Thursday, May 1, 2014

Toby Keith's "I Love This Tax Problem"

In 2003, country music superstar Toby Keith released "I Love This Bar," the first single from his Shock'n Y'All album. (For Billboard predicted the song would become "a beer-joint staple for years to come," and it promptly shot to #1 on the charts, selling over a million copies.
those of you under age 25 or so, an "album" is . . . oh, never mind.)
"I Love This Bar" is just one of Keith's odes to drinking — he's also scored hits with "Whiskey Girl," "Get Drunk and Be Somebody," and "Get My Drink On." "Red Solo Cup," his 2011 smash, made the red plastic cups the symbol of "party time" for the under-30 set. Naturally, with that sort of appeal, Keith had to open a bar of his own. Singer-songwriter Jimmy Buffet pioneered the concept, opening dozens of tourist traps Margaritavilles anywhere middle-aged men of a certain disposition gather to recall their youth. If Jimmy can do it, why can't Toby?
And so it came to pass that there are now fifteen Toby Keith's I Love This Bar & Grill locations from sea to shining sea. Keith's namesake joints feature guitar-shaped bars, beer served in mason jars (just like in the song), and elegant southern fare like chicken-fried chicken (?), fried bologna sandwiches (!), and deep-fried twinkies (!!). You'll find them plunked down in cities across our fair land, including such traditional country-music strongholds as Boston, Detroit, Cincinnati, and even Syracuse.
It's that last location in upstate New York — 1,400 miles from Keith's hometown of Norman, Oklahoma — that brings us to our story. You'd think the guy who sang "Beer for My Horses" with Willie Nelson would have no problem turning a profit with sales from a bar packed with thirsty fans. But apparently, you'd be wrong. The New York Department of Taxation and Finance has just hit the store with a "tax warrant" for $189,392.17 in unpaid sales taxes. The warrant lets the state levy the business' bank account or even seize the business entirely. (The restaurant remains open for now, as officials seem to think they have a better job collecting if they don't kill their golden goose. Phew!)
Bars and restaurants are notoriously risky businesses, even with "can't miss" concepts like "I Love This Bar." (If you think rising meat and cheese prices are hitting your wallet hard, just imagine what happens when you're feeding thousands of fans a month!) Restaurant owners who find themselves in trouble can be tempted to "borrow" from the government by hanging on to taxes they collect on behalf of customers and employees. The problem, unfortunately, is that every day they continue, they fall deeper and deeper into the hole — and sometimes they never dig back out.
Keith's restaurant may be struggling. But the singer himself isn't having any money problems. Forbes magazine has called him "Country's $500 Million Man," and "a one-man cash machine." He owns a liquor company, a record label, and a golf course. There's even an eight-passenger Learjet, painted in Oklahoma Sooner crimson and cream, outfitted with saddle-leather seats. But one thing Keith doesn't own is "his" restaurant in New York. While he does own chunks of the first few locations, he generally just licenses the newer locations to outside operators in exchange for a piece of the gross.
We realize few of you could imagine making millions selling fried bologna sandwiches. But we can imagine how unhappy you'd be if word leaked out that you owed enough tax to pay for an entire house! That's why we work so hard to help you plan to pay less. So call us if you'd rather spend your money treating your friends to a round of drinks. And remember, we're here for them, too!

Friday, April 25, 2014

Fall into a Fortune

Getting an audit notice is never anyone's idea of fun. But getting audited isn't always the disaster it might seem. In fact, for fiscal 2012, 107,820 lucky winners got refunds after their audits. Granted, that's still shy of seven percent of everyone audited that year. But it proves you can walk away from the IRS a winner.
Here's a clever strategy one taxpayer used to walk away from the IRS with a windfall. But you might want to be careful before you try it yourself!
William Berroyer owned an HVAC contracting company on Long Island. On July 3, 2008, he met with the IRS at their Hauppauge office to discuss a $60,000 payroll tax bill he owed on behalf of his business. The agent in charge of his case directed Berroyer to a conference table, where he nervously worked out a payment plan. As he stood up to leave, he twisted his foot in about 15 feet of telephone cord, spun around, hit a metal file cabinet, and landed flat on the floor.
At first he said he felt fine — he just wanted to get out of that conference room and back to his office. But then he called the auditor from the parking lot to say he had lost feeling in his lower leg. He made it back to his shop alright, but soon felt even worse and headed for the hospital. Berroyer wound up spending seven days in the emergency room and 10 days in rehab. Five years after the accident, he spends most of his time in a wheelchair and can't walk more than a few feet without canes. His injuries have interfered with all aspects of his life, including his work, his boating, his golf game, and even his no-longer-twice-weekly "special time" with Mrs. Berroyer.
(You already know where we're headed, don't you?) Naturally, Bennoyer sued. For $10 million.
There wasn't much argument over liability. The real contest focused on the extent of the injury. (Translation — was he just faking it?) Hospital records reported his diagnosis as "acute paraplegia, psychogenic in origin." Another doctor noted "Neuro exam and MRI findings not consistent with subjective complaints . . . . Affect is somewhat inappropriately bright." At trial, the government's medical expert conceded Berroyer had probably bruised his spinal cord, but that mild injury should long since have passed. Asked directly if Berroyer was faking or malingering, he replied "I don't use the terms faking or malingering. I use the term nonphysiological." (And really, doesn't "nonphysiological" sound so much better than "faking"?)
Judge Arthur Spatt ultimately ruled that the IRS's negligence had caused a "mild spinal cord injury." He awarded Berroyer $112,000 in medical expenses, plus $350,000 for past pain and suffering, plus another $250,000 for future pain and suffering. Oh, and he threw in another $150,000 for Mrs. Berroyer's "loss of services." And the best part . . .? Internal Revenue Code Section 104 says that compensation for injuries and sickness are nontaxable. That means the Berroyers get to keep all $862,000!
So, what do you think? An easy way to earn nearly a million bucks? Or would you rather skip the physical therapy and take advantage of easier strategies, like choosing the right entity for your business, the right plan for your retirement, and the right benefits for your family? We're sorry to confess we can't help you with a loose phone cord. But we can help you with the plan you need to pay the least tax allowed by law. So call us if you want to save tax — but don't want to wheel yourself into a courtroom to do it! 

James E. Mahoney, EA
228 E. Walnut St.
Suite A
Galion, OH 44833
(419) 468-8509

Thursday, April 17, 2014

Master This Green!

The calendar may say that spring officially begins on March 21. But for millions of golfers across the country, the season didn't really start until this weekend — specifically, when Bubba Watson outplayed 20-year-old phenom Jordan Spieth to
claim his second green jacket at the 2014 Masters.
Augusta National Country Club, home of the Masters, is America's temple of golf. Augusta's "perennial ryegrass" fairways are manicured to a smoother finish than your living room carpet, and its greens are so hard and fast you could play billiards on them. So, with all that lush green stretching as far as the eye can see, would it surprise you to learn that the residents of Augusta have "mastered" a lucrative tax break? It's become so identified with the legendary golf tournament that it's known as "the Augusta rule." But if you own your own business, you may be able to take advantage of it yourself.
Augusta, Georgia, is a small city with about 200,000 year-round residents. But for the second week of April every year, it becomes the center of the sports universe. Wealthy golfers descend upon the town from around the world. They want quality accommodations. But the nearest Ritz-Carlton is a looong drive away. (81 miles, to be exact. You don't even want to know what par that is.)
For many of those fans, the answer is to rent a house in town, just a chip shot from the tournament. Augusta National and the Augusta Metro Chamber of Commerce have even teamed up to create the Masters Housing Bureau to pitch week-long rentals — for up to $40,000. For lots of Augusta homeowners, that's a hole in one! (Of course, homeowners outside Augusta have taken advantage of the same rule for events like the Olympic games, the Final Four, and the Super Bowl.)
Now, ordinarily the IRS would take a big divot out of that $40,000 windfall. (Pro golfers typically tip their caddies 10% of their winnings, and if you think that's enough for Uncle Sam, think again!) But here's where the Augusta rule comes in. Code Section 280(A)(g)(2) provides that if you rent your home (or vacation home) for less than 15 days a year, there's no tax due on that income. In fact, IRS Publication 527 says you shouldn't even report it. So, if you have a house in Augusta, you've got that going for you! Which is nice.
Don't have a house in Augusta? Don't despair! Let's say you own your own business, and you want to host a customer appreciation event. You could hold it at your house and deduct the cost of meals and entertainment you provide for your customers. But the Augusta rule also lets you rent your home to your business — for a commercially reasonable "fair market value," of course. Your business will deduct the rent it pays, which gives you a birdie on your tax bill. But so long as you don't do it more than 14 days per year, you won't have to report the income on your personal return. Pretty slick, right?
If you're a golfer, you've almost certainly dreamed of someday playing Augusta. But you wouldn't dream of doing it without an experienced caddy — because, when you sign that scorecard, you want as few strokes as possible. When it comes to taxes, that's our job. We give you the plan you need, so that when you sign your 1040 . . . well, you get the picture. So call us before you "hit the course." And remember, we're here for the rest of your foursome as well! (419) 468-8509

Wednesday, April 9, 2014

A Little Bit of Tax

It seems like every day brings new questions about the digital currency called bitcoin, which first appeared in 2009. Who is the shadowy "Satoshi Nakamoto" who created the currency's protocol and software? Who stole $450 million worth of bitcoin from the Tokyo-based Mt. Gox exchange? Who was the mystery buyer who used bitcoin to snag a $500,000 house on the Indonesian island of Bali?
Last week, the IRS solved a mystery by ruling on how bitcoin would be taxed, at least here in the United States. And their answer to that question may shoot a hole in bitcoin's hope to become more widely accepted. Notice 2014-21 holds that virtual currencies like bitcoin will be treated as property — not currency — for U.S. tax purposes. That means, among other things, that if you take payment in bitcoin at your business, those payments will be taxable (at the fair market value of the currency at the time you earn it), subject to the same rules as if you had accepted cash. If you earn wages in bitcoin, they'll also be taxable, must be reported on a Form W-2, and will be subject to income and payroll tax withholding as if you had earned those wages in cash.
But those rules come as no surprise. The real headache comes when you use bitcoin to buy or sell something. Let's say you acquire two bitcoins for $500 each. A week later, they're worth $520, and you use them to pay an independent contractor across the country or even in the Phillipines. You'll have to report that $40 gain on your taxes. "That's not such a big deal," you might think. "My bitcoin is worth more; I'm ok with paying tax on my gain." But now imagine having to report gains or losses on every bitcoin transaction you make!
If bitcoin is going to succeed as an actual currency, it has to pass three strict tests. (Getting an "A" for effort won't work here.) First, it has to be a medium of exchange, meaning it has to be widely accepted as payment for goods and services. (Everyone takes U.S. dollars, but most people have never used bitcoin — at least, not yet. Although, Virgin Atlantic has announced that you can use bitcoin for their $250,000 flights into space.) Second, it has to be a store of value, meaning users feel safe holding it without worrying that its value will fall. (You can take payment in cash knowing that it will be worth the same amount tomorrow.) And third, it has to serve as a unit of account, meaning it has a standard value and every bitcoin is the same as every other bitcoin. (If you have a wallet full of $20 bills, it doesn't matter which one you use to pay for your morning latte.)
The IRS's ruling that bitcoin is property means bitcoin fails that last test. Let's say you have three bitcoins: one that you acquired when it was trading at $280, one that you acquired at $480, and one that you acquired at $880. It makes a real difference which one you spend! It's no wonder the New York Times headlined one story on the IRS notice: "Taxes Won't Kill Bitcoin, But Tax Reporting Might."
There's a "bit" of good news in the ruling. If you hold bitcoins for investment, you benefit from lower rates on long-term capital gains. But that's going to be scant comfort for most users who really want to see bitcoin succeed as a true currency.
We've got a long time to go before most clients have to worry about bitcoin in anything but the most theoretical sense. But keeping an eye out on the future is what separates us from the vast majority of tax professionals who just settle for recording history. Your job is to go out and make money, in dollars, bitcoin, or whatever else works best for you. Let us worry about helping you keep it!

Wednesday, April 2, 2014

Fast Track to the Presidency

Last week, we talked about the IRS Criminal Investigation unit's Fiscal 2013 annual report. We told you about four of the 2,812 offenders who drew prison sentences for their efforts: the drag racer who applied for $83 million in fraudulent gas tax refunds, the surgeon who "operated" on his tax bill using foreign trusts and shell companies, the Japanese restaurant owner who hid receipts in boxes marked "seasoned octopus," and the prisoner who filed false tax returns for his fellow inmates and sent the refund checks to his mother. But the IRS report detailed over 100 such stories — so, at the risk of beating a dead horse, we couldn't resist sharing just a few more:
  • They say everything is bigger in Texas. Apparently that includes public corruption, which is an IRS priority. Abel Limas was a former police officer and state judge in Brownsville who discovered he could supplement his government salary by turning his office into "a criminal enterprise to enrich himself and others through extortion." In 2008, Limas issued a series of pretrial rulings in a case involving a helicopter crash. Later that year, he joined a law firm working on behalf of victims in that same crash. It turns out the law firm had promised him a cool hundred grand, plus a share of their fees, in exchange for those rulings. Now Limas is spending six years in a federal prison camp.
  • Whitney Houston once sang that she believed "the children" are our future. But some people believe the children are just another meal ticket. Take Nehemiah Muzamhindo, for example. Customs officials were searching the Zimbabwe native's house for evidence of passport fraud when they discovered he had scammed one of the world's largest children's charities out of $800,000. You think he remembered to pay tax on that money? Special Agent in Charge Erick Martinez, who picked up the case for the IRS, said that Muzamhindo's crime was worse than the usual fraud because "he diverted money intended for children for his own greedy purposes." Now he'll spend six years in federal prison. Even worse, according to Muzamhindo's lawyer, the case has brought him "a great deal of shame"!
  • You've heard that the family that plays together, stays together. But some families take that advice a little too far. Angela Myers operated Angie's Tax Service in Baton Rouge, Louisiana. She used her daughter's preparer identification number to file false returns using names and social security numbers stolen from a nearby nursing home. Apparently, she needed the money to pay for a sweet RV. Now she's spending 11 years, not traveling in the RV, but in a prison in Alabama where she won't even need a driver's license. But wait (as they say in the TV infomercials) . . . there's more! The IRS is also investigating Angie's son for threatening a witness in the case!
  • Lots of Americans grow up wanting to be President. The usual path is to spend years working your way up the political ladder, then run for the office. But who has time for all that? Alabama's Tim Turner declared that our current government is an illegitimate sham, then proclaimed himself President of the Republic for the united States of America (RuSA). Next, he started teaching fellow citizens how to pay their taxes with fake bonds. (Apparently, special paper stock, financial terminology, and elaborate borders help make them at least look legit.) Oh, and when one of his followers asked what really happened when that spaceship crashed near Roswell back in 1947, he let the cat out of the bag that every industrialized nation on earth has a treaty with the aliens! Now he'll have 18 years to negotiate his own agreement with the little green men.
We realize people are willing to go a long way to pay less tax. But you don't have to set up your own government! There are hundreds of legitimate ways to work within the system we've already got. You just need a plan. So call us at (419) 468-8509 for your plan, before the aliens come and take over for good! 

Wednesday, March 26, 2014

There's an App for That

Managing the Internal Revenue Service is no easy job. It takes a lot of automation to process over two hundred million tax returns per year. And, while the Service still stores master tax records on computers commissioned during the Johnson administration (Lyndon, at least, not Andrew!), the IRS still spends hundreds of millions per year to take advantage of the latest information technology.
The geeks who manage the IRS's computers do a great job with the limited resources Congress gives them. But they want to be like the cool kids in Silicon Valley, too. So they've created an app, called IRS2GO, that you can download to your iPhone or Android device. You can use the IRS app to track your refund, find free tax return preparers, access your tax records, and even connect with the IRS on Twitter, YouTube, Tumblr, and Facebook.
Those are all great functions, of course. But we got to thinking . . . what sort of things would you really want an IRS app to do for you? We thought maybe these would be even more popular:
  • The Refund Redirector: Knowing when your refund will show up is great. But the real fun is knowing where you're going to spend it. The Refund Redirector would aggregate prices from hundreds of online shopping sites to give you the best possible deal, then send your refund directly to the store. Planning to upgrade your family room to the latest 50-inch television? Let the Refund Redirector tell you where to buy it!
  • Flappy Tax: Flappy Bird is the latest handheld gaming sensation, with 50 million downloads. The only problem is, it's too hard to get that stupid bird through that stupid opening between those stupid pipes! Our version would let you thread a helpless taxpayer through a maze of tiny loopholes. But if you think that flappy bird has it tough, wait 'till you see our red tape!
  • Red Light/Green Light: This updated version of the classic children's party game would use an easy-to-understand traffic light to tell you if your deductions will fly with the IRS. Want to write off the mileage to and from the orthodontist for tightening your kid's braces? Green light! Thinking about writing off a bottle of Dom Perignon to celebrate your latest business deal? Yellow light for the "lavish and extraordinary" expense. Hoping the IRS "won't notice" that Swiss bank account you opened last year? Stop!
  • YelpTax: Apps like TripAdvisor, Urbanspoon, and Yelp let you post restaurant reviews before you even get the bill. Our version would let you review auditors and other IRS staff. How much more pleasant do you think an audit would be if the examiner knew you could rate him from one to five stars on punctuality, friendliness, service, and atmosphere? (If only they could say "we know you have a choice in auditors today . . . .")
We love how technology automates so many tasks to make our days easier and more productive. We love how the Internet puts a wealth of knowledge at our fingertips. But there's still no substitute for good, old-fashioned expertise and experience. And you can't get that from an app. That's where we come in. We can give you the plan you need to pay less tax. We can help you implement that plan without having to tap it all out on a tiny screen. So call us when you're ready for the most up-to-date tax-saving strategies and concepts. And remember, winning the tax game is more fun than anything you can do on your phone!

Friday, March 21, 2014

Seasoned Octopus

Most of the Internal Revenue Service's 90,000 employees are financial bureaucrats, working to collect the taxes that finance our government. But the Criminal Investigations unit, or IRS-CI, is an elite division of 3,700 financial crimefighters dedicated to protecting those taxes. Last month, they released their Fiscal 2013 annual report. And business sure is booming! In 2013, IRS special agents initiated 5,314 investigations (up 3.7% from 5,125 in 2012) and recommended 4,364 prosecutions (up 17.9% from 3,710 in 2012). There were 3,865 indictments and 3,311 convictions (the IRS doesn't take someone to criminal court unless they're pretty sure they can win). And 2,812 miscreants won themselves the proverbial "three hots and a cot" for terms averaging 25 months.
Most of IRS-CI's targets are plain old crooks. But some of them are just so awkwardly entertaining, we had to share their stories:
  • Every time you pump a gallon of gas, you pay 18.3 cents in tax to build and repair federal roads. But there's a little-known exemption that lets off-road users like drag racers apply for a refund. Evan Knoll, the "King of Drag Racing" and owner of Torco Racing Fuels in Grand Rapids, Michigan, saw that exemption and smelled opportunity. (Maybe it was something in the fumes?) Knoll claimed $83 million in refunds over nine years from 1999-2008 before pleading guilty to nine counts of fraud and drawing a 14-year sentence. Now that's some high-octane cheating!
  • Edward Picardi was a surgeon in South Dakota, who spent way too much time performing liposuction on his tax bill. First, he ran his income through a series of entities organized in Ireland, Hungary, Cyprus, the Isle of Man, Jersey, and Guernsey. (Really? Hungary? Were the Cayman Islands just too obvious?) Then he deposited it into various foreign accounts he controlled through a New Zealand trust, in the name of one last corporation established on the delightfully sunny island of Nevis. After several weeks in trial, the judge in Picardi's trial surgically removed five years of freedom from the good doctor's future. Without anesthesia. Ouch.
  • Michael Chen owned the Fune Ya Japanese Restaurant in Richmond, California, just north of Berkeley. (Apparently the fried banana dessert was a hit.) Chen kept detailed records of his daily sales in 26 boxes marked "Seasoned Octopus." But he never reported his cash sales to the IRS. Oops. He also paid his employees $548,919 in cash without sending the IRS any payroll tax on their income. Another mistake. Now the long tentacle of the law has got him for 33 months, enjoying his meals in a place where they don't serve octopus at all.
  • You might think that if you're already stuck in jail, you can't commit tax fraud. Well, you would be wrong. Michael Joseph III was feeling "underemployed" at the Apalachee Correctional Institution in the Florida panhandle when he hit upon one of those brilliant ideas we all wish we had thought of. Why not while away those idle hours filing false tax returns using other inmates' names and social security numbers? Yeah! And while we're at it, why not have the IRS mail the refunds to momma's house? Unfortunately for our enterprising would-be accountant, prison officials discovered the scheme during a routine mail search. Joseph pled guilty to 41 various offenses and drew another 63 months behind bars. At least now he's doing time in a classy federal joint instead of some loser state can.
We all know taxes have gone up this past year, and we all know nobody enjoys paying. That's the bad news. The good news is you don't have to risk a visit from the tax cops to pay less. You just need a plan. There's no shortage of court-tested, IRS-approved strategies for paying less. So if you're still worried about April 15, and you haven't asked us about our planning service, what are you waiting for?

Saturday, March 15, 2014

Finders, Keepers?

Nuestra Señora de Atocha, which sank in a hurricane off Key West in 1622. But sometimes finding buried treasure is far easier. Just ask the still-unidentified California couple, known only as "John" and "Mary," who took their dog for a walk and spotted the edge of an old can on the side of a trail they had walked almost every day for years.
Modern-day salvagers can spend years to find centuries-old treasures. Mel Fisher spent 16 years searching for the Spanish galleon.
That can was so heavy, they thought it held lead paint. But as they carried it back to the house, struggling with the weight, it burst open to reveal the glint of gold. (Sounds like a real "Beverly Hillbillies" moment, doesn't it!) That rusted-out can turned out to be just the first of eight containing 1,427 mostly mint-condition gold coins, mostly from the nearby San Francisco Mint, made from 1847 to 1894. Their face value comes to $27,980, which isn't bad. But their market value may top $10 million. In fact, one coin alone — an 1866 Liberty $20 piece without the usual "In God We Trust" inscription — may be worth a cool million all by itself!
At one point, it looked like John and Mary might have to give up their find. Back in 1900, a Mint employee named Walter Dimmick stole $30,000 worth of gold. Dimmick did his time for the crime, but the gold was never recovered. If it had been Dimmick's haul that our lucky couple found, they would have had to return it, even after all this time. Fortunately, the Mint says they don't think that's the case, and they won't be investigating. Mint spokesman Adam Stump told the San Francisco Chronicle, "we’ve done quite a bit of research, and we’ve got a crack team of lawyers, and trust me, if this was U.S. government property we’d be going after it.”
Unfortunately, there is one government agency that will be going after it, and you won't be surprised to hear it's our friends at the IRS. The tax code says "gross income means all income from whatever source derived," and that includes "treasure trove" proceeds like the coins. The IRS clarifies that "if you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is your undisputed possession." And that, in turn, means John and Mary will have to report the value of the coins on their taxes. They don't even get to use the lower capital gains rates. So let's see . . . 39.6% for Uncle Sam, plus 13.3% for California, leaves . . . well, barely half of that $10 million! The worst part is, they owe the tax now even if they keep the coins instead of selling them.
What if John and Mary donated the coins to charity? Would that let them off the hook? Nope! The problem is, you can only deduct charitable gifts up to 50% of your income. That means our lucky couple could deduct just half the value of their fortune, and still pay tax on the rest — even if they give it all away. (The limit is even lower for gifts to private foundations — just 30%.)
Here at our firm, we search for hidden treasures, too. But instead of doing it on the high seas, or in California mountains, we do it in the tax code. Our quest is to unearth the deductions, credits, loopholes, and strategies that can save you thousands. And you don't even have to take your dog for a walk to do it. You just have to pick up the phone and call us. (419) 468-8509. So what are you waiting for? (419) 468-8509

Wednesday, February 26, 2014

Now We Know Why She's Dancing

costumes work clothesThe Swedish pop band ABBA rocketed to global superstardom in the 1970s, with hits like Waterloo, Fernando, and, of course, Dancing Queen. Named for members Agnetha Fältskog, Björn Ulvaeus, Benny Anderson, and Anni-frid Lyngstad, ABBA is the one of the best-selling music groups of all time. They haven't performed together since 1982. But that didn't stop Ulvaeus and Anderson from turning their songs into a hit musical, Mamma Mia!, in 1999. Just one year later, they turned down an offer to reunite for 100 concerts and a billion dollars.

Lots of us are still embarrassed by the fashion choices we made in the 1970s. ABBA, whose members gained attention for glittering hotpants, sequined jumpsuits, and platform heels, is no exception. According to ABBA: The Official Photo Book, coming next month to celebrate 40 years since they won the 1974 Eurovision Song Contest, singer and guitarist Björn Ulvaeus confesses "in my honest opinion we looked like nuts in those years. Nobody could have been as badly dressed on stage as we were."
But now, we've learned there was more than just bad taste at work. It turns out the band was working to avoid the Swedish National Tax Board! As The Guardian reported last week, "the band's style was influenced in part by laws that allowed the cost of outfits to be deducted against tax — so long as the costumes were so outrageous they could not possibly be worn on the street."
Sweden's tax man has always taken a bigger bite of his citizens' earnings than Uncle Sam. The Swedes' top tax rate rose to 85% in 1980, at a time when Ronald Reagan was campaigning to take ours from 70% down to 50%. For 2014, their top marginal tax rate reaches 57% on income over about $88,180, versus a 39.6% top rate here. The Swedes also take 31.42% for payroll tax, versus 15.3% here. Apparently, taxes grow well in the cold Swedish climate.
So it might surprise you to learn that our tax code offers a version of the same deduction. Specifically, IRS Publication 17 says you can deduct the cost and upkeep of work clothes so long as you have to wear them as a condition of your employment and they're "not suitable for ordinary street wear." It's not enough that you wear distinctive clothing — it has to be required by your employer (or essential for your business if you're self-employed). And it's not enough that you simply don't wear your work clothes away from work — it "must not be suitable for taking the place of your regular clothing." (We think Lady Gaga's famous meat dress will qualify just fine.)
Ulvaeus himself is no stranger to tax controversy. In 2007, the Tax Board accused him of laundering royalty income through foreign accounts to avoid 90 million kroner ($12.8 million) in taxes from 1997-2005. Ulvaeus paid the tax as a precautionary measure, then appealed to his county administrative court, which eventually ruled in his favor.
We understand you want to pay less tax yourself. But we doubt you're willing to rock a spandex sequined jumpsuit to do it — at least, not in public. (What you wear at home is your own business!) Fortunately, there are hundreds of easier ways to pay less. You just need to start with a plan. That's where we take the stage. Just phone us and let us know you're ready to get started! 

And the Gold Goes To . . .!

If you're like most of us, you've spent at least some time over the past couple of weeks watching the games of the 22nd Winter Olympiad. Who cares if the host city Sochi, a Black Sea beach resort, is warmer than Miami, Florida? 2,800 athletes from 88 countries have traveled to compete in 98 events, and the world is a better place for the fellowship.
Olympic games are famous for sports we don't usually see anywhere else. In the summer games, we get rhythmic gymnastics (dancing with a ribbon), dressage (dancing with a horse), and trampoline (dancing on a trampoline). In the winter games, it's ice dancing (to give you your dancing fix), biathlon mixed relay (dancing on cross-country skis with guns), and curling. (You don't have to appreciate dancing to enjoy curling, but it does help to be Canadian.)
So, in that same vein, what if nations competed for taxes we don't usually see? These would be our picks for medalists in the coveted "weird tax rule" event:
  • Bronze: Tethered Hot Air Balloons in Kansas. Kansas levies a sales tax on "any place providing amusement, entertainment, or recreation services." That sounds straightforward enough. But the federal Anti-Head Tax Act prohibits state and local governments from taxing airlines or airport users. How does Kansas apply that law to hot-air balloon rides? Well, if the balloon stays tethered to the ground and doesn't actually go anywhere, it's a taxable amusement. But if it actually flies somewhere, you're off the hook for the tax!
  • Silver: Cereal Toys in Canada. Cereal companies know that kids really just want the cheap throwaway toy at the bottom of the box. (Cracker Jack knew that a century ago!) But in Canada, cereal makers have even more reason to add toys to their sugary goodness. That's because they can avoid the usual tax on cereal by throwing a toy in the box — so long as the toy doesn't qualify as "beer, liquor, or wine." (Now that might be a way to sell cereal to grownups!)
  • Gold: Cow Flatulence in Europe. When you think of global pollution, you probably blame coal-fired electric plants or smoggy freeways. But the United Nations Food and Agriculture organization estimates that methane from slow-digesting cows accounts for up to 18% of Europe's production of greenhouse gases. (We understand not everyone is a fan of the United Nations, but just trust them on this one — and don't ask for details.) Several European Union nations have enacted taxes on their cows to help keep those gases in check. They range from $18 per cow in Ireland all the way up to $110 per cow in Denmark!
The world is full of unique and sometimes silly taxes. But there's nothing silly about paying more tax than you have to. And that is one competition where you do not want to settle for the bronze! Fortunately, you don't have to train for years to bring home a medal. You just need a plan. So call us now for some world-class savings. And remember, we're here for your fellow teammates, too!

Monday, February 10, 2014

Adding Insult to Super Bowl Injury

Adding Insult to Super Bowl Injury
On Sunday, quarterback Peyton Manning led his uncharacteristically hapless Denver Broncos to the second-most-lopsided Super Bowl loss ever. Manning & Company just couldn't catch a break, from the safety they gave up on the game's first play, to Manning's two interceptions, to Percy Harvin's second-half kickoff return, to . . . you get the picture. So, Manning didn't walk away with that hoped-for second Super Bowl ring. But at least he walks away with the $46,000 bonus the NFL awards to losing players.
Or does he? Well, here's the deal. It turns on two things:
  1. New Jersey, like most states, tackles visiting athletes with a "jock tax." The state calculates Manning's taxable income by dividing the number of days he practices and plays in the state by the number of "duty days" he works for the whole year. Then they apply the regular tax rates, which range up to 8.97% on income over $500,000.
  2. Next month, Manning heads to the doctor to follow up on a series of surgeries to his neck and spine. If everything still looks good, he plans to return for the 2014 season. If not, he'll ride off into the sunset, go to work as a broadcaster, and wait for his induction into the Hall of Fame.
Now, here's where the play gets complicated. If Manning's neck forces him to retire, he'll finish 2014 with $111,000 in playoff bonuses. He'll owe New Jersey tax for the seven days he worked in the state, out of 33 days he played for the year. He'll hand off $982 in tax, and probably hope he can forget the day ever happened.
BUT — if Manning's neck checks out okay, and he goes on to play next season, he'll earn another $15 million in 2014 salary. Then he'll owe New Jersey tax for a smaller fraction of the season — seven days out of 200, rather than seven days out of 33. But he'll apply that fraction to a whopping $15,111,000 of income. That means he'll turn over $46,844 in tax — $844 more than he actually made for playing Sunday's game!
And this is all before we get to Uncle Sam, who picks off 39.6% for income tax and 3.8% for Medicare. Manning's total tax bill on his $46,000 Super Bowl bonus could hit $66,808, meaning it actually cost him 20 G's to play! Where's the fun in that?
At least Manning still leads the NFL in endorsements. He makes $12 million per year from sponsors including Reebok, Buick, Wheaties, DirecTV, and Papa John's pizza. He should be thankful New Jersey doesn't tax him on a share of that endorsement income. Some U.S. golfers, among other athletes, have had to weigh whether or not to play tournaments in European countries that tax visiting athletes on a share of their endorsement income as well as contest winnings.
So, here's the final score. When you try something new, like earning income from a new venture or in a new place, you can't just add up the numbers at the end of the year and hope for the best. You need a plan to penetrate the tax man's defense — one that anticipates blindside rushers like New Jersey's jock tax. So call us when you're ready for your plan. And remember, we're here for your teammates, too!


James E. Mahoney, EA
228 E. Walnut St.
Suite A
Galion, OH 44833
(419) 468-8509

Tuesday, January 28, 2014

The Endangered Species List

The Endangered Species List
ectopistes migratorius), died at the Cincinnati Zoo. On September 7, 1936, "Benjamin," the last Tasmanian tiger (thylacinus cynocephalus), died at Australia's Hobart Zoo. And on June 24, 2012, "Lonesome George," the last living Pinta Island tortoise (chelonoidis nigra abingdoni), died in Ecuador's Galapagos National Park.
On September 1, 1914, "Martha," the last remaining passenger pigeon (
When you think of endangered species, you naturally think of plants and animals. But the IRS has its own endangered species list (called "listed transactions"), and that means sometimes even tax strategies go extinct. So, for example, in October, 2006, the last grandfathered private annuity trust was formed. On April 10, 2007, most so-called "Section 419(e)" plans were shot down. Now, could the venerable Swiss bank account (bankum secretus strongius) be next?
Switzerland's banking laws have long made it a crime to reveal an account holder's name. At the same time, Swiss authorities have historically refused to cooperate with foreign countries where failure to report taxable income is concerned. Together, these policies made Switzerland the banker of choice for Colombian druglords, Sub-Saharan kleptocrats, Russian oligarchs, and even the so-called "Wolf of Wall Street," Jordan Belfort.
But recently those protections have melted away like so much Swiss chocolate sitting in the bright alpine sun. It started back in 2008 when Bradley Birkenfeld, a mid-level banker, blew the whistle on helping American taxpayers "forget" to report millions of dollars of interest income. Birkenfeld's bombshell landed him a 40-month prison sentence and a $104 million reward from the IRS. A year later, the Department of Justice fined the biggest Swiss bank $790 million and cut a deal with the Swiss government, giving them power to force their banks to disgorge information on American depositors almost on demand. In 2012, an even stronger settlement required 300 Swiss banks to identify their American account holders or face their own penalties. Most recently, "Beanie Babies" creator Ty Warner pled guilty to evading $5 million in tax and agreed to a $53 million fine — and still faces four years in jail.
And now? Well, some observers say that Swiss banks are actually doing the IRS's job for them. Better to rat out clients than pay IRS fines! Banks are pressuring Americans to report their accounts, and even freezing accounts unless clients can prove they're playing by the new rules. U.S. attorneys are generally advising clients with secret accounts to 'fess up now before the IRS finds them and penalizes them 50% of their balances. At this point, attorneys say, discovery is a matter of "when," not "if." That message appears to be hitting home. Since 2009, over 38,000 Americans have come forth and paid over $5 billion in taxes, penalties, and interest. The once-celebrated Swiss bank account appears headed the way of the dodo, as far as U.S. tax cheats are concerned.
Look, we understand that everybody wants to pay less tax. But there's a right way to do it and there's a wrong way to do it. The right way is to take advantage of hundreds of legitimate deductions, credits, and strategies contained in the tax code and treasury regulations. And it all starts with a plan. We can give you that plan, and it doesn't involve a trip to Zurich or Geneva to visit your money. So call us now to see how much you might be overpaying. And if you really like cuckoo clocks, fine watches, and yodeling, you can take a legitimate trip with the savings!

James E. Mahoney, EA
228 E. Walnut St.
Suite A
Galion, OH 44833
(419) 468-8509

Tuesday, January 14, 2014

Test Your Tax Knowledge

Test Your Tax Knowledge 
They say that knowledge is power, and that's especially true with taxes. So here's a quick quiz to test your tax knowledge in 2014. But look out — the questions (and the answers) might not be what you expect!:
We'll start with an easy one. Last year's "fiscal cliff" legislation raised the top marginal tax rate to 39.6%. What's the top effective rate?
A. 39.6%
B. 43.4% (39.6% plus 3.8% Medicare tax)
C. >43.4% (depending on "PEP" and "Pease" phaseouts)
Give up? It's a trick question — all three answers can be correct, depending on your own circumstances!
Alright, let's shift gears a bit. The tabloids love running stories about celebrities who run into tax trouble. After all, if they make so much money, shouldn't they be able to afford their taxes? So here's our next question — which of the following sets of celebrities ran into tax trouble in 2013?
A. Boxer Manny Pacquiao, rapper MC Hammer, and racecar driver Juan Pablo Montoya
B. Actor Stephen Baldwin, singer Lauryn Hill, and "Beanie Babies" creator Ty Warner
C. Actor Al Pacino, rapper Fat Joe, and "Real Housewife of New Jersey" Teresa Giudice
Well, which did you pick? The answer is, another trick question — every single one ran into tax problems last year!
Okay, final question. We know that tax laws can be impenetrably dense and hard to understand. So maybe "context" will give you a hint. Which of these passages is taken from the 2013 fiscal cliff act, and which is taken from California's workers' comp regulations?
A. "Notwithstanding any other provision of law, any refund (or advance payment with respect to a refundable credit) made to any individual under this title shall not be taken into account as income, and shall not be taken into account as resources for a period of 12 months from receipt, for purposes of determining the eligibility of such individual (or any other individual) for benefits or assistance (or the amount or extent of benefits or assistance) under any Federal program or under any State or local program financed in whole or in part with Federal funds."
B. "In the case of covered OPD services furnished on or after April 1, 2013, in a hospital described in clause (ii), if— (I) the payment rate that would otherwise apply under this subsection for stereotactic radiosurgery, complete course of treatment of cranial lesion(s) consisting of 1 session that is multisource Cobalt 60 based (identified as of January 1, 2013, by HCPCS code 77371 (and any succeeding code) and reimbursed as of such date under APC 0127 (and any succeeding classification group)); exceeds (II) the payment rate that would otherwise apply under this subsection for linear accelerator based stereotactic radiosurgery, complete course of therapy in one session (identified as of January 1, 2013, by HCPCS code G0173 (and any succeeding code) and reimbursed as of such date under APC 0067 (and any succeeding classification group)), the payment rate for the service described in subclause (I) shall be reduced to an amount equal to the payment rate for the service described in subclause (II)."
Drumroll, please . . . the answer is, it's another trick question — both examples of sterling prose appeared in the fiscal cliff law! (Quit complaining about the trick questions — it's a tax quiz, after all!)
Don't be upset if you didn't get all three questions right. (Nobody else did, either!) Fortunately, there isn't any real money at stake. But that won't be true come April 15. So call us now for the plan you need to come up with the right answers in 2014!

James E. Mahoney, EA
228 E. Walnut St.
Suite A
Galion, OH 44833
(419) 468-8509