You Think Your Taxes Are High?

The United States and France have been friends for centuries. The French navy provided much of the military might we needed to defeat the British in the Revolutionary War. The French Revolution inspired our own founders to the promise of republican government. And French territory, acquired in the Louisiana Purchase, provided land for 15 of today's 50 states. While the United States and France never shared the same sort of "special relationship" as the United States and England, the two countries have traditionally shared a warm bond.

Today, France doesn't stride quite so mightily across the world stage. But the land of liberte, egalite, and fraternite still sponsors the world's most prestigious bicycle race (now maybe best known for an American cheating). They still host the occasional Jerry Lewis film festival. And really, who does toast better than the French?

Now it turns out there's something else that France does well, and that's taxing its citizens. The French newspaper Les Echos reported last week that thousands of French households paid more than 100% of their 2012 income in tax. Sacre bleu! How can this be?

Last year, the Socialist candidate Francois Hollande ousted the conservative Nicolas Sarkozy to become France's President. Hollande immediately did what Socialists typically promise to do — he hiked taxes. Specifically, the new government imposed a one-time levy on 2011 income for households earning over €1.3 million (roughly $1.67 million). That levy hit top incomes hard. In 2012, over 8,000 households paid taxes topping 100% of their income. 9,910 households paid between 85% and 100%, and a further 12,000 paid between 75% and 85%. And you think you pay a lot?

Hollande wasn't satisfied with that one-time hike. He also proposed an "exceptional solidarity contribution" nearly doubling taxes on about 1,500 top earners with income over €1 million from 41% to 75%. That move led actor Gerard Depardieu and several other high-profile personalities to renounce their French citizenship.

France's Constitutional Council, which rules on the constitutionality of legislation before it goes into effect, struck down that 75% tax as unfair. They didn't have a problem with the rate, per se. They objected that it applied to individuals rather than households — a household with two individuals, each earning €900,000 would escape it, while a household with a single individual earning €1.1 million would pay. However, the council still approved raising the top rate to 45% on incomes over €150,000 (roughly $198,000), cutting several existing loopholes, and stiffening a wealth tax on net assets worth more than €800,000. And Prime Minister Jean-Marc Ayrault has pledged to reintroduce the 75% top rate, using the template provided by the Constitutional Council.

Perhaps not coincidentally, Hollande is now the least popular president in French history. How happy would you be with your President if he wanted three out of every four of your extra dollars!

Fortunately, our taxes are nowhere near that high. But they still aren't any fun to pay. That's why we focus our business on proactive tax planning to help you pay less. Maybe you'll use the savings for that dream vacation you've always wanted. They say Paris is nice this time of year!

Don't Be Like These People

Last week, we talked about the IRS Criminal Investigation unit, which just released their Fiscal 2012 report. That report was filled with the sort of dry statistics you would expect from an IRS annual report: 5,125 total investigations launched, 202 crooked tax preparers indicted, 199 identity thieves sent to prison, and 64 months average time behind bars for money launderers. But the report also includes dozens of stories of tax cheats who really just should have known better — and some whose stories are so entertaining we just had to share them. Are you having a bad day? Well, be glad you're not one of these people!

• Michael Gerace owned Abbott Pizza in Buffalo, New York, where he cooked up delicious pizzas, calzones, and strombolis. He also cooked up a fake set of books for his accountant, shorting Uncle Sam about 500,000 pepperonis over three years. Now, instead of serving happy customers, Geraci is serving 21 months in prison. Here's hoping the warden recognizes his talents and assigns him to the kitchen instead of the license plate shop!
  
• Miguel Vasquez was a tax preparer in suburban Philadelphia. In 2008 and 2009, he prepared 1,654 fraudulent tax returns claiming fake deductions for fake business losses and applying for fraudulent refunds. Bad move, right? As if that wasn't bad enough, he failed to report the income he earned from defrauding the government on his own tax return! Vasquez can look forward to 10 years in jail, plus a $1.6 million fine.
• Evelyn Wells and her daughter Cassandra Dean recruited friends and family to file false tax returns using fabricated W-2's reporting fabricated employers and fabricated withholding amounts. Those co-conspirators then claimed very real cash refunds. Wells drew a year and a day in prison, while her daughter drew 21 months. We're all for "family values." But this hardly seems like the sort of activity you want to share with the kids!
• Veronica Dale worked for a company that serviced Medicaid beneficiaries, where she stole personal information. She and various co-conspirators used that information to file over 500 fraudulent returns and request $3,741,908 in tax refunds. Dale drew 334 months in prison and a $2.8 million fine. Identity theft has become a top target for IRS criminal investigators, but not everyone seems to have gotten that memo.
• John Walshe owned Finzer Business Systems in Denver. From 2005 through 2007, he withheld $912,286 in income tax and FICA contributions from his employees' paychecks, but "forgot" to send it to the IRS. (He also stole $18,853 in 401k contributions, but who's counting?) Walshe was sentenced to 46 months in the hoosegow, where he'll have a hard time earning enough to pay his $1.3 million fine.
• Miguel Angel Trevino Morales and his brother Omar raised quarter horses at a farm in sleepy Lexington, Oklahoma (population 2,152). The farm turned out more than its fair share of winners, including one named Mr. Piloto who scored a million-dollar purse at Ruidoso Downs. But the farm also turned out horses with curious names like "Number One Cartel" and "Coronita Cartel." It turns out (spoiler alert) that the brothers were laundering cash for Mexican narcotrafficantes. Associates bought horses at auction, sometimes paying with duffel bags of cash. Authorities indicted the Trevinos and seized over 400 horses worth $12 million.

Look, we know you want to pay less tax. But you don't have to risk time behind bars to do it. You just need the right plan. The Tax Code is so complicated that there are actually more ways to save legitimately than there are to cheat. So let us give you the plan you need to save tax and sleep well, too!

Who's Afraid of the Big Bad Wolf?

Our federal government devotes millions of man-hours and billions of dollars each year to law enforcement. The FBI, DEA, and Bureau of Alcohol, Tobacco, and Firearms, along with lesser-known agencies like the U.S. FDA's Office of Criminal Investigations (pursuing criminal violations of food and drug laws), the Department of Commerce's Office of Export Enforcement (responsible for keeping dangerous technology out of the wrong hands), and NOAA's Fisheries Office for Law Enforcement (charged with protecting the ecosystem and marine life) all strike fear in at least some body's heart.

But there's one agency that has an almost mythical power in most minds, and that's the IRS. The tax cops put Pete Rose and Wesley Snipes in jail. They put Al Capone in jail, for Pete's sake! We'd all better watch out, right? Well, you be the judge. Last week, the IRS Criminal Investigation unit released their Fiscal 2012 annual report— and the findings might surprise you. Here are some of the highlights:

• Investigators cover a wide variety of tax-related crimes beyond the garden-variety tax fraud and celebrity "failure to file" cases that command the biggest headlines. Their work also includes identity theft, offshore tax evasion, tax treaty cases, tax protesters, money laundering, terrorist financing, public corruption, and drug enforcement cases. 

• Business is booming — but numbers are still relatively small considering the 100 million+ returns the IRS collects every year. For Fiscal 2012, the Service initiated just 5,125 investigations, up from 4,720 in 2011. Out of those 5,125 investigations, they recommended 3,710 prosecutions (IRS investigators don't actually prosecute offenders themselves; they turn that job over to the Department of Justice.) There were 3,390 indictments and 2,634 convictions — the Feds generally don't take you to court if they're not already sure they can win. 2,466 lucky winners drew all-expense-paid trips to "Club Fed."

• Investigators spend a lot of time chasing down crooked tax preparers. For 2012, they investigated 443 suspicious-looking characters, recommended 276 prosecutions, and won 178 convictions. The average convicted preparer earns 29 months in jail, up from 25 months in 2011.

• The IRS continues to uncover people who really just ought to know better. Take Jimmy Dimora, for example, a former Cuyahoga County (Ohio) Commissioner, who found himself looking for ways to supplement his county pay. Dimora took more than $166,000 in bribes to steer contracts to allies, get jobs and raises for associates, intercede with judges on pending cases, and generally abuse his office. Naturally, he forgot to pay tax on those bribes. Jimmy wound up drawing a 336 month sentence for his sideline business. (For those of you who try not to use math on a daily basis, that's 28 years behind bars.)

Do any of these points strike a chord with you? Of course they don't. The average American has nothing to fear from the Criminal Investigations unit. As far as most of us are concerned, the IRS is just the federal government's collection agency, nothing scarier. You've got to do something really outrageous to draw one of those 5,000 case investigations.

We all know taxes are going up this year, and we all know nobody wants to pay. That's the bad news. The good news is you don't have to flirt with IRS Criminal Investigations to pay less. You just need a plan. There's no shortage of court-tested, IRS-approved strategies for minimizing your tax. So if you're still smarting from April 15, and you haven't asked us about our planning service, what are you waiting for? 

Tax Plans start at as little as $1,500 and the average client saves $10-20K after implementation.

Late Night Taxes

Television's late-night hosts have entertained us since Steve Allen first took the mic on The Tonight Show back in 1954. Today's late-night monologues riff on serious topics like international politics and economic policy, and silly topics like the "Real Housewives of Lima, Ohio." Naturally, they've also weighed in on our friends at the IRS. So this week, we present some of our favorite tax wisecracks from late-night television:

• "65% of people say that cheating on your income tax is worse than cheating on your spouse. The other 35% were women." (Jay Leno)
  
• "Just taught my kids about taxes by eating 38% of their ice cream." (Conan O'Brien)
• "Tax day is the day that ordinary Americans send their money to Washington, D.C., and wealthy Americans send their money to the Cayman Islands." (Jimmy Kimmel)
• "President Obama held a press conference earlier today, and he said he still wants to close the Guantanamo Bay prison facility, but he doesn't know how to do it. He should do what he always does: declare it a small business and tax it out of existence. It will be gone in a minute." (Jay Leno)
• "Nobody likes taxes, but they've been around forever. Taxes date back all the way back to the year one, when baby Jesus was visited by two wise men and an IRS agent, who demanded half the family's frankincense." (Jimmy Kimmel)
• "It's fitting that April 14 is National Pecan Day because today, we recognize nuts. And tomorrow, on April 15, we pay our taxes to support them." (Craig Ferguson)
• "Regis Philbin's back in primetime, hosting 11 new episodes of 'Who Wants To Be a Millionaire.' But because of Obama's tax plan, it's been re-titled 'Who Wants To Win Just Under $250,000.'" (Jimmy Fallon)
• "And there are a lot of new taxes coming. California state legislators want to solve our state's giant deficit by taxing marijuana. Meanwhile, Oregon wants to increase a tax on beer, while New York wants to tax Internet porn. You know what this means? By the end of spring break, this whole thing could be paid for." (Jay Leno)

Late-night yucksters make fun of taxes onstage. But you can be sure that offstage, entertainers like David Letterman (2013 salary, $28 million) and Jay Leno ($24 million) think taxes are as funny as a heart attack. They know that proactive planning is the key to paying less. So be sure to call us when you're ready to laugh last with the IRS!

Play Ball!

The 2013 baseball season is barely a month old, and fans are already bickering over the first twists and turns. That's because rabid fans are never content to just watch a game. They have to discuss it — among friends, at the local tavern, and on talk radio. If a pop fly drops for a single behind Tigers center fielder Austin Jackson, and no one is there to argue he should have caught it, does it really make any noise?

Statisticians have always delighted in analyzing baseball — some would say, analyzing it to death. So-called "sabermetricians" (followers of the Society of American Baseball Research, or SABR) pore over arcane stats like "batting average on balls in play" (a measure of how many balls in play against a pitcher go for hits, excluding home runs, used to spot fluky seasons) or "value over replacement player" (a measure of how much a player contributes to their team in comparison to a fictitious replacement player who is an average fielder at his position but below-average hitter).

Now there's a whole new category of relevant statistics for fans to debate. The Journal of Sports Management has just accepted a paper from Fordham University business professor Stanley Veliotis, titled Salary Equalization for Baseball Free Agents Confronting Different State Tax Regimes. And this one will blow the lid right off Moneyball! Here's the abstract:

"This paper derives equivalent gross salary for Major League Baseball free agents weighing offers from teams based in states with different income tax rates. After discussing tax law applicable to professional sports teams’ players, including 'jock taxes' and the interrelationship of state and federal taxes, this paper builds several models to determine equivalent salary. A base-case derivation, oversimplified by ignoring non-salary income and Medicare tax, demonstrates that salary adjustment from a more tax expensive state’s team requires solely a state (but not federal) tax gross-up. Subsequent derivations, introducing non-salary income and Medicare tax, demonstrate full Medicare but small federal tax gross-ups are also required. This paper applies the model to equalize salary offers from two teams in different states in a highly stylized example approximating the 2010 free agency of pitcher Cliff Lee. Aspects of the models may also be used to inform other sports players of their after-tax income if salary caps limit the ability to receive adequately grossed-up salaries."

Aren't you glad you've got us to make sense of this stuff? (And this is baseball — it's supposed to be fun.)

Taxes have always dogged professional athletes. What basketball fan hasn't wondered what role Florida's sunny tax-free climate played in luring superstar LeBron James to the Miami Heat? And really, who can blame golfing great Phil Mickelson for threatening to abandon California to escape a 63% tax rate?

But just imagine the debates this paper will inspire! How will interleague play affect equivalent gross salaries for NL East teams playing even more games in tax-heavy New York? Does A-Rod really come out ahead by sticking with the Yankees? Will fists fly when Canadians realize none of this has any meaning for the lowly Toronto Blue Jays?

You may think the tax code is harder to understand than the infield fly rule. (You may even be right.) But there's one very important difference between baseball and taxes. Stats geeks can use measures like the "player empirical comparison and test algorithm" to guess how players might perform for the rest of the season. But proactive tax planners like us can use proven strategies like the medical expense reimbursement plan, S-corporation, or home office deduction to guarantee less tax. So call us when you're ready to measure some savings that count!

Very Serious Stuff

When most of us think "taxes," we think of federal taxes — the IRS, Form 1040, and every one's favorite holiday, April 15th. It's true that the IRS is full of Very Serious People collecting Very Serious Taxes. But we can't forget state and local governments either. They collect their fair share of serious taxes — but they impose some pretty silly tax laws, too. Here are some of our favorites:

• California offers a tax exemption for income you receive to settle claims arising out of the Armenian genocide. If you or your ancestors were persecuted by the Ottoman Turkish Empire between 1915 and 1923, your income from that settlement is tax-exempt. But sadly, if the persecution occurred in 1924 or later, your friends in Sacramento want a share.
  
• California also imposes a 33% tax on fresh fruit bought from vending machines. Apparently, the folks in charge of promoting healthy lifestyles would rather see you buy cookies or potato chips!
• Maryland imposes a $5.00/month "Chesapeake Bay Restoration Fee" on homeowners and businesses to raise funds to improve sewer treatment plants that discharge into the bay. Naturally, taxpayers have dubbed it the "flush tax."
• Minnesota and several other states impose a tax on marijuana — in Minnesota, it's $3.50 per gram. But wait, you say . . . pot isn't even legal in Minnesota, is it? Well, no, it's not . . . but if dealers don't pay the tax, the state has another way to bust them. (Remember who finally got Al Capone?) So . . . genius? Or evil genius?
• New York lets you buy bagels and take them home to eat without paying sales tax. But let the counter man slice it, and now it's a "prepared" meal for on-premises consumption — and subject to an 8% sales tax.
• Oregon generously gives double amputees a $50 tax credit. But lose just one limb and you're out of luck. (Apparently, it costs an arm and a leg to be disabled in Oregon!)
• South Carolina offers a $50 per carcass "Venison for Charity" credit, with an actual form (SC Schedule TC-51) for licensed butchers and meat packers who donate deer meat for distribution to the needy. (We're not making this up.)
• Washington's King County, which includes Seattle, imposes a new $50 fee to report a death to the Medical Examiner's office. Officials call it a crime-prevention measure to give the government enough money to look at more questionable deaths for evidence of crime.

Governments have always found silly ways to nickel-and-dime their citizens. And some of those are just plain unavoidable. (If you live in Maryland's Chesapeake Bay watershed and you've got to go, well, you've just got to go.) But there's nothing silly about wasting money on taxes you don't have to pay. That's why we specialize in proactive tax planning to help pay less. Do you think you paid too much on April 15? Give us a call and let's see if we can save you some serious money!

More Gossip About Presidents and Taxes

If you saw your 2012 tax return splashed all over the internet, you'd probably be pretty unhappy. Maybe you don't want your family, friends, or colleagues to know just how well you did last year. Or maybe you'd want them all to think you had done better than in reality. (Donald Trump is famous for pestering the folks who compile the Forbes 400 list of the richest Americans to rank him higher than they do.) But most of us would rather put our most embarrassing eighth-grade class photo online than our taxes.

Well, President Obama and his family don't have that luxury. Legally, presidential tax returns are as private as anyone else's. However, presidents, vice-presidents, and major party nominees dating back to Richard Nixon have released at least some of their tax return information. The Obamas released their 2012 returns on Friday, and they reveal an intriguing snapshot of presidential finances.

For 2012, the Obamas reported $608,611 in adjusted gross income. This included $400,000 for leading the Free World, $258,772 in book royalties, $11,462 in interest, and a whole $2 in dividends. They also reported $3,000 in long-term capital losses, with an additional $115,516 to carry over to future years or offset future gains. Of course, they enjoy some nifty tax-free perks, too — helicopters, airplanes, personal chefs and other staff. They also enjoy the use of a 132-room mansion in the heart of Washington, DC, which has been appraised at anywhere from $110 million to $302,021,348.

On the "deduction" side, the Obamas stashed $50,000 into a retirement plan. (That should be reassuring in the event they can't support themselves on the speaking circuit.) They also deducted $45,046 in mortgage interest, $63,305 in state and local tax, and a total of $150,034 in charitable gifts to 33 separate organizations. (The largest single gift, $103,871, went to the Fisher House Foundation, which provides free or low-cost lodging to veterans and military families receiving treatment at military medical centers.)

The Obamas finished up with $335,026 in taxable income. The regular tax on that amount is $87,465, which is more than most voters make in a year. But they got whacked for another $21,221 in Alternative Minimum Tax, plus $6,930 in self-employment tax on the book royalties. Subtract $3,402 in foreign tax credits, and the total bill settles in at $112,214.

What's ahead for next year? Well, if the Obamas report the same income and expenses in 2013, they'll avoid the new 39.6% bracket that kicks in for taxable incomes over $450,000. But they'll lose 3% of their itemized deductions and 2% of their personal exemptions for each dollar of adjusted gross income over a $300,000 threshold. They'll pay an extra 0.9% payroll tax on earned income over $250,000, plus a 3.8% "unearned income Medicare contribution" on their investment income.

Presidents usually find themselves solidly in the "top 1%" that dominated the conversation in last year's election. George W. and Laura Bush reported $784,219 in AGI in the fourth year of his presidency, including nearly $400,000 in interest and dividends. Bill and Hillary Clinton reported $1,065,101 in AGI in the fourth year of his presidency, including $742,852 in Hillary's book royalties that went to charity. And who can forget 1991, when George and Barbara Bush's dog Millie "earned" $889,176 in royalties for "her" memoir, Millie's Book? Of course, the big money comes after leaving office — these days, Bill Clinton earns as much as $10 million per year from speaking.

We prepare every return to stand up to the same level of scrutiny as the President's. But we understand our real value comes from tax planning. And you don't have to earn a presidential income to take advantage of our proactive approach. So call us when you're ready to pay less!