Category Archives: Taxes

• Tax Strategies for Trick or Treats

  Posted on 10/18/2017 in Taxes

  Halloween is almost here, and if it seems like things have changed since you were a kid, you’re right! Halloween has become big business, with the National Retail Federation predicting Americans will spend $9.1 billion on the festivities. That includes $3.4 billion on costumes, with top choices being superheroes, animals, princesses, witches, vampires, and zombies. And, “pets will not be left behind, with 10 percent of consumers dressing their pet as a pumpkin.” (If you’ve got a dachshund, of course, you have to dress it up as a hot dog. Rule of law.) Naturally, when the trick-or-treaters at the IRS hear the word “billions,” they reach out for a “fun sized” treat, too. (Why do they call those dinky little candy bars “fun sized,” anyway? What’s fun about a bite-sized Snickers or Milky Way when you can score a full-size bar in the rich kids’ neighborhoods?) Let’s take a quick look at how the IRS taxes our favorite Halloween dopplegangers: Superheroes who emigrate from other planets, like Superman (planet Krypton) and Thor (planet Asgard) are subject to U.S. tax on their domestic-source income. (“Resident alien” status doesn’t distinguish between aliens from other countries and aliens from other planets.) Superheroes who…

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• The Long and Short of It

  Posted on 10/10/2017 in Taxes

  Consumer surveys consistently show that CPAs are the most trusted financial advisors of all. But what happens in the rare instance when you can’t trust your CPA? Nothing good, that’s for sure! Back in 2001, John Baldwin helped engineer a deal to sell Louisiana’s Delta Downs racetrack for a $74 million profit. Baldwin took a $10 million fee for his work, along with some hefty interest payments on a $17 million loan his company had extended to finance it. But Baldwin didn’t want to share those hard-earned gains with the IRS. So he went to the “Big Four” global accounting firm of KPMG for ways to pay less tax. KPMG dug into their bag of tricks and pulled out a doozy — a “one-time fix” called SOS, or Short Options Strategy. Without getting too technical, here’s how this little sleight-of-hand worked. (If you’re thinking “sleight-of-hand” is an unfortunate term to use in the tax-planning context, you’re right.) First, Baldwin put up $1.5 million to buy $22 million worth of “long” options on Mexican and Brazilian currency, betting the value of the currency would go up. Simultaneously, he sold $22 million worth of “short” options on the same currencies, betting the…

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• How The Tax System Works

  Posted on 10/06/2017 in Planning, Taxes

  “The hardest thing in the world to understand is the income tax.” – Albert Einstein The bad news is, the tax code is so complicated Albert Einstein can’t understand it. The good news is you don’t have to be Einstein to cut your taxes. You just have to know how the system works for you – your job or business, your investments, and your family.  Here is an overview of how the tax system works: Add taxable income from all sources to figure total income. Subtract “adjustments to income” to determine “adjusted gross income” (AGI). Subtract standard or itemized deductions and personal exemptions to determine taxable income. Consult table of tax brackets to figure your tax. Subtract any available credits to figure your final bill. That’s really most of what you need to know. The real issue isn’t the numbers. It’s what you have to include in your income, what you get to deduct from that income, and where you invest to avoid reporting income at all. Having said that, there are three main strategies for cutting your tax: Earn as much nontaxable income as possible. You have more control over business and investment income than any other income you…

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• Trump’s Tax Plan Proposal: What’s In It For You?

  Posted on 10/05/2017 in Taxes

  On September 27, the Trump administration and congressional Republicans outlined a nine page “Unified Framework for Fixing Our Broken Tax Code.” What effect might this proposal have on the amount you pay? The plan appears to incorporate a conventionally Republican suite of changes: lower rates, unspecified new relief for families, and incentives to repatriate foreign earnings. At the same time, they’ve proposed to limit certain breaks and eliminate nearly all itemized deductions, including those for state and local taxes. Individual Taxes Cut brackets to three: 12-25-35% Double the standard deduction Eliminate the personal exemption Increase the Child Tax Credit by an unspecified amount Eliminate itemized deductions other than mortgage interest and charitable gifts Repeal Alternative Minimum Tax Transfer Taxes Repeal Gift & Estate Tax and Generation-Skipping Tax Corporate Taxes Cut top rate to 20% Cut top rate on pass-through income Cut top rate on income from S corps, partnerships, and proprietorships to 25% Limit deduction for net business interest paid by taxable corporations Allow immediate expensing for non-real estate capital assets Eliminate domestic production activity deduction Impose repatriation tax to bring back accumulated profits of foreign subsidiaries Move to “territorial system” (taxing companies on U.S. earnings only) to level the…

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• What Will Your Tax Bill Be In April?

  Posted on 09/28/2017 in Planning, Taxes

  It’s the end of September.  Now is the time to start thinking about your tax bill for April next year.  It’s September, why should I be thinking about something that isn’t due for another six and half months.  The answer is simple.  Now is the time that you have opportunity to affect your tax bill in April. Once December 31st has come and gone you have closed the year and there are very few things you can do to lower your tax bill in April. Estimating a tax bill is something that a good CPA should be able to do for you.  There is a bit of estimating involved in this process but at a high level this is what needs to be done to estimate your tax bill. Estimate your income for the year. Estimate your deductions for the year. Estimate your taxable income (income – deductions for the year. Once you have your estimated taxable income it is easy to estimate your tax. Compare your estimated tax with your tax payments. This process is a cooperative process.  You need to give your CPA information so that he/she can accurately do the calculations to estimate your taxes.  The CPA…

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• Too Tasty for the IRS

  Posted on 09/26/2017 in Planning, Taxes

  Most of us like to eat, even if we choose to deny ourselves this pleasure from time to time. And those of us with an entrepreneurial bent often dream of opening a restaurant. Sometimes it’s a bustling cafe fronting a busy urban sidewalk. Sometimes it’s comfort food served on a rural byway. And when the dream works, it really is a dream. Just ask celebrity restaurateurs like Vanity Fair editor Graydon Carter, proprietor of Greenwich Village’s Waverly Inn, or Hollywood legend Clint Eastwood, whose Mission Ranch eatery draws diners and fans to Carmel, California. Unfortunately, opening a restaurant is one of those adventures that all too often ends in disaster. Sure, FEMA may monitor Waffle House closings as a measure of hurricane intensity. But restaurants are notoriously difficult businesses to run. CNBC reports that about 60% of new restaurants fail in the first year, and nearly 80% close before their fifth year, mostly due to being in the wrong location. So if you’re hoping to launch the next food empire, or just cash in on the next food craze (cupcake ATMs, anyone?) it behooves you to spend as carefully as you can — including serving the IRS as little in…

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• Sink Your Teeth Into This One

  Posted on 09/20/2017 in Business, Taxes

  “You better cut the pizza in four pieces because I’m not hungry enough to eat six.” Yogi Berra The calendar is full of little-known commemorations that probably escape your attention, and this month is no exception. Some of them are just silly, like September 19’s International Talk Like a Pirate Day. (Although, really, if you don’t think pirates are cool, what’s wrong with you?) Some are obscure, like September 23’s Restless Leg Awareness Day. But some of those special days resonate with everyone. And that brings us to September 20: Pepperoni Pizza Day. Yes, it’s really a thing, and yes, it’s magnifico! Just about everyone loves pepperoni pizza. Even vegans can enjoy it with dairy-free cheese and meatless pepperoni substitutes. (Don’t mock it until you’ve tried it!) Americans eat over 100 acres of pizza per day, and 36% of those pies have pepperoni on top. We eat over 250 million pounds of pepperoni on our pizza every year. Naturally, tax collectors love it . . . so let’s see how they take their slice or two of the pie. Pizza is a $44 billion industry here in the U.S. The top 50 chains, led by Pizza Hut, Domino’s, Little Caesars, and Papa John’s,…

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• Help With Help

  Posted on 09/13/2017 in Taxes

  Ordinarily we use this space for lighthearted stories that poke fun at the tax system and some of the clever ways that people endeavor to make it work for them, successfully or not. But the recent stories coming out of Harvey-ravaged Texas and Irma-ravaged Florida suggest a more serious tone for a change. Today we’re going to walk through some tax-related opportunities when it comes to reaching out to storm victims. You might be surprised to see how our friends at the IRS are jumping in to help, too: If you want to deduct your contributions, make sure you’re giving to a properly registered 501(c)(3) nonprofit. There are more than 1.5 million of them, and many are making extra efforts to help storm victims. These include local groups in affected areas, faith-based groups, and even animal-welfare groups dedicated to rescuing pets displaced by the storms. Many national groups have established special funds for Hurricanes Harvey and Irma, which let you earmark your contributions. Be careful before you join crowdfunding efforts on sites like GoFundMe. While you can certainly find links to registered 501(c)(3) organizations, most individual campaigns won’t qualify for tax deductions. Don’t be afraid to do some homework on…

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• $50 Million, Hut!

  Posted on 09/05/2017 in Taxes

  The 2017 college football season kicked off this week, and for most people that means talk of pre-season polls, Heisman trophy hopefuls, and BCS championship prospects. But we’re not “most people,” are we? So today we’re going to ignore all that boring on-field action and see how one coach’s financial advisors lined up the X’s and O’s to outwit the defensive line at the IRS. Here’s a little-known fact that might offend your sense of priorities. Seven-figure salaries are almost unheard of in academia. But the average major university’s football coach makes $1.81 million per year. In fact, in 39 states, the highest-paid academic or public employee is a college football or basketball coach. (And how many of them do you think have performance bonuses tied to graduation rates?) Alabama’s Nick Saban would seem to top that list with over $7 million per year. And why not? He’s rolled his Crimson Tide to four national championships in 10 years. But here’s the problem, at least as far as his salary and performance bonuses are concerned. The linebackers at the IRS are out for their share, too. And they’re not satisfied with a pick-six — they’re looking to intercept over 40%….

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• A Match Made in Dallas

  Posted on 08/29/2017 in Taxes

  Where is “home”? Home is where the heart is. Home is wherever you make it. Home is wherever I’m with you. And, of course, I’ll be home for Christmas. But what does the tax man think of all of this? In 2009, Greg Blatt was Executive Vice-President, General Counsel & Secretary of InterActive Corp (IAC), which ran 150+ web sites including About.com, Vimeo, and The Daily Beast. Blatt’s title sounded impressive, but IAC had reorganized him out of much of his responsibility, and he started looking for a new position. IAC didn’t want to lose him, so they made him CEO of Match, a collection of dating sites including Match.com, OKCupid, Tinder, and PlentyofFish. There was just one problem with the new gig — it was headquartered in Dallas. That held no appeal for the New York-based Blatt. So he worked out a deal to manage Match from New York. (Just another long-distance relationship, really.) He would keep his corporate position with IAC, spend most of his working time in New York, and keep his West Village loft and his boat in the Hamptons. They say no battle plan survives initial contact with the enemy, and Blatt’s was no exception….

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