Monday, July 21, 2014

Berkshire Giveaway

Someday, the financial wizards who run things on Wall Street will realize there's "paper to be stacked" opening an Investor Hall of Fame. (Hey, the Rock and Roll Hall makes $40 million a year, and it's in Cleveland.) And when they do, they'll have to dedicate an entire wing to Warren Buffett. The so-called "Oracle of Omaha" has become a rock star among money managers. His chart-topping net worth soared by $37 million per day last year. And his annual Berkshire Hathaway shareholder meeting attracted 40,000 attendees this spring, making it the Burning Man Festival for the cocktail set.
Buffett affects a folksy style, posing for photos with a ukelele and quipping that Wall Street is the only place where people drive Rolls-Royces to get advice from people who ride the subway. But he didn't get to be #2 on the Forbes 400 by being dumb — and this is true with taxes, too. Buffett has made headlines criticizing the carnival of confusion that passes for the "Internal Revenue Code" for taxing his secretary at a higher rate than it taxes him. But his actions show a keen grasp of the power of smart tax planning.
Let's take a look at Buffett's charitable giving. Now, there's no doubt that his motives are sincere — he's pledged to give a whopping 99% of his fortune to charity. But his generosity may have the side benefit of saving him $30 billion or more in tax.
So far this year, Buffett has donated $2.8 billion, including $2.1 billion to the Gates Foundation, $215 million to the Susan Thompson Buffett Foundation, and $150 million each to the Howard G. Buffett Foundation, the Sherwood Foundation, and the NoVo Foundation. But those gifts didn't really "cost" him $2.8 billion. That's because he didn't give cash — he gave Berkshire Hathaway stock. Donating appreciated stock lets Buffett deduct the fair market value of that stock at the time of the gift, even though his "cost basis" — or actual investment in it — is likely to be far, far less. Giving away appreciated stock also lets him avoid tax on the appreciation in that stock.
Let's say Buffett's basis in this year's gift stock was an even billion dollars. (It's probably even less, but who's counting?) If Buffet had sold the stock at a $1.8 billion gain, then given cash, he would have had to pay $712,800,000 in regular tax, plus another $68,400,000 in "net investment income tax." Giving appreciated stock directly, then letting the charities sell it, boosts his largesse by nearly $800 million — money that Buffett evidently thinks his charities can spend better than the folks in Washington.
Buffett probably won't ever "retire" in the go-fishing-in-Florida-and-eat-dinner-at-4 sense of the word. But at some point, he'll get promoted to that great boardroom in the sky. That's when his charity will really sidestep our friends at the IRS. Buffett could set up his heirs for generations to come. But with a 40% estate tax, leaving his current net worth of $58.5 billion to family would cost $23.4 billion in tax. Leaving his wealth to charity avoids that hit. And it spares the rest of us decades of reality TV about spoiled, dissolute heirs — their gilded lifestyles, their trips to rehab, and their endless Paris Hilton-esque shenanigans.
We realize you don't have billions to give like Buffett. But if you're one of the millions of Americans who admire his business wisdom, take a lesson from his tax wisdom as well. And call us before you make any sort of major gift, to your church, your college, or your community. We'll help you structure it to squeeze out the maximum advantage. You can be sure Warren Buffett would approve!

Monday, July 14, 2014

Cleveland Rocks!

Cleveland, Ohio has historically been one of America's most populous and productive cities, peaking as the fifth-largest back in 1920. Today, "C-town" is a shadow of its former glory, another Rust Belt factory town, best known for the Rock and Roll Hall of Fame. But last week, Clevelanders had reason to celebrate once more. Are we talking about the Republican National Committee's decision to host their 2016 nominating convention in the city dubbed "the Mistake on the Lake"? Of course not! We're talking about basketball superstar LeBron James's decision to leave the Miami Heat and return to the city where he spent the first seven years of his career.
On the face of it, James's decision seems curious. Few athletes with any choice in the matter would happily trade Miami's bright lights, sunny pastels, and Caribbean vibe for Cleveland's cold winters, gray skies, and flammable river. But LeBron, who grew up in nearby Akron, believes in home — and for him, the move is a slam dunk. "My presence can make a difference in Miami, but I think it can mean more where I’m from," he told Sports Illustrated. "I want kids in Northeast Ohio . . . to realize that there’s no better place to grow up. Maybe some of them will come home after college and start a family or open a business . . . Our community, which has struggled so much, needs all the talent it can get."
Cleveland fans aren't the only ones who will applaud LeBron's move. You can be sure that basketball fans at the IRS will cheer, too. LeBron will make a reported $20.7 million per year in Cleveland — $1.6 million more than the $19.1 million he earned last season in Miami. He'll pay the top income tax rate of 39.6% on that difference, along with an extra 3.8% Medicare tax — and that, in turn, will mean about $694,000 more for Uncle Sam. (His total Medicare tax on his playing salary will reach almost $785,000, or nearly enough to pay for a heart transplant.)
But the biggest winner here may be the Ohio Department of Taxation. Last season, LeBron played his home games at Miami's American Airlines Arena, where he enjoyed Florida's lack of personal income tax. When he returns to Cleveland's Quicken Loans Arena, he'll pay Ohio's top rate of 5.421%. That's no mere technical foul — state taxes on the half of his games that he'll play at home will run more than half a million dollars per year!
Fortunately for LeBron, he makes his real money off the court. In 2013, he collected a whopping $50 million in endorsements from Nike, Coca Cola, Cadbury Schweppes, Juice Batteries, Upper Deck, Cub Cadet, McDonald's, Microsoft, and State Farm — among others. He was an early investor in Beats by Dre, and reportedly parlayed that stake into $30 million when Apple acquired the headphone maker. But LeBron will keep his residence in Florida, which should shelter the bulk of his financial three-pointers. No less a business authority than Warren Buffett has said of LeBron, "He's savvy. He's smart about financial matters. It's amazing to me the maturity he exhibits."
When it comes time to pay all those taxes, you can be sure that LeBron James doesn't just drop off a shoebox full of receipts with his accountant on April 15. He's got a plan to "defend his net" as vigorously as the law allows. Now, you probably can't fill Lebron's size-16 sneakers. But you can take advantage of the same sort of proactive planning that superstar athletes use to save millions. And you don't even have to wait for free agency! You just have to pick up the phone and call us. So, what are you waiting for?

Monday, July 7, 2014

Inside Job

The IRS currently has nearly 90,000 employees — about the population of Springfield, OH, or Muncie, IN. The vast majority of them are honest, hardworking civil servants, doing their best to navigate the all-you-can-eat buffet of confusion known as "the Internal Revenue Code." They use their training and knowledge to do their sometimes thankless jobs, then head home to their families, secure in knowing they're helping our government finance its operations.
But a tiny number of these so-called "servants" use their powers for evil instead of good. They cheat the system to enrich themselves, at the expense of all the rest of us. Fortunately, for those of us who play by the rules, they usually leave tracks behind them. Here's one of the better stories, from the IRS Criminal Investigations unit's Fiscal 2013 annual report.
Patricia Fountain had worked at the IRS Service Center in Philadelphia for 10 years. In 2006, she discovered the IRS wasn't verifying requests for the telephone tax credit from filers claiming less than $1,500. Then she learned the Service wasn't verifying claims for first-time homebuyer credits. She smelled opportunity — and launched a criminal scheme of such dazzling brilliance that . . . well, we'll let you be the judge.
First, she enlisted her boyfriend, her hairdresser, and a third friend to join her scheme. According to the Philadelphia Inquirer, the four conspirators then recruited a motley collection of "drug addicts, welfare recipients, and ex-cons" who needed cash, would let the gang file false returns on their behalf, and would hand over $400 of the resulting fraudulent refunds. Fountain's henchmen used her position within the IRS to "add an air of credibility" to the scheme and convince the straw filers to join. And life was good, at least for awhile. From 2006 through 2012, our criminal masterminds bilked the government out of more than $3 million.
And how could Fountain count on her straw filers to cooperate and kick back her $400? If she didn't think they were coughing up her share fast enough, she would "red flag" them by filing another return, triggering the IRS to seek repayment and unleashing the collections department on them. (Yes, she actually did this — eight times!)
Fountain's vindictive streak proved to be her undoing — predictably, one of the women she "red flagged" ratted her out. Things fell apart from there, with conspirators pointing fingers at each other in a mad rush to avoid consequences. Fountain claimed she was framed by her boyfriend, then had a hard time explaining her fingerprint on the stamp used to mail her own fraudulent return. Another co-conspirator — a Mensa wannabe by the name of Calvin Johnson, Jr. — used information from the scheme to continue filing false returns as late as 2012, while he was being supervised on pretrial release for filing his first batch of fraudulent returns!
Fountain will have the next 19 years to decide if orange really is the new black, plus $1.7 million in restitution. Her boyfriend got 12 years behind bars and $1.75 million in restitution. Johnson gets 18 years of federal hospitality. And four more of the gang, including Johnson's father, drew sentences for their parts as well.
It's all pretty comical, yes. But in the end it's more sad than funny. There are so many honest ways to make a good living, and so many honest ways to pay less tax on it. So call us when you're ready for a plan — because, in the end, it's what you keep that counts.

Monday, June 30, 2014

Winning the Real World Cup

Here in the United States, we think our Super Bowl is the biggest sporting event around. Every four years, though, we're reminded that there are nearly seven billion other people on earth — and when it comes to sports, well, their version of futbol is even more popular than ours. This year's Super Bowl reached a record 111.5 million viewers, making it the most-watched event in U.S. history. That sounds impressive — but it pales next to the 3.2 billion who are expected to watch soccer's World Cup.
Of course, some things remain the same no matter how large a stage they occupy. Cities are willing to spend millions to host football's big game. And countries are willing to spend billions to host soccer's big event. Brazil has dropped $3.6 billion just to build and renovate stadiums for the games, including $300 million for the Arena Amazonia which will host only four games. And they've spent another $8 billion or so on infrastructure to support the games, like highways and airports.
As you can imagine, those direct expenses aren't the only costs associated with the game. That's because even the tax man has to stand for his share of penalty kicks! The Fédération Internationale de Football Association, or FIFA, requires host countries to grant all-encompassing tax exemptions to "FIFA's service suppliers established in Brazil" and "non-resident individuals hired or engaged to work in the events." This means no individual or corporate income taxes, no value-added or sales taxes, no excise taxes, and no other kind of taxes that local law might impose. Those tax breaks add to the host country's total burden by taking away revenue they might otherwise capture. And they extend even to international corporate sponsors like McDonald's and Anheuser-Busch InBev, maker of Budweiser. (What's the connection to soccer? Well, McDonald's has rolled out new French fry packaging with bold artwork celebrating the Cup. And there just might be a fan or two hoisting a Budweiser during the games.)
Now, some opponents of all that spending are calling foul on all that hype and cost. One antipoverty group estimates Brazil will give up as much as $569 million in revenue that could have been used to lift 37 million Brazilians out of poverty and improve basic services. "The price of these tax breaks for corporate giants will be paid by people living in poverty in Brazil and that is obscene," said Isabel Ortigosa of the Spanish group InspirAction. Her group is calling on FIFA President Sep Blatter to "give tax breaks for the World Cup sponsors the red card — and never impose these rules on World Cup host countries in the future."
Defenders reply that the goaltenders in Brazil's Federal Revenue Service will actually come out ahead with the Cup. Rabid soccer fans from across the globe are dropping billions in restaurants, bars, and hotels surrounding the 12 host stadiums. They'll spend millions more on souvenirs. And of course the Cup's winners will pay tax on the $576 million of prize money they earn for their skills.
Will this be the year the U.S. takes the Cup? Will 2014 be the year when the U.S. finally embraces soccer? Or will futbol disappear again for four more years, like biathlon, luge, and other "oddball" sports that only roll around for international competition? We have no idea. However, we can be pretty sure that, like FIFA, you want to pay less tax. So we give you a plan that gives you the strongest possible defense against IRS kicks. So enjoy the games, and call us when you're ready to put in the best goalie in the league!

Tuesday, June 24, 2014

Words of Wisdom

If you've spent any time online lately, you're familiar with so-called "listicles" — those irresistible lists of trivial facts that pass for "online content" these days. You know what we mean: "13 Cute Cat Videos to Watch Now," or "27 Hot Celebrities Who Overcame Teenage Acne," or even "5 Redesigned Acme Products That'll Help Wile E. Coyote Murder Roadrunner." Listicles may sound like something new, but they've actually been around since Moses came down from Mt. Sinai. And who are we to buck such a popular trend? So here, for your reading pleasure, are "Eight Quotes About Taxes to Put A Smile on Your Face":
"If the Lord had meant us to pay income taxes, he’d have made us smart enough to prepare the return."
Kirk Kirkpatrick
"I have no idea what was in my federal tax return. Like 93 percent of all U.S. taxpayers, I just sign it and send it in. For all I know, it states that I am a professional squid wrangler."
Dave Barry
"The Opera reminds me of my tax audit. It was in a language I didn’t understand. And it ended in tragedy."
Chris Cassatt and Gary Brookins (‘‘Jeff MacNelly’s Shoe’’)
"Most voters would rather have their purse or wallet stolen than be audited by the IRS."
Frank Luntz
"Few of us ever test our powers of deduction, except when filling out an income tax form."
Laurence J. Peter (the "Peter Principle")
"Like many Americans, I face a patriotic dilemma: how much cheating can I get away with? It's important to pay your taxes but it's just as important to pay as little tax as possible. Think of it as putting government on a diet."
Stephen Colbert
"Last year I had difficulty with my income tax. I tried to take my analyst off as a business deduction. The Government said it was entertainment. We compromised finally and made it a religious contribution."
Woody Allen
"Government can’t deliver a free lunch to the country as a whole. It can, however, determine who pays for lunch."
Warren Buffett
Look, we realize any one of David Letterman's "Top Ten" lists is probably funnier than a collection of tax quotes. But can David Letterman give you a plan for paying less tax? We didn't think so!

Monday, June 16, 2014

Wanna Bet?

If you're a golfer, you've surely heard of "Long John" Daly, renowned for his distance off the tee. In 1991, he roared onto the scene by winning the PGA Championship as the ninth alternate. In 1997, he became the first PGA player to average more than 300 yards per drive over a full season. Daly can probably hit the ball farther with a shovel or a rake than we can hit it with Callaway's newest and highest-tech driver. He hasn't won a tournament since 2004, but his legion of fans still love him for his bad-boy, "non-country club" appearance and attitude. And who knows how he might "grip it and rip it" when he becomes eligible for the Senior Tour in 2016?
Daly is a man of many appetites. He's designed golf courses, licensed his own "Loud Mouth" line of clothing, owned a winery, and even recorded an album of his own songs. He's a legendary boozer with seven trips to rehab under his belt — in fact, he's even got a drink named after him. (Take a classic "Arnold Palmer" mix of iced tea and lemonade, add liquor of your choice, and voila, you've got a John Daly.) But his greatest vice may be his gambling. And that's where our friends at the IRS come in.
Daly loves, loves, loves to gamble. He told the gossip site TMZ that it was more about the adrenaline than the money . . . he really just loved the action. He would take out million-dollar markers to hit the blackjack tables, then play seven hands at a time for $15,000 each. In 2006, he lost a playoff to Tiger Woods, drove straight from the tournament in San Francisco to Las Vegas, and dropped $1.65 million in five hours on a $5,000 slot machine. (Hey, we've all been there, right? No?)
The news wasn't all bad. Daly kept detailed records so that when it came time to file his taxes, he could deduct his losses from his wins. So how did he do? Well, according to Daly, he won $35 million from 1991 through 2007. That's pretty good, considering his lifetime tour winnings total just $10,116,306.
There's just one problem. Over that same period, he lost $90 million. Ninety million dollars. For those of you who dropped math as soon as you could, that's a $55 million hole! It took him 10 years to pay off gambling debts, with sponsorship income, hustling appearance money, and "running myself ragged doing corporate outings instead of spending time with my family and working on my game."
And how did Daly come up with those figures? Combing through his tax records, of course! Gambling losses are deductible, sure — but only up to your amount of gambling winnings. That means if you go home a winner, Uncle Sam will be happy to take a cut — but if you've lost, you're on your own. (That's an even better deal than being the casino!)
Daly still loves the action and adrenaline. But, he says, "Now if I gamble, I play the $25 slots. If I hit something, I might move up to $100. But I don't do what I used to do anymore."

You probably won't ever need to check your tax returns to count how much you've lost at the casino. But your tax return is a great source of information on your overall financial health. And penalties for signing an incorrect tax return are lot greater than signing an incorrect scorecard! That's why you can't just file your taxes every year and call it a day. You need a plan to make the most of all your available deductions, credits, and strategies. So call us — we'll keep your taxes out of the rough, and help you avoid those tax bogeys that cost you thousands!

Monday, June 9, 2014

Honey or Vinegar?

Back when you were a kid, your mom said you'd catch more flies with honey than with vinegar. (We're not sure why she thought you'd want to catch flies — she can't have wanted them in her house in the first place.) Apparently, though, Andrew Calcione's mom never gave him that advice. Or maybe he just didn't listen. Either way, that failure to communicate wound up costing him big time.
Last year, the IRS was auditing Calcione — a former tax preparer from Rhode Island — for 2008, 2009, and 2010. The IRS argued he owed an additional $330,000 in tax. But time was running out on the audit. (They generally can't assess tax more than three years after the return's due date or the actual filing date, whichever is later.) So they asked Calcione and his ex-wife Patricia to sign a "Consent to Extend Time to Assess Tax" form.
You're probably asking yourself why on earth anyone would ever do that. But tax professionals will often tell you to sign so you'll have more time to defend yourself. If you don't sign, they'll just go ahead and hit you with the extra tax and you'll wind up even deeper in the hole.
Calcione signed the consent, but his ex-wife did not. Three months later, the auditor left a voicemail following up. Three days after that, Calcione called back — and instead of betting "honey," he doubled down on "vinegar." That vinegar took the form of a profanity-laced tirade with Calcione threatening to show up at the agent's house and torture him. Then tie him to a chair, gag him, and rape and kill his wife (in front of him). Then kill his daughter. (Click here if you insist on reading the whole play-by-play — but don't say I didn't warn you.)
Calcione called back later the same day to say "disregard my previous voicemail." (Ya think?) But by then it was too late. The agent had called the police. Unfortunately for Calcione, threatening to assault and murder an IRS agent (or member of his family) is a felony, punishable by up to 10 years in federal prison and a $250,000 fine.
Give Calcione credit for creativity. At first, he said he left the threat to toy with his own daughter — and gosh, just dialed the wrong number. Then he said he meant it for his ex-wife. (Family dinners at the Calcione house must have been a hoot!) Finally, he claimed he was talking to himself and "accidentally" butt-dialed the agent. All perfectly honest mistakes, right?
But District Court Judge William E. Smith wasn't buying any of it. Last month, he found Calcione guilty on two counts. Now he's looking at 20 years surrounded by people using similar off-color language when he's sentenced on September 11. “This Office will continue to protect and seek justice for government officials simply trying to do their jobs on behalf of the people of the United States," said the prosecutor. "Suffice it to say that we will be seeking the toughest, appropriate sentence in this case.”
Oh, and Calcione still owes the tax.
We know that you would never be foolish enough to threaten an IRS agent. But we also know you don't want to pay a penny more than you have to. That's why we focus on giving you a plan to pay less. And that's why everything we recommend is court-tested and IRS-approved — so you'll never have to choose between honey and vinegar!