Monday, March 25, 2013

Marry for Love

April 15 is almost here, and many of you are still scrambling to get your returns ready to file. Here's a collection of fun quotes to help you "sprint to the finish" this tax season:
"Another difference between death and taxes is that death is frequently painless."
Anonymous
"A fine is a tax for doing something wrong. A tax is a fine for doing something right."
Anonymous
"A citizen can hardly distinguish between a tax and a fine, except the fine is generally much lighter."
G.K. Chesterton
"Alexander Hamilton started the U.S. Treasury with nothing, and that is the closest our country has ever been to being even."
Will Rogers
"A person doesn't know how much he has to be thankful for until he has to pay taxes on it."
Ann Landers
"The best things in life are free, but sooner or later the government will find a way to tax them."
Anonymous
"The way taxes are, you might as well marry for love."
Joe E. Lewis
"People who complain about taxes can be divided into two classes: men and women."
Anonymous
"Once — just once — I'd like to be fixed up with a guy who earns in a year what I pay in taxes."
Anonymous Female Lawyer
"I'm putting all my money in taxes — it's the only thing sure to go up."
Anonymous
Cracking jokes about taxes is easy. Paying less is usually a little harder. That's why we're here — to give you the plan you need to minimize your bill. So call us when you're ready to get serious about keeping more of what you make!

Monday, March 18, 2013

Help Wanted

On March 8, the Bureau of Labor Statistics announced that the unemployment rate had edged down to 7.7% for February. That's good news compared to the high of 10.1% registered back in October, 2009. But unemployment is still unacceptably high, and surveys show Democrats and Republicans alike are citing jobs as our most pressing problem.
You might think that with jobs still scarce, employers would have their pick of applicants. In fact, the New York Times recently reported that some employers are requiring bachelors degrees for positions like file clerk, dental hygienist, cargo agent, and claims adjustor that don't require college-level skills. Nevertheless, there's one pretty important organization who's having trouble with jobs — and that employer, surprise surprise, is our old friend the IRS. It's a cushy enough gig — air-conditioned offices, great holidays and benefits, no heavy lifting, and flexible schedules that let you hit the road before traffic gets ugly. So, what's the problem?
On January 13, the Treasury Inspector General for Tax Administrations ("TIGTA"), an independent board assigned to oversee IRS operations, issued a riveting report with a can't-miss title: "Improvements Have Been Made to Address Human Capital Issues, but Continued Focus is Needed." (Seriously, if John Grisham could write like this, he'd have a real future.) It turns out the IRS has addressed most of the issues TIGTA identified four years ago in their last "human capital" audit. But there are still real problems, even in today's "seller's market" for jobs:
  • Total employment is down 9%, from 107,622 at the end of FY 2010, to 97,717 at the end of FY 2012. Simple common sense says that fewer people processing more tax returns means more problems.
  • Pending retirements are poised to gut senior staff like a trout. 48% of today's executive managers, 37% of field staff, and 31% of non-executive managers will be eligible for full retirement by the end of next year. This lack of experienced leadership will reverberate throughout the organization.
  • It takes the IRS an average of 30 days to approve filing open positions, and 54 days to hire anyone from outside the organization. That's down from 157 days in 2009, but still frustratingly long in today's environment.
  • New hires report they aren't getting enough coaching and mentoring. That means the new kids on the block will be even less effective at cutting through the red tape and bureaucracy!
We realize you might think "sequestering" the IRS is a good thing. But the IRS is facing real challenges, and we'll all be in trouble without experienced leadership at the helm. The tax code is getting more complicated. ("Obamacare" alone includes 42 provisions that add to or amend the tax code, including eight that require the IRS to build new processes that don't exist within current tax administration.) And the IRS is under increasing pressure to stop billions of dollars in fraudulent or improper tax refunds due to erroneous claims or identity theft. How can they succeed with their most experienced staffers fleeing like lemmings?
What's the bottom line? "TIGTA made no recommendations in this report; however, key IRS management officials reviewed it prior to issuance." Comforting, right?
Dealing with the IRS is never fun. Fortunately, you've got us here, to fight on your behalf even as the fight gets harder. Let us worry about IRS staffing for you — and remember, we're here for your family, friends, and colleagues, too.

Tuesday, March 12, 2013

A Rate of Your Own

On January 1, Congress passed a bill to keep the government from leaping off the so-called "fiscal cliff" — a set of tax hikes so devastating that Washington insiders warned they would ricochet through the economy, plunge us back into recession, and possibly even send the earth spinning into the sun. That bill included raising the top marginal rate on taxable income over $400,000 ($450,000 for joint filers) from 35%, where it had stood for the last 12 years, to 39.6%.
39.6% may sound like a lot today. But it's still really quite low, as far as top rates are concerned. Back in 1935, the nation was mired in the depths of the Great Depression. Inflation was 3.71% and unemployment stood at a whopping 21.7%. As for taxes, the top rate reached 79% on income over $5 million (roughly $85,672,000 in today's dollars). But — and this is a pretty big but — according to tax historian Joseph Thorndike, just one person actually paid that rate: billionaire John D. Rockefeller, Jr.
So, lots of rich guys still had city mansions and country estates, even in the midst of the Depression. Lots of millionaires had yachts, jewels, and priceless art. But only Rockefeller was rich enough to have his own tax rate. And that got us thinking — what would some of today's rich and famous pay if they had their own tax rates?
  • Mitt Romney ran for president on the strength of his business record. He took heat from progressives for using the "carried interest" rules to pay around 14% on his multimillion dollar income. But Romney made bigger headlines for a number he thought he was uttering in private — so we say his bespoke tax rate should be 47%.
  • A year ago, British author E.L. James was just a former TV executive, wife and mom of two from the London suburbs. Since then, she's rocketed to fame with three books that some fans prefer to read on their Kindle (to avoid showing the cover). International tax planning leaves room for plenty of shades of grey, so we suggest she pay 50% on her U.S. income.
  • Baltimore quarterback Joe Flacco has had a big year. Last month, he led his underdog team to a Super Bowl victory over the favored San Francisco 49ers. Last week, he signed a $120.6 million contract making him the highest-paid player in NFL history. And it's only March! Flacco wears Number 5 for the Ravens, so we think it's only fair that he pay 5% of his income in tax. (Receiver Anquan Boldin, who wears Number 81, does not like where this discussion is going!)
  • Reality "star" Kim Kardashian is back in the news again, this time for carrying rapper Kanye West's baby. Kardashian's previous relationship, a marriage to Brooklyn Nets power forward Kris Humphries, lasted 72 days — so we'll tax Kim at 72%.
  • Kiefer Sutherland should pay 24%. Morley Safer should pay 60%. And Nick Lachey should pay 98%. (Not just because his band is named 98 Degrees, but because we should try and tax all "boy bands" out of existence.)
Who do you think should have their own tax rate, and what should they pay? Let us know! In the meantime, remember that you don't have to have your own tax rate to pay less. You just need a plan. That's what we're here for. And we're always here for your family, friends, and colleagues, too

Tuesday, March 5, 2013

Tax Strategies for Asteroid Impacts

On February 22, 2012, a telescope in Spain discovered an asteroid, 150 feet across, in an orbit that would bring it uncomfortably close to earth. Astronomers reassured us that we would be safe — this time — but that it was "a wake up call for the importance of defending the Earth from future asteroid impacts." Last month, that asteroid, named 2012 DA14, passed within 17,200 miles of earth at a speed of nearly 17,500 miles per hour. That's a hairs breath in cosmological terms — it actually flew under the ring of communications satellites orbiting earth before it headed safely back out into space.
Earth isn't always so lucky. Ironically, on the same day that 2012 DA14 flew by, a meteorite struck outside the remote Russian town of Chelyabinsk with the power of 30 atomic bombs. Amazingly, no one was killed. A century ago, a meteor broke up with similar force over Russia's Tunguska forest, flattening an estimated 80 million trees. Again, amazingly, no one was killed. And just last week, astronomers discovered a comet that could strike Mars next year with an apocalyptic force equal to 25 million times the largest nuclear weapon ever tested on earth.
But what if 2012 DA14 hadn't passed harmlessly by? What if it had struck the earth, with its estimated 3.5 megatons of energy and 200 times the power of the atomic bomb that destroyed Hiroshima? What would our friends at the IRS have done?!?
It probably won't surprise you to learn that the doomsday preppers at the IRS have a well-established disaster plan. Internal Revenue Manual Section 10.2.10 outlines comprehensive continuity planning requirements for all sorts of emergencies, including "natural disasters, accidents, technological failures, workplace violence, and terrorism." The goal, in all cases, is "to ensure the continuation of IRS mission essential functions under all circumstances." And Section 25.16.1, updated just last June, lays out pages of disaster assistance and emergency relief program guidelines
So, what actually happens if a chunk of space rock takes out Washington or another major city? The plan assumes that the IRS will resume assessing and collecting taxes within 30 days of the strike. They might be authorized to make cash grants to survivors, or buy assets destroyed in the disaster (and even pay off any outstanding bank loans or mortgages). IRS employees could be reassigned to any job "regardless of and without any effect on the current positions or grades of the employee."
At one point, the Manual even appeared to give delinquent taxpayers a "Get Out of Jail free" card. "On the premise that the collection of delinquent accounts would be most adversely affected, and in many cases would be impossible in a disaster area, the service will concentrate on the collection of current taxes," it said. Of course, that rule would apply only in the disaster area: "However, in areas where the taxpaying potential is substantially unimpaired, enforced collection of delinquent taxes will be continued." Ouch!
The tax code gives you plenty of breaks if your own stuff gets taken out from space. You can deduct un-reimbursed damage caused by a meteor strike or other sudden, unexpected, or unusual event. You'll have to reduce the amount of your loss by $100, then by 10% of your adjusted gross income. Then you'll report the remaining amount on Form 4864.
None of us like paying taxes — but you don't have to wait for an asteroid strike to pay less. The real answer, of course, is planning. And if "continuity planning" is the answer for the IRS, tax planning is the answer for us. So call us before disaster strikes, and see how much you can save!