the case of a return for 2016 with a filing deadline of April 15, 2017, for most persons. But the law grants the IRS six years to check if taxpayers understated their income by 25 percent or more. And there’s no time limit if the IRS is able to establish that they failed to file a 1040 or they filed a fraudulent one.

As you create files for previous years, now’s the time to open one for this year and begin to save the information that you will need next year at 1040 time. 

Presidents Carter and Trump on income taxes. Mr. Carter characterized “the federal tax system” as “a disgrace to the human race.”

In the closing days of December, 2017, Congress approved and Mr. Trump signed the most comprehensive overhaul of the Internal Revenue Code since the Tax Reform Act of 1986. While this legislative package is commonly referred to as the Tax Cuts and Jobs Act of 2017, or TCJA, its formal title is a whopper: “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.”

How come Congress needed 23 words to get this idea across? An article in the April 12, 2018, edition of the Wall Street Journal deconstructed why.

According to the two reporters who wrote the piece, the mouthful of a title is attributable to:

…“a last-minute squabble as Congress rushed to complete the legislation. Democrats raised a procedural challenge and Republicans couldn’t muster the 60 votes needed to call it the Tax Cuts and Jobs Act, as they wanted. President Donald Trump’s choice, the Cut Cut Cut Act, was never really on the table.”

The same Wall Street Journal article informs us that we can also thank Mr. Trump’s law for the introduction of FDII, which stands for Foreign-Derived Intangible Income, a deduction for U.S. exporters.

To borrow a line from Rodgers & Hammerstein’s “The King and I, it is a puzzlement as to how the new write-off ought to be pronounced. Some tax pros call it “FOE-dee,” others call it “Fiddy.”

Question. Can I deduct the cost of deprogramming a family member who joined a religious cult?

Answer. Not according to an IRS ruling that disallowed a deduction for what a mother paid to deprogram her teenager.

Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 300 and counting).