Tax Season 2019 – New Jersey
And the biggest news on the state front is…
More and more states are finding new ways to line their coffers without raising tax rates, and much of this emphasis involves sales tax. NJ has joined the list of states that REQUIRE you to deal with use tax in conjunction with your annual income tax filing.
Some examples will help.
Remember that vacation you took to that other state with a lower sales tax rate? How about that big ticket item you drove all the way to Delaware to buy? Technically, your duty-free European vacation and your garage sale finds need to be added in. And don’t forget all those nifty online purchases. In short, if you somehow managed not to pay any sales tax, or you paid less sales tax someplace else, NJ insists you pony up the difference to NJ in the form of “use tax.”
There has always been a box on the form where you could voluntarily submit this money, but now, I can’t file without checking it off. Which means I can’t file without you signing more compliance paperwork. And the language is clumsy. You get to choose between three options:
*1* certifying no use tax is due
*2* declaring you kept poor records and cannot substantiate anything, and therefore are willing to allow NJ to assess your use tax at according to a schedule
*3* providing specific information so that your use tax is precise (and possibly less than option 2)
Did anybody out there keep all their receipts for 2018 so they could tabulate the sales tax paid and reveal the actual use tax due?
If you read the questions carefully, you will be able to add back for cities/states where you paid more sales tax. I suspect the whole thing is really about the fines and penalties, both on you and on me, for failing to check all those boxes.
New Jerseyfornia has also established its very own health insurance mandate…but that’s for 2019 so let’s not borrow trouble. This year, all I have to do is ask you if you have health insurance at the time we file.
On the bright side, you no longer have to sign a specific form giving me permission to actually file your NJ taxes. My opinion? Since NJ doesn’t get any revenue from asking you to sign that form, they are willing to piggyback on the federal form. At least we’re saving trees.
Tax Reform – Compliance
A more complex result of tax reform is a re-invigorated emphasis on compliance.
You, the taxpayer, can’t just say, “I’m HOH” or “my mom is my dependent.” You are expected to follow the rules and be able to document and prove the truth of certain statements.
EIC, CTC, AOTC, ODC, AOTC and HOH, all deliver great tax advantages. Electing any of these without proper cause is considered fraud, and these frauds have been running rampant in recent years. Some estimate 1 out of every 3 EIC claims is fraudulent. Most returns with EIC also involve at least one more of these acronyms.
To fight back, there are penalties. In fact, if you lie to me, the IRS can fine me, too. Thus, if you qualify for EIC, CTC, AOTC, ODC, AOTC and/or HOH, and you file your taxes through a professional, be prepared to complete and sign additional paperwork that outlines the qualifying factors. Fun stuff for all of us.
The IRS has stepped up investigations of preparers who have high numbers of taxpayers taking these credits. Once they find a preparer with inadequate documentation, they fine the preparer, but there is little evidence they follow up with the actual taxpayers.
DIY? Apparently nothing has changed on the compliance front. Hmmm.
Tax Reform – Health Ins … still a “thing”
How about that health insurance issue?
Yes, they did repeal the “individual mandate,” but it does not go into effect until 2019. This means, you are still supposed to have health insurance or pay a penalty with your 2018 income tax filing, so I still need your 1095 A/B/C. (Why did Tax Reform delay this until 2019? Probably because folks had already signed up, and they didn’t want to jeopardize the industry mid-stream.)
However, with the 2019 penalty gone, it seems people have begun canceling coverage. That is, enrollment is dropping. Some of this might also be connected to the surge in politicians (particularly 2020 presidential contenders) who are already getting aboard the universal health care bandwagon.
But don’t worry – more and more states are implementing health insurance mandates, complete with the same penalty structure for non-compliance.
Tax Reform – Kiddie Tax
Another big change impacts Kiddie Tax.
Tax rates for dependent children with unearned (non-wage) income are no longer determined in conjunction with the parent return. Instead, Kiddie Tax will simply mimic the rates for trusts and estates.
Generally, this will be simpler.
And unless your child is an oil baron with a trust fund, it will probably result in less income tax.