Monday, May 18, 2015

Top 10 Taxing Words That (Sort Of) Rhyme With "Tax"

Late-night talk-show host David Letterman has delighted audiences with his wry, subversive sense of humor for an impressive 33 years. But this week he bids us farewell. We'll remember him for his Stump the Band bits, his Stupid Pet Tricks, and — most of all — his Top 10 lists. So here, in Dave's honor (from the Home Office in Wahoo, Nebraska), we present The Top 10 Taxing Words That (Sort Of) Rhyme With "Tax." Drumroll, please!
10. Cadillacs: Americans love to drive. Why else would we invent interstate highways, suburbs, and traffic jams? (So many traffic jams.) Good thing our friends at the IRS are happy to help you roll in style, with a choice of deducting "actual expenses" or 57.5 cents/per mile.
9. Cracks: Our bridges and highways are riddled with cracks.
So the Highway Trust Fund collects a tax.
But the cracks are spreading too fast for that tax.
And Congress refuses to face those facts.
(Some folks think Congress is stuffed full of hacks.
Maybe it's time to give them the ax?)
8. Anthrax: If you find life-threatening poison powder in your mail, you'll want to call 911, pronto. But don't worry about that pesky hospital bill. You can use a Section 105 Medical Expense Reimbursement Plan to write off all your medical costs as a business expense!
7. Goldman SachsAmerica's most hated company has paid literally billions in fines since 2008. But they still managed to squeak out $8.48 billion in profit last year. And they paid 31.4% of that haul in taxes. So we're guessing at least the folks at the IRS still love them.
6. Craps: Not technically a rhyme, but close enough. While gambling winnings are taxable as "other income" on Form 1040, you can deduct gambling losses up to your total winnings, on Schedule A. Beyond that point, however, the tax still acts on your fat stacks.
5. Cracker Jacks: Candy-covered popcorn and peanut treats with a prize in every box. Bonus fun fact — some historians consider them America's first junk food! But whether that's true or not, you can't buy them in most states without paying sales tax.
4. Whacks: Tony Soprano and his colleagues hire professional killers to resolve business disputes "out of court" — because it's faster than filing a lawsuit and generally cheaper than hiring a lawyer. Good news: code section 162(a) lets business owners deduct "ordinary and necessary" professional fees. Bad news: the Supreme Court says no deductions are allowed for expenses that violate public policy. Sorry, Tony — looks like if you wanna whack Paulie Walnuts, it's gotta be on your own dime.
3. Saks: Saks Fifth Avenue stores have been outfitting fashionable men and women since Horace Saks and Andrew Gimbel opened their first location in 1924. Looking good can definitely help advance your career, of course. But does that mean you can write off the dress you wear to impress? Sorry, but no . . . Uniforms and work clothes are deductible only if they're not suitable for ordinary street wear. Maybe if we got a deduction, it wouldn't hurt so much to pay retail!
2. Yaks: Foodies are constantly foraging for the newest food fads. (You don't think anyone really likes quinoa or kale, do you?) Maybe it's time for our ranchers to look towards the Himalayas. Tibetans have used yaks for centuries for meat, milk, fiber, and fuel (don't ask). In parts of the region, they even race the poor beasts. Best of all, yaks domesticated over here should qualify for generous dairy subsidies!
And the number one taxing word that sort of rhymes with tax: "Relax!" We're here for you. There's nothing funny about paying more than you have to — that's why we give you a plan to pay less. So give us a call, and see how many words you can think of that rhyme with "savings"!

Tuesday, May 12, 2015

The Original Tax "Shelter"

New York City is the indisputable hub of American capitalism. Its glittering streets are home to the worlds of finance, advertising, fashion, publishing, and even organized crime. The island of Manhattan is home to some of the richest people on the planet, and they own some of its priciest real estate in the world.
You would think all those rich people living in all those expensive apartments would keep the tax collectors satisfied. But in fact, the oceans of money sloshing ashore are managing to bypass some of the most obvious tax tollbooths.
A generation ago, New York's bold-faced names dreamed of living in what Tom Wolfe called the "Good Buildings" — a triangle of 42 limestone coops centered on Manhattan's Upper East Side. Today, plenty of plutocrats have more than enough cash to afford those buildings. But what if their blood isn't blue enough for the famously snooty boards of directors? Well, if you're an internationally ambitious Russian car dealer, a Super Bowl-winning quarterback with a penchant for underinflated balls, or the son of a deposed African dictator, you turn your gaze south and west to "Billionaire's Row," a stretch of super-tall, super-expensive condominiums mostly lying along 57th Street.
In January, a mystery buyer made real estate history when he bought a shiny new apartment in a shiny new building for $100,471,452. And 77 cents. (Not a typo.) Sure, he gets 11,000 square feet overlooking Central Park from the 89th and 90th floors. There's even room service from the Michelin-starred chef at the Park Hyatt hotel occupying the building's first 25 floors. But it's not like the place is special or anything. Just down the street, the developers of 111 57th Street are asking the same $100 million for their top units. And right around the corner, the developers of 520 Park Avenue are asking $130 million for their three-story penthouse. (Can you imagine how unbearably proletarian it must feel to live 1,000 feet above the street on the 84th floor, but know there's someone even richer living right upstairs?)
Why are the tax collectors so unhappy? It mainly comes down to a dense provision of New York State law. It's called Section 421-a, and it slashes property taxes for new construction by up to 95% for up to 25 years, if developers agree to also build homes for low-income tenants. (Of course, that doesn't mean the "poorsies" get to overlook Central Park with the billionaires — the developers of the record-breaking condo underwrote 66 units way out in the Bronx.) So, just how much can that break be worth? In the case of that $100 million sale, it's $360,000 per year, with Section 421-a costing over $1 billion in annual tax overall.
Why would New York pass such a boondoggle in the first place? The goal is to lure rich residents to "make it rain" in local stores and restaurants. But it turns out the average billionaire owns 10 residences — and if you've got 10 places to live, how much time do you spend at any one of them? Foreign buyers, especially, are using their New York City pads as glass-and-concrete Swiss bank accounts rather than homes. One study found that 30% of all apartments bounded by 49th Street, Park Avenue, 70th Street, and Fifth Avenue are vacant at least 10 months out of the year. Oh, well. At least if it all hits the fan back home, owners will have part of their fortune safely beyond the new regime's reach.
Lawmakers have naturally reacted with plans to make up the taxes they're leaving on the table. Some have proposed eliminating Section 421-a entirely; others call for nonresident taxes on empty apartments. Unfortunately, the heads of New York's State Assembly and Senate are both under indictment right now, which has pretty much ground the legislature to a halt. In fact, part of the case against Senate leader Dean Skelos involves accusations that he voted to give 421-a breaks to a developer who employed his son. It looks like we shouldn't expect the law to change anytime soon.
The new breed of high-end Manhattan condo buyers may not be seeking the same "shelter" that you or I get from our homes. But who can blame them for looking at the tax laws and planning to pay less? That part is the same. And at our firm, planning isn't something we just do on April 15. It's a year-round commitment to exploring every way we can to help you save.

Monday, May 4, 2015

Accountants Behaving Badly

Every year, "true crime" fans look forward to the IRS Criminal Investigation Unit's annual report detailing their efforts to combat the cheats who don't pay their share. This year's edition is no exception, with dozens of entertaining stories about clever scammers who just . . . weren't . . . clever . . . enough.
You would think accountants would be the last group of people to try and game the system. That guy with the green bow tie in the H&R Block commercials? He wouldn't even bend the rules, let alone break them. But the Criminal Investigation report reveals that accountants are actually some of the worst scofflaws. In fact, there's an entire criminal program targeting crooked tax preparers, and it launched 1,063 investigations last year! Here are four outrageous stories you might enjoy:
  • Haydee Guerra Neff operated a tax-prep business out of her home in Casa Grande, Arizona, a sleepy desert town about halfway between Phoenix and Tucson. She prepared perfectly legitimate returns for her clients to sign. But then she slipped in fake education credits, mortgage interest deductions, and residential energy credits before she filed them. Then she used Form 8888 to send the legitimate part of the refunds to her clients and the keep the rest to herself. (She must have missed class the day her criminal mastermind program covered "paper trails.") Now she owes the IRS $435,280 in restitution. But it's gonna be tough finding new clients among the "cellies" at her California prison camp.
  • Steven Boitano was a partner in a CPA firm in San Jose, where he prepared tax returns for his clients and even his own firm. He did well for himself, earning $275,000 per year. But for a guy who made so much money preparing taxes, he sure didn't like paying them. In fact, he never even filed. When he finally showed up at the IRS office, returns in hand, he claimed he had made $121,000 in estimated payments. (Then his pants literally burst into flames, right there in the office!) His lies cost him $181,910 in restitution and 41 months in jail.
  • John Hoang is a CPA and attorney convicted felon who operated a tax-prep business in Woodbridge, Virginia. His "eureka" idea was to make up fake losses from fake technology licensing businesses for his clients, which defrauded the government out of $1.5 million. He earned $6 million for himself while running his scam. (Apparently, the wages of sin aren't bad.) Of course, he didn't bother sharing any of it with the IRS. Now he's enjoying government hospitality in a federal prison camp, where he'll be lucky to license dial-up internet technology for 20 minutes every other Thursday.
  • Paul Daugerdas was another attorney/CPA with big ambitions. Meek high-school chemistry teachers like Breaking Bad's Walter White may dream about putting on a rubber apron and goggles and opening a meth lab. But true ballers like Daugerdas put on a worsted wool suit and open tax shelter labs. Daugerdas cooked up schemes to create false tax losses with names like SOS (for "short options strategy"), HOMER ("hedge option monetization of economic remainder") and COBRA ("currency options bring alternative rewards"). When clients screwed up the details implementing his ridiculously complex schemes, he helpfully backdated documents and authored false opinion letters describing when transactions had supposedly occurred. He shaved $7 billion off his clients' tax bills. He made $95 million for himself along the way — but naturally used his own scheme to pay less than $8,000 on that income. It took awhile for the IRS to shut Daugerdas down — but when they did, he wound up with 15 years in prison and $536 million in fines and restitution.
Some guys have all the fun. Steal from the government and party like a boss, at least until you get caught. Then it's time for jailhouse nicknames and prison tattoos. Sign us up. Seriously, what are these people thinking?
You know better than that. You know the best way to pay less is to plan to take advantage of all the legal deductions, credits, and strategies available. So if you think you paid too much on April 15, call us. We'll give you the plan you need to share less with Uncle Sam — and avoid having to take advantage of his hospitality, too!

Monday, April 27, 2015

Bet They Didn't Think About This!

Last week, a New York judge issued writs of habeas corpus on behalf of two chimpanzees named Hercules and Leo, currently living in a research lab at the State University of New York in Stony Brook. The next day, she walked back the scope of her ruling, emphasizing she was merely directing the university to appear in court. Still, the decision gives the chimps a day in court and possibly clears the way for them to move from the lab to a sanctuary in Florida.
Animal rights activists were thrilled. Natalie Prosin, Executive Director of the Nonhuman Rights Project, told Science magazine, "This is a big step forward . . . . We got our foot in the door. And no matter what happens, that door can never be completely shut again." Harvard Law School professor Laurence Tribe commented that habeas corpus should be available for sentient beings other than humans. (Even cereal spokesman Tony the Tiger expressed his support for Leo and Hercules, saying "They're grrrrreat!")
Naturally, that got us to thinking. What would our friends at the IRS think about the ruling? If animals can be "legal persons," why can't they be taxpayers? And what will those taxes look like?
  • Everyone knows that circus elephants work for peanuts. So how many peanuts will the IRS get? Can elephants pay in shells? If elephants really never forget, do they still have to keep paper receipts?
  • Squirrels spend long hours every fall gathering acorns for winter. Should they pay their taxes when they bury the acorns, like with a Roth IRA? Or should they pay when they dig them back up for food, like with a 401k? What if an acorn gets buried a little deep and grows into a mighty oak? Can the squirrels claim valuable timber depletion allowances? What about casualty losses from lightning strikes?
  • Beavers across the northern states are busy as beavers building dams. What sort of property taxes should they pay on their homes? How should they calculate their depreciable basis in logs, leaves, and twigs? (Don't even get us started on tax strategies for bird nests!)
  • Many animal species, including prairie voles, French angelfish, and certain ducks, mate for life. (If you're divorced, and bitter about it, maybe you should have married a duck.) Does that mean ducks can file jointly? Will they get valuable tax advantages, like the unlimited marital deduction for estate taxes, that single animals and heads of households have to do without?
  • Have you ever treated your dog to a biscuit for fetching the paper? Good dog! But watch out! Strict withholding requirements may make tax time ruff. If you miss a deadline, you can count on more than just a swat with a rolled up newspaper! Dogs who work for their supper owe hefty employment taxes, too. And how on earth do you e-file 15.3% of a Milk Bone?
Lots of questions, right? Well here's one thing we can know for sure. When animals start paying taxes, they'll want to pay less. And they can do it the same way you do — with a plan. April 15 may have come and gone, but there's never a bad time to pay less. So call us, and let us help you keep more acorns!

Monday, April 20, 2015

Guaranteed Loser

You've bought a lottery ticket or two in your time, right? The Powerball jackpot hits a kajillion dollars, and you realize you really can't win if you don't play. So you buy a ticket or two just to nurse that fantasy of champagne wishes and caviar dreams. Forget the reality that most lottery players never win, and even the ones who do make headlines usually seem to go bankrupt faster than a professional footballer who tears his ACL two games into his rookie season.
Most people who buy lottery tickets really do want to win. In fact, a 2006 study revealed that 21% of Americans believe playing the lottery was their best bet for financing retirement! (Really? That's not the same thing as counting on the lottery to retire, but it still doesn't say much about our financial planning smarts.) But would you believe there's a small group of Americans who pay top dollar for losing tickets? Why on earth would anyone ever do that? The answer, not surprisingly, lies in that financial cancer that we lovingly refer to as the Internal Revenue Code.
Start with the premise that gambling winnings are taxable income. That makes perfect sense, of course; the IRS doesn't really care how you make your living as long as they get their share. (Even illegal income is taxable — remember who finally nailed Al Capone?) And that stinks. Sure, winning a hundred million sounds like a lot, but you're lucky to be left with half of that after you take care of your Uncle Sam and all the rest of those greedy relatives who show up with their hands out as soon as they hear you've won.
The good news is, you can deduct your gambling losses from gambling winnings before the IRS takes their cut. You don't even have to net out your totals by contest — you can deduct casino losses against lottery wins, and vice versa. But deducting gambling losses creates its own problem. The lottery commission, casinos, and racetracks where you do your best "work" are happy to send the IRS a Form W2-G reporting your wins. So how do you show an auditor how much you lost?
That's where the losing lottery tickets come in. Just hop onto a website like Craigslist or Ebay, and look for folks with losing tickets to buy or rent! The sellers might try to disguise them as "memorabilia." But just between us, we know what they're really for. The Daily Beast even found one bold seller getting rid of $1,100 in losing tickets, for the bargain price of $500, "so ya don't look like a xxxxx :) come tax time"!
Wanna know what sort of financial genius cooked up such a great scheme? He was an accountant named Henry Daneault, and he used to work for the IRS! In 1985, his client Phillip Cappella won $2.7 million, paid out over 20 years, in the Massachusetts Megabucks. When tax time rolled around, Daneault and his client made up $65,000 in gambling losses to erase $20,000 in tax. Then his old employer the IRS came sniffing around. Uh oh, what now? He paid $500 to rent $200,000 worth of losing tickets for a month. It might have been a great idea if it had worked. Sadly, it did not, and Daneault and his client both wound up pleading guilty to fraud and serving time in jail.
So now you know how to be a guaranteed loser. Want to know how to guarantee a win? Call us for a plan to pay less tax, the right way. Our strategies are all court-tested and IRS-approved. You won't have to win the lottery — you'll just feel like you did!

Monday, April 13, 2015

Smoke 'Em If You Got 'Em

Every year, the IRS Criminal Investigations unit (IRS-CI) releases a surprisingly entertaining report detailing their efforts to protect the Treasury from scammers, fraudsters, and cheats. This year's edition reveals that, due to budget cuts, activity is actually down. In 2014, IRS special agents initiated 4,297 criminal investigations (down 19.1% from 5,314 in 2013) and recommended 3,478 prosecutions (down 20.4% from 4,364 in 2013). There were 3,272 indictments and 3,110 convictions, which shows the IRS won't take you to criminal court unless they're pretty sure they can really nail you to the wall. And 80% of those who were convicted won themselves an all-expense paid trip to a federal penitentiary.
IRS-CI targets all sorts of misbehavior and shenanigans: Swiss banks, corrupt politicians, identity thieves, and crooked tax preparers. They also cooperate with other federal agencies, helping the Drug Enforcement Administration catch drug smugglers and the Department of Homeland Security block funding for terrorists. But some of the most entertaining stories fall under the "general tax fraud" category. Here are four to brighten your April 15:
  • Smoke 'em if you got 'em: Billy Gene Jefferson claimed over $12 million in federal and state historic tax credits for rehabilitating a former Philip Morris tobacco factory and ten other buildings, then sold the credits to investors. Turns out he lied about how much he paid for the renovations. After Jefferson 'fessed up to his fraud, the court released him on bond to sell properties to pay restitution. But he used his freedom to bury up to $2.5 million in cash in a PVC pipe behind his house, blow $2.15 million on trips to Vegas, and steal his brother's identity to book a one-way charter flight out of the country! For his efforts, Jefferson will spend the next 20 years in an unrenovated facility where residents use cigarettes as currency.
  • God hears all prayers? Archie Larue Evans was pastor of the Tilly Swamp Baptist Church and owned a gold and silver business in Florence, South Carolina. Evans sold his parishioners "investment contracts" paying higher interest than the piddly amounts they were earning at the local banks. The banks may not have been paying much interest — but they also weren't running Ponzi schemes. Now, while we don't know if the pastor confessed his sins to God, we know he didn't report anything to the IRS. Now Evans will get to spend the next seven years ministering behind bars.
  • Death and taxes: They say that nothing in life is certain except death and taxes. A group of six defendants in St. Louis, led by a disbarred attorney, found a way to roll both of those burdens into a single con. For 15 years, the group sold prepaid funeral contracts to 97,000 customers — promising to keep their money in a secure trust or insurance policy as required by state law. Instead, they "made use of funds paid by customers in ways that were inconsistent both with its prior and continuing representations and with the applicable state laws and regulations." (That's what prosecutors call it when you use your customers' money to pay for a $16 million mansion in Nantucket, a charter yacht, and family vacations.) And because you'll ask: no, they didn't pay tax on the loot. The conspirators will spend up to 115 months behind bars, and owe their victims a cool $435 million. (Let's see, now . . . that's 11 cents/hour stamping license plates times how many hours?)
  • Practicing "law" without a license: Diane Niehaus managed a bank in Centerville, Ohio, where her elderly customers entrusted their money. Despite that trust, she forged all sorts of documents, including fictitious gift letters and fraudulent powers of attorney, to steal over a million dollars from their accounts. She used the money to buy a $460,000 house and a different car for every day of the week. And of course, she forgot to tell the IRS about her new side venture. Oops! Now she's spending five years at a prison camp in West Virginia, where she'll get to discover if orange is really the new black.
Look, we know paying tax bites. But you don't have to cheat to bite back. You just need a plan. There's no shortage of court-tested, IRS-approved strategies for saving. So if you haven't asked us about our planning service, what are you waiting for? 

    Monday, April 6, 2015

    The Tax Man Runneth

    The 2016 presidential election is 20 months away. Sadly, for those of us who don't watch C-SPAN for fun, that basically means it's right around the corner. (Keep a sharp eye out for negative campaign ads, coming soon to a TV near you!) Candidates are already lining up donors and hustling voters in early primary states like Iowa and New Hampshire. If it seems like some of them have been running since the end of the lastelection, it's probably because they have.
    Americans like promoting military heroes to the White House. George Washington won the Revolutionary War and became the "father of his country" before assuming the Presidency. Ulysses S. Grant won the Civil War, and did it with a cocktail permanently occupying a space in his hand, too. Dwight D. Eisenhower defeated the Nazis. (Of course, generals who aim to become Commander-in-Chief usually do need to win a war first, as Alexander Haig found out the hard way in 1988.)
    Now there's a candidate who's ready to wage war on an enemy we can all unite against — America's crazy and convoluted tax system. On March 5, Mark Everson announced he was throwing his green eyeshade into the ring and running for the Republican nomination. Not familiar with the name? Well, from 2003 to 2007, Everson served as 46th Commissioner of Internal Revenue. Oh yeah . . . that Mark Everson!
    Everson, 60, graduated from Yale University before launching a career that has taken him from business to government and back to business again. In 2003, George W. Bush nominated him for the IRS position, which he held for four years. He left to become President and CEO of the American Red Cross, and now he's vice-chairman for a tax consulting company.
    Why is Everson running? He says he wants to make federal tax laws more consistent and less complex. (Where have we heard that before?) He would replace that tax for lower-income earners with a value-added tax. "He also says he wants to restructure entitlement programs, including Social Security; set a military draft and system of national service; and break up banks that are poorly managed," the Associated Press reports.
    And what does America's former top tax collector think of his chances? He candidly admits he has less name recognition than the senators and governors eyeing a race. But he appears entirely serious about his run and plans to pour $250,000 of his own money into the race. "They're raising serious money, but we're going to raise serious issues," he says. "I wouldn't be doing this if I didn't believe I've got a chance. I think that who becomes president is not up to Wall Street and the fat cats across the country. It's up to the voters."
    Everson does have one stumble on his resume. In 2007, after six months helming the Red Cross, the board demanded his resignation after he confessed to an affair with a staffer. Everson divorced his wife and, while he hasn't married his new love, the two are raising their six-year-old son together. "I've made mistakes, and I don't think that that precludes one from going forward and trying to contribute," he says. We'll just have to see how closely the voters audit his behavior.
    Time will tell whether Everson knows how to translate his IRS experience into a shot at the most powerful job in the world. But here's one thing he knows for sure — if you want to pay less, you need a plan. So call us when you're ready for your plan. We're sure you'll enjoy your savings, whether you're a Democrat, a Republican, or anything in between!