May 14, 2014

From Russia With Love

by Kenneth Hoffman in Business Counsel, Tax Counsel

The former Soviet republic of Ukraine has become the world's hottest military and diplomatic flashpoint as Ukrainian nationalists face off against pro-Russian separatists. Russian President Vladimir Putin courteously waited until after the Sochi Olympics to seize Crimea, then position troops throughout eastern Ukraine. Now he's announced he'll withdraw the troops he denied dispatching in the first place. But sabers are rattling, and the situation is so volatile that combat could explode before you finish reading this email.

The United States obviously wants to avoid that possibility. But Secretary of State John Kerry's best efforts appear to be having little effect. We're certainly not going to involve our own military anytime soon. Even James Bond himself would be hard-pressed to parachute in with a solution. So, who can we turn to? Well, how about those stalwarts of democracy at the IRS?

Back in 2010, Washington passed the Foreign Account Tax Compliance Act ("FATCA") to stop tax evaders from parking assets in secret foreign accounts. (Add another "t" to that acronym and you'll see who it's aimed at!) That law requires all foreign banks to spill the beans on American accounts with more than $50,000. If they don't, starting July 1, they'll have to withhold 30% of the interest and dividend payments their clients earn on most U.S. stocks and bonds.

Almost 50 countries have agreed to let their banks participate and avoid that penalty. That list includes traditionally "sunny places for shady people" like the Cayman Islands. But guess who still says nyet? That's right, Russia. What's worse, Russia's bank secrecy laws prevent banks from going around the country and working directly with our Treasury. And even worse, at least for Putin and his henchmen, our Treasury suspended negotiations entirely when Russia rolled into Crimea.

At this point, then, it looks like law will make it way more expensive for investors to use Russian banks to invest in the U.S. And private investors who use Russian banks to facilitate trades are also subject to the law. It gets worse in 2017 — if there's still no agreement in place, banks will have to withhold 30% of the gross proceeds of stock and bond sales, on top of the interest and dividends they earn.

FATCA may not be the only way to marshal the power of taxes against Russia. Putin's cronies — the billionaires who own Russia's biggest oil, gas, mining, and retail companies — have moved tens of billions of dollars of assets out of Russia and into western jurisdictions like Luxembourg, the Netherlands, and Switzerland. They did so to dodge Russian taxes (apparently, ex-commies resent paying them as much as any other capitalists). But now they find their assets exposed to possible U.S. sanctions and vulnerable to freezes. It's probably too soon to break out the balalaikas and celebrate — but we can hope that the risk of losing their assets motivates the oligarchs to pressure Putin to pull back.

Closer to home, we help you pay less tax on your investments. Fortunately, you don't have to risk international sanctions to do it! You just need a plan. So call us for that plan, and save a bunch of rubles on your bill!

Let's Talk! For a deeper conversation on our services, or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday for a no cost consultation, or drop me a note.

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. As a trusted senior advisor and counselor working closely with Entrepreneurs, Professionals and Select Individuals, Mr. Hoffman provides counsel to his clients who are navigating through the complexity of today's business, tax, and accounting challenges.

Click here to schedule an appointment with Kenneth Hoffman.

If you found this article helpful, I invite you to leave a comment and please share it on twitter, facebook or your favorite social media site and with your friends, family and colleagues. Thank you.

I truly value your business and I appreciate your referrals. Refer your family, friends, acquaintances, and business colleagues to KR Hoffman & Co., LLC.

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.

May 8, 2014

Nice Mouth

by Kenneth Hoffman in Business Counsel, Tax Counsel, Tax Planning

Two weeks ago, few Americans had heard of Los Angeles Clippers owner Donald Sterling. Now, thanks to Sterling's big mouth, we're all talking about him. As President Barack Obama said, "when ignorant folks want to advertise their ignorance you don’t really have to do anything, you just let them talk. And that’s what happened here."

National Basketball Association commissioner Adam Silver wasted no time banning Sterling from the league for the rest of life. (No communication with players, coaches, or staff. No practices or games. No owner meetings at cushy resorts or other league activities of any kind.) He announced he would urge the league's Board of Governors to force Sterling to sell the team. And he fined Sterling the maximum $2.5 million allowed by the league constitution.

At first glance, $2.5 million sounds like a mere technical foul for a guy with Sterling's wealth. (Forbes estimates his total net worth at $1.8 billion.) But the real cost of Sterling's words may turn out to be $100 million or more. Where does that extra penalty come from? Thank our friends at the IRS, of course.

Sterling bought the team in 1981 for just $12.5 million. According to the Wall Street Journal, it's worth $700 million or more today. We'll assume for the purposes of this discussion that Sterling could sell it for $700 million.

If Sterling holds onto the team until his death, his estate will owe Uncle Sam 40% on the $700 million. The $280 million tax will leave his heirs with just $420 million. That's a big bite, of course. But the heirs will take the team with a "stepped-up basis" equal to the full $700 million. In other words, they avoid tax on the full difference between the $12.5 million purchase and the $700 million value.

Now let's say Sterling's fellow NBA owners force him to sell. Sterling will owe 20% federal capital gain tax on his $687.5 million gain (the $700 million selling price minus his $12.5 million "basis.") He'll owe the new 3.8% "unearned income Medicare contribution" on the same amount. And, as a California resident, he'll owe the Golden State another 13.3%. The California tax is deductible from his federal income. Still, all told, he'll pay in the neighborhood of $230 million on his gain. Talk about fouling out!

Those tax hits will leave Sterling with just $468 out of the team's $700 million. At his death, estate taxes will take another $187.2 million, leaving his heirs with just $280.8 million. That's nearly $140 million less than if he had held the team until his death.

As bad as $140 million sounds, the real penalty could climb even higher. The team's television contract expires after the 2015-16 season, which could mean hundreds of millions in new revenue from a more lucrative replacement contract. Plus, celebrities from NBA great Magic Johnson to rapper-entrepreneur Sean "Diddy" Combs, and even Oprah Winfrey have announced interest in buying the team. That sort of financial jump shot could push the price to well over a billion dollars.

Selling appreciated assets like stocks, mutual funds, real estate, or a business can feel like striking it rich. But you can't forget that your friends at the IRS are waiting to share your good fortune, too. That's why it's crucial to have a plan to minimize your tax when you sell. And that, of course, is where we come in. So call us before you sell, and remember, it's what you keep that counts.

April 23, 2014

The New Known Unknown

by Kenneth Hoffman in Business Counsel, Tax Counsel, Tax Planning

Donald Rumsfeld may be one of the most controversial figures of our time, but you have to respect his resume. He won a seat in Congress at an age (30) when some of today's college graduates are still living in their parents' basements. He served as the youngest Secretary of Defense in American history (under President Ford) and the oldest Secretary of Defense in American history (under Bush #43). Between those positions, he headed G.D. Searle, General Instrument Corporation, and Gilead Sciences, Inc. Those corporate posts helped make Rumsfeld the second-richest member of Bush's cabinet, with a net worth north of $62 million.

Rumsfeld is also known for his unique, sometimes blunt and sometimes slippery, speaking style. Who can forget this response he gave a reporter who asked him about the lack of evidence tying Saddam Hussein's Iraqi government to weapons of mass destruction?

"[A]s we know, there are known knowns; there are things that we know that we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns, the ones we don't know we don't know."

Rumsfeld's quote has been roundly mocked, and even has its own Wikipedia page. But now he's weighed in on a new "known unknown" that we all can support. We're referring, of course, to the letter he sent on April 15, addressed to "Sir or Madame" at the IRS:

"I have sent in our federal income tax and our gift tax returns for 2013. As in previous years, it is important for you to know that I have absolutely no idea whether our tax returns and our tax payments are accurate. I say that despite the fact that I am a college graduate and I tried hard to make sure our tax returns are accurate."

Four paragraphs later, you have to wonder if he's being snide or sad about the whole exercise:

"I do hope that at some point in my lifetime, and I am now in my 80s, so there are not many years left, the U.S. government will simplify the U.S. tax code so that those citizens who sincerely want to pay what they should, are able to do it right, and know that they have done it right."

At this point, a cynic might reply that Rumsfeld can find "tax simplification" hiding in the same place as Saddam's weapons of mass destruction. But cynicism aside, if Rumsfeld really wants to see tax simplification, he should write to his former colleagues in Congress. They're the ones who wrote the 2,600-page monstrosity known as "the tax code" that gives him such fits. And one remedy he could pursue in the meantime is to sit down for a plan. We would be happy to show him how he can pay less on his income from speaking fees, memoirs, and investments. Of course, if Rumsfeld doesn't come knocking, that means more time for you. So call us about your "unknown unknowns," if you think you paid too much on April 15!

January 24, 2014

Beware of Tax Scams

by Kenneth Hoffman in Business Counsel, IRS Info, Tax Counsel

It’s true: tax scams proliferate during the income tax filing season. This year’s season opens on Jan. 31. The IRS provides the following scam warnings so you can protect yourself and avoid becoming a victim of these crimes:

Be vigilant of any unexpected communication purportedly from the IRS at the start of tax season.
Don’t fall for phone and phishing email scams that use the IRS as a lure. Thieves often pose as the IRS using a bogus refund scheme or warnings to pay past-due taxes.
The IRS doesn’t initiate contact with taxpayers by email to request personal or financial information. This includes any type of e-communication, such as text messages and social media channels.
The IRS doesn’t ask for PINs, passwords or similar confidential information for credit card, bank or other accounts.
If you get an unexpected email, don’t open any attachments or click on any links contained in the message. Instead, forward the email to phishing@irs.gov. For more about how to report phishing scams involving the IRS visit the genuine IRS website, IRS.gov.

Here are several steps you can take to help protect yourself against scams and identity theft:

Don’t carry your Social Security card or any documents that include your Social Security number or Individual Taxpayer Identification Number.
Don’t give a business your SSN or ITIN just because they ask. Give it only when required.
Protect your financial information.
Check your credit report every 12 months.
Secure personal information in your home.
Protect your personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for Internet accounts.
Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact and are sure of the recipient.
Be careful when you choose a tax preparer. Most preparers provide excellent service, but there are a few who are unscrupulous. Refer to Tips to Help you Choose a Tax Preparer for more details.

Let's Talk! For a deeper conversation on how this issue might affect you or your business, or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday for a no cost consultation, or drop me a note.

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. Counseling Entrepreneurs, Professionals and Select Individuals who are struggling with ever changing tax laws and who are paying too much in taxes. All the while he is protecting his clients from the IRS and other taxing authorities using proactive tax planning strategies, ensuring compliance with minimal tax liability while bringing his clients Peace of Mind.

Click here to schedule an appointment with Kenneth Hoffman.

If you found this article helpful, I invite you to leave a comment and please share it on twitter, facebook or your favorite social media site and with your friends, family and colleagues. Thank you.

I truly value your business and I appreciate your referrals. Refer your family, friends, acquaintances, and business colleagues to KR Hoffman & Co., LLC.

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.

January 22, 2014

Excuses, Excuses

by Kenneth Hoffman in Business Counsel, Tax Counsel, Tax Planning

So-called "tax protestors" have dreamed up dozens of excuses for not paying the taxes the rest of us grumble about. They argue that the Sixteenth Amendment, which authorizes the government to levy an income tax without apportionment among the states, was never "properly ratified." They accuse the "alleged" Internal Revenue Service of being a massive premeditated conspiracy to defraud U.S. citizens. Some groups assert that the gold tassels around the American flags that stand in many federal courts are a "mutilation," rendering them "courts of admiralty" with no proper jurisdiction. Still others contend that taxpayers aren't required to file a federal tax return because the instructions associated with Form 1040 don't display an OMB control number as required by the Paperwork Reduction Act. (Can you imagine risking jail time on an argument like that?)

Well, the IRS has heard it all. They've published a web page identifying 40 Frivolous Positions for Taxpayers to Avoid. They've warned taxpayers about a $5,000 penalty for using any of these arguments in a return. They've even pointed out that courts sometimes don't even bother refuting the frivolous claims anymore. But now Charles Adams, whom the First Circuit Court of Appeals described as "an unabashed opponent of the tax laws," has come up with a new argument to avoid facing the music. Think he'll fare any better?

Adams and his various co-conspirators are affiliated with a protest group called Save-a-Patriot. They ran a payroll service that helped client companies pay their employees "under the table" so they could hide their income from the IRS. On March 19, 2004, a federal magistrate issued a warrant to search Adams's home in Wrentham, Massachusetts. Four days later, armed agents executed that warrant and seized evidence. Prosecutors eventually used that evidence to convict Adams of tax evasion. District Court Judge Dennis Saylor IV sentenced Adams to four years in the pokey, and Adams appealed to the First Circuit.

Sounds straightforward enough, right? Well, here's the problem. Internal Revenue Code Section 7608(a)(1), which gives revenue enforcement officers their power, explicitly authorizes agents enforcing laws pertaining to alcohol, tobacco, and firearms to carry guns. Section 7608(b), which deals with all other tax laws, does not. The agents who searched Adams's home were packing heat. Therefore — at least according to Adams — the search was unlawful and the evidence they found should be suppressed. (It's like that scene in every episode of Law and Order when the defense attorney asks the judge to throw out the evidence against his client. Usually the judge says no, but sometimes he makes the cops go out and re-prove their case all over again.)

Not buying it? Neither did the First Circuit. The three-judge panel said "whatever intrusion may have occurred was not of constitutional dimension." They dismissed Adams's arguments as "futile" and "unavailing," and concluded, "without serious question, that the district court did not blunder in refusing to grant the defendant's motion to suppress." Even Adams's own lawyer acknowledged that his "convoluted ideas and beliefs seem far-fetched."

It's easy to laugh at protesters like Charles Adams. Their theories are clever and entertaining. But their refusal to pay their share of the tax bill leaves the rest of us holding the bag. That's why it's so important for you to have a plan to pay the least amount of tax allowed by law. Our strategies are all court-tested and IRS-approved. So call us when you're ready for your plan. And remember, we're here for your family, friends, and colleagues too!

January 8, 2014

Test Your Tax Knowledge

by Kenneth Hoffman in Business Counsel, Tax Counsel, Tax Planning

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!

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. Counseling Entrepreneurs, Professionals and Select Individuals who are struggling with ever changing tax laws and who are paying too much in taxes. All the while he is protecting his clients from the IRS and other taxing authorities using proactive tax planning strategies, ensuring compliance with minimal tax liability while bringing his clients Peace of Mind.

Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday for a no cost consultation, or drop me a note.

Click here to schedule an appointment with Kenneth Hoffman.

If you found this article helpful, I invite you to leave a comment and please share it on twitter, facebook or your favorite social media site and with your friends, family and colleagues. Thank you.

I truly value your business and I appreciate your referrals. Refer your family, friends, acquaintances, and business colleagues to KR Hoffman & Co., LLC.

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.

November 27, 2013

That's A Lot of Gravy!

by Kenneth Hoffman in Business Counsel, Tax Counsel

Back in 1621, a group of hardy Pilgrims sat down for a three-day festival of thanksgiving to celebrate surviving plague, starvation, cold, scurvy, Indian attack, and all the other obstacles that made life in the "new world" so delightful. They feasted on game birds, flint corn, venison, eels, shellfish, and native vegetables including beans, turnips, carrots, onions, and pumpkins. (No butter or flour, though, which meant no pumpkin pie. And aren't you glad we remember them now for turkey instead of eels?)

242 years later, President Abraham Lincoln proclaimed the first "official" Thanksgiving — a national day of "Thanksgiving and Praise to our beneficent Father who dwelleth in the Heavens." Since then, it's become one of America's favorite holidays, a four-day weekend of friends and family without the Christmas-season hype.

You know who else loves Thanksgiving? Our friends at the IRS, of course. That's because they get to stuff themselves with taxes on everything connected with our celebration!

Sales taxes on turkey and trimmings pile up like calories on your plate. The American Farm Bureau Federation reports that the average 16-pound turkey will cost $21.76 this year. At an average 7.25% combined state and local sales tax, that makes $1.58 in tax for the bird alone. Throw in some potatoes, stuffing, cranberry sauce, Aunt Edna's special green bean casserole, and the obligatory pumpkin pie, and the taxes alone could feed a hungry diner any other day of the year.
Sales and excise taxes on beer, wine, and liquor are even higher than on food. Taxes make up 33% of the total cost of a bottle of wine, 44% of the total cost of a case of beer, and even more for the bourbon in Uncle Harry's old fashioned.
What Thanksgiving would be complete without traveling over the river and through the woods? Here's where Uncle Sam really cleans up. Gas taxes average 49.5 cents per gallon. If you're traveling farther, the taxes on a $376 average plane ticket include a $28.20 federal excise tax, a $3.90 flight segment tax, a $4.50 passenger facility charge, and a $10 "September 11 Security Fee." (That's before you pay even more to check your bag, board early to snag space in an overhead bin, or claim an extra three inches of legroom!) The hotel tax on an average $95.61 room runs $13.12. Oh, and if you're renting a car, plan on another 13.21% tax there. Now you know why the IRS says "cha-ching" when you sing "to Grandmother's house we go!"

All told, Uncle Sam and his colleagues in state and local tax departments take in $3.6 billion in Thanksgiving taxes. That's enough to buy 165 million turkeys — enough to feed every man, woman, and child in America, with plenty left over for sandwiches.

This Thanksgiving season, you're probably not setting a place at the table for Uncle Sam. We can't do much about the tax you'll pay on your celebration. But we can help you with the tax you'll pay on the income you earn to pay for it. So don't be a turkey — call us now for the plan you need, and next year you'll really have something to give thanks for!

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. Counseling Entrepreneurs, Professionals and Select Individuals who are struggling with ever changing tax laws and who are paying too much in taxes. All the while he is protecting his clients from the IRS and other taxing authorities using proactive tax planning strategies, ensuring compliance with minimal tax liability while bringing his clients Peace of Mind.

Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday for a no cost consultation, or drop me a note.

Click here to schedule an appointment with Kenneth Hoffman.

If you found this article helpful, I invite you to leave a comment and please share it on twitter, facebook or your favorite social media site and with your friends, family and colleagues. Thank you.

I truly value your business and I appreciate your referrals. Refer your family, friends, acquaintances, and business colleagues to KR Hoffman & Co., LLC.

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.

November 20, 2013

What's In A Name

by Kenneth Hoffman in Business Counsel, Tax Counsel

In Shakespeare's most recognized tragedy, the star-crossed lover Juliet asks "What's in a name? That which we call a rose by any other name would smell as sweet." Now, that may have been true back in Juliet's day. But is it still true now in today's era of celebrity branding?

Here's the deal. Back in 2009, executors for the King of Pop, Michael Jackson, filed an estate tax return reporting the value of his assets at his death. Jackson had been famously extravagant during his life, blowing through hundreds of millions in earnings and borrowing hundreds of millions more. His 2,600-acre "Neverland" ranch in Santa Barbara that included two railroads, a petting zoo, and a Ferris wheel reportedly cost $2.5 million per month to maintain. He spent millions more on travel, entertainment, antiques, and paintings. And feeding "Bubbles," his pet chimpanzee, couldn't have been cheap, either.

You would expect his estate to be pretty impressive, right? So, what was his "final score" as reported on Form 706 "United States Estate (and Generation-Skipping Transfer) Tax Return"? A mere $7 million. What's even more incredible, the executors valued Jackson's name and likeness at just $2,105. (Where did the $5 come from, anyway? Why not $2,104, or $2,106?)

Now, that may not be as ridiculous as it first seems — "Jacko" was in debt up to his eyeballs for much of his life, and he may have owed as much as $500 million at his death. But $7 million still seems a little light for an estate that earned $160 million in 2012 alone. Jackson's estate has actually earned more since his death than any living entertainer during that same time!

Our friends at the IRS thought that valuation was (wait for it . . .) bad. On July 26, they told Jackson's executors that their number was $1.1 billion, including a whopping $434 million for his name alone. Since they don't stop 'til they get enough, the IRS promptly billed the estate for an additional $505.1 million in tax, and added a $196.9 million undervaluation penalty as well!

Not surprisingly, Jackson's estate told the IRS to beat it. A spokesman said the IRS's valuation was "based on speculative and erroneous assumptions unsupported by facts or law," and added that the estate had already paid over $100 million in income taxes. And now they wanna be starting something in the U.S. Tax Court. They've filed Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor v. Commmissioner of Internal Revenue and set the stage for a legal thriller.

You may not have 26 American Music Awards, 13 number one singles, or the best-selling album of all time. But you're probably even more interested than Michael Jackson in keeping what you make. The answer, of course, is planning. But it's nearly Thanksgiving, and time is running out to save in 2013. So call us now to set up your appointment to get the savings you really want.

November 13, 2013

#Windfall

by Kenneth Hoffman in Business Counsel, Tax Counsel

Psychologists agree that the ability to concentrate is key to achieving our goals. But today's high-tech world is full of distractions, from thousands of cable TV channels to millions of internet sites, with smart phones constantly within reach. Some experts say our attention span is actually shrinking. So should it be any surprise that Americans have fallen in love with Twitter, the online social networking and "microblogging" site that lets users send and read "tweets" limited to no more than 140 characters?

Twitter attracted confusion (and no small amount of scorn) when it debuted in 2006 — co-founder Jack Dorsey admitted that the service is "a short burst of inconsequential information." But there are now more than 200 million "monthly active users" posting more than 500 million tweets per day. Singer Katy Perry currently has the most followers, at 46.8 million. She's trailed by Justin Bieber (46.7 million), Lady Gaga (40.4 million), and Barack Obama (39.5 million). Twitter's ubiquitous "hashtag," the pound sign (#) that denotes keywords, appears everywhere, including at the Oscars, the Super Bowl, and the floor of the U.S. Senate.

Twitter still doesn't make any money. But that didn't stop them from going public last week. On Thursday, Twitter issued 70 million shares at $26 each. The price nearly doubled in early trading before closing at $41.65 on Friday. And it made a lot of people rich. Co-founders Evan Williams and Jack Dorsey are billionaires. CEO Dick Costello, whose 2012 cash salary was just $200,000, is worth $300 million. All told, about 1,600 investors and employees became millionaires last week. (If you planned on buying a house or a Porsche in Silicon Valley, plan on standing in line and paying more!)

What does that all mean for our friends at the IRS? It means a #windfall, that's what!

Twitter has granted non-executive employees over 92 million "restricted stock units" which will essentially convert to stock over the next several years. Employees will owe regular income tax of up to 39.6% plus Medicare tax of up to 3.8% on the value of those shares. They'll owe an average of $420,000 each in federal tax!
Uncle Sam won't be the only taxman with his hand out. The state of California can conservatively expect to collect another $300 million or more. (California is no stranger to big IPOs — Golden State officials calculated they would collect $2.5 billion over four years from Facebook's debut.)
Not everyone is quite so happy. Two years ago, the city of San Francisco waived part of its payroll tax to keep Twitter headquartered downtown. City officials predicted the waiver would cost them $22 million over six years. Last week's windfall could mean leaving another $34 million on the table. Of course, the City by the Bay still collects millions more than if Twitter had bugged out for the suburbs.
Who's not paying a dime in tax? That would be Twitter itself. Of course, that's because they haven't made a dime in profit. In fact, Twitter has over $100 million in "net operating loss carryforwards" it can use to offset tax on future profits.

Twitter's investors and employees have some big tax planning challenges ahead. They're going to need more than just 140 characters to take advantage of all the legal strategies available to pay less. It works the same for you, even if you're not America's newest billionaire. If you want to #keepwhatyoumake, you need a plan. So call us now before December 31, when you can still do something about it!

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. Counseling Entrepreneurs, Professionals and Select Individuals who are struggling with ever changing tax laws and who are paying too much in taxes. All the while he is protecting his clients from the IRS and other taxing authorities using proactive tax planning strategies, ensuring compliance while reducing their annual IRS contribution, and bringing his clients Peace of Mind.

Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday for a no cost consultation, or drop me a note.

Click here to schedule an appointment with Kenneth Hoffman.

If you found this article helpful, I invite you to leave a comment and please share it on twitter, facebook or your favorite social media site and with your friends, family and colleagues. Thank you.

I truly value your business and I appreciate your referrals. Refer your family, friends, acquaintances, and business colleagues to KR Hoffman & Co., LLC.

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.

November 3, 2013

IRS Targeting Small Businesses...Again

by Kenneth Hoffman in Business Counsel

A new program by the IRS is using data from credit card companies (that started a few years ago) to look for underreporting of cash sales from small businesses. A pilot program of 20,000 letters have been sent to businesses implying that the business has too large of a percentage of credit card sales compared to total reported income and that they must complete a form to explain the “discrepancy”. Although these are not audit letters, they can scare the bejeezees (technical term) out of the business owner. The Service is analyzing the results to fine-tune a much larger future program. Many businesses though, only have card transactions due to the price of their goods/services and have been caught up in the targeting.

Bottom Line: Businesses are expected to have a certain amount of cash sales and will likely to be included in any larger program. SO….always, always, always deposit and report all cash receipts and cash checks later for your personal cash needs. More to come on this one – the Service has called this their “early first steps” in the program.

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