August 29, 2013

IRS To Treat Legally Married Same-Sex Couples As Married

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

The Treasury Department and IRS announced today that legally married same-sex couples will be treated as married couples for federal tax purposes. This tax treatment will apply even if a couple lives in a state that does not recognize same-sex marriage so long as they were married in a state that does.

The guidance, stemming from the Supreme Court ruling this summer that overturned the Defense of Marriage Act, says same-sex couples can begin filing tax returns as "married filing jointly" or "married filing separately" for the 2013 tax year.

"Today's ruling provides certainty and clear, coherent tax filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve," Treasury Secretary Jack Lew said in a statement.

For more information... http://www.politico.com

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.

August 4, 2013

Putting for Dough

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

August is almost here, and golf season is in full swing. Duffers are filling the air with curses as colorful as their outfits. Tiger Woods is taking a break from romancing pancake-house waitresses to work on his game. And Phil Mickelson is the latest man of the hour. Earlier this month, he took a one-hole playoff to win the Scottish Open at Inverness. Just one week later, he posted a 3-under 281 to take the British Open at Muirfield. Mickelson's £1,445,000 in winnings translates into almost 2.2 million in U.S. dollars.

So, he's got that going for him, which is nice. But how much will he actually get to keep?

Mickelson has already told the world how he feels about paying taxes. Back in January, he said he might leave his home state of California because of recent hikes in federal and state taxes. These include 39.6% for Uncle Sam (up from 36%), 3.8% for Medicare (up from 2.9%), and 12.3% for the Golden State (up from 9.3%). "If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate's 62, 63 percent," he was quoted as saying in Yahoo Sports. "So I've got to make some decisions on what I'm going to do." Mickelson's remarks landed him some deep rough, and he wound up comparing them to a botched drive that cost him the 2006 U.S. Open.

But Phil's U.S. taxes may look pretty reasonable when you consider what he'll pay on his recent Scottish winnings:

For starters, he'll pay the United Kingdom a wee bit over 44% on his tournament purses.
The U.K. will take a divot out of any bonuses he receives for winning those tournaments. Plus they'll take a chip of the bonuses he gets at the end of the year for his overall tour ranking.
It gets even better from there. The U.K. won't just tax Mickelson on his tournament winnings. It also taxes him on part of his endorsementincome for the two weeks he spent in-country.Forbes estimates he earned $44 million from Callaway, Barclay's, KPMG, Exxon Mobil, Rolex, and others last year, so that extra endorsement tax may leave him wanting a mulligan.
He'll get a credit against his U.S. tax for everything he pays abroad. But there's no credit for the extra Medicare tax he'll pay. And don't forget, California takes a penalty stroke, too.

All in all, Mickelson will pay about 61% tax on his British earnings. That's after his considerable expenses, including travel, meals, agent fees on endorsement income, and 10% to his caddy.

We realize that keeping $800,000 or so for a couple of weeks' work isn't bad — especially when that "work" involves playing two of the most storied courses in all of golf. Still, Mickelson's story emphasizes that it really is what you keep that counts.

If you're a golfer, you've certainly heard the saying "drive for show, putt for dough." Well, our proactive planning service is the tax equivalent of putting for dough. That's because top-line revenue is impressive — but if your short game isn't up to par, those big drives may not actually matter. If you don't have a plan, call us for help sinking that long putt across the IRS green. And remember, we're here for the rest of your foursome, 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.

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

August 4, 2013

Top 10 List To Protect Your Tax Savings

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

The most important steps in maintaining a tax strategy is proper documentation.

Proper documentation increases the accuracy of the information you provide to your tax advisor. This helps your tax advisor do more for you because they have good information.

Proper documentation also provides the support the government requires in the event you are audited. This means protecting your tax savings and avoiding penalties and interest.

Best of all, when you keep proper documentation, you do a better job of identifying all of your deductions so it's a great way to reduce your taxes.

How does your documentation rank?

Here is my Top 10 list of items to document in your tax strategy.

Annual meeting minutes for your business to support activity reported on your business tax return(s)
Accurate bookkeeping that is up-to-date
Receipts for expenses, particularly travel, meals and entertainment
Loan documents between you and your entities for any loans between you and your entities
Agreements to buy or sale assets (such as real estate, equipment, vehicles, etc.)
Agreements between you and your entities (or businesses) for services performed by or for your entity
Agreements between your entities (or businesses) for services performed by one of your businesses for another one of your businesses
Summary of business activities performed in your home office and the percentage of your home used for home your office
Mileage logs to support the business use of your vehicle
Activity logs to support "real estate professional" status

Of course, not all of the above items may apply to you, but for those that do, you definitely want to have that documentation in place.

And, of course, the above list is not all inclusive, but if you've got this documentation in place, your documentation is well on its way.

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.

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

July 17, 2013

Hotties and Notties

by Kenneth Hoffman in Tax Planning, Tax Tips

Junior high school is a difficult time for parents as well as students. It's a time when boys start to discover girls, and girls start to discover boys. (Reports differ on exactly which group discovers the other first, but it's equally terrifying for most parents.) One of the very first things junior high boys and girls start doing when they discover each other israting each other — usually on a scale of 1-10. The 9s and 10s form cliques to congratulate each other on their good fortune, while the 3s and 4s learn to tell jokes, plan on making money, or learn to get by with a "great personality." (In case you've forgotten, junior high school can be really cruel.)

It turns out, though, that junior high kids aren't the only ones rating the world around them. Now comes news that two German economics professors have rated the attractiveness of 100 different countries' corporate tax systems. Their paper, "Measuring Tax Attractiveness Across Countries", develops a new measure, which they call the Tax Attractiveness Index, "reflecting the attractiveness of a country's tax environment and the tax planning opportunities that are offered." And the results aren't nearly as obvious as that cutie you spotted across the locker hall that first day of eighth grade.

The professors identified 16 relevant components of corporate tax systems. They started with obvious factors like statutory tax rates, taxation of dividends and capital gains, and withholding taxes. Then they added more esoteric factors like group taxation regime, loss offset provisions, double tax treaty networks, thin capitalization rules, and controlled foreign company rules. (That's the stuff you pay us to worry about.) Next, they developed methods to quantify each factor from zero (signifying the least favorable conditions, such as high statutory tax rates) to one (signifying the most favorable conditions, such as tax-free capital gains). Finally, they added the values for each condition and divided each country's total score by 16 to yield the final rankings.

Whew! So, what do the results show? Which countries are the hotties and which countries are the notties? Well, generally, Caribbean tax havens like Bermuda and the Bahamas (tied for #1), the Cayman Islands (#3), and British Virgin islands (#4), ranked highest. European nations also fared well, especially European Union nations benefiting from the Parent-Subsidiary Directive and Interest and Royalty Directive abolishing intra-EU withholding taxes.

And what about Uncle Sam? Is he flirting with the "mean girls," or is he waiting to get picked last for kickball? Well, the United States scored 0.2342 out of a possible 1.000. That placed Uncle Sam 94th out of 100 countries. We're trailing Egypt, Japan, and Zimbabwe. But we're still beating the Philippines, Indonesia, Peru, South Korea, Venezuela, and last-place Argentina!

So now you know — tax-wise, at least, Uncle Sam's a dud, averting his eyes from hotties like Bermuda. We confess we don't know the first thing about Cayman Island group taxation regimes or Zimbabwean thin capitalization rules. But we do know the most expensive tax mistake you can make, in this or any country, and that's failing to plan. So call us if you're ready to start saving, whether you want more dollars, euros, shekels, pesos, or yen. 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.

June 26, 2013

The IRS at the Wedding

by Kenneth Hoffman in Tax Counsel, Tax Planning

You've all heard that April showers bring May flowers. That's fine and all, and it doesn't leave anything for the IRS unless you're a farmer or a florist. But June brings brides — young brides, old brides, blushing brides, even bridezillas. Now the IRS pays attention, because now the IRS gets to reach out for all sorts of extra taxes from the happy couple.

So, Mike and Sarah meet in college, fall in love, and get married. Maybe they host the big day at their college chapel. Maybe they get creative with the reception and throw a barbecue in a barn. What will the IRS think?

The classic "marriage penalty" occurs when two spouses, earning roughly equal amounts, earn enough together to push their taxable income into the 28% bracket for joint filers. For 2012, that bracket started at $142,700. So if Mike and Sarah each reported $100,000 in 2012 taxable income before the wedding, they each owed $21,454 in tax. But if they got married any time before the end of the year and reported $200,000 in joint income, they would owe $43,779 together. Do you think it will bug them to send the IRS an extra $871?

It gets worse when kids are involved. If Sarah has a qualifying child, she gets a $1,000 child tax credit, so long as her income is under $75,000. But when she and Mike get married and file together, that threshold doesn't double. It goes up just $45,000. That's barely half again what Mike would get on his own.

Those obvious examples are just a starting point. There are plenty of other marriage penalties scattered like icebergs throughout the tax code. For example, the Affordable Care Act imposes a 0.9% Medicare surtax, starting this year, on earned income over $200,000 for single filers and $250,000 for joint filers. If Mike and Sarah each report $200,000 in earned income singly, no surtax. But if our newlyweds report the same $400,000 each as husband and wife, Uncle Sam gets an extra $1,350. Wait a minute . . . shouldn't your uncle be giving wedding presents instead of taking them?

Maybe Mike owns a rental property. Like most rental properties, it loses money "on paper." There's a special "rental real estate loss allowance" that lets him deduct up to $25,000 of rental loss against his other income — so long as that income doesn't top $150,000. When Mike gets married, he and Sarah can still take that same $25,000 loss — so long as their combined income doesn't top that same $150,000! Oh, and that's only if they file jointly. If they file separately, and lived apart for the year, they get just $12,500 each. If they file separately and lived together during the year, the allowance is zero. Who wants to raise a toast to that?

There's still time for you to throw rice (or birdseed) at a wedding or two this month. So if someone you know is getting married, have them call us. We'll see if we can keep a a marriage "penalty" from turning into a marriage "surprise." And don't forget to save some cake for the IRS!

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.

June 19, 2013

Dad and Taxes

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

Sunday was Father's Day, and if your family is like most, you talked about golf, or fishing, or the latest happenings on Duck Dynasty. You probably didn't talk about taxes, just because Dad doesn't like paying them! So here are some "father and family" themed tax quotes to put a smile on your face today:

"Every year, the night before he paid his taxes, my father had a ritual of watching the news. We figured it made him feel better to know that others were suffering."
Narrator, The Wonder Years television series
"My father has a great expression: 'The capital-gains tax has created more millionaires than any other government policy.' The capital-gains tax tends to make investors hold longer. That is almost always the right decision."
Chris Davis
"Our forefathers made one mistake. What they should have fought for was representation without taxation."
Fletcher Knebel
"Throughout the first half of our history, Americans hated tax with passion, something they inherited from the founding fathers."
Charles Adams
"Giving money and power to government is like giving whiskey and car keys to teenage boys."
P.J. O'Rourke
"The trouble with being a breadwinner nowadays is that the government is in for such a big slice."
Mary McCoy
"A well-timed death is the acme of good tax planning, better even than a well-timed marriage."
Donald C. Alexander (former IRS Commissioner under Rixhard M. Nixon)
"If you are truly serious about preparing your child for the future, don't teach him to subtract — teach him to deduct."
Fran Lebowitz

If Dad wants to pay less tax, he needs the same thing you do — a proactive tax plan! Summer may not seem like the obvious time to do it, but now is when we have the most time available to help you pay less. So have Dad give us a call — he'll appreciate paying less tax a lot more than he'll appreciate another tie!

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.

June 12, 2013

Party Time at the IRS

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

You probably don't think a conference for a bunch of IRS bureaucrats would be much fun. Apparently, though, the IRS knows how to throw a party. Back in 2010, they hosted an event dedicated to "Leading into the Future" for 2,609 executives and managers in the Small Business/Self-Employed division. (You're excited already, aren't you?) It turned into a $4.1 million boondoggle, complete with first-class air travel and Presidential Suites at three different hotels, that even Jay Gatsby might appreciate.

We'll never know how many of our friends at the party woke up hung over the next morning. But predictably, someone blew the whistle on "excessive spending," and now we have another IRS scandal on our hands. Last week, the party poopers at the Treasury Inspector General for Tax Administration released a 56-page report titled "Review of the August 2010 SmallBusiness/Self-Employed Division's Conference in Anaheim, California". Not surprisingly, they found several ways to "enhance controls over conference spending." How's this for genius advice?

Don't spend $50,187 to produce parody videos like the one featuring IRS officials as characters from "Star Trek", boldly going where no government employee has gone before. (New York Representative Carolyn Maloney called the video "an insult to the memory of 'Star Trek'" and said "I could do a better Captain Kirk.")
Don't forget to negotiate with hotels over "details" like room rates, continental breakfasts, wireless internet, or "free" cocktails at a welcome reception with salad, appetizers, fajitas, pasta, and dessert.
Don't spend $17,000 for a keynote speaker to paint portraits of historic figures, including Bono and Michael Jordan, to illustrate lessons on "unlearning the rules, breaking the boundaries, and freeing the thought processes to find creative solutions to challenges."
Don't spend $29,364 to let IRS employees living within 30 miles of the meeting stay at conference hotels "to reduce the demands on local travelers who would otherwise experience lengthy commutes daily during the conference and to foster employee morale and team spirit." (Oh, and while you're at it, would it kill you to issue a W-2 to those local employees so they can pay tax on the value of those stays?)

Does $4.1 million really sound like too much for that sort of fun? Unfortunately, IRS procedures in effect at the time of the conference didn't require management to track or report actual expenses, so the Inspector General can't verify how much the whole thing cost. Reassuring, right? The people who make us track receipts for a $4 coffee can't track their own expenses?

Just two days after the report came out, IRS officials trekked to Capitol Hill to commit hari kari. Faris Fink, who now heads the Small Business/Self-Employed division (and who played Mr. Spock in that infamous "Star Trek" video), apologized and confessed he didn't know his agency could have negotiated for lower hotel room rates. Acting Commissioner Danny Werfel called the whole thing "an unfortunate vestige from a prior era" and reported that spending on travel and training has fallen 80% since then.

We send these emails urging you to come in for tax planning week after week. And usually we just assume you know why our proactive tax-planning service is such an obvious no-brainer. But seriously — don't you think you can do a better job of spending your money than the IRS? If so, then call us today to get started with your plan!

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.

June 5, 2013

An Apple a Day

by Kenneth Hoffman in Tax Counsel, Tax Planning

Back when you were a kid, your mom probably told you "an apple a day keeps the doctor away." Well here's something Mom didn't know — apparently, an apple a day keeps the tax man away, too. At least, that's the conclusion we might draw from recent Congressional hearings focused on Apple Incorporated and its strategies for avoiding taxes!

Last month, the Senate Permanent Committee on Investigations conducted a hearing compellingly titled "Offshore Profit Shifting and the U.S. Tax Code — Part 2 (Apple Inc.)." The Committee graciously invited Apple's CEO, Tim Cook, to share how Apple avoids U.S. tax. (We can only imagine how delighted Cook was to receive the Committee's "invitation" — no doubt delivered on the same sort of elegant stationery you might use to announce a spring cotillion or send a "thank you" note to Grandmother.)

Here's the issue in a nutshell. Apple earns tens of billions of dollars per year from their innovative desktop and laptop computers, iPods, iPads, and ubiquitous iPhones. And Apple pays billions in tax on its U.S. profits — in 2012 alone, the company paid $6 billion in federal income tax, $327 million in payroll tax, and $830 million in state income tax. But international operations account for about 61% of the company's gross revenue. So Apple's accountants and attorneys, who sound at least as clever as the engineers who design the company's products, find ways to leave that revenue outside the U.S., where it sidesteps our 35% corporate income tax. From 2009-2012, Apple shifted at least $74 billion away from the IRS's reach.

How do they do it? Mainly through use of subsidiaries in places as diverse and exotic as Ireland, Luxembourg, the British Virgin Islands, and Reno (yes, the one in Nevada). For example, Apple owns a holding company organized in Ireland called Apple Operations International. Because the company is domiciled in Ireland, the IRS doesn't consider it to be a U.S. corporation subject to the 35% U.S. tax. But because Apple manages and controls the company from the U.S., Irish law doesn't consider it to be subject to the 12.5% Irish tax, either. Apple Operations International earned $30 billion from 2009-2012 — and didn't even file tax returns for those years. Edward Kleinbard, a law professor at the University of Southern California and former staff director at the Congressional Joint Committee on Taxation says "There is a technical term economists like to use for behavior like this. Unbelievable chutzpah."

Apple's defenders point out that Apple doesn't make the rules — they're just doing their best on behalf of their shareholders with a tax code that "has not kept up with the digital age." CEO Cook points out that Apple has created or supported 600,000 U.S. jobs (including 50,000 for Apple's own employees and 550,000 at other companies) involved in engineering, manufacturing, logistics, and software development, including third-party "app" development. They claim that Apple is probably the biggest corporate income taxpayer in the country, accounting for $1 of every $40 in corporate tax the IRS collected last year. And they argue that they don't use "tax gimmicks" like moving intellectual property offshore to sell products back into the U.S., using revolving loans from foreign subsidiaries to fund U.S. operations, or holding money in Caribbean islands or Cayman Islands bank accounts.

We realize that some of you reading these words will be outraged, and others will be envious. We're not here to pass judgment on Apple's tax strategy. But we do want to point out that Apple pays less tax the same way we helpyou pay less — through proactive planning. You may not have quite the same opportunities to save as Apple. But you'll never know how much you can save if you don't sit down with us to try. So call us today!

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.

May 30, 2013

You Think Your Taxes Are High?

by Kenneth Hoffman in Tax Counsel, Tax Planning

The United States and France have been friends for centuries. The French navy provided much of the military might we needed to defeat the British in the Revolutionary War. The French Revolution inspired our own founders to the promise of republican government. And French territory, acquired in the Louisiana Purchase, provided land for 15 of today's 50 states. While the United States and France never shared the same sort of "special relationship" as the United States and England, the two countries have traditionally shared a warm bond.

Today, France doesn't stride quite so mightily across the world stage. But the land of liberte, egalite, and fraternitestill sponsors the world's most prestigious bicycle race (now maybe best known for an American cheating). They still host the occasional Jerry Lewis film festival. And really, who does toast better than the French?

Now it turns out there's something else that France does well, and that's taxing its citizens. The French newspaperLes Echos reported last week that thousands of French households paid more than 100% of their 2012 income in tax. Sacre bleu! How can this be?

Last year, the Socialist candidate Francois Hollande ousted the conservative Nicolas Sarkozy to become France's President. Hollande immediately did what Socialists typically promise to do — he hiked taxes. Specifically, the new government imposed a one-time levy on 2011 income for households earning over €1.3 million (roughly $1.67 million). That levy hit top incomes hard. In 2012, over 8,000 households paid taxes topping 100% of their income. 9,910 households paid between 85% and 100%, and a further 12,000 paid between 75% and 85%. And you think you pay a lot?

Hollande wasn't satisfied with that one-time hike. He also proposed an "exceptional solidarity contribution" nearly doubling taxes on about 1,500 top earners with income over €1 million from 41% to 75%. That move led actor Gerard Depardieu and several other high-profile personalities to renounce their French citizenship.

France's Constitutional Council, which rules on the constitutionality of legislation before it goes into effect, struck down that 75% tax as unfair. They didn't have a problem with the rate, per se. They objected that it applied to individuals rather than households — a household with two individuals, each earning €900,000 would escape it, while a household with a single individual earning €1.1 million would pay. However, the council still approved raising the top rate to 45% on incomes over €150,000 (roughly $198,000), cutting several existing loopholes, and stiffening a wealth tax on net assets worth more than €800,000. And Prime Minister Jean-Marc Ayrault has pledged to reintroduce the 75% top rate, using the template provided by the Constitutional Council.

Perhaps not coincidentally, Hollande is now the least popular president in French history. How happy would yoube with your President if he wanted three out of every four of your extra dollars!

Fortunately, our taxes are nowhere near that high. But they still aren't any fun to pay. That's why we focus our business on proactive tax planning to help you pay less. Maybe you'll use the savings for that dream vacation you've always wanted. They say Paris is nice this time of year!

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.

May 12, 2013

Internet Sales Tax One Step Closer

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

The Senate has approved, by a 69 to 27 vote, the Marketplace Fairness Act of 2013. The bill would allow a state to enforce collection of state and local sales taxes on most remote sellers.The bill exempts sellers with less than $1 million in annual sales from the rules and requires states to provide information regarding the taxability of items, provide software free of charge for remote sellers that calculates sales and use taxes due on each transaction at the time the transaction is completed, that files sales and use tax returns, and that is updated to reflect rate changes, and among other things, provide simplify administration and reporting requirements. Despite the majority in the Senate, passage is far from assured. The bill is expected to have a harder time in the House.

Now is the time to contact your congress critters to let them know your opinion.

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.