ThatBootsGuy's Tax Knowledge Bar

As many of you know I am a tax professional and have been for a number of years now. I run a small company in NY and do primarily personal income tax returns (federal form 1040 et al.).

One of my biggest pet peeves is the abhorrent spread of misinformation regarding tax preparation. Specifically in how it works and what you can do to benefit/prepare yourself. Not just in the general public but with some tax pros as well.

“Well I’ll have the baby in June so I supported it last year when I was pregnant so I should get the tax benefits”. Believe it or not I’ve had people in my office that think this…

So I’m here to educate people on US personal income tax preparation as people ask questions and whatnot.


I’ll start this off with a topic that came up in discussion recently: the Affordable Care Act (ACA). Also known as obamacare. I’m not an expert on the entirety of the law, just how it affects the 1040 and other relevant documents.

The layman’s reading of the law basically boils down to: everyone needs some form of health coverage unless certain exemptions apply, if one doesn’t have health coverage and doesn’t qualify for an exemption then there is a fine. The fine was the greater of 695 USD or a certain percentage of your income obviously adjusted if you had coverage for part of the year. The fine started smaller and was phased in over the years in which it was in effect. I say “was” because the fine has now been rendered effectively 0 as a result of the Tax Cuts and Jobs Act. It’s still in the code, but the values have been changed to render it 0 so if they wanted to, they could very easily bring it back.

So what were the exemptions to the fine?

  • if it was deemed unaffordable (the threshold for this was extremely low so while most people couldn’t actually afford it the gov determined they could).
  • If you’re a resident alien (working here on a visa or similar)
  • Incarceration
  • Not being alive for a portion of the year
  • Short gap in coverage (2 months or less in a year with no coverage)

and a couple others. Most of them are pretty rare occurrences with the sole exception of the short gap, at least in my office.

If you didn’t qualify for any exemption how do you avoid the fine?
You would need to have some form of qualified health coverage. “Qualified” meaning that it had to provide what the gov. determined to be “sufficient” coverage. Most people got this through their or their spouse’s workplace or if they’re old/disabled then through medicare/medicaid. If not there, then you could get your own personal plan but that route is usually quite expensive. If your employer didn’t provide you with health insurance and you couldn’t afford a personal plan, then you’d have to go with what is called a “marketplace” plan.

So, how a marketplace plan (aka obamacare) works is you calculate your affordability and make payments each month with the taxpayer supplementing your payment to reach a certain level of coverage. At the end of the year when you bring your 1095-A to someone like me, we go through and put all that information in. Based on that, you may get a credit if you overpaid, a fee if you underpaid, or possibly a zero-sum. This portion of the ACA is still very much in affect for tax purposes as I know right now (seminar doesn’t happen until the end of the year, but I haven’t seen anything to state otherwise as of yet).


God Damned socialized overpriced health insurance. I’m very happy this year I’m finally able to get my own el cheapo plan…

What’s with the voluntary internet and out of state sales tax Bologna? Its federal law states can’t tax sales on out of state companies AFAIK. I’ve never filled that one in.

Actually, there was a Supreme Court ruling that tossed the last 230 years of precendent out the window because… reasons… That now allows states to demand any vendor selling in their state to collect and remit sales tax.

Regardless of that though - your state can, and some do, require YOU to remit sales tax if it was not collected by the vendor and this is not “voluntary”, its just poorly enforced because its difficult to track. If they end up tracking it for whatever reason, you can find yourself on the receiving end of an audit and back taxes for the prior 3 (to 4 in practical terms, but legally 3 “tax years”).

NE states, running out of other people’s money were pushing into big online vendors (newegg for example) prior to that ruling that made all their harassment moot, but the result was that those vendors were getting nasty letters and threats from states and turning over customer records in response.

This is not tax or legal advice, I am not a tax professional of any sort, but there is no such thing as “voluntary” taxes.

This was the abomination of a ruling and further expansion well beyond the bounds of the Constitution a state’s power has now been expanded. Woodrow started us down this “progressive” path to damnation. FDR obliterated any limit on Federal Power by getting the courts to rule that “interstate commerce” covered “anything we feel like” (including “opportunity cost”) now being interstate commerce and thus under Federal jurisdiction.

Alright, let’s talk about Retirement accounts. Since @diceman asked.

First some terms:

  • Pretax: money put in before it’s taxed. This means a contribution to a pretax account lowers your taxable income

  • Post tax: money put in after it’s taxed. This means a contribution to a post tax account does not lower your taxable income, but it’s also not taxed when you take it out.

  • Contribution: putting money into an account

  • Distribution: taking money out of an account

  • Qualified distribution: a distribution without penalty

  • Unqualified distribution: a distribution with penalty

  • Earnings: the interest accrued in the account (basically the amount that exceeds your contributions)


This is an employer supplemented retirement account for employees. You contribute some money and they’ll match up to a certain percentage. It is a pretax account. Generally the best first option to contribute money to. Generally you can’t take money out of this account without penalty until you reach age 59.5. There may be a catch-up period as well once you reach age 50 like with IRAs, but I’m not positive. Your employer could tell you more about the specifics of your policy.

Traditional IRA

This is an individual account you have to set up somewhere yourself. This is a pretax account. There are, however, contribution limits. The limit for 2020 is $6,000 between ALL your traditional AND roth IRAs. This amount increases to $7,000 during the catch-up period beginning at age 50. The distribution rules are the same as a 401(k) with some additional restrictions. With a traditional IRA you have to start taking money out after age 70.5 and can no longer put money in. If you make a contribution after age 70.5 or exceed your contribution limit you will be subject to an additional amount. Excess contributions are taxed at 6% per year as long as the excess amount remains in the accounts.

Roth IRA

I, unlike my “boss”, love roths. If you want to contribute money toward a retirement, but can’t stomach not being able to touch your money or want to be able to take money out when you’re retired and don’t have to worry about tax a roth is the way to go. It follows the same contribution restrictions as a traditional IRA. Unlike a tradtional IRA, however, a Roth is a post-tax account. You don’t get to lower your taxable income for the year in which you make the contribution. So why bother with one? The main benefit is you don’t pay any tax on your contributions (since they’ve already been taxed) as well as the earnings. You also don’t have to take money out ever and can always put money in.

The distribution rules are very different from the 2 previous accounts as well.

  1. A distribution is qualified once you reach age 59.5 OR after you’ve had the account for 5 years, whichever is later (since you can open one whenever. So if you open one when you turn 55 you won’t be able to take money out until you’re 60 for example).

  2. You can take out your contributions at any time with no penalties or restrictions. This is because a Roth is a post tax account. It will, however, result in an additional form or 2 on your return for auditing purposes.

  3. There is no required minimum distribution unlike a traditional IRA (you have to start taking money out at 70.5)

  4. If a distribution is qualified you pay no taxes. If it’s not, you only pay taxes on the portion of the distribution that is earnings.

So what happens when you take these out?

You get a 1099-R form. You’ll have to specify that they take out a percentage for federal (and state where applicable) income tax if it’s not from a Roth account. This gets added to your taxable income and the withholdings to the withholdings like any normal W-2 form unless it’s a Roth. If it is a Roth, then it’s added to income, just not taxable income and obviously no withholdings.

This is a simplified summary, there are many exceptions and fringe cases when dealing with retirement for tax purposes, but these are the general rules for most everyone.

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Man that just annoys me.