May 8, 2014

Nice Mouth

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

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

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

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

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

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

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

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

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

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

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.

April 30, 2014

Toby Keith's "I Love This Tax Problem"

by Kenneth Hoffman in Tax Planning, Tax Counsel

In 2003, country music superstar Toby Keith released "I Love This Bar," the first single from his Shock'n Y'All album. (For those of you under age 25 or so, an "album" is . . . oh, never mind.) Billboard predicted the song would become "a beer-joint staple for years to come," and it promptly shot to #1 on the charts, selling over a million copies.

"I Love This Bar" is just one of Keith's odes to drinking — he's also scored hits with "Whiskey Girl," "Get Drunk and Be Somebody," and "Get My Drink On." "Red Solo Cup," his 2011 smash, made the red plastic cups the symbol of "party time" for the under-30 set. Naturally, with that sort of appeal, Keith had to open a bar of his own. Singer-songwriter Jimmy Buffet pioneered the concept, opening dozens of tourist traps Margaritavilles anywhere middle-aged men of a certain disposition gather to recall their youth. If Jimmy can do it, why can't Toby?

And so it came to pass that there are now fifteen Toby Keith's I Love This Bar & Grill locations from sea to shining sea. Keith's namesake joints feature guitar-shaped bars, beer served in mason jars (just like in the song), and elegant southern fare like chicken-fried chicken (?), fried bologna sandwiches (!), and deep-fried twinkies (!!). You'll find them plunked down in cities across our fair land, including such traditional country-music strongholds as Boston, Detroit, Cincinnati, and even Syracuse.

It's that last location in upstate New York — 1,400 miles from Keith's hometown of Norman, Oklahoma — that brings us to our story. You'd think the guy who sang "Beer for My Horses" with Willie Nelson would have no problem turning a profit with sales from a bar packed with thirsty fans. But apparently, you'd be wrong. The New York Department of Taxation and Finance has just hit the store with a "tax warrant" for $189,392.17 in unpaid sales taxes. The warrant lets the state levy the business' bank account or even seize the business entirely. (The restaurant remains open for now, as officials seem to think they have a better job collecting if they don't kill their golden goose. Phew!)

Bars and restaurants are notoriously risky businesses, even with "can't miss" concepts like "I Love This Bar." (If you think rising meat and cheese prices are hitting your wallet hard, just imagine what happens when you're feeding thousands of fans a month!) Restaurant owners who find themselves in trouble can be tempted to "borrow" from the government by hanging on to taxes they collect on behalf of customers and employees. The problem, unfortunately, is that every day they continue, they fall deeper and deeper into the hole — and sometimes they never dig back out.

Keith's restaurant may be struggling. But the singer himself isn't having any money problems. Forbes magazine has called him "Country's $500 Million Man," and "a one-man cash machine." He owns a liquor company, a record label, and a golf course. There's even an eight-passenger Learjet, painted in Oklahoma Sooner crimson and cream, outfitted with saddle-leather seats. But one thing Keith doesn't own is "his" restaurant in New York. While he does own chunks of the first few locations, he generally just licenses the newer locations to outside operators in exchange for a piece of the gross.

We realize few of you could imagine making millions selling fried bologna sandwiches. But we can imagine how unhappy you'd be if word leaked out that you owed enough tax to pay for an entire house! That's why we work so hard to help you plan to pay less. So call us if you'd rather spend your money treating your friends to a round of drinks. And remember, we're here for them, too!

April 23, 2014

The New Known Unknown

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

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

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

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

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

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

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

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

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

April 16, 2014

Master This Green!

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

The calendar may say that spring officially begins on March 21. But for millions of golfers across the country, the season didn't really start until this weekend — specifically, when Bubba Watson outplayed 20-year-old phenom Jordan Spieth to claim his second green jacket at the 2014 Masters.

Augusta National Country Club, home of the Masters, is America's temple of golf. Augusta's "perennial ryegrass" fairways are manicured to a smoother finish than your living room carpet, and its greens are so hard and fast you could play billiards on them. So, with all that lush green stretching as far as the eye can see, would it surprise you to learn that the residents of Augusta have "mastered" a lucrative tax break? It's become so identified with the legendary golf tournament that it's known as "the Augusta rule." But if you own your own business, you may be able to take advantage of it yourself.

Augusta, Georgia, is a small city with about 200,000 year-round residents. But for the second week of April every year, it becomes the center of the sports universe. Wealthy golfers descend upon the town from around the world. They want quality accommodations. But the nearest Ritz-Carlton is a looong drive away. (81 miles, to be exact. You don't even want to know what par that is.)

For many of those fans, the answer is to rent a house in town, just a chip shot from the tournament. Augusta National and the Augusta Metro Chamber of Commerce have even teamed up to create the Masters Housing Bureau to pitch week-long rentals — for up to $40,000. For lots of Augusta homeowners, that's a hole in one! (Of course, homeowners outside Augusta have taken advantage of the same rule for events like the Olympic games, the Final Four, and the Super Bowl.)

Now, ordinarily the IRS would take a big divot out of that $40,000 windfall. (Pro golfers typically tip their caddies 10% of their winnings, and if you think that's enough for Uncle Sam, think again!) But here's where the Augusta rule comes in. Code Section 280(A)(g)(2) provides that if you rent your home (or vacation home) for less than 15 days a year, there's no tax due on that income. In fact, IRS Publication 527 says you shouldn't even report it. So, if you have a house in Augusta, you've got that going for you! Which is nice.

Don't have a house in Augusta? Don't despair! Let's say you own your own business, and you want to host a customer appreciation event. You could hold it at your house and deduct the cost of meals and entertainment you provide for your customers. But the Augusta rule also lets you rent your home to your business — for a commercially reasonable "fair market value," of course. Your business will deduct the rent it pays, which gives you a birdie on your tax bill. But so long as you don't do it more than 14 days per year, you won't have to report the income on your personal return. Pretty slick, right?

If you're a golfer, you've almost certainly dreamed of someday playing Augusta. But you wouldn't dream of doing it without an experienced caddy — because, when you sign that scorecard, you want as few strokes as possible. When it comes to taxes, that's our job. We give you the plan you need, so that when you sign your 1040 . . . well, you get the picture. So call us before you "hit the course." And remember, we're here for the rest of your foursome as well!

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.

April 10, 2014

Fall into a Fortune

by Kenneth Hoffman in Tax Counsel, Tax Planning

Getting an audit notice is never anyone's idea of fun. But getting audited isn't always the disaster it might seem. In fact, for fiscal 2012, 107,820 lucky winners got refunds after their audits. Granted, that's still shy of seven percent of everyone audited that year. But it proves you can walk away from the IRS a winner.

Here's a clever strategy one taxpayer used to walk away from the IRS with a windfall. But you might want to be careful before you try it yourself!

William Berroyer owned an HVAC contracting company on Long Island. On July 3, 2008, he met with the IRS at their Hauppauge office to discuss a $60,000 payroll tax bill he owed on behalf of his business. The agent in charge of his case directed Berroyer to a conference table, where he nervously worked out a payment plan. As he stood up to leave, he twisted his foot in about 15 feet of telephone cord, spun around, hit a metal file cabinet, and landed flat on the floor.

At first he said he felt fine — he just wanted to get out of that conference room and back to his office. But then he called the auditor from the parking lot to say he had lost feeling in his lower leg. He made it back to his shop alright, but soon felt even worse and headed for the hospital. Berroyer wound up spending seven days in the emergency room and 10 days in rehab. Five years after the accident, he spends most of his time in a wheelchair and can't walk more than a few feet without canes. His injuries have interfered with all aspects of his life, including his work, his boating, his golf game, and even his no-longer-twice-weekly "special time" with Mrs. Berroyer.

(You already know where we're headed, don't you?) Naturally, Bennoyer sued. For $10 million.

There wasn't much argument over liability. The real contest focused on the extent of the injury. (Translation — was he just faking it?) Hospital records reported his diagnosis as "acute paraplegia, psychogenic in origin." Another doctor noted "Neuro exam and MRI findings not consistent with subjective complaints . . . . Affect is somewhat inappropriately bright." At trial, the government's medical expert conceded Berroyer had probably bruised his spinal cord, but that mild injury should long since have passed. Asked directly if Berroyer was faking or malingering, he replied "I don't use the terms faking or malingering. I use the term non-physiological." (And really, doesn't "non-physiological" sound so much better than "faking"?)

Judge Arthur Spatt ultimately ruled that the IRS's negligence had caused a "mild spinal cord injury." He awarded Berroyer $112,000 in medical expenses, plus $350,000 for past pain and suffering, plus another$250,000 for future pain and suffering. Oh, and he threw in another $150,000 for Mrs. Berroyer's "loss of services." And the best part . . .? Internal Revenue Code Section 104 says that compensation for injuries and sickness are nontaxable. That means the Berroyers get to keep all $862,000!

So, what do you think? An easy way to earn nearly a million bucks? Or would you rather skip the physical therapy and take advantage of easier strategies, like choosing the right entity for your business, the right plan for your retirement, and the right benefits for your family? We're sorry to confess we can't help you with a loose phone cord. But we can help you with the plan you need to pay the least tax allowed by law. So call us if you want to save tax — but don't want to wheel yourself into a courtroom to do it!

April 2, 2014

A Little Bit of Tax

by Kenneth Hoffman in Tax Counsel, Tax Planning

It seems like every day brings new questions about the digital currency called bitcoin, which first appeared in 2009. Who is the shadowy "Satoshi Nakamoto" who created the currency's protocol and software? Who stole $450 million worth of bitcoin from the Tokyo-based Mt. Gox exchange? Who was the mystery buyer who used bitcoin to snag a $500,000 house on the Indonesian island of Bali?

Last week, the IRS solved a mystery by ruling on how bitcoin would be taxed, at least here in the United States. And their answer to that question may shoot a hole in bitcoin's hope to become more widely accepted. Notice 2014-21 holds that virtual currencies like bitcoin will be treated as property — not currency — for U.S. tax purposes. That means, among other things, that if you take payment in bitcoin at your business, those payments will be taxable (at the fair market value of the currency at the time you earn it), subject to the same rules as if you had accepted cash. If you earn wages in bitcoin, they'll also be taxable, must be reported on a Form W-2, and will be subject to income and payroll tax withholding as if you had earned those wages in cash.

But those rules come as no surprise. The real headache comes when you use bitcoin to buy or sell something. Let's say you acquire two bitcoins for $500 each. A week later, they're worth $520, and you use them to pay an independent contractor across the country or even in the Philippines. You'll have to report that $40 gain on your taxes. "That's not such a big deal," you might think. "My bitcoin is worth more; I'm ok with paying tax on my gain." But now imagine having to report gains or losses on everybitcoin transaction you make!

If bitcoin is going to succeed as an actual currency, it has to pass three strict tests. (Getting an "A" for effort won't work here.) First, it has to be a medium of exchange, meaning it has to be widely accepted as payment for goods and services. (Everyone takes U.S. dollars, but most people have never used bitcoin — at least, not yet. Although, Virgin Atlantic has announced that you can use bitcoin for their $250,000 flights into space.) Second, it has to be a store of value, meaning users feel safe holding it without worrying that its value will fall. (You can take payment in cash knowing that it will be worth the same amount tomorrow.) And third, it has to serve as a unit of account, meaning it has a standard value and every bitcoin is the same as every other bitcoin. (If you have a wallet full of $20 bills, it doesn't matter which one you use to pay for your morning latte.)

The IRS's ruling that bitcoin is property means bitcoin fails that last test. Let's say you have three bitcoins: one that you acquired when it was trading at $280, one that you acquired at $480, and one that you acquired at $880. It makes a real difference which one you spend! It's no wonder the New York Times headlined one story on the IRS notice: "Taxes Won't Kill Bitcoin, But Tax Reporting Might."

There's a "bit" of good news in the ruling. If you hold bitcoins for investment, you benefit from lower rates on long-term capital gains. But that's going to be scant comfort for most users who really want to see bitcoin succeed as a true currency.

We've got a long time to go before most clients have to worry about bitcoin in anything but the most theoretical sense. But keeping an eye out on the future is what separates us from the vast majority of tax professionals who just settle for recording history. Your job is to go out and make money, in dollars, bitcoin, or whatever else works best for you. Let us worry about helping you keep it!

March 26, 2014

Fast Track to the Presidency

by Kenneth Hoffman in Tax Planning

Last week, we talked about the IRS Criminal Investigation unit's Fiscal 2013 annual report. We told you about four of the 2,812 offenders who drew prison sentences for their efforts: the drag racer who applied for $83 million in fraudulent gas tax refunds, the surgeon who "operated" on his tax bill using foreign trusts and shell companies, the Japanese restaurant owner who hid receipts in boxes marked "seasoned octopus," and the prisoner who filed false tax returns for his fellow inmates and sent the refund checks to his mother. But the IRS report detailed over 100 such stories — so, at the risk of beating a dead horse, we couldn't resist sharing just a few more:

They say everything is bigger in Texas. Apparently that includes public corruption, which is an IRS priority. Abel Limas was a former police officer and state judge in Brownsville who discovered he could supplement his government salary by turning his office into "a criminal enterprise to enrich himself and others through extortion." In 2008, Limas issued a series of pretrial rulings in a case involving a helicopter crash. Later that year, he joined a law firm working on behalf of victims in that same crash. It turns out the law firm had promised him a cool hundred grand, plus a share of their fees, in exchange for those rulings. Now Limas is spending six years in a federal prison camp.
Whitney Houston once sang that she believed "the children" are our future. But some people believe the children are just another meal ticket. Take Nehemiah Muzamhindo, for example. Customs officials were searching the Zimbabwe native's house for evidence of passport fraud when they discovered he had scammed one of the world's largest children's charities out of $800,000. You think he remembered to pay tax on that money? Special Agent in Charge Erick Martinez, who picked up the case for the IRS, said that Muzamhindo's crime was worse than the usual fraud because "he diverted money intended for children for his own greedy purposes." Now he'll spend six years in federal prison. Even worse, according to Muzamhindo's lawyer, the case has brought him "a great deal of shame"!
You've heard that the family that plays together, stays together. But some families take that advice a little too far. Angela Myers operated Angie's Tax Service in Baton Rouge, Louisiana. She used her daughter's preparer identification number to file false returns using names and social security numbers stolen from a nearby nursing home. Apparently, she needed the money to pay for a sweet RV. Now she's spending 11 years, not traveling in the RV, but in a prison in Alabama where she won't even need a driver's license. But wait (as they say in the TV infomercials) . . . there's more! The IRS is also investigating Angie's son for threatening a witness in the case!
Lots of Americans grow up wanting to be President. The usual path is to spend years working your way up the political ladder, then run for the office. But who has time for all that? Alabama's Tim Turner declared that our current government is an illegitimate sham, then proclaimed himself President of the Republic for the united States of America (RuSA). Next, he started teaching fellow citizens how to pay their taxes with fake bonds. (Apparently, special paper stock, financial terminology, and elaborate borders help make them at least look legit.) Oh, and when one of his followers asked what really happened when that spaceship crashed near Roswell back in 1947, he let the cat out of the bag that every industrialized nation on earth has a treaty with the aliens! Now he'll have 18 years to negotiate his own agreement with the little green men.

We realize people are willing to go a long way to pay less tax. But you don't have to set up your own government! There are hundreds of legitimate ways to work within the system we've already got. You just need a plan. So call or email us for your plan, before the aliens come and take over for good!

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.

March 19, 2014

Seasoned Octopus

by Kenneth Hoffman in Tax Planning, Tax Counsel

Most of the Internal Revenue Service's 90,000 employees are financial bureaucrats, working to collect the taxes that finance our government. But the Criminal Investigations unit, or IRS-CI, is an elite division of 3,700 financial crimefighters dedicated to protecting those taxes. Last month, they released their Fiscal 2013 annual report. And business sure is booming! In 2013, IRS special agents initiated 5,314 investigations (up 3.7% from 5,125 in 2012) and recommended 4,364 prosecutions (up 17.9% from 3,710 in 2012). There were 3,865 indictments and 3,311 convictions (the IRS doesn't take someone to criminal court unless they're pretty sure they can win). And 2,812 miscreants won themselves the proverbial "three hots and a cot" for terms averaging 25 months.

Most of IRS-CI's targets are plain old crooks. But some of them are just so awkwardly entertaining, we had to share their stories:

Every time you pump a gallon of gas, you pay 18.3 cents in tax to build and repair federal roads. But there's a little-known exemption that lets off-road users like drag racers apply for a refund. Evan Knoll, the "King of Drag Racing" and owner of Torco Racing Fuels in Grand Rapids, Michigan, saw that exemption and smelled opportunity. (Maybe it was something in the fumes?) Knoll claimed $83 million in refunds over nine years from 1999-2008 before pleading guilty to nine counts of fraud and drawing a 14-year sentence. Nowthat's some high-octane cheating!
Edward Picardi was a surgeon in South Dakota, who spent way too much time performing liposuction on his tax bill. First, he ran his income through a series of entities organized in Ireland, Hungary, Cyprus, the Isle of Man, Jersey, and Guernsey. (Really? Hungary? Were the Cayman Islands just too obvious?) Then he deposited it into various foreign accounts he controlled through a New Zealand trust, in the name of one last corporation established on the delightfully sunny island of Nevis. After several weeks in trial, the judge in Picardi's trial surgically removed five years of freedom from the good doctor's future. Withoutanesthesia. Ouch.
Michael Chen owned the Fune Ya Japanese Restaurant in Richmond, California, just north of Berkeley. (Apparently the fried banana dessert was a hit.) Chen kept detailed records of his daily sales in 26 boxes marked "Seasoned Octopus." But he never reported his cash sales to the IRS. Oops. He also paid his employees $548,919 in cash without sending the IRS any payroll tax on their income. Another mistake. Now the long tentacle of the law has got him for 33 months, enjoying his meals in a place where they don't serve octopus at all.
You might think that if you're already stuck in jail, you can't commit tax fraud. Well, you would be wrong. Michael Joseph III was feeling "underemployed" at the Apalachee Correctional Institution in the Florida panhandle when he hit upon one of those brilliant ideas we all wish we had thought of. Why not while away those idle hours filing false tax returns using other inmates' names and social security numbers? Yeah! And while we're at it, why not have the IRS mail the refunds to momma's house? Unfortunately for our enterprising would-be accountant, prison officials discovered the scheme during a routine mail search. Joseph pled guilty to 41 various offenses and drew another 63 months behind bars. At least now he's doing time in a classy federal joint instead of some loser statecan.

We all know taxes have gone up this past year, and we all know nobody enjoys paying. That's the bad news. The good news is you don't have to risk a visit from the tax cops to pay less. You just need a plan. There's no shortage of court-tested, IRS-approved strategies for paying less. So if you're still worried about April 15, and you haven't asked us about our planning service, what are you waiting for?

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.

March 13, 2014

Finders, Keepers?

by Kenneth Hoffman in Tax Counsel, Tax Planning

Modern-day salvagers can spend years to find centuries-old treasures. Mel Fisher spent 16 years searching for the Spanish galleon Nuestra Señora de Atocha, which sank in a hurricane off Key West in 1622. But sometimes finding buried treasure is far easier. Just ask the still-unidentified California couple, known only as "John" and "Mary," who took their dog for a walk and spotted the edge of an old can on the side of a trail they had walked almost every day for years.

That can was so heavy, they thought it held lead paint. But as they carried it back to the house, struggling with the weight, it burst open to reveal the glint of gold. (Sounds like a real "Beverly Hillbillies" moment, doesn't it!) That rusted-out can turned out to be just the first of eight containing 1,427 mostly mint-condition gold coins, mostly from the nearby San Francisco Mint, made from 1847 to 1894. Their face value comes to $27,980, which isn't bad. But their market value may top $10 million. In fact, one coin alone — an 1866 Liberty $20 piece without the usual "In God We Trust" inscription — may be worth a cool million all by itself!

At one point, it looked like John and Mary might have to give up their find. Back in 1900, a Mint employee named Walter Dimmick stole $30,000 worth of gold. Dimmick did his time for the crime, but the gold was never recovered. If it had been Dimmick's haul that our lucky couple found, they would have had to return it, even after all this time. Fortunately, the Mint says they don't think that's the case, and they won't be investigating. Mint spokesman Adam Stump told the San Francisco Chronicle, "we’ve done quite a bit of research, and we’ve got a crack team of lawyers, and trust me, if this was U.S. government property we’d be going after it.”

Unfortunately, there is one government agency that will be going after it, and you won't be surprised to hear it's our friends at the IRS. The tax code says "gross income means all income from whatever source derived," and that includes "treasure trove" proceeds like the coins. The IRS clarifies that "if you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is your undisputed possession." And that, in turn, means John and Mary will have to report the value of the coins on their taxes. They don't even get to use the lower capital gains rates. So let's see . . . 39.6% for Uncle Sam, plus 13.3% for California, leaves . . . well, barely half of that $10 million! The worst part is, they owe the tax now even if they keep the coins instead of selling them.

What if John and Mary donated the coins to charity? Would that let them off the hook? Nope! The problem is, you can only deduct charitable gifts up to 50% of your income. That means our lucky couple could deduct just half the value of their fortune, and still pay tax on the rest — even if they give it all away. (The limit is even lower for gifts to private foundations — just 30%.)

Here at our firm, we search for hidden treasures, too. But instead of doing it on the high seas, or in California mountains, we do it in the tax code. Our quest is to unearth the deductions, credits, loopholes, and strategies that can save you thousands. And you don't even have to take your dog for a walk to do it. You just have to pick up the phone and call us. So what are you waiting for?

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 email me at 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.

March 5, 2014

I'd Like to Thank the Academy

by Kenneth Hoffman in Tax Counsel, Tax Planning

Sunday night, millions of movie fans across the globe tuned in as the Academy of Motion Picture Arts & Sciences presented the 86th Academy Awards. Viewers were amazed that Adruitha Lee and Robin Mathews had spun a $250 budget into a Best Makeup award for Dallas Buyers Club. They held their breath and wondered how much Kim Novak had to drink before she stumbled her way through the animation awards. And they thrilled as first-timer Lupitsa Nyong'o won Best Supporting Actress for 12 Years a Slave. But there's one award we didn't see — and it's a key to getting any movie made. We're talking, of course, about the coveted award for Best Original Tax Planning.

When we think of movies, we immediately think of Hollywood. But most movies aren't actually made in Hollywood, or even California, anymore. 37 states offer special tax incentives to lure film development and jobs. This year, all nine Best Picture nominees benefited from various tax incentives in their filming locations. So let's take a look at some of the nominees:

Here's a surprise. Nebraska, the deadpan tale of a curmudgeonly father making his way to Nebraska to claim a million-dollar sweepstakes (and settling a score or two along the way), was actually filmed in Nebraska! Sadly, while the $13 million production was eligible for funds from participating local economic development offices, the Cornhusker State itself didn't offer a single bushel of incentives.
The Wolf of Wall Street may have gotten shut out on Sunday. But director Martin Scorsese's chronicle of debauchery takes the statuette for the biggest tax credit. New York offers a 30% tax credit on total expenditures, which means the Empire State picked up $30 million of the production's $100 million budget.
Dallas Buyers Club and 12 Years a Slave were both filmed in Louisiana. The Bayou State offers the most generous credits of any state — 30% of expenditures plus 5% of payroll. Too bad the combined budget for both films totaled just $25.5 million!
Philomena and Gravity were the only two Best Picture nominees filmed outside the United States — specifically, in England and in near-earth orbit. Filming in orbit lets producers escape taxes (and gravity) completely. As for England, Her Majesty's Revenue and Customs chips in a 25% credit on the first $38 million in costs and 20% on anything above that. (Okay,Gravity wasn't really filmed in orbit — it was filmed in England, too.)

The irony here, according to Manhattan Institute for Policy Research, is that "movie production incentives routinely fail to deliver on the economic promises made by their proponents . . . [D]ata from several states find movie production incentives generate less than 30 cents for every lost dollar in tax revenue."

Fortunately for you, though, you don't have to rent a tuxedo, borrow a gown, or prepare an acceptance speech to pay less tax. You just need a plan. We give you the strategies and concepts you need to impress the judges at the IRS. And we do it without voiceovers, CGI, or other special effects. So hit "reply" to this email and let us know you're ready to get started. And remember, we're here for your whole cast and crew!