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The Man With the (Tax-Free) Bag

David M. Robson - Wednesday, December 12, 2018

These days it seems like every day brings new controversy to further divide Americans: red states squaring off against blue states and partisanship crossing the line into tribalism. And that's just as true with the holidays as with anything else. Is fruitcake really an abomination? Is Die Hard really a Christmas movie? Is Baby It's Cold Outside really a musical #MeToo violation in two-part harmony?
Fortunately, there are still some headlines that can bring us all back together. So this holiday season, we're especially delighted to remind you that A Visit From Saint Nick is a tax-free celebration. Santa won't be leaving a 1099 under your Christmas tree, and there won't be any Form 1040-GIFT to file after the tree comes down.
Taxable income generally includes all income, from whatever sources received. However, the tax code carves out several exceptions to that rule, much like Grandpa carves the drumsticks out of the holiday turkey. A "gift" is something of value, given without expecting anything in return. IRS Publication 525 states that "in most cases, property you receive as a gift, bequest, or inheritance isn't included in your income."
"But what about the milk and cookies?" you might ask. "That's the deal, right? Santa shows up with a bag of presents in exchange for cookies and milk (or maybe bourbon and eggnog). Doesn't that transform the whole occasion into a taxable exchange for value?" To which we might respond, "How did you get to be such a Grinch, anyway?"
"Ok, then, what about the gift tax?" you might challenge us next. Well, for starters, that's a levy on your right to give, not receive. So there's never any tax due to the recipient. You can give up to $15,000 each to as many people in a year as you like. If you're married, you and your spouse can join together to give up to $30,000 to every lucky winner. If you give more than $15,000 to a single recipient in a single year, you'll have to report the excess on Form 709. But even then, you won't owe actual tax until your lifetime taxable gifts exceed $11.18 million.
With those rules in mind, Santa's gotta be awfully generous before Christmas morning turns into a taxable event, even for him. (Granted, a trip to Tiffany's might do the trick.) But there's one last scenario to address — and one last loophole to highlight — before we finish our discussion. That's the Christmas Morning Car, an advertising staple since Lexus launched their "December to Remember" campaign back in 1998. What happens when Santa leaves a shiny new car wrapped in a big red bow in the driveway? This is the part where we're going to have to shatter some precious childhood illusions. Sorry, boys and girls, but that's not really Santa leaving that Lexus in the driveway. It's just Mom buying the car for Dad, or Dad buying it for Mom. And transfers between spouses are tax-free up to anyamount. Which means, once again, that the IRS won't be taking a bite out of your Christmas cheer.
Like everyone else, we wish you the best this holiday time, whether you celebrate Christmas, Hannukah, Kwanzaa, or even Festivus. But we want to offer something a little more tangible. Help us give you the gift of proactive planning. Call us when you're ready to save, and together we'll make the season even brighter!

 


Paying Your Tax Bill With Magic Beans?

David M. Robson - Wednesday, December 05, 2018

If you pay attention to financial news, you can't escape hearing about Bitcoin and other cryptocurrencies. Bitcoin is just like country music, Justin Bieber, and pineapple on pizza — people either love it, or hate it, but there's no middle ground. The billionaire Warren Buffet dismisses it as a "mirage," a "Buck Rogers" phenomenon, and "rat poison squared." But legions of fans see it someday replacing government-backed currencies. Odds are good that one of the millennials at your holiday table believes in Bitcoin as hopefully as they used to believe in Santa Claus.

Just as Pinocchio always wanted to be a real boy, Bitcoin wants to be real money. That means accomplishing two goals. First, it has to serve as a store of value. You have to be confident that if you put something in, you'll be able to get the same value out. And second, it has to serve as a medium of exchange. That means you have to be able to use it to pay for things just like you would use cash.

So far, Bitcoin's record in both areas is spotty. If you were one of the unfortunates who jumped into the market a year ago at $17,900, you're probably not feeling the love now that it's collapsed to $4,000. Similarly, if you've tried to use it to pay for gas or groceries, you've probably gotten blank stares from the cashier. And so, at least until now, Bitcoin and its blockchain-based peers like Ethereum have made news mainly for their wild price fluctuations. But last month, Ohio Treasurer Josh Mandel announced the Buckeye State would become the first to accept Bitcoin for tax payments. For now, the program is limited to business filers, although they can use Bitcoin to pay for any type of tax. However, the state plans to expand the program to individuals down the road. (We're not sure if that will happen before or after Ohio finally gets a decent professional football team.)

Treasurer Mandel, who at age 41 is young enough to consider himself an honorary millennial, is a longtime fan of the currency. But last month's move is part of a broader effort to attract software engineers and tech startups to the state. "We're doing this to plant the flag in Ohio as a national and international leader in blockchain technology," said Mandel.
Ohio has set up a website (of course) at OhioCrypto.com to accept payments. They've engaged a company called Bitpay to process the transactions and convert the coins into cash. The fee for that service is just 1%, which is cheaper than using a credit card. Will virtual currencies someday break through into the mainstream? At this point, who knows? (We're still waiting for the flying cars we saw on The Jetsons — although Rosie the robot housekeeper is almost here, and you can buy a watch to make video calls with Mr. Spacely for $279). And while Bitcoin itself is grabbing most of the cryptocurrency headlines, it may not be the ultimate winner. (Google wasn't the first online search engine, either.) If recent trends are any guide, Bitcoin will remain a punchline until suddenly, one day, it's not.

Here's the real bottom line of last month's news. The world is changing — and, like it or not, we have to change with it. That's true for tax professionals, too. The Flintstones may have been perfectly happy with someone telling them how much they owe. But the Jetsons want to know how to pay less. That's where we come in — and we're looking forward to helping you through 2019 and beyond!


Carrots Versus Sticks

David M. Robson - Tuesday, November 27, 2018

Take a look at our Internal Revenue Code. No, really, take a good look. (You can buy it on Amazon for just $161.89: two thick paperbacks totaling 4,968 pages. You even get free Prime shipping!) At first glance, it's all about the revenue. For FY 2019, federal income taxes should hit nearly $1.7 trillion. Payroll taxes will top $1.2 trillion. Corporate taxes, $225 billion. And estate taxes will generate somewhere around $20 billion, depending on how many billionaires die (#dropinthebucket). But taxes aren't just about the revenue. Washington loves to use taxes to accomplish goals they can't legislate directly. This generally takes the form of "tax expenditures" — special deductions, credits, or other rules designed to benefit specific favored activities or taxpayers.

The mortgage interest deduction may be the most famous of these carrots. For most people, homeownership is a cornerstone of the American Dream. But Congress would be hard-pressed to pass legislation requiring it, or even directly rewarding it. (Buy a home! Get a free $5,000 Target gift card!) So instead, they use taxes to subsidize it. For 2018, homeowners saved $68.1 billion by deducting mortgage interest on their taxes.

But every so often, the government uses taxes as a stick . . . or at least they try to. Last week, the Wall Street Journal published an editorial blowing the whistle on one such effort that may violate the First Amendment. Specifically, it accuses the IRS of punishing nonprofit organizations that advocate for legal marijuana: "The innocuously named Revenue Procedure 2018-5 contains a well-hidden provision enabling the Service to withhold tax-exempt status from organizations seeking to improve 'business conditions . . . relating to an activity involving controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by federal law.' That means that to obtain tax-exempt status under any provision of the Internal Revenue Code's Section 501 — whether as a charity, social-welfare advocacy group or other type of nonprofit — an organization may not advocate for altering the legal regime applicable to any Schedule I or II substance." Bottom line, according to the authors: "The IRS seeks to control independent policy advocacy. That's something the federal government may not do." If they can't prohibit the speech directly, they can't use the tax system to do it indirectly. Yes, "the devil's lettuce" is still prohibited under federal law. But 33 states have passed laws legalizing it in some form or another. It says a lot that the buttoned-down stiffs at the Wall Street Journal could publish the same editorial as the stoners at High Times magazine. So why would the IRS choose to wield this particular stick? And is it really the IRS's job to make those sorts of decisions anyway? Isn't the IRS just supposed to be the government's bill collector?

As far as we're concerned, we don't care what motivates you more, carrots or sticks. We just want to make sure you get all the breaks the law allows. But we can't do it if you don't ask us. So pick up the phone before time runs out to save in 2018, and lets see how we can put the rules to work for you!

 

 


All the Fun and Games

David M. Robson - Friday, November 16, 2018

Some of the world’s most popular board games give players the chance to live out professional fantasies. Aspiring property sharks can cheat each other with the classic Monopoly. Would-be Sherlock Holmeses can track down killers with Clue. Armchair generals can settle down to an evening of Risk. But until today there’s never been a game to let aspiring tax planners outwit the Internal Revenue Code. Shouldn’t that be at least as much fun as figuring out it was Colonel Mustard in the Library with the candlestick?

Well, that all changes in the form of a new board game called “Transfer Pricing: The Game.” Transfer pricing is the process for setting the value of transactions between businesses under common ownership and control. Let’s say Amalgamated Widgetsowns a subsidiary that makes parts in, say, Macedonia, then puts them together here in the U.S. How much should the parent pay for the parts? That maysound boring and technical (because, yeah, it is). So what difference does it all make? Let’s say the corporate tax rate in Macedonia is 10% and the rate here is 21%. Naturally, it makes sense to allocate as much of the profit as possible in Macedonia where the rate is lower.Of course, tax collectors everywhere are on to the game. So you have to be able to show them you’re transferring at an “arm’s length” price — the same price a disinterested buyer would pay from a disinterested seller. The Organisation for Economic Cooperation and Development sets out rules for pricing all sorts of transactions, including tangible items, intellectual property, and even loans.

Now you’re excited to try it yourself! Too bad you don’t own a foreign subsidiary. That’s where “Transfer Pricing: The Game” comes in. The publisher describes it as “the card game that decides who has the most substance. Now available, with an arm’s length price of only $30.” The goal? “You run a subsidiary ofOrchid Enterprises and build a substantive value chain, grow income, destroy your corporate rivals, and defend your accomplishments against various TaxAuthorities, legal challenges, and business pitfalls. Prove once and for all who is the greatest transfer pricing professional of all time!”The game is designed for 2-8 players, ages 12 and up. Open the box and you’ll find three sets of cards. “Function” cards represent basic business functionslike marketing. “Action” cards drive game play. And “defense” cards provide power you need to defend your actions against various challenges from tax authorities.There’s no board, so technically it’s not a “board game,” but if you’re not comfortable with technicalities, this really isn’t the game for you. The contest starts when the first player draws an action card and follows the directions (like “audit an opponent”). Once you complete them, you’ll drawanother function card and trade it for one of your existing function cards or discard it. To finish a turn, draw a defense card and attach it to a function card or hold it for future play. Look, who are we kidding? The whole thing sounds about as much fun as a group project for an MBA class. Maybe that’s whyit recently ranked just #178,162 in Amazon’s “Toys & Games” category.

Here’s all you really need to know. Overpaying your tax is no fun, and tax planning isn’t a game. So call us when you’re ready to play, and get a serious plan to pay less. Then pass GO and find something fun to do with your savings!


Don’t Let These Guys Catch You Paying Taxes!

David M. Robson - Tuesday, November 13, 2018

Streaming TV services like Netflix have changed how we watch television, dropping an entire season of a series at once for us to binge on. They’ve even breathed new life into “quality television,” a phrase that used to provoke laughs from that insufferably smug type of person who used to brag that they didn’t even own what we all used to call the “idiot box.”

Netflix has mined TV gold from all sorts of settings. Orange is the New Black explores life inside a women’s prison. Stranger Things is a love letter to classic 1980s sci-fi/horror films. And Bojack Horseman takes us inside the world of a half-man, half-horse, has-been TV star who drinks too much. It was only a matter of time before we’d see inside the upside-down world where the IRS unleashes investigators to chase business owners for . . . wait for it . . . paying their taxes.

Ozark introduces us to Marty Byrde, a frugal Chicago-area financial advisor and family man who drives a 10-year-old Honda and resists moving his firm to flashy new downtown offices. (Prudent, right?) One night, he takes an emergency meeting with his partner, where we discover his realbusiness is laundering cash for a Mexican drug cartel. Then Marty learns his associates have stolen millions (spoiler alert: bad move) and watches the boss’s sicarios slaughter them and nonchalantly stuff their bodies in barrels.

Marty, played by the always-slightly-oily Jason Bateman, survives by promising to repay what his partners stole and launder another $500 million. He moves his family to Missouri’s Lake of the Ozarks, meets a colorful cast of local characters, and searches for businesses he can use to ply his trade. Meanwhile, investigators have found the bodies from the massacre and connected them to the partner who split town. Adventure and hilarity ensue for 20 episodes, and just like that, your entire weekend is gone.

As for the IRS, they don’t get all judge-y about how you make your money. They just want their slice of the pie. (Pie is delicious.) But they do get judge-y when you try to pass off cherry pie as apple. That’s a real problem for drug cartels. Their business generates cash, and lots of it. They can’t just take suitcases full of Benjamins to the bank without raising red flags. They need to turn that dirty cash into legitimate funds they can use to buy things like jet planes, islands, and tigers on a gold leash.

That’s where financial alchemists like Marty earn their keep. They find legit businesses (like a struggling restaurant and a skeevy “gentlemen’s club”) to hide behind. They run the cash through the legit business’s books and deposit it in the legit business’s bank. They even pay tax on it. Presto, no more narcodollars! It may not be the kind of business they teach in fancy MBA programs. There aren’t any glitzy national conferences, or PR-minded professional associations with continuing education and ethics requirements. But hey, it’s a living. (Until suddenly one day it’s not.)

IRS agents who target Marty and his ilk are experts in following the money. They partner with agencies like the FBI and DEA to stop crooks from hiding their loot, even when “hiding” means paying taxes on it like anyone else.

Sadly, we can’t help if you get mixed up with a Mexican cartel. But we can help you stop wasting money on taxes you don’t have to pay. So call us when you’re ready for a plan, and have fun binging on the savings!

 



The New Tax Plan Has Been Released, How Will It Affect You?

David M. Robson - Friday, September 29, 2017

 

The quick answer is it's too early to tell. This is only a tax reform structure and the details have been left to Congress to iron out the details. So, we will have to wait to see the outcome, if it passes.
What we can determine so far is that the standard deductions will be raised, although the additional deduction for being over 65 and/or Blind have been removed. There does not appear to be a provision for the Head of Household status, so we must assume that these people would fall under the Single category. There are also questions related to the fact the personal exemptions have been rolled into the standard deduction, this affects how much the itemized deduction would have to be to make it favorable over the standard deduction. Another interesting proposal is the comment that "most" of the itemized deductions are being eliminated except for the mortgage interest and charitable contributions. The word "most" leaves many unanswered questions. Does this mean that casualty losses may be removed? I'm sure the recent victims of the hurricanes and forest fires would be horrified to learn that. It also may mean that gambling losses would no longer be available to offset gambling winnings. But these are only a couple of examples outside of the usual medical expenses, unreimbursed employee business expenses and taxes that are often associated with the itemized deductions.
Another interesting proposal is the reduction for 7 tax brackets to just 3 brackets. It is impossible now to determine the actual effect of this due to the fact the income ranges have not been determined yet. There is also no mention of the changes to capital gains rates.
There are more questions than answers, we will have to wait to see how the plan will be implemented.
What should you do now? Well, just because the tax reform has not been finalized doesn't mean that you can't improve your tax situation now. In my experience, most people are not taking advantage of all the strategies that could be saving them significantly on their tax bill. Let's do a free tax analysis and see if you are paying more than your fair share. There are many legitimate deductions that when implemented correctly can dramatically affect your tax bill.
If you want to see a summary of the tax reform plan cfollow this link to download a copy.

 

Transform Non-deductible Interest into Tax Deductible Interest

David M. Robson - Friday, July 28, 2017

 

The only interest that is still deductible as an itemized deduction is home mortgage interest and investment interest. If you are like so many others with large consumer debt, such as credit cards and car payments, you are paying high interest rates that are not deductible. If the amount of consumer interest you pay each year is substantial and you itemize your deductions, you may want to consider converting that nondeductible interest into tax-deductible interest by paying off the consumer debt with a home equity line of credit. Generally, current law allows individual taxpayers to borrow up to $100,000 of home equity and deduct the interest on that loan as home mortgage interest. This would also apply to planned large consumer purchases, such as a car or motor home. Using a home equity line to purchase these items will make the interest deductible.
However, using the equity in your home for frivolous purposes is not financially prudent. Before borrowing against your home, you should carefully consider the following:
1. Treat any home equity loan or line of credit like a consumer loan and pay it off over the same period of time you would have had to pay the consumer loan. Otherwise, you may reach retirement age without having your home paid for.
2. When buying a car, you can sometimes get very favorable interest rates or a rebate. It is good practice to make sure that the benefit of making the interest deductible is greater than the benefit of the low-interest consumer loan.
3. If you have accumulated substantial credit card debt and the high interest rates that go along with it, paying off the credit card debt with a home equity loan or line of credit will substantially reduce the interest charges and allow more of your monthly payments to go toward the debt principal. Using this technique can reduce your non-deductible interest and increase your tax deductions, and thereby reduce your income tax and help you pay off consumer debt more quickly. However, don’t fall into the financial trap of paying off the consumer debt with home equity and then turning around and running up the consumer debt again and repeating the cycle over and over again.
4. Home equity debt interest is not deductible for alternative minimum tax (AMT) purposes. So, if you are subject to the AMT, this technique generally will not benefit you.
5. Be aware that the repercussions of defaulting on a home loan are far more serious than on consumer debt.
Please call this office if you have any questions related to using home equity debt to pay off consumer debt and the tax consequences that apply to your particular circumstances.

The IRS May Be Loosening Their Definition of College Expenses

David M. Robson - Tuesday, July 25, 2017

 

Computers and the Internet have become integral parts of education by providing access to online courses, learning and research. It is virtually impossible to be enrolled in postsecondary education without a computer, which is needed to complete written assignments, type reports, prepare theses and access the Internet.

Recent tax regulations have acknowledged the fact that computers, peripheral equipment, certain types of nonentertainment software, Internet access and related services are essential for postsecondary education. Thus, when those items are used primarily by a beneficiary of a qualified state tuition (Sec 529) plan, the cost of the items can be reimbursed from the plan’s funds, tax-free.

In addition, the regulations for the American Opportunity Tax Credit (AOTC) have been modified (effective in 2016) to clarify that the AOTC’s definition of qualified tuition and related expenses includes books, supplies and any other equipment that is required for enrollment or attendance at an eligible institution. For this purpose, the materials must be needed for “meaningful attendance or enrollment” in a course of study; they can be purchased from the institution or an outside vendor.

Computers are not specifically listed in the new AOTC regulations, but the wording certainly implies that a computer qualifies as long as it is required for meaningful attendance. This change is so new that there is no precedent for how the IRS will apply the regulations to computers, as the regulations do not specifically include them. To be on the safe side, each student seeking the credit should get an instructor to write a letter (on school letterhead) stating, “ A computer is required for meaningful attendance.”

For more information regarding which education expenses qualify for Sec 529 plan reimbursements or for the AOTC, please give this office a call.

 

Why You Should Stop Comparing Yourself To The Competition

David M. Robson - Tuesday, June 27, 2017

Comparing yourself to other marketers can only be detrimental to your present and future successes. You may not be at the same experience level of those you’re comparing yourself to and another person’s success may not be the magical transformation you perceive it to be.

Self doubt can arise from the comparisons you make between you and fellow marketers. Some may seem to have the Midas touch to whatever project they choose to pursue – but you aren’t privy to what goes on before the huge successes.

Those entrepreneurs who are successful have likely spent an enormous amount of time, money and effort on their ventures. It may look easy, but chances are they had many self doubts about their own potential for success before it happened.

Comparison to others and the self doubt that follows goes on in every business - but it’s more prevalent in Internet marketing because you’re always putting yourself out there, presenting yourself and your ideas to others.

If the many failures that are sure to happen were figured into the mix, another person’s success may look entirely different to you. Huge and consistent successes of others can make you feel like such a loser – because someone is always making more money than you or seems to be successful with every launch of a product.

Comparisons like that are dangerous to your own self confidence and can defeat what you’re trying to accomplish. You may not be aware of their many failures in the past or of how many hours and dollars they’ve spent getting to this point.

One way to look at comparisons differently is to view them as challenges. “If she can do it, I know I can!” may be exactly the boost of adrenalin you need to take action and make your own success come true.

Many people who have reached a certain level of success use comparisons to others as a tool to strategize their future business moves. It provides quick insight to trends and what’s working for others so you can incorporate many of the same ideas for yourself.

Competition is fierce among many types of businesses – especially Internet marketing. Looking into strategies of other marketers can be a good thing if you use them as models rather than comparing yourself to them in a negative way.

Self doubt can become the nemesis of your future. Guard against comparing yourself to others in a negative light and focus on your present and future goals to lead you to the success you desire.

 


The Top 5 Ways to Improve Your Employee Motivation Skills

David M. Robson - Sunday, June 25, 2017

Look around at the successful businesses in your area or anywhere in the world. What made them successful? Reasons for business success are many and complex but one of the underlying reasons for success in most businesses is employee motivation.
If your employees are not motivated, your business will suffer from the inside out and it could begin to crumble one employee at a time. Soon, you’ll be surrounded by poor, dissatisfied employees with the good ones gone seeking job fulfillment.
Without question, people work to make money, to make a living and support their family and the lifestyle to which they’ve become accustomed or would like to achieve. But, if your business strives to maintain a healthy environment it must go beyond monetary reward. If we fail to gain fulfillment in our work and feel needed then the paycheck becomes secondary and may not be worth it at all.
1. Treat your employees with respect. If possible, learn their names and address them as such each time you see them. If their job gives them no dignity they will dread coming to work and want to leave as soon as possible. Without respect, there is no company loyalty and they will undermine you each chance they get.
2. Earn your employees trust. Make them feel an important part of the company’s success. Share with them company plans for change and expansion. Communicate with employees individually and as a group.
If they hear about a change in their company from an outsider or on the news, they feel left out and even betrayed. Be generous with inter office memos to be followed with meetings in person. Lack of communication with employees is one of the chief reasons for inter office turmoil. When the truth is not shared, false rumors can triumph.
3. Listen to what your employees have to say. In many cases, your employees are closer to the job than you are. They have a feel for what’s right and what’s wrong and will be willing to share this information with their employer if they’ll listen. You may not want to take action on all their suggestions, but give them an opportunity to vent. You may be surprised at what’s going on right under your nose.
4. Show your appreciation. Merit raises are nice but sometimes not feasible. Schedule an appreciation day with a small party or get together. Perhaps name an employee of the month.
Present them with small tokens of your gratitude such as a bonus, employee pin or a coupon for dinner. Your appreciation should be spread throughout the year, not just at an annual meeting. Frequent boosts of employee morale are essential.
5. Provide employees incentives for advancement. No one wants to work in a dead end job. Find out what each employee wants in the job and in life in general and express an interest in helping him or her to fulfill those desires. Many times you’ll learn they want nothing more than to love what they do and feel they’re contributing to the overall effort.
Your employees deserve to have your respect, trust and appreciation. Communicate with them and provide work incentives and your employee motivation skills will greatly improve. So will your business


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