Tuesday, May 26, 2015

Blockbuster Taxes

Memorial Day came early this year, and that means we get more time with our summer whites! (Of course, summer doesn't "officially" start until June 21, but who's counting?) For millions of Americans, cooling off at the movies with a bucket of popcorn and gallon of soda is a favorite part of the season. So we wondered . . . what would all that carnage look like from a tax perspective?
  • San Andreas: "The Big One" finally hits California, and helicopter rescue pilot Dwayne "The Rock" Johnson melodramatically sets off to save his estranged daughter. Meanwhile, up and down the California coast, accountants stay busy rescuing clients with casualty loss deductions.
  • Hot Pursuit: Reese Witherspoon plays an uptight policewoman protecting a druglord's widow as the pair flees crooked cops and murderous gunmen in Texas. (When are the gunmen in movies ever not murderous?) Proceeds from drug trafficking are taxable, of course — we all know who finally got Al Capone. Sadly for our widow, Section 280E of the tax code prohibits deductions for any trade or business that "consists of trafficking in controlled substances." Guess she should have thought of that before she became a druglord's widow!  
  • Inside Out: Pixar's newest computer-animated sure-to-be-hit is set inside the head of 11-year-old Riley, as five emotions guide her life: Joy (Amy Poehler), Disgust (Mindy Kaling), Fear (Bill Hader), Sadness (Phyllis Smith), and Anger (Lewis Black). Well, someday, Riley is going to earn her first paycheck, come home, and ask Mom, "What's FICA?" Which one of the five do you think is going to take over her mind then? It might just be all of them!
  • Mad Max: Fury Road: Max and his fellow rebel Furiosa race a cross a post-apocalyptic Australian "Wasteland" in search of gasoline, explosions, random violence and other essentials of life. Tax collectors weep as not a dime of tax gets paid into the Highway Trust Fund. Of course, there may not even be a Highway Trust Fund in Australia . . . . hey, wait a minute, there won't even be any tax collectors after the apocalypse!
  • The Avengers: Age of Ultron An all-star team of superheroes including Iron Man, Captain America, Thor, the Hulk, Hawkeye, and the Black Widow team up to save the world from the creepy Ultron. No tax "hook" here in the movie, but if star Robert Downey Jr. cashes another $50 million paycheck like he did after Iron Man 3, he'll be Man of the Year at the IRS.
  • Terminator: Genesys: Arnold Schwarzenegger returns for a fourth go-round since his time-traveling robot debuted back in 1984. The new movie alters events from the first set of films in an alternate timeline, whatever that means. Shouldn't the Terminator be paying estate tax by now? And if he goes back in time, does he get a refund of whatever estate tax he already paid?
We realize that smart tax planning isn't as exciting as defeating Ultron. It won't save as much as one of Robert Downey's paychecks. (At least it's easier to understand than the mind of an 11-year-old girl!) But smart tax planning is the key to paying less. And it takes less time to call us than it does to sit through the previews at your local multiplex. So what are you waiting for?

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!