May 8, 2013

Late Night Taxes

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

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

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

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

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.

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 between 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.

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May 1, 2013

Play Ball !

by Kenneth Hoffman in Tax Counsel, Tax Planning

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

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

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

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

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

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

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

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

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April 25, 2013

Tips to Start Planning Next Year's Tax Return

by Kenneth Hoffman in Tax Planning, Tax Counsel

For most taxpayers, the tax deadline has passed. But planning for next year can start now. The IRS reminds taxpayers that being organized and planning ahead can save time and money in 2014. Here are five things you can do now to make next April 15 easier.

Adjust your withholding. Each year, millions of American workers have far more taxes withheld from their pay than is required. Now is a good time to review your withholding to make the taxes withheld from your pay closer to the taxes you’ll owe for this year. This is especially true if you normally get a large refund and you would like more money in your paycheck. If you owed tax when you filed, you may need to increase the federal income tax withheld from your wages.
Store your return in a safe place. Put your 2012 tax return and supporting documents somewhere safe. If you need to refer to your return in the future, you’ll know where to find it. For example, you may need a copy of your return when applying for a home loan or financial aid. You can also use it as a helpful guide for next year's return. At K.R. Hoffman & Co., LLC, we provide a secure digital portal to store your tax records.
Organize your records. Establish one location where everyone in your household can put tax-related records during the year. This will avoid a scramble for misplaced mileage logs or charity receipts come tax time.
Shop for a tax professional. If you use a tax professional to help you with tax planning, start your search now. You’ll have more time when you're not up against a deadline or anxious to receive your tax refund. Choose a tax professional wisely. You’re ultimately responsible for the accuracy of your own return regardless of who prepares it.
Consider itemizing deductions. If you usually claim a standard deduction, you may be able to reduce your taxes if you itemize deductions instead. If your itemized deductions typically fall just below your standard deduction, you can ‘bundle’ your deductions. For example, an early or extra mortgage payment or property tax payment, or a planned donation to charity could equal some tax savings. See the Schedule A, Itemized Deductions, instructions for the list of items you can deduct. Planning an approach now that works best for you can pay off at tax time next year.

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April 10, 2013

Heeeere's. . . Jimmy!

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

Newsman Edward R. Murrow famously said that television is a vast wasteland. But that doesn't stop millions of Americans from tuning in every night for their favorite comedians. Jay Leno, David Letterman, Conan O'Brien, the two Jimmies (Fallon and Kimmel) and their wannabe imitators squeeze out one last wisecrack before bedtime.

NBC's Tonight Show has been broadcasting since 1954, which makes it the longest-running entertainment program on air. Amazingly, it's had just five hosts since it's inception: Steve Allen from 1954-57, Jack Paar from 1957-1962, the legendary Johnny Carson from 1962-1992, Jay Leno from 1992-2009, and Conan O'Brien for eight short months in 2008-2009. Leno returned in March of 2010, but, in Hollywood's worst-kept secret, announced last week that he would be giving up his chair to current Late Nighthost and Capitol One pitchman Jimmy Fallon. Leno congratulated Fallon in his monologue last Wednesday: "I just have one request of Jimmy. We've all fought, kicked and scratched to get this network up to fifth place, okay? Now we have to keep it there. Jimmy don't let it slip into sixth. We're counting on you."

And more news . . . the show is leaving its studio in "beautiful downtown Burbank," California, where it's made its home since 1972, and returning to New York's 30 Rockefeller Plaza. There are lots of reasons to move back to the East Coast. Lorne Michaels, the producer behind NBC's longtime New York-based Saturday Night Live, is taking over at The Tonight Show, and host Fallon is already headquartered there. But there's one more behind-the-scenes reason that may be more important than all the rest. That's right, the tax man is welcoming The Tonight Show back with open arms!

Hosting a program like The Tonight Show is big business, and states naturally compete for it. New York decided to play hardball, and Governor Andrew Cuomo and the New York state legislature passed a sweetheart tax deal, dubbed the "Jimmy Fallon tax credit," to lure The Tonight Show back. The credit is available to "a talk or variety program that filmed at least five seasons outside the state prior to its first relocated season in New York." The show has to have a budget of more than $30 million or drop at least $10 million in capital expenses every year. It has to be filmed before a studio audience of at least 200 people. The credit is worth 30% of production costs. Remember, a tax credit is a dollar-for-dollar reduction in tax, not a deduction from taxable income. Assuming the show spends $30 million on production, that means $9 million in New York tax savings to parent company NBC. That's not a bad little bonus for a program that's estimated to make between $25 and $40 million per year!

That's some suspiciously targeted legislative language, isn't it? It doesn't have the broad reach of, say, "Congress shall make no law . . . abridging the freedom of speech." But it got the job done, and Governor Cuomo issued the following statement: "The original Tonight Show ushered in the modern era of television, broadcast here from New York. It is only fitting that as The Tonight Show returns to our state, it will be headlined by New York's own native son and resident, Jimmy Fallon. Today's announcement builds on the recent surge of television and film production happening here in New York that has restored our state as a global film production capital and driven the creation of new jobs and business growth throughout the state. I welcome The Tonight Show home."

We talk a lot here about tax planning. We're glad to see the folks at The Tonight Show listen! Keeping up with new opportunities is an important part of our job. We can't always find you million-dollar credits, but we can promise a proactive attitude. So call us when you're ready to pay less!

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April 3, 2013

New Audit Risk

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

When it comes to audits, our friends at the IRS are interested in examining returns as accurately as possible. (No, they're not just interested in squeezing out more tax, and some audits actually result in refunds.) So the folks in the Small Business/Self-Employed area have compiled a series of Audit Technique Guides to help examiners with insight into issues and accounting methods unique to specific industries. As the IRS explains, "ATGs explain industry-specific examination techniques and include common, as well as unique, industry issues, business practices and terminology. Guidance is also provided on the examination of income, interview techniques and evaluation of evidence."

There are currently dozens of ATGs available. Some are straightforward and predictable, like attorneys, consultants, and child care providers. Others are more specialized or esoteric, like art galleries, cost segregation studies for real estate investors, and timber casualty losses. At one point, there were even two separate guides for Alaskan commercial fishing activities -- one for the fishermen who catch the fish and another for the vendors who sell it. You can find all of them online -- if you find yourself on the business end of an audit notice, reading your own industry's guide is like taking a sneak peek at your opponent's battle plan!

Naturally, the IRS wants to keep up with new challenges in new industries. And identity theft is one of those new industries playing a growing role in today's electronic and online economy. Identity thieves pretend to be someone else to access resources or obtain credit and other benefits -- like fraudulent tax refunds -- in that person's name. The problem is serious enough that the IRS has put identity theft at the top of its annual "dirty dozen" list of tax scams. And now, this year, the IRS has just issued an Audit Technique Guide for identity thieves.

You might be surprised that the IRS is publishing an audit guide for a clearly illegal business. But U.S. citizens are subject to tax on all worldwide income, from whatever source derived. The IRS really doesn't care how you make your income -- they just want their fair share. (Remember who finally nailed Al Capone?)

The good news is, there are plenty of legitimate deductions you can take to cut the tax on your spoils from identity theft. For example, you can deduct home office expenses if that's where you phish for information. Your home office qualifies if you use it "exclusively and regularly for administrative or management activities of your trade or business" and "you have no other fixed location where you conduct substantial administrative or management activities of your trade or business." To substantiate your deduction, keep a log and take photos to record your business use. It doesn't have to be an entire room -- you can claim any "separately identifiable" space you use for work. Rev. Proc. 2013-13 even offers an optional "safe harbor" method for deducting $5/foot for up to 300 square feet!

You can capitalize equipment like computers and printers that you use for hacking, or choose first-year expensing for faster deductions. You can also deduct day-to-day expenses, like internet access, utilities, and vehicle costs for driving to trash dumpsters to find personal information (mileage allowance or actual expenses). Some aggressive practitioners argue that you can even deduct business-related dry-cleaning expenses for "dumpster diving" outfits; however, there's no formal authority for this position.

We'll finish here with two important warnings. First, remember that identity theft is still a serious crime. If you're caught, you can face crushing fines, serious jail time, or both. And second, be very careful with anything you read around April Fools' Day!

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

March 20, 2013

Help Wanted

by Kenneth Hoffman in Business Counsel, Tax Planning

On March 8, the Bureau of Labor Statistics announced that the unemployment rate had edged down to 7.7% for February. That's good news compared to the high of 10.1% registered back in October, 2009. But unemployment is still unacceptably high, and surveys show Democrats and Republicans alike are citing jobs as our most pressing problem.

You might think that with jobs still scarce, employers would have their pick of applicants. In fact, the New York Times recently reported that some employers are requiring bachelors degrees for positions like file clerk, dental hygienist, cargo agent, and claims adjustor that don't require college-level skills. Nevertheless, there's one pretty important organization who's having trouble with jobs -- and that employer, surprise surprise, is our old friend the IRS. It's a cushy enough gig -- air-conditioned offices, great holidays and benefits, no heavy lifting, and flexible schedules that let you hit the road before traffic gets ugly. So, what's the problem?

On January 13, the Treasury Inspector General for Tax Administrations ("TIGTA"), an independent board assigned to oversee IRS operations, issued a riveting report with a can't-miss title: "Improvements Have Been Made to Address Human Capital Issues, but Continued Focus is Needed." (Seriously, if John Grisham could write like this, he'd have a real future.) It turns out the IRS has addressedmost of the issues TIGTA identified four years ago in their last "human capital" audit. But there are still real problems, even in today's "seller's market" for jobs:

Total employment is down 9%, from 107,622 at the end of FY 2010, to 97,717 at the end of FY 2012. Simple common sense says that fewer people processing more tax returns means more problems.
Pending retirements are poised to gut senior staff like a trout. 48% of today's executive managers, 37% of field staff, and 31% of non-executive managers will be eligible for full retirement by the end of next year. This lack of experienced leadership will reverberate throughout the organization.
It takes the IRS an average of 30 days to approve filing open positions, and 54 days to hire anyone from outside the organization. That's down from 157 days in 2009, but still frustratingly long in today's environment.
New hires report they aren't getting enough coaching and mentoring. That means the new kids on the block will be even less effective at cutting through the red tape and bureaucracy!

We realize you might think "sequestering" the IRS is a good thing. But the IRS is facing real challenges, and we'll all be in trouble without experienced leadership at the helm. The tax code is getting more complicated. ("Obamacare" alone includes 42 provisions that add to or amend the tax code, including eight that require the IRS to build new processes that don't exist within current tax administration.) And the IRS is under increasing pressure to stop billions of dollars in fraudulent or improper tax refunds due to erroneous claims or identity theft. How can they succeed with their most experienced staffers fleeing like lemmings?

What's the bottom line? "TIGTA made no recommendations in this report; however, key IRS management officials reviewed it prior to issuance." Comforting, right?

Dealing with the IRS is never fun. Fortunately, you've got us here, to fight on your behalf even as the fight gets harder. Let us worry about IRS staffing for you -- and remember, we're here for your family, friends, and colleagues, too.

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

March 13, 2013

A Rate of Your Own

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

On January 1, Congress passed a bill to keep the government from leaping off the so-called "fiscal cliff" -- a set of tax hikes so devastating that Washington insiders warned they would ricochet through the economy, plunge us back into recession, and possibly even send the earth spinning into the sun. That bill included raising the top marginal rate on taxable income over $400,000 ($450,000 for joint filers) from 35%, where it had stood for the last 12 years, to 39.6%.

39.6% may sound like a lot today. But it's still really quite low, as far as top rates are concerned. Back in 1935, the nation was mired in the depths of the Great Depression. Inflation was 3.71% and unemployment stood at a whopping 21.7%. As for taxes, the top rate reached 79% on income over $5 million (roughly $85,672,000 in today's dollars). But -- and this is a pretty big but -- according to tax historian Joseph Thorndike, just one person actually paidthat rate: billionaire John D. Rockefeller, Jr.

So, lots of rich guys still had city mansions and country estates, even in the midst of the Depression. Lots of millionaires had yachts, jewels, and priceless art. But only Rockefeller was rich enough to have his own tax rate. And that got us thinking -- what would some of today's rich and famous pay if they had their own tax rates?

Mitt Romney ran for president on the strength of his business record. He took heat from progressives for using the "carried interest" rules to pay around 14% on his multimillion dollar income. But Romney made bigger headlines for a number he thought he was uttering in private -- so we say his bespoke tax rate should be 47%.
A year ago, British author E.L. James was just a former TV executive, wife and mom of two from the London suburbs. Since then, she's rocketed to fame with three books that some fans prefer to read on their Kindle (to avoid showing the cover). International tax planning leaves room for plenty of shades of grey, so we suggest she pay 50% on her U.S. income.
Baltimore quarterback Joe Flacco has had a bigyear. Last month, he led his underdog team to a Super Bowl victory over the favored San Francisco 49ers. Last week, he signed a $120.6 million contract making him the highest-paid player in NFL history. And it's only March! Flacco wears Number 5 for the Ravens, so we think it's only fair that he pay 5% of his income in tax. (Receiver Anquan Boldin, who wears Number 81, does not like where this discussion is going!)
Reality "star" Kim Kardashian is back in the news again, this time for carrying rapper Kanye West's baby. Kardashian's previous relationship, a marriage to Brooklyn Nets power forward Kris Humphries, lasted 72 days -- so we'll tax Kim at 72%.
Kiefer Sutherland should pay 24%. Morley Safer should pay 60%. And Nick Lachey should pay 98%. (Not just because his band is named 98 Degrees, but because we should try and tax all "boy bands" out of existence.)

Who do you think should have their own tax rate, and what should they pay? Let us know! In the meantime, remember that you don't have to have your own tax rate to pay less. You just need a plan. That's what we're here for. And we're always here for your family, friends, and colleagues, too!

Kenneth Hoffman counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. 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 between 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.

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

March 6, 2013

Tax Strategies for Asteroid Impacts

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

On February 22, 2012, a telescope in Spain discovered an asteroid, 150 feet across, in an orbit that would bring it uncomfortably close to earth. Astronomers reassured us that we would be safe -- this time -- but that it was "a wakeup call for the importance of defending the Earth from future asteroid impacts." Last month, that asteroid, named 2012 DA14, passed within 17,200 miles of earth at a speed of nearly 17,500 miles per hour. That's a hairsbreadth in cosmological terms -- it actually flew under the ring of communications satellites orbiting earth before it headed safely back out into space.

Earth isn't always so lucky. Ironically, on the same day that 2012 DA14 flew by, a meteorite struck outside the remote Russian town of Chelyabinsk with the power of 30 atomic bombs. Amazingly, no one was killed. A century ago, a meteor broke up with similar force over Russia's Tunguska forest, flattening an estimated 80 million trees. Again, amazingly, no one was killed. And just last week, astronomers discovered a comet that could strike Mars next year with an apocalyptic force equal to 25 million times the largest nuclear weapon ever tested on earth.

But what if 2012 DA14 hadn't passed harmlessly by? What if it had struck the earth, with its estimated 3.5 megatons of energy and 200 times the power of the atomic bomb that destroyed Hiroshima? What would our friends at the IRS have done?!?

It probably won't surprise you to learn that the doomsday preppers at the IRS have a well-established disaster plan. Internal Revenue Manual Section 10.2.10 outlines comprehensive continuity planning requirements for all sorts of emergencies, including "natural disasters, accidents, technological failures, workplace violence, and terrorism." The goal, in all cases, is "to ensure the continuation of IRS mission essential functions under all circumstances." And Section 25.16.1, updated just last June, lays out pages of disaster assistance and emergency relief program guidelines

So, what actually happens if a chunk of space rock takes out Washington or another major city? The plan assumes that the IRS will resume assessing and collecting taxes within 30 days of the strike. They might be authorized to make cash grants to survivors, or buy assets destroyed in the disaster (and even pay off any outstanding bank loans or mortgages). IRS employees could be reassigned to any job "regardless of and without any effect on the current positions or grades of the employee."

At one point, the Manual even appeared to give delinquent taxpayers a "Get Out of Jail free" card. "On the premise that the collection of delinquent accounts would be most adversely affected, and in many cases would be impossible in a disaster area, the service will concentrate on the collection of current taxes," it said. Of course, that rule would apply only in the disaster area: "However, in areas where the taxpaying potential is substantially unimpaired, enforced collection of delinquent taxes will be continued." Ouch!

The tax code gives you plenty of breaks if your own stuff gets taken out from space. You can deduct unreimbursed damage caused by a meteor strike or other sudden, unexpected, or unusual event. You'll have to reduce the amount of your loss by $100, then by 10% of your adjusted gross income. Then you'll report the remaining amount on Form 4864.

None of us like paying taxes -- but you don't have to wait for an asteroid strike to pay less. The real answer, of course, is planning. And if "continuity planning" is the answer for the IRS, tax planning is the answer for us. So call usbefore disaster strikes, and see how much you can save!

Kenneth Hoffman counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. 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 between 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.

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

February 27, 2013

Cruising In Style

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

Cruising the high seas has become an increasingly popular way to travel, with over 14 million Americans cruising in 2010. Cruise fans love the convenience of unpacking just once and letting a floating resort take them from one glamorous destination to another. Cruise critics cringe at the stereotypical cheesy Vegas-style shows, 'round-the-clock buffets, and abbreviated shore excursions to the same chain retailers they can visit at their local mall. But all of us were thoroughly disgusted by this month's sordid tale of the Carnival Triumph, the mega-ship that lost power in the middle of the Gulf of Mexico. Four-hour waits for onion sandwiches sound bad enough from a ship that prides itself on a reputation for all you can eat. But just imagine 4,200 passengers and crew lining up to use 12 working toilets, and you'll immediately understand why observers dubbed the ship a "floating petri dish."

Carnival's spinmeisters clearly recognize a PR disaster when they see a towboat dragging it past them at 5 knots. They've agreed to give passengers a full refund for cruise and transportation costs, plus $500 in cash, plus a credit for a free future cruise. (Wonder how many will take them up on that offer?) That didn't stop passengers from suing, however, with the first action filed mere hours after the boat finally docked in Mobile harbor.

But it turns out the Triumph's passengers aren't the only ones who are less-than-delighted with Carnival. Would it surprise you to learn that our friends at the IRS aren't fans either?

Carnival takes a lot of help from the government. As the New York Times reports, "The Carnival Corporation wouldn't have much of a business without help from various branches of the government. The United States Coast Guard keeps the seas safe for Carnival's cruise ships. Customs officers make it possible for Carnival cruises to travel to other countries. State and local governments have built roads and bridges leading up to the ports where Carnival's ships dock."

Those government subsidies have helped Carnival become the biggest cruise line in the world, based on passengers carried, annual revenue, and total number of ships. The company's "fun ships" earned $11.3 billion in profit over the last five years. So, how much did the IRS get in exchange for all that government help? Well, Carnival's total "cash taxes paid," including federal, state, local, and even foreign taxes, add up to a miserly 1.1%.

How does Carnival do it? Mainly through "offshoring," a popular strategy for corporations in industries as diverse as technology, pharmaceuticals, and even online advertising. Carnival's executives work out of offices in Miami, and the holding company's stock trades on the New York Stock Exchange. But the operating company is incorporated in Panama, and the actual ships are "flagged" in Panama or the Bahamas.

Offshoring has been so successful that Carnival's founder Ted Arison offshored himself -- he renounced his U.S. citizenship and moved back to his native Israel to avoid U.S. estate tax back in 1990. Arison was one of the world's richest men at his death, with an estimated net worth of $5.6 billion. Unfortunately, at least for his heirs, he died nine months before achieving the 10-year absence from the U.S. that was necessary to avoid the tax.

Carnival is hardly the only U.S. corporation to use perfectly legal strategies to cut its tax. The Times reports that over the last five years, Boeing has paid just 4.5% (in part by making outsized contributions to its pension fund and taking advantage of tax breaks for research and development on new planes); Southwest Airlines paid 6.3% (in part through accelerated and bonus depreciation on new plane purchases); and Yahoo paid 7% (in part through net operating losses the company racked up in previous years). But Carnival's planning just seems more shrewd than most.

We can't imagine anything much worse than spending five days in the open sea with no power for lights, air conditioning, or hot water. But paying more tax then you legally have to is no boatload of fun, either. Fortunately, you don't have to spend days adrift at sea to accomplish that. You just need a plan. And we're here to get you shipshape. So call us when you're ready to pay less!

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

February 15, 2013

Internet Sales Tax Coming Soon?

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

Lawmakers in the House and Senate introduced matching legislation in each chamber Feb. 14 enabling states to require online retailers to collect sales taxes.

The Marketplace Fairness Act of 2013, modeled after divergent bills in the House and Senate in 2012, would help states recover billions of dollars in revenue that they lose each year on remote sales, lawmakers said at a Feb. 14 news conference announcing the legislation.

“This is gaining momentum, and this is the year to do it,” said Sen. Richard Durbin (D-Ill.), a chief sponsor in the Senate.

Other lead sponsors are Sens. Mike Enzi (R-Wyo.) and Lamar Alexander (R-Tenn.), as well as Reps. Steve Womack (R-Ark.), Jackie Speier (D-Calif.) and John Conyers (D-Mich.). Durbin said the legislation has 18 sponsors in the Senate and 35 in the House.

The bill is numbered S. 336 in the Senate, and H.R. 684 in the House.

Contact your elected Congress Critter now and let them know how this will affect your business. How much of a burden will this place on your business to collect and remit sales tax in multiple jurisdictions. Will there be one tax rate for all jurisdictions? Will it apply to county and city sales taxes too? Make your voice heard!

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