February 11, 2015

Patriots 28, Seahawks 24, IRS Millions

by Kenneth Hoffman in Tax Counsel, Tax Planning

You probably thought the holiday season ended when the last Christmas lights finally came off the house. But then you would have forgotten the closest thing we have to a national fair. We're talking, of course, about the Super Bowl, our only nationally-televised event that makes people look forward to the commercials as much as the game!

This year's contest was another nail-biter that remained close until New England cornerback Malcolm Butler intercepted a Seattle goal-line pass with just 20 seconds left on the clock. (If the Patriots want the rest of the NFL to take their "dynasty" seriously, they're going to have to learn how to blow someone out like the 1990s-era San Francisco 49ers used to do!) But while Pats fans may be cheering loudest, there's another group that's cheering too, and that's the team at the IRS.

New England quarterback Tom Brady became just the third NFL passer to take home a fourth Super Bowl ring. He also took home a $400,000 bonus for his effort. (Brady and his wife, supermodel Giselle Bundchen, had to scrape by on about $60 million last year, so the cash is probably welcome.) And General Motors gave him a loaded Chevy Colorado pickup truck worth $35,000 for winning the MVP trophy, too.

So . . . the IRS intercepts 39.6% for income tax and 3.8% for Medicare on Brady's $400,000. The Massachusetts Department of Revenue picks off 5.2% more, and you can see why the tax man leaves Brady so . . . deflated. (Sorry.) Multiply that by everyone on the Patriots roster, and now you know why the receivers at the IRS cheer for every Super Bowl winner!

Now, Brady is awfully glad that Malcolm Butler intercepted that pass. So instead of taking that Chevy truck for himself, he's giving it to Butler. But that creates a tax problem. You see, if Brady takes the prize himself, then laterals it to Butler, Brady pays the same federal and state income and Medicare taxes on the truck as he does on his $400,000 cash bonus — but then he has to contend with gift tax, too. Brady can give up to the $14,000 "annual exclusion" amount, free from tax, to as many people as he likes in a year. If Brady and his spouse Giselle make a gift together, they can double that amount to $28,000. Anything above that annual exclusion eats away at Brady's $5.43 million "unified credit" against gift and estate taxes. Any gifts he makes during his life that aren't sheltered by the annual exclusion or unified credit are subject to a 40% tax. (Don't worry if none of this makes any sense — understanding it all is why estate tax lawyers drive Jaguars.)

But nobody wants to see Brady get sacked with extra taxes. So instead of giving the truck to Brady (to give to Butler), Chevy is shotgunning the truck directly to Butler. That means the undrafted 24-year-old rookie, whose career highlights include passing thousands of battered chickens into the fryer at his hometown Popeyes, will pay the same income and Medicare taxes that Brady would have paid. But calling the audible on the transfer to Butler protects Brady from the gift tax blitz.

Brady's running a play called "tax planning." It's saving him thousands. And it's not even one of Coach Bill Belichek's clever tricks! Here's some more good news — you don't have to be Super Bowl MVP to run the same play yourself. Just call us when you're ready to suit up against the IRS. And remember, we're here for your teammates too!

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.

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 28, 2015

Some Modest Proposals

by Kenneth Hoffman in Tax Counsel, Tax Planning

Here in America, most of our tax debates center on "income." How do we define it? How do we count it? What do we get to exclude from it, deduct from it, or credit towards it. And finally, how much of it do we take, to make sure everyone pays their "fair" share. The end result is our tax code, a many-headed hydra that several wags have noted contains twice as many words as the Bible, but with none of the good news.

Of course, income isn't the only thing we tax. Uncle Sam and most states tax sales. They tax estates and inheritances. They tax medical devices. They tax booze and cigarettes to discourage consumption. (Of course, the real addicts are the governments who count on that revenue!) Politicians of both parties have even proposed taxing carbon emissions and financial transactions.

So, that got us to thinking . . . what else could clever politicians think of to tax? Who would be the winners under the new rules? And who would be the losers?

Excuses. They say excuses are like . . . well, you know — everyone's got one. Here's the thing. Nobody likes hearing excuses, but it's hard to make it through the day without making at least one or two. That makes them perfect for taxing! Big winners under an "excuse tax" include every annoying perfectionist you've ever known in your life, who skates by without ever paying the tax. Big losers would include the quarterback who throws the game-losing interception, the actor who releases the latest Hollywood bomb, and all 535 members of the United States Congress!
Showing Up Late. We all know how irritating it is to work hard to be ready on time, then sit around waiting for someone else to show up. So why not tax it instead of just grumbling? A "tardy tax" would raise millions, at least in theory. The hard part, of course, would be waiting for people to actually pay it. (Hmmmm, maybe not such a good idea after all.)
Snooze Buttons. Pretty soon we'll reach a point when everything we own is wired to the internet — even our alarm clocks! That will make it easy to impose a snooze button tax. Hit the button for nine more blessed minutes of sleep, and the IRS automatically "dings" your iTunes account for a buck or two. But just watch those collections grow! Clearly, the Monday after the Super Bowl will be the most lucrative day in government history!
Screaming Children. Whitney Houston sang "I believe the children are our future. Teach them well and let them lead the way." Kinda makes you wonder if she ever had to sit through a four-hour flight with a toddler screaming her head off about a toy, a snack, or a loaded diaper. (Hint: it's not really "First Class" if there's someone else's baby throwing a fit across the aisle from you!) Look, we know our kids are always adorable little angels — but wouldn't it be great if we could make a little tax revenue from someone else's screaming brat?

What do you think? Let us know what you'd like to see taxed, and maybe we'll compile them for a future email.

In the meantime, of course, we're still stuck paying traditional income taxes, and still stuck wishing we could pay less. And the best way to do that is to make a plan. So stop making excuses, stop hitting that snooze button, and call us for your plan!

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.

January 7, 2015

A Royal Mess!

by Kenneth Hoffman in Tax Counsel, Tax Planning

Most of us don't get to choose our parents. And while we're usually grateful for the ones we have, we've also dreamed of lives that might have been. What little girl hasn't dreamed of growing up a princess, living in a palace, riding in a horse-drawn carriage, wearing a tiara? And don't forget marrying a handsome prince!

Infanta Cristina de Borbon, Duchess of Palma de Mallorca, is the sister of Spain's King Felipe VI and sixth in line to the Monarquía Hispánica. The Infanta grew up in the Royal Palace of Madrid, where she probably logged a ride or two in a carriage. And yes, she wore her mother's diamond-crusted floral tiara at her wedding. But she chose a thoroughly modern career, graduating from college, earning a master's degree in international relations at New York University, and working for UNESCO in Paris. Today she's a working mom of four children. She's also — if you believe Spanish judge Jose Castro — a tax cheat, named in a corruption scandal that's rocking Spanish society.

Cristina's husband, Iñaki Urdangarin, isn't a prince. But he's a former pro handball player and Olympian. (That's close, right?) Urdangarin, who was named Duke of Mallorca upon his marriage, is accused of embezzling €6 million ($7.4 million) in public funds through the Instituto Nóos, a charitable foundation he ran. Prosecutors say that he organized a series of sporting events for the regional governments of the Balearic Islands and Valencia — and hugely overcharged them.

Cristina hasn't been accused of participating directly in the fraud. However, she and her husband co-owned a company called Aizoon that received €1 million from the sports foundation, money that she and her husband used for personal expenses like furniture for their house in Barcelona, salsa lessons, and pricey hotel stays. Naturally, there were no taxes paid on those funds. The judge says "There are many indications that Cristina profited from illegal funds on her own behalf, and also helped her husband to do so, through silent cooperation and a 50% stake in his business." The judge also says that letting Cristina off the hook "would leave the question open and discredit the notion that justice is equal for all."

So now Cristina faces charges of failing to pay her taxes — quite a comedown for a member of a royal family that used to collect them rather than pay them! If she's convicted, she could spend the next few years in considerably "common" quarters — no palace, no carriage, and certainly no tiaras. (Of course, that's less punishment than a misbehaving royal might have gotten a few hundred years ago. Britain's Henry VIII never bothered imprisoning his ex-wives, he just beheaded them!)

Spain's monarchy has already suffered a series of PR hits after Cristina's father, King Juan Carlos, took a lavish trip to hunt elephants in Botswana at a time when Spanish unemployment was topping 25%. So what do they think of all this? Well, back in 2011, when the scandal first broke, they gave the Duke the royal boot from official events. In 2013, they cut Cristina off from the household budget and excised the Duke's biography from their official website. Most recently, after learning of the indictment, they declared their "complete respect for the independence" of Spain's judiciary. You'd like to believe the royals are too classy to throw someone under something as plebian as a bus, per se — but that sure sounds like what's happening!

Stories about princesses always ends with a moral, and this one is pretty simple. Being a princess isn't all it's cracked up to be, and there isn't always a happy ending! So if you want to pay less tax, do it right and call us for a plan. And call your mother! Yes, the holidays are over, but she'd still love to hear from you!

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.

December 31, 2014

Decoding the Tax Code

by Kenneth Hoffman in Tax Counsel, Tax Planning

The Imitation Game is the critically acclaimed story of Alan Turing, a British mathematician who is widely credited as being the father of computer science and artificial intelligence. Benedict Cumberbatch plays Turing, whose work in cracking Nazi Germany's "ENIGMA" code helped lift the Allies to victory in World War II.

Seventy years later, retiring Senator Tom Coburn (R-OK) has picked up the code-breaking bug. But Coburn has decided to take on something even more twisted and fiendish than Nazi ciphers. That's right — he's just issued a 312-page "Tax Decoder" taking on our tax system. (Read it at your peril — if decoding takes 312 pages, just imagine what the encrypted version looks like!)

Coburn's goal is to give us "an educational reference guide designed to equip taxpayers and lawmakers with the details needed to thoughtfully reconsider many aspects of the existing tax code." We're not sure why Coburn thought he needed 312 pages to make his case — anyone who's ever seen their first paycheck and wondered "what's FICA?" knows the system is a mess. Still, here are some highlights:

Our tax system has metastasized like a glioblastoma. "In 2012, the Internal Revenue Code contained over 4 million words, enough to fill 9,000 pages. By way of comparison, a pamphlet with the original 1913 income tax required only 27 pages for the full text of the statute."
Our friends at the IRS really do want to help, but they're just underfinanced, understaffed, and underfed. "From FY 2004 to FY 2012, the number of calls the IRS received from taxpayers on its Accounts Management phone lines increased from 71 million to 108 million, yet the number of calls answered by telephone assistors declined from 36 million to 31 million."
The law is full of inappropriate and wasteful giveaways benefiting taxpayers who would do just fine without them. "There is no shortage of tax subsidies for the rich and famous, such as credits to renovate vacation homes and purchase luxury cars and deductions for yachts. McDonald's even received tax breaks to sell Chicken McNuggets overseas."
Too many "not-for-profit" groups serve their own interests instead of the public interest. "Lady Gaga's 501(c)(3) Born This Way Foundation is advertised as an organization that connects youth with antibullying, mental health, and other community resources, but its main activity appears to be throwing free pre-concert tailgate parties for fans."

Coburn's solution probably won't surprise you. Ideally, throw it all out and start over. At the very least, make it simpler, flatter, and fairer. "The tax code should be simple enough that everyone — including members of Congress — is capable of filling out their own tax return." (We'll let you decide if that means an easier tax system or smarter members of Congress!)

Still, there is some good news that we can help you put to work — and you'll find it on the very first page. "Due to the code's complexity, your taxes are not a simple calculation of earnings and obligations. Instead, taxes are determined by how well you can take advantage of the hundreds of tax credits, deductions, exclusions, and carve-outs tucked into the code." In other words, all that complexity creates opportunity — and the more complicated your taxes are, the more likely we can help. So, if you're looking for a New Year's resolution to kick off 2015, call us and resolve not to waste any more money on taxes you don't have to pay!

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.

December 24, 2014

Our Twelve Days of Christmas

by Kenneth Hoffman in Tax Planning

Every year, PNC Bank publishes their "Christmas Wealth Index" to track the cost of the Twelve Days of Christmas. For 2014, it's $116,273.06, up 1.4% from 2013. (And you thought your holiday spending was out of control!)

The index may not be completely accurate — for example, the ten lords-a-leaping are valued using the cost of male ballet dancers, rather than actual lords, and the eight maids-a-milking don't come with eight actual cows. But still, it got us to thinking . . . what sort of taxes are we looking at on the whole affair?

Twelve drummers drumming and eleven pipers piping make quite a racket every holiday season. Hiring all that help will stir up a cacophony of payroll taxes!
Ten lords may look perfectly happy while they're leaping. But surely they must pay a king's ransom in income taxes — after all, they are lords!
Nine ladies dancing make a lovely sight at Christmas time — especially if they're Rockettes. They also pay a cabaret tax for the privilege of displaying their talent.
Eight maids-a-milking help make sure we have plenty of eggnog to drink. Good thing so many states offer dairy tax credits to spur the cows on to higher holiday production!
Seven swans-a-swimming? Six geese-a-laying? If we accept the rule of thumb that two birds per acre of pond is a manageable number, then we're looking at some serious property taxes to host our holiday flock!
Who doesn't want five gold rings under the tree? But selling those rings can be an expensive proposition. Remember, jewelry held for personal use is still subject to 20% tax on long-term capital gains, plus an extra 3.8% "net investment income tax"!
Four calling birds use a lot of cell phone minutes over twelve days. (They're calling birds, so unlimited texting won't help.) Naturally, that means a 5.82% federal excise tax, plus state and local sales tax too.
Three French hens add a sophisticated "continental" touch to anyone's holiday festivities. But don't forget the import duties you pay to bring foreign livestock into the country!
Two turtle doves are known among bird watchers for forming strong "pair bonds," which makes them a symbol of devoted love. (That's why they're in the song!) Too bad that means they pay that pesky marriage penalty that hits high-income couples who file jointly! (Okay, we know this this one's a stretch. But we've got twelve days of taxes to file here, so what can we do?)
Nothing says "Christmas" like a partridge in a pear tree. And our tax code is full of juicy incentives for growing pear trees. You can deduct operating expenses associated with your crop; you can depreciate equipment and land improvements you use to manage your groves; and you can even take generous charitable deductions for rights you give up for conservation easements. Why, the tax savings alone should be more than enough to pay for the partridge!

Yes, even Twelve Days of Christmas just means twelve more opportunities for the tax man!

We wish you and your family the best this holiday season. We'll be back in 2015 to make sure you pay as little tax as possible, not just during the holidays, but all year long!

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.

December 17, 2014

#1 On the Naughty List?

by Kenneth Hoffman in Tax Planning, Tax Tips

"Christmas comes this time each year," as the Beach Boys astutely observed in "Little Saint Nick." That means Santa Claus will be making his annual "list," checking it twice, and letting us know who's naughty or nice. (That's right, Santa "audits" himself by checking it twice.) This year, one San Diego resident will be somewhere near #1 on the "Naughty" list.

Lloyd Irving Taylor graduated from San Diego State University and Loyola Law School. As a CPA, he's authorized to prepare tax returns and represent clients before the IRS. And as an attorney, he's authorized to prepare tax returns, represent clients before the IRS, and represent them in court. He's well aware of what the law says he and his clients can do to pay less tax, and what will land him a big lump of coal in his stocking.

But Taylor apparently hates paying taxes with a Grinch-like grinchiness. No Burgermeister Meisterburger could tell him he can't have his toys!

So, he started off by stealing the identities of at least nine deceased children, some of whom had died as far back as the 1950s. He used those identities to finagle fraudulent passports from U.S. embassies in Europe. Then he used those passports to open financial accounts to hide his income and assets, including $1.6 million in gold coins.

Maybe stealing those identities made Taylor feel guilty. Why else would he have gone and made up over a dozen phony churches, too? He opened 31 more bank and investment accounts in the names of those churches. Then he argued that the churches' tax-exempt status meant he didn't owe tax on their income.

Things might not have been quite so bad if he had at least reported the income from his schemes. But Taylor, who's now 71, has filed tax returns just seven times since he finished school. That works out to once every six years. Those unfiled returns add up to $5 million in unreported income and $1.6 million in unpaid taxes.

Let's be honest here. It doesn't say much for the elves at the IRS that Taylor flew under their radar for so long! But he eventually did wind up in the cross hairs of the San Diego Regional Fraud Task Force, an alphabet soup of agents from the IRS, Secret Service, San Diego Police Department, and State Department Bureau of Diplomatic Security. (Bet you didn't know those last guys even existed!)

Taylor has been in custody since April, 2013 — the judge at his bond hearing noted his international travel on false passports, the millions in cash he controlled through his network of bank accounts, and his history of lying to banks as reason to rule him a flight risk. Last month, the jury at his trial took just 30 minutes to convict him on 19 felony counts. (They probably voted him guilty in the first two minutes, then had a cup of coffee or two just to make it look like they actually "deliberated.") The judge sentenced Taylor to 57 months with his fellow naughty-listers in an institution not noted for the cheerfulness of its holiday decorations. Taylor also owes $2.2 million in restitution.

What makes Taylor's case so outrageous, of course, is that he knows you don't need to steal a dead child's identity or establish a bogus church to pay less tax. You just need a plan to take advantage of all the IRS-approved deductions, credits, and strategies the law allows. You don't even have to wait for Santa to leave them in your stocking — just call us, and see what holiday savings we can deliver!

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.

December 10, 2014

Battery Powered Tax Savings

by Kenneth Hoffman in Tax Planning

We know something that's on your holiday shopping list. And we don't even have to read your mind to know it. You're buying batteries — and you're buying lots of 'em. If you have kids, you're buying batteries for their electronic games and toys. If you have grandchildren, you're buying batteries for their stuff. (You may not have a clue what you're actually getting them, but you still know it needs batteries.) No kid wants to work hard all year to make the "nice list" and wake up on Christmas morning without the batteries they need to power the presents they earned!

Billionaire investor Warren Buffett, America's second-richest man, is buying batteries too. But he's doing it a little differently from you and me. He isn't just buying batteries. He's buying the company that makes the batteries. And he's saving a billion dollars in taxes along the way! Just try doing that the next time you stop at Radio Shack for a pack of AAs (if they're still open by the time you read this, that is).

Last month, Buffett's company, Berkshire Hathaway, announced that it would buy Duracell from Procter & Gamble for $4.7 billion. Ordinarily, this would be the sort of wheeling and dealing the Fortune 500 engage in every day. Buffett likes adding well-known brand names to his collection, which already includes GEICO, Fruit of the Loom, and Dairy Queen. At the same time, P&G is shedding "nonessential" businesses to focus on the company's core cleaning and beauty products. (They don't even own Jif anymore — talk about some choosy mothers!)

Here's what makes the deal interesting. Buffett "just happens" to have $4.7 billion worth of P&G stock sitting in his sleigh, stock he acquired for $336 million. Now, he could certainly sell that stock and use the cash to pay for Duracell. Unfortunately, that would mean paying 35% corporate tax on his gain, which would leave him a hair under $3.2 billion to use for his batteries. But, by swapping that P&G stock directly for the battery company, Buffett avoids paying tax on his entire gain. Zero! The strategy is called a "cash-rich split-off," and it's perfectly legal. It won't land Buffett in hot water with the IRS. It won't even put him on Santa's "naughty list"!

You might think that sort of strategy only works for billionaires like Buffett. But you can take advantage of a similar strategy, at least when you make charitable gifts. Let's say you paid $1,000 for some shares of stock that are now worth $10,000. You want to donate that stock to your church. You could sell the stock, donate the after-tax proceeds, and take a deduction for your after-tax gift. Or, you could just give the stock and let the church sell it. That avoids tax on the gain, just as Buffett did with his cash-rich split-off, and even gives you a deduction for the full pre-tax value of your stock.

Buffett hasn't been shy about criticizing the tax system. In 2011, he made headlines when he pointed out that his secretary pays a higher marginal rate then he does. President Obama even dubbed his proposal to impose a minimum tax of 30% on incomes over $1 million the "Buffett Rule." But while Buffett may think the law is unfair, he still isn't going to pay any more than it requires. He told Fortune magazine "I will not pay a dime more of individual taxes than I owe, and I won’t pay a dime more of corporate taxes than we owe.” And the Duracell deal isn't even his first cash-rich split-off for 2014!

Warren Buffett wants the same thing for Christmas that you do — tax savings! And he knows he can't just wait for Santa to leave them under his tree. He knows he needs a plan. Fortunately, you don't have to be a billionaire to get the plan you need. There's even time to put it on your Christmas list! Don't write a letter to Santa, just pick up the phone and call us — while there's still time to save in 2014!

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.

December 4, 2014

Taxation for the Other Guy's Representation

by Kenneth Hoffman in Tax Planning, Tax Preparation

Our United States of America was forged in the flame of tax protest. As early as 1750, our Founding Fathers objected that taxation without representation is tyranny. In 1776, the Declaration of Independence condemned King George III for assenting to Parliament's laws that "impose Taxes on us without our Consent." So is it any surprise the anti-tax movement that gained steam after the 2008 recession took its name from the patriots who dumped a shipload of tea into Boston Harbor rather than pay the Townshend Act duties?

In the two centuries since we traded "God Save the Queen" for "Hail to the Chief," the U.K. has become one of our closest allies. But we Yanks still chafe at paying British taxes. Most recently, the Mayor of London says our diplomats owe £7 million in "congestion charges" on their vehicles in Central London. But our Embassy considers that a tax, argues that our diplomats are immune, and refuses to pay.

It's ironic, then, that that same Mayor is protesting an American tax on the sale of his London home.

Alexander Boris de Pfeffel Johnson was educated at Eton and Oxford. (Where else does a Brit with a name like "Alexander Boris de Pfeffel" go to school?) He began his career as a reporter, columnist, and editor for The Times, the Daily Telegraph, and the Spectator. He then turned his sights towards politics, serving as Member of Parliament for the constituency of Henley and rising to Shadow Minister for Higher Education. He's served as Mayor since 2008, and there's even talk of him succeeding Prime Minister David Cameron as head of the Conservative Party.

So why on earth would Johnson attract attention from tax authorities on our side of the pond? Well, he was born in New York City, when his English father was studying on a Harkness Fellowship, and lived there until age 5. This means he holds dual American and United Kingdom citizenship. And that, in turn, makes him subject to U.S. tax on all his worldwide income, wherever earned.

Back in 1999, Johnson and his wife paid £470,000 for a house on Furlong Road in the London suburb of Islington. (That's about $750,000 at today's exchange rate.) Since then, London real estate prices have shot through the roof, and in 2009, they sold the house for a £730,000 profit. Her Majesty's Revenue and Customs doesn't tax home sale gains, but the IRS taxes anything above a $500,000 allowance. The bottom line on Johnson's gain is a six-figure tax bill in either currency.

Naturally, Johnson is unamused. NPR's Scott Simon recently asked him point-blank if he would pay, and he literally sputtered: "No, is the answer. I think, it's absolutely outrageous. Why should I? I think, you know, I'm not a — I, you know, I haven't lived in the United States for, you know, well, since I was 5 years old."

That may not be the only tax issue lurking in Johnson's past. He earns £144,000 per year as Mayor, plus another £250,000 as columnist for the Telegraph. Theoretically, he should be paying U.S. tax on everything above a "foreign earned income exclusion" of about £62,000. No word on whether he's been paying all these years, or whether our friends at the IRS want to confront that sticky wicket.

So, 239 years after "the shot heard 'round the world" launched the American Experiment, tax collectors on both sides of the Atlantic think it's jolly good sport to reach into each other's pockets. The good news is, no matter where you're paying, if you want to pay less, you just need a plan. If you don't already have that plan, call us now, while there's still time to save in 2014!

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.

November 28, 2014

A Special Type of Tax Planning

by Kenneth Hoffman in Tax Planning

It's not uncommon for rental real estate investors or new business owners to have losses for tax purposes.

For tax planning, it's a common assumption that if you have no income, it eliminates the need for tax planning. After all, there is no tax to pay when there is no income.

This is not true. In fact, with no income, there's a high probability that tax benefits will be lost. This is why there is a need for tax planning if you have no income or if you have losses. It's a special type of tax planning - reverse tax planning.

Here's How It Can Cost You
I recently met with a couple whose business income and salary were $150,000 combined. They also had rental real estate losses of $150,000 (good use of depreciation) and they met certain rules so they could take their rental real estate losses against their other income.

Their combined business and real estate income was $0 so they had no tax liability.

The reason this couple came to me was to talk about their taxes for next year, not their current taxes. They knew they had $0 net income for the current year and no tax liability. They wanted to focus on next year because they knew they would have a substantial amount of income next year.

This couple was surprised when I shared that they absolutely needed to do tax planning for this year. If they didn't do any tax planning, they would lose deductions and pay more tax next year than they were legally required to pay.

This couple had itemized deductions (this includes their home mortgage interest, real estate taxes and state taxes) and personal exemptions totaling $60,000. Based on their current planning, this $60,000 would not be used because they had $0 taxable income and with these specific types of deductions, you either use them or lose them. They had to do something different in order to not lose these deductions forever.

A Special Type of Tax Planning
Normally tax planning focuses on maximizing deductions and reducing income. In this case, I needed to reverse that and decrease deductions to increase income.

After the reverse tax planning, the business income and rental losses netted to $60,000, which was then offset by the $60,000 of itemized deductions and personal exemptions.

The end result was they still had $0 tax liability BUT because they increased their income $60,000 this year (to offset their itemized deductions), they would report $60,000 less income next year. In their expected tax bracket for next year, that is at least a $15,000 tax savings.

Tax planning works in many ways. If your tax liability is zero, make sure it isn't costing you in lost tax deductions.

November 26, 2014

400 People Giving Thanks

by Kenneth Hoffman in Tax Planning

Back in 1982, Forbes magazine compiled their first "Forbes 400" list of the richest Americans. It took $75 million to gain entry to that first list, which featured an entire country club's worth of Rockefellers, Mellons, and DuPonts. Shipping magnate Daniel K. Ludwig reigned above the rest, with a net worth of $2 billion. (You all remember that guy, right?) Since then, the Forbes 400 has become the magazine's most eagerly awaited feature, with Silicon Valley tech billionaires and hedge fund superstars replacing the blue-blood heirs of yore.

They say that imitation is the sincerest form of flattery. Ten years later, in 1992, our friends at the IRS got into the "400" game, compiling statistics on the 400 highest incomes. And while the IRS isn't telling us everything we want to know (like their names!), the report offers a fascinating peek into the wallets of 400 people with great reasons to give thanks this season.

Last week, the numbers geeks in the IRS Statistics of Income division released their Top 400 summary for 2010. (It took awhile to sift through the 143 million returns the IRS got that year.) It took $99.1 million in adjusted gross income to make the list. (That means that, among others, billionaire Warren Buffet didn't make the list, as he revealed his adjusted gross income for that year was a "mere" $63 million.) The average income for the top 400 was $265.1 million, and the group as a whole reported 1.31% of the entire country's adjusted gross income.

The big surprise isn't how much our top 400 make, it's how they make it. Not salaries and wages — those made up just 6.41% of the total. Not interest and dividends — those made up just 8.54% and 16.41%, respectively. No, the real action came from capital gains, which averaged $165.9 million for each of our top earners. In fact, those 400 taxpayers all by themselves accounted for over 14% of capital gains reported by the entire country.

And how much tax did our top 400 pay? Remember, rates on capital gains were capped at just 15% in 2010, and there was no 3.8% net investment income tax as there is today. So, the average "top 400" tax bill was $47.8 million, and the group as a whole paid 2.01% of the entire country's tax bill. Sure, that sounds like a lot. But it equals a rate of just 18.04% of the average "top 400" income — and barely half the top 35% marginal rate. In fact, 37 of those 400 paid less than 10% of their income in tax, while just 54 paid over 30%.

4,024 taxpayers have joined the IRS Top 400 over the last 19 years. 2,909 of them appeared just once, which reinforces the fact that most of those lucky winners make it by selling something like a business they spend a lifetime nurturing. 504 have appeared twice; 175 have appeared three times, and 126 have appeared four times. Just 95 taxpayers have appeared on the list 10 or more times, and you can imagine the holidays are pretty lavish at their houses.

This holiday season, we want to give thanks to you, our loyal readers. This includes those of you who are clients, and those of you who aren't (yet). We wish you and your families the best, and we understand that the best reasons to give thanks don't show up on your tax returns.

But hey, as long as we're talking — if you haven't called us yet for a plan to pay less tax, what are you waiting for? There's still time left for planning in 2014 — and we're confident that if you do, you'll have more to give thanks for, in 2014 and in all the years to come.

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.

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