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

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Now We Know Why She's Dancing

The 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! 

 (419) 468-8509
www.taxmattersrepresentation.com

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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!

(419) 468-8509
www.taxmattersrepresentation.com 

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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: 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. 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 www.taxmattersrepresentation.com

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 www.taxmattersrepresentation.com

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 www.taxmattersrepresentation.com

Resolutions We'd Like to See

Resolutions We'd Like to See 2014 is here, and it's time for New Years' resolutions. Americans across the country are pledging to lose weight, quit smoking, exercise, and find new jobs. Some of them will succeed, others will lose faith before the first snowmelt. (Want to make a fortune? Open a gym that turns into a sports bar on February 1!) So we thought we would take this opportunity to suggest some resolutions to the folks who determine how much tax we pay. Congress: Put the Tax Code on a diet. According to one count, our tax code runs nearly 4 million words. That's four times the words in all the Harry Potter books put together, with none of the magic and wizardry. (You may think we work a version of the "obliteration charm" when we save you thousands in tax, but we assure you there's nothing supernatural involved.) We say it's high time to put the Tax Code on a diet — and if that doesn't work, try bypass surgery. We can raise just as much money for the government without dragging down the economy the way the tax code does. The problem, of course, is that there's no agreement in Washington to accomplish anything so ambitious. Our current Congress is widely considered to be the least productive in history, at least if you consider "bills passed" to be the right measure of productivity. House Speaker John Boehner has said that Congress should be measured by how many bills they repeal — if he's serious, maybe he can start with nightmares like the Alternative Minimum Tax, the Earned Income Tax Credit, and the passive activity loss rules. Back in 1986, Ronald Reagan cited the following language from the tax code (defining private foundations, if you're curious), to help make his case for comprehensive tax reform: "For purposes of paragraph (3), an organization described in paragraph (2) shall be deemed to include an organization described in section 501(c)(4), (5), or (6) which would be described in paragraph (2) if it were an organization described in section 501(c)(3)." Congress has passed a dozen "tax simplification" laws since then, and the language Reagan cited still remains. (Congress must have spent their time working on the really confusing stuff!) IRS: Focus on customer service. Fighting IRS red tape makes a trip to the DMV look like a stay at a five-star hotel. The average hold time to speak to someone at the agency rose to 17 minutes in 2012, but the percentage of callers who actually get help fell to 68%. Mail is even slower — nearly half their correspondence takes more than 6½ weeks to answer. No private-sector business would accept those kinds of results. The problem here is that the IRS simply has an impossible job. They don't make the tax laws, but get blamed for them just the same. They don't get the budget they need to do their job, but get blamed for falling down on it just the same. (For Fiscal 2011, the IRS collected $2.52 trillion in tax with a budget of just $11.8 billion, which makes a pretty phenomenal return on investment of 214:1.) Few members of Congress want to be known for giving the IRS more money. But funding for basic technology and customer service shouldn't be nearly as hard a case to make as funding for more aggressive enforcement. As for us, we're resolving to bring you even better, more proactive tax advice. That process starts with a comprehensive plan to take advantage of every deduction, credit, and strategy you legally deserve. If you don't already have one, maybe you should make getting one your resolution for 2014!   James E. Mahoney, EA 228 E. Walnut St. Suite A Galion, OH 44833 (419) 468-8509 www.taxmattersrepresentation.com