December 17, 2014

#1 On the Naughty List?

by Kenneth Hoffman in Tax Planning, Tax Tips

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

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

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

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

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

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

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

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

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

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

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.

February 12, 2014

There's an App for That

by Kenneth Hoffman in Tax Tips, Tax Planning

Managing the Internal Revenue Service is no easy job. It takes a lot of automation to process over two hundred million tax returns per year. And, while the Service still stores master tax records on computers commissioned during the Johnson administration (Lyndon, at least, not Andrew!), the IRS still spends hundreds of millions per year to take advantage of the latest information technology.

The geeks who manage the IRS's computers do a great job with the limited resources Congress gives them. But they want to be like the cool kids in Silicon Valley, too. So they've created an app, called IRS2GO, that you can download to your iPhone or Android device. You can use the IRS app to track your refund, find free tax return preparers, access your tax records, and even connect with the IRS on Twitter, YouTube, Tumblr, and Facebook.

Those are all great functions, of course. But we got to thinking . . . what sort of things would you really want an IRS app to do for you? We thought maybe these would be even more popular:

The Refund Redirector: Knowing when your refund will show up is great. But the real fun is knowing where you're going to spend it. The Refund Redirector would aggregate prices from hundreds of online shopping sites to give you the best possible deal, then send your refund directly to the store. Planning to upgrade your family room to the latest 50-inch television? Let the Refund Redirector tell you where to buy it!
Flappy Tax: Flappy Bird is the latest handheld gaming sensation, with 50 million downloads. The only problem is, it's too hard to get that stupid bird through that stupid opening between those stupid pipes! Our version would let you thread a helpless taxpayer through a maze of tiny loopholes. But if you think that flappy bird has it tough, wait 'till you see our red tape!
Red Light/Green Light: This updated version of the classic children's party game would use an easy-to-understand traffic light to tell you if your deductions will fly with the IRS. Want to write off the mileage to and from the orthodontist for tightening your kid's braces? Green light! Thinking about writing off a bottle of Dom Perignon to celebrate your latest business deal? Yellow light for the "lavish and extraordinary" expense. Hoping the IRS "won't notice" that Swiss bank account you opened last year? Stop!
YelpTax: Apps like TripAdvisor, Urbanspoon, and Yelp let you post restaurant reviews before you even get the bill. Our version would let you review auditors and other IRS staff. How much more pleasant do you think an audit would be if the examiner knew you could rate him from one to five stars on punctuality, friendliness, service, and atmosphere? (If only they could say "we know you have a choice in auditors today . . . .")

We love how technology automates so many tasks to make our days easier and more productive. We love how the Internet puts a wealth of knowledge at our fingertips. But there's still no substitute for good, old-fashioned expertise and experience. And you can't get that from an app. That's where we come in. We can give you the plan you need to pay less tax. We can help you implement that plan without having to tap it all out on a tiny screen. So call us when you're ready for the most up-to-date tax-saving strategies and concepts. And remember, winning the tax game is more fun than anything you can do on your phone!

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

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

Click here to schedule an appointment with Kenneth Hoffman.

January 23, 2014

The Nanny Tax

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

Every few years the "nanny tax" becomes a big news story when some high-profile political figure reveals that he or she hasn't paid required nanny taxes. While you may not plan on running for political office, failing to pay the nanny tax on the household workers you employ could result in IRS penalty and interest charges. And that's in addition to the tax itself.

If you paid a household employee - such as a gardener, housekeeper, or nanny - more than $1,800 in wages in 2013, you may have payroll tax obligations to meet. These taxes are called "nanny taxes." You are generally required to pay social security taxes on your worker's behalf, and you may have other federal and state payroll tax obligations as well.

If you had household workers in 2013, it's worth contacting our office to discuss your tax obligations. January 31, 2014, is the deadline for sending W-2 forms to your workers if the nanny tax applies for 2013.

Be aware that the nanny tax threshold increases to $1,900 for 2014.

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

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

Click here to schedule an appointment with Kenneth Hoffman.

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

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

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October 2, 2013

IRS Announces No Refunds

by Kenneth Hoffman in Tax Counsel, Tax Tips

The IRS announced on its website on Tuesday that, “Tax refunds will not be issued until normal government operations resume.” This marked a change from its shutdown contingency plan, under which 859 employees in its Information Technology Services Enterprise Operations were excepted from the general shutdown furlough to ensure “refunds continue to process” and which said that "Without this support, . . . refunds to America's taxpayers would not occur.”

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

Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday 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 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.

September 18, 2013

When the IRS Comes a-Knockin'

by Kenneth Hoffman in Tax Counsel, Tax Tips

If you get an IRS audit notice, you probably expect to spend hours responding to endless document requests, visiting bland government offices, and meeting with faceless bureaucrats. You might hope you get lucky and find yourself assigned to a pleasant, friendly examiner, one who acknowledges how intrusive and annoying the audit process can be. But you certainly wouldn't expect to wind up in bed with the auditor!

Vincent Burroughs is a 40ish contractor and amateur motorcycle racer in Fall Creek, Oregon. When the economy collapsed in 2008, his business suffered and he got behind on his taxes. In 2011, the IRS came calling. The auditor, Dora Abrahamson, recognized him from his motorcycle racing, and apparently liked what she saw. Burroughs claims Abrahamson started flirting with him over the telephone and by text message ("[I] need a hug badly, do you have one?"), offered him massages, and even sent him a "selfie" in a revealing pose!

Burroughs figured he had a friend at the IRS, so he didn't stop the flirting. In September 2011, Abrahamson visited him at his house to give him a hand with his papers. She showed up "provocatively attired," he says. She told him she could impose no penalty, or a 40 percent penalty. And she said if he would give her what she wanted, she would give him what he needed. After an awkward series of events that we don't need to detail here, the two wound up in bed. Shortly thereafter, Abrahamson stepped down from the case due to a conflict of interest, and the new auditor told Burroughs he owed $69,000.

Abrahamson's conduct caused Burroughs "to be agitated, depressed, and unable to sleep." It also made his girlfriend unhappy. (Uh oh.) So Burroughs sued Abrahamson and the IRS, seeking unspecified punitive damages. He claimed the IRS failed to properly supervise Abrahamson for, among other things, "permitting her carnal desires to overcome her judgment that it was inappropriate to pursue a sexual relationship with a taxpayer she was auditing," "failing to seek and follow through on getting help for her psychological problems," and "failing to sufficiently train Defendant Abrahamson on how to avoid situations which could lead to the appearance or actuality of sexual conduct with taxpayers being audited or investigated."

Unfortunately for Burroughs, the Federal Tort Claims Act waives immunity for government employees only when the injuries they cause take place within the scope of the employment. U.S. Magistrate Thomas Coffin ruled that Abrahamson's conduct did not occur substantially within the time and space limits authorized by her employment, was not motivated by a purpose to serve the employer, and was not of a kind that she was hired to perform. Therefore, it did not occur within the scope of her employment — so the IRS is off the hook! (News reports are less clear on whether Burroughs is off the hook with his girlfriend.)

The case has naturally attracted all sorts of press. Burroughs appeared on ABC's 20/20. And we thank Tonight Show host Jay Leno for making the obvious IRS joke so we don't have to!

What other lessons can we draw from this week's sad story? Well, if you do ever get an audit notice, call us before you try and handle it yourself! We'll make sure you get all the professional assistance you need to defend your financial interests and even your dignity.

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.

May 12, 2013

The Importance of Keeping Good Records

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

That's always good advice. But it can be critical in the case of sales tax. Some states are famous for using the one-day observation test of restaurants and many other establishments.

The issue can be a real problem if the day the auditor picks is one of your best days of the week. It can get worse if sales have been growing over the last few years. The auditor could simply take the sales for the day and multiply by 313 (365 days less 52, assuming the business is closed one day a week) then multiply by 3 for a 3-year period. That's a real problem if sales two years ago were significantly less than today. Contesting the assessment could be difficult. You may have to have an expert witness show the test was not statistically correct. In some cases, even that won't get you off the hook. You're fighting from a poor position because you didn't maintain the required records.

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.

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.

November 18, 2012

No Documentation No Tax Deduction

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

In Scott Chrush v. Commissioner, T.C. Memo 2012-299, October 25, 201, the Tax Court upheld the IRS’s disallowance of deductions for a real estate consultant. He wasn’t able to substantiate his deductions. He did provide copies of receipts, but had no books or records and didn’t adequately explain the business purpose for the expenses, and many of the receipts were illegible.

He also wasn’t able to substantiate his home office expenses.

This case illustrates the importance of keeping good records, although the result seems harsh considering he produced copies of receipts and a bookkeeper had helped him assemble his tax information.

The result might have been worse than it otherwise would have because the taxpayer represented himself instead of hiring a lawyer to represent him.

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.

November 9, 2012

Home Ownership by Unmarried Individuals

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

If you co-own a home with someone who is not your spouse, such as a significant other or sibling, special tax rules apply to you during the period of ownership as well as at the time of sale. Watch for dollar limitations and allocations of tax benefits.

Mortgage interest

Interest on acquisition debt to buy, build, or substantially improve a principal residence plus one other designated home cannot exceed $1 million. Interest on home equity debt is limited to borrowing up to $100,000. To qualify for either acquisition debt or home equity debt, the debt must be secured by the first or second home.

The same $1.1 million combined debt limit applies to joint filers and single individuals. However, unmarried co-owners with total mortgages exceeding $1.1 million on their first and/or second homes must allocate the limit between them and deduct only a proportionate share of the interest paid. The allocation can be based on any reasonable method, such as by:

The amount of mortgage payments during the year. For example, if one owner made all of the mortgage payments, that owner would be entitled to deduct 100% of the mortgage interest, up to the dollar limits.
The percentage of home ownership. For example, if the home is owned 50/50, then each owner could deduct half of the total mortgage payments, regardless of which one actually made the payments.

Real estate taxes

There is no limit on the amount of real estate taxes that can be deducted. Again, co-owners can allocate the deduction for property taxes in any reasonable manner. Again, this can be done according to the percentage of ownership or the actual real estate taxes paid in the year.

Recapture of the homebuyer credit

If co-owners claimed a first-time homebuyer credit for the purchase of principal residence several years ago, recapture of the credit to the extent required is allocated in the same way in which the credit was originally claims. For example, if two people bought a home in 2008 and claimed the $7,500 credit, $500 of that credit must be recaptured in 2012. The amount that each owner recaptures depends on how much of the credit each owner claimed. If they split the credit, then each recaptures $250 on his or her personal income return.

Home sale exclusion

Gain on the sale of a principal residence (other than gain allocated to nonqualified use of the home) can be excluded up to a set dollar limit as long as you used the home as your principal residence for at least 2 of the 5 years preceding the date of sale. The dollar limit for a single individual is $250,000 of gain.

When co-owners are unmarried, each can exclude his or her share of gain up to this dollar limit. The dollar limit does not have to be apportioned between the owners. For example, if a home that is co-owned equally by 2 unmarried individuals is sold for a gain of $550,000, one-half of the gain, or $275,000 is allocated to each owner. Each owner can exclude up to $250,000 of gain on their personal income tax returns.

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