Monday, March 23, 2015

Shocking News

This time of year, taxpayers across America are scrambling to put together their last year's mileage records. First you've got to total up how many miles you drove for your trade or business. Then you've got to add up all the costs of operating your vehicle — depreciation, interest or lease payments, gasoline, maintenance and repairs, registration, and even your satellite radio bill. Then you'll multiply those expenses by your "business use percentage" to calculate your actual deduction. (Are we having fun yet?) Alternatively, you can just take the IRS standard mileage allowance, which stands at 57.5 cents per mile for 2015. Problem: it's the same amount for every car on the road, from gas-sipping Priuses to road-hogging SUVs. And you still have to track your miles. But at least it avoids the hassle of tracking all those receipts!
Keeping good mileage records can be important even if you're not just looking for more tax deductions. Illinois Representative Aaron Schock learned that lesson the hard way last week. The Congressman was already under fire for dropping $40,000 to decorate his office, Downton Abbey-style, and for accepting favors like private plane trips from well-heeled donors. Then we learned his mileage didn't add up. From 2010 through 2014, he billed Uncle Sam and his campaign for 170,520 miles he put on his Chevy Tahoe. But when he traded in the truck last year, there were only 81,860 miles on the odometer. Oops! Schock resigned his seat just hours after the story broke, which means he'll get to spend more "quality time" with his attorneys. (Yeah, another Illinois politician looking at a ride on the Incarceration Express — we were stunned, too.)
Schock is hardly the first politician to find himself in hot water over expense reimbursements. So who was the first? (No, not Martin Van Buren, but that's an awfully good guess.) Back in 1816, Congress began reimbursing members 40 cents per mile for travel between home and Washington "by the usually traveled route." And how did Congress arrive at that rate? Did they carefully calculate the cost of depreciating the buggies, boarding and feeding the horses, and oiling all that antique brass hardware? Well, not exactly. Congressmen made $8 per day back then. Apparently some enterprising clerk in the post-colonial equivalent of a windowless cubicle acknowledged the conventional wisdom that a Congressman could travel 20 miles a day. Then he took a quill pen to foolscap, divided those 20 miles into $8, and came up with 40 cents per mile.
By 1848, though, steamships plied the waters and railroads were fast replacing canals. The 40 cent rate was a relic. And Horace Greeley, editor of the New York Tribune and a Congressman himself, was outraged. On December 22, 1848, he released an expose blowing the whistle on those who claimed more miles than they really traveled. And who should we find on that list? Sandwiched between future Vice-Presidents Hannibal Hamlin and Andrew Johnson, was a one-term Whig from Aaron Schock's old district named Abraham Lincoln, who claimed $677 in excess reimbursement. That may not sound like much, but it works out to about $18,700 in today's dollars.
The "mileage swindle" scandal, as Greeley dubbed it, would have made a great story on House of Cards. Congressman after Congressman took to the floor to denounce Greeley in colorfully florid nineteenth-century style. (This was the era of "the caning of Charles Sumner," after all.) The House passed a bill limiting miles to "the shortest continuous mail route," and Congress lowered the rate to 20 cents. But even today, members of Congress still get a pretty generous travel allowance. Current rates range from 96 cents to $1.32 per mile — pretty sweet, compared to what our friends at the IRS give us.
What do you think? Should young Representative Lincoln have resigned his seat over his inflated expenses? Or was his future bright enough to justify giving him a second chance?
Ironically, once "Honest Abe" eliminated his own mileage entirely (by moving into a big white house with a convenient home office), he signed the first federal income tax into law. But if Lincoln hadn't done it, someone else would have. Either way, you'd still want to pay less, if you could, and we'd still be here to give you the plan to do just that. So call us when you're ready for that plan. And don't forget to deduct the miles you drive to get here!

Monday, March 16, 2015

007 for a Day

Who hasn't wanted to be a spy at some point or another? Boys see their first James Bond movie, and they don't want to be like 007 — they want to be 007. Girls learn how Mata Hari put her charms to work as a lethal double agent and think they can show the boys a thing or two. But sooner or later, most of us abandon that dream. And sadly, those job aptitude tests your high school guidance counselor makes you take rarely recommend "International Man of Mystery" as a career path.
But now, you've got the chance to finally realize that childhood fantasy. You don't even have to hide out in some third-world danger zone to do it. You can be a spy in a sun-splashed Mediterranean paradise full of friendly, welcoming people. What's not to love about that?
When you think of Greece, you probably think of Alexander the Great, the Acropolis, or the birthplace of democracy. But Greece is the national equivalent of the kid who peaked in high school, and Greek finances are a steaming pile of debt masquerading as a modern economy. Imagine an entire government that rushes down to the payday loan office right before closing every Friday, praying this week's installment won't get eaten up by last week's fees, and that's Greece. Seriously, don't be surprised if you fire up the news tomorrow and see they're trying to pawn the Parthenon.
Tax collections are a big part of Greece's problem. Greeks hate paying taxes, even more than we do. In fact, some Greek banks admit using "adaption formulas" to estimate how much their self-employed borrowers can really afford, simply because so few of them tell their government how much they really make. The average self-employed Greek spends 82% of their monthly reported income repaying their loans. But some groups, including doctors, lawyers, and even accountants (!) actually spend more on their mortgage payments than they admit making!
So Greece is desperate to avoid going broke. The government wants to start narrowing the "tax gap" between what they should be getting and what they really get. Last week, finance minister Yanis Varoufakis begged Greeks to start finally paying their taxes, pretty please, because it's their patriotic duty. But just in case that doesn't work, he's planning to recruit "casual" tax spies, like tourists, students, housekeepers, and other nonprofessionals, "to pose, after some basic training, as customers, on behalf of the tax authorities, while wired for sound and video."
We're not sure what sort of training you need to be a tax spy. The old-school techniques like "brush passes" and "dead drops" they teach at the CIA probably won't help as much as cyber-sleuthing and "social engineering." We also don't know how much the gig pays. (Our IRS cuts whistle-blowers in for up to 30% of what they help collect.) Still, it's a chance to play 007 for a day — who really cares what it pays?

So, Greeks who want to pay less have a simple plan — not telling the government how much they make! Here in the United States, that works, too — except it doesn't. (It's also against the law.) So if you feel like you're bailing out Uncle Sam with more than your fair share, call us for a plan. Let's see if we can save you enough for a Greek vacation that you don't have to spy for!

Monday, March 9, 2015

Crossing the Finnish Line

You know that sinking feeling. You're driving down the road, minding your own business, when you see a cop's "cherries and berries" flashing in your mirror. Then you look down at your speedometer, and realize he's gunning for you. Sure, it's a bummer. But it's not that big a deal. The cop checks your license, registration, and proof of insurance. He runs your name through the computer to make sure there aren't any outstanding warrants. Then he sends you on your way, a few bucks lighter and a few miles per hour slower.
Well, they do things a little differently in Finland. What else would you expect from a country where reindeer sausage is a delicacy and wife-carrying is a thing? (No kidding — whoever crosses the Finnish line first wins his wife's weight in beer!) In Finland, when the police pull you over, they check your license, your registration, and your tax return. They want that ticket to hurt, even if you're loaded — so the more you make, the more you pay.
Lots of Americans would be surprised to learn that Finland even has rich people. It's socialist Scandinavia, right? But neighboring Sweden is actually home to more billionaires per capita than we are, and Scandinavian entrepreneurs are responsible for cash cows like Skype, Spotify, and even Angry Birds. So those fines can get pretty heavy.
Reima Kuisla is a Finnish investor, hotelier, and racehorse owner. One day he was driving to the airport, and the polissi clocked him doing 64 mph in a 50-mph zone. They checked his taxes, saw that he had made about $7.15 million the previous year, and fined him the equivalent of$60,000! (The BBC, which originally broke the story, doesn't tell us what kind car Kuisla was driving. But we can probably assume it comes fully equipped with the latest heads-up navigation display, active suspension, and special charcoal scrubbers to filter out the smell of poverty.)
Kuisla's supercharged fine works out to the same as $415 for someone making $50,000 per year. Painful, but not fatal. Still, that's not stopping him from being a crybaby. "Ten years ago I wouldn't have believed that I would seriously consider moving abroad," he whined on his Facebook page. "Finland is impossible to live in for certain kinds of people who have high income and wealth." Not surprisingly, he's not getting a whole lot of sympathy. He isn't even the first Finn to wind up on the exhaust end of a big speeding fine. In 2002, a Nokia executive named Annsi Vanjoki was fined $103,600 for riding his Harley-Davidson a lousy 47 mph through a Helsinki suburb. He appealed the fine, arguing that his income had dropped, and successfully reduced it to "just" $5,245. Such a bargain!
Here in the United States, of course, we don't have to worry about traffic cops snooping through our taxes. But if we did, it would just be another good reason to have a plan to pay less. So call us when you're ready for your plan. Set up a time to come see us. And watch your speed on your way over — we wouldn't want you wasting your tax savings on a ticket!

Wednesday, March 4, 2015

You Taxin' Me?

Actor Robert DeNiro has played some of the most compelling characters in movie history: the schizophrenic ex-marine Travis Bickle in Taxi Driver, the young mob boss Vito Corleone in The Godfather Part II, the Chicago bootlegger Al Capone in The Untouchables, the "gentleman" gangster Jimmy Conway in Goodfellas, and the shrewd bookmaker "Ace" Rothstein in Casino. He's accumulated seven Oscar nominations for his work (including two wins), along with nine Golden Globe nods (two wins), dozens of other awards, and even a star turn as Harvard's Hasty Pudding Club Man of the Year.
But DeNiro is more than just an actor. He's also a shrewd businessman and entrepreneur. He's co-founded the TriBeCa Productions studio and TriBeCa Film Festival, and partnered with successful real estate and restaurant developers throughout the city. He's even starred in "I Love NY"commercials promoting Hudson Valley tourism. (If Travis Bickle were still driving today — perhaps for Uber? — he wouldn't recognize the streets. Ironically, DeNiro is partly responsible for that cleanup!) DeNiro's business ventures have given him a $200 million net worth. And for a brief moment last month, they led to a $6.4 million back tax bill.
This isn't the first time DeNiro has made news for his taxes. His first fight involved a 98-acre compound he owns in the Hudson Valley town of Gardiner, which the New York Times reports includes a house, "two guesthouses; a 14,000-square foot barn converted into a recreation center with a full gym, a swimming pool, boxing ring and film production suites; another barn turned into offices; tennis courts; and a ski slope." In 2006, the trustees controlling the property sued the town to lower the assessed value, which was pegged at $6 million. The trustees argued it was worth $4 million, while the town countered it was actually worth closer to $9 million.
The town won and the trust's lawyers appealed that decision. But by that point, the town's legal bills dwarfed the extra tax they stood to collect, and the town's residents were turning against DeNiro. (It may not have been quite like how Jimmy Conway turned against Henry Hill in Goodfellas, but it certainly wasn't pleasant.) When DeNiro learned the trust's lawyers had filed their appeal, he threw a fit that would have made Travis Bickle proud, withdrew the suit, and ordered his accountant to reimburse the town for $129,000 in legal fees.
DeNiro's latest tax issue involves our friends at the IRS, with even more money at stake. Last month, the IRS filed a lien to collect $6,410,449.20 he owed on his 2013 personal return. That amount naturally includes interest and penalties that accumulated over time, but had to be a big bill to start out with!
Fortunately for everyone involved, DeNiro's latest tax caper has a happy ending. That's refreshing, considering how many of the characters he plays end up dead or in prison. His spokesman reported that the IRS bills had been "sent to an old address," and once the actor learned about the debt, "he had a check for the full amount hand delivered to the IRS" the next morning. Apparently it's good to be worth $200 million — even if you have so many addresses the IRS can't find the right one to send the bills!

Hollywood's brightest stars aren't generally known for their financial smarts. DeNiro is an exception to that rule, but his success still hasn't guaranteed him an easy time with the tax man. That's why it's so important to have the right advisors on your side, advocates who can help you pay the least amount possible with the least hassle possible. And that process starts with a plan. So call us when you're ready for your star turn!

Tuesday, February 24, 2015

It's Freezing Where?

Taxpayers across much of the Midwest and East coast have enjoyed a relatively light winter this year, with mild temperatures and little snow. But Old Man Winter made up for it last week. Temperatures dropped well below zero and wind chills broke records across the country. Friday morning saw thermometers dip below freezing in the Florida Everglades, and parts of North Carolina were colder than in Barrow, Alaska!
Care to guess where else temperatures have been falling? If you said "in Hell," you're right. That's because the House of Representatives, where gridlock appears to have found a permanent home, actually passed a bipartisan tax bill last week. The America Gives More Act would take three of those maddeningly "temporary" tax breaks that Congress barely manages to extend every year, and make them permanent. As the name implies, all three are intended to reward charitable giving:
  1. It lets taxpayers age 70½ and older contribute up to $100,000 per year from their IRAs directly to charity in lieu of taxable required minimum distributions.
  2. It lets taxpayers deduct gifts of "conservation easements" up to 50% of adjusted gross income (rather than the current 30%) and carry forward any unused balance for up to 15 years.
  3. Finally, it extends "above basis" deductions for food donations from business inventories. Usually, when you give something out of your business inventory to charity, your deduction is limited to the cost you paid for the item. However, if you donate "wholesome" food inventories, you can deduct either: 1) the price you paid plus one-half of your expected profit, or 2) twice the price you paid. (We can only imagine how many hours some clever lawyer working for Frito-Lay will get to bill arguing that Cheetos' new "Sweetos" cinnamon-sugar puffs qualify as "wholesome.")
As we all remember from Schoolhouse Rock, the bill now heads across the Hill to the Senate. Unfortunately, extending the three tax breaks would cost the Treasury $12.2 billion over the next 10 years, and the bill does nothing to replace that lost revenue. So President Obama has already pledged to veto it. Well, can't blame the House for trying, right?
"Comprehensive tax reform" is one of those lip-service goals that everyone in Washington says they support. But the political obstacles to making tax reform happen are so daunting that even the CSI team would be hard-pressed to discover who killed it. (Democrats insist it was Speaker Boehner in the Conservatory with the lead pipe, while Republicans point to Minority Leader Reid in the Library with the candlestick.) But last week's vote shows that individual reforms just might still stand a chance.
What's next? Well, a bipartisan group of Kentucky and Tennessee legislators have introduced a bill letting whiskey distillers deduct their production expenses currently, rather than capitalizing them for up to 20 years while the product ages. Members of Congress — whom Mark Twain described as the only "distinctly native American criminal class" — have a reputation for loving their whiskey. So the Aged Distilled Spirits Competitiveness Act of 2015 should have a bright future!
In the meantime, you don't have to wait for Washington to act to pay less tax. You just have to call us for a plan. We'll show you how to use the rules already in the tax code to pay the least amount allowed, so you can give more to whomever you like!

Monday, February 16, 2015

Baby, Don't Leave

State governments collect billions of dollars in taxes every year, and they work just as hard to protect their revenue base as their friends at the IRS. Sometimes that means putting lots of eggs in one basket — then watching that basket very, very carefully. But one state acknowledges taking that particular strategy to a new level. In a move that falls somewhere between "I can't believe they haven't done this already," and "Wow, that sure sounds like stalking," the Connecticut Department of Revenue Services has revealed they're "keeping an eye" on their top 100 individual taxpayers to make sure they don't leave the state — and take their taxable income with them.
Connecticut residents boast the fourth-highest median household income of any state in the country. It takes $678,000 per year to join the much-discussed "top 1%" club, compared to $389,000 for the United States as a whole. But we're not talking about dime-a-dozen Wall Streeters here. We're not talking "the millionaire next door." No, we're talking true fat cats. James Bond-villain money. Guys who are literally buried in so much cash it would take an entire village full of torch-wielding peasants to storm them out of their castles.
Let's take a closer look at one of the state's new pals. Steve Cohen is a hedge fund manager who lives in Greenwich in a 35,000 square foot home with an ice-skating rink the size of the one at Rockefeller Center and a two-hole golf course. He charges his clients four percent of the assets he manages, plus up to 50% of their gains. Forbes magazine reports that he hauled in $2.3 billion in 2014. (That's right, "billion" with a "b.") The Nutmeg State's top tax rate is 6.7%. A little fourth-grade math tells you the state siphoned $154.1 million out of Cohen's bulging pockets.
Now let's put that tax bill in a broader perspective. Connecticut's budget for Fiscal 2013 was $28.1 billion. That means Cohen picked up more than half a percent of the state government's entire tab for the year, all by himself. (Ironically, last year Cohen closed his fund to outside investors in the wake of an insider-trading scandal, which will virtually eliminate his earned income. We doubt that federal prosecutors were thinking about his state tax bill when they filed charges against his fund!)
Cohen's income may have vaulted him to the top of the heap. But he's hardly the only super-earner to make it rain in Connecticut. One accounting firm with offices in Greenwich reports preparing tax returns for <>three unidentified Nutmeggers with billion-dollar incomes. Ray Dalio, head of Bridgewater Associates, raked in $900 million in 2013. (Sure, that sounds like a lot, but it's actually down from $3 billion in 2011). Paul Tudor Jones, who lives in a Monticello-inspired mansion with a 25-car garage, scored $700 million.
"There are probably a handful of people, five to seven people, who if they just picked up and went, you would see that in the revenue stream," says Kevin Sullivan, the Department's commissioner. Two years ago, Sullivan adds, his office heard that one particular hedge funder might be leaving, and set up a meeting to urge him to stay. The manager moved (d'oh!), but agreed to keep his company back in "the little state that could."

Would you be flattered if you knew the government was watching your tax payments like a jealous lover? Or would you be creeped out? Either way, you'd probably want to pay less so you could disappear from that particular radar. That's where we come in. We give you a plan to keep as much as you legally can, no matter where you earn your income. So call us — unless you're looking for a new best friend!

Tuesday, February 10, 2015

Patriots 28, Seahawks 24, IRS Millions

You probably thought the holiday season ended when the last Christmas lights finally came off the house. But then you would have forgotten the closest thing we have to a national fair. We're talking, of course, about the Super Bowl, our only nationally-televised event that makes people look forward to the commercials as much as the game!
This year's contest was another nail-biter that remained close until New England cornerback Malcolm Butler intercepted a Seattle goal-line pass with just 20 seconds left on the clock. (If the Patriots want the rest of the NFL to take their "dynasty" seriously, they're going to have to learn how to blow someone out like the 1990s-era San Francisco 49ers used to do!) But while Pats fans may be cheering loudest, there's another group that's cheering too, and that's the team at the IRS.
New England quarterback Tom Brady became just the third NFL passer to take home a fourth Super Bowl ring. He also took home a $400,000 bonus for his effort. (Brady and his wife, supermodel Giselle Bundchen, had to scrape by on about $60 million last year, so the cash is probably welcome.) And General Motors gave him a loaded Chevy Colorado pickup truck worth $35,000 for winning the MVP trophy, too.
So . . . the IRS intercepts 39.6% for income tax and 3.8% for Medicare on Brady's $400,000. The Massachusetts Department of Revenue picks off 5.2% more, and you can see why the tax man leaves Brady so . . . deflated. (Sorry.) Multiply that by everyone on the Patriots roster, and now you know why the receivers at the IRS cheer for every Super Bowl winner!
Now, Brady is awfully glad that Malcolm Butler intercepted that pass. So instead of taking that Chevy truck for himself, he's giving it to Butler. But that creates a tax problem. You see, if Brady takes the prize himself, then laterals it to Butler, Brady pays the same federal and state income and Medicare taxes on the truck as he does on his $400,000 cash bonus — but then he has to contend with gift tax, too. Brady can give up to the $14,000 "annual exclusion" amount, free from tax, to as many people as he likes in a year. If Brady and his spouse Giselle make a gift together, they can double that amount to $28,000. Anything above that annual exclusion eats away at Brady's $5.43 million "unified credit" against gift and estate taxes. Any gifts he makes during his life that aren't sheltered by the annual exclusion or unified credit are subject to a 40% tax. (Don't worry if none of this makes any sense — understanding it all is why estate tax lawyers drive Jaguars.)
But nobody wants to see Brady get sacked with extra taxes. So instead of giving the truck to Brady (to give to Butler), Chevy is shotgunning the truck directly to Butler. That means the undrafted 24-year-old rookie, whose career highlights include passing thousands of battered chickens into the fryer at his hometown Popeyes, will pay the same income and Medicare taxes that Brady would have paid. But calling the audible on the transfer to Butler protects Brady from the gift tax blitz.
Brady's running a play called "tax planning." It's saving him thousands. And it's not even one of Coach Bill Belichek's clever tricks! Here's some more good news — you don't have to be Super Bowl MVP to run the same play yourself. Just call us when you're ready to suit up against the IRS. And remember, we're here for your teammates too!