November 26, 2014

400 People Giving Thanks

Back in 1982, Forbes magazine compiled their first "Forbes 400" list of the richest Americans. It took $75 million to gain entry to that first list, which featured an entire country club's worth of Rockefellers, Mellons, and DuPonts. Shipping magnate Daniel K. Ludwig reigned above the rest, with a net worth of $2 billion. (You all remember that guy, right?) Since then, the Forbes 400 has become the magazine's most eagerly awaited feature, with Silicon Valley tech billionaires and hedge fund superstars replacing the blue-blood heirs of yore.

They say that imitation is the sincerest form of flattery. Ten years later, in 1992, our friends at the IRS got into the "400" game, compiling statistics on the 400 highest incomes. And while the IRS isn't telling us everything we want to know (like their names!), the report offers a fascinating peek into the wallets of 400 people with great reasons to give thanks this season.

Last week, the numbers geeks in the IRS Statistics of Income division released their Top 400 summary for 2010. (It took awhile to sift through the 143 million returns the IRS got that year.) It took $99.1 million in adjusted gross income to make the list. (That means that, among others, billionaire Warren Buffet didn't make the list, as he revealed his adjusted gross income for that year was a "mere" $63 million.) The average income for the top 400 was $265.1 million, and the group as a whole reported 1.31% of the entire country's adjusted gross income.

The big surprise isn't how much our top 400 make, it's how they make it. Not salaries and wages — those made up just 6.41% of the total. Not interest and dividends — those made up just 8.54% and 16.41%, respectively. No, the real action came from capital gains, which averaged $165.9 million for each of our top earners. In fact, those 400 taxpayers all by themselves accounted for over 14% of capital gains reported by the entire country.

And how much tax did our top 400 pay? Remember, rates on capital gains were capped at just 15% in 2010, and there was no 3.8% net investment income tax as there is today. So, the average "top 400" tax bill was $47.8 million, and the group as a whole paid 2.01% of the entire country's tax bill. Sure, that sounds like a lot. But it equals a rate of just 18.04% of the average "top 400" income — and barely half the top 35% marginal rate. In fact, 37 of those 400 paid less than 10% of their income in tax, while just 54 paid over 30%.

4,024 taxpayers have joined the IRS Top 400 over the last 19 years. 2,909 of them appeared just once, which reinforces the fact that most of those lucky winners make it by selling something like a business they spend a lifetime nurturing. 504 have appeared twice; 175 have appeared three times, and 126 have appeared four times. Just 95 taxpayers have appeared on the list 10 or more times, and you can imagine the holidays are pretty lavish at their houses.

This holiday season, we want to give thanks to you, our loyal readers. This includes those of you who are clients, and those of you who aren't (yet). We wish you and your families the best, and we understand that the best reasons to give thanks don't show up on your tax returns.

But hey, as long as we're talking — if you haven't called us yet for a plan to pay less tax, what are you waiting for? There's still time left for planning in 2014 — and we're confident that if you do, you'll have more to give thanks for, in 2014 and in all the years to come.

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.

November 12, 2014

Deduct the Alamo!

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

In 1836, Mexican General Santa Anna and 1,500 troops laid seige against 182 Texans garrisoned at the Alamo, a Spanish mission designed to resist attack from native tribes. Thirteen days later, the Mexicans stormed the walls and killed every last man inside, including Commander William Travis and frontiersmen Davey Crockett and Jim Bowie. Santa Anna's cruelty inspired Texans to join their army to seek revenge, crying "Remember the Alamo!" on their way to crushing the Mexicans at the Battle of San Jacinto.

Remembering the Alamo has become a central part of Texas history. So, which Texas musician just offered a tax-planning lesson by donating his collection of Alamo artifacts to the Texas Land Office? Was it rock 'n' roll pioneer Roy Orbison, hailing from lonely Vernon near the Oklahoma border? Perhaps it was country legend Willie Nelson, born an hour south of Fort Worth? Wait, wait . . . was it Tejano accordionist Leonardo "Flaco" Jiménez from San Antonio? No, no, and no. The answer, of course, is English singer and drummer Phil Collins, hailing from the London suburb of Chiswick!

Collins fell in love with the Alamo legend at age 5, watching actor Fess Parker play the "King of the Wild Frontier" Davey Crockett. According to Texas Monthly, the rocker's collection includes hundreds of documents, "plus artifacts like uniforms and Brown Bess muskets that belonged to Mexican soldiers, a sword belt believed to have been worn by Travis when he died atop the northern wall, and a shot pouch that Crockett is thought to have given a Mexican soldier just before he was executed." For years, they sat in his basement in Switzerland. But last month, Collins donated over 200 of his pieces to go on display in a new Alamo Visitors' Center.

Collins grudgingly admits to spending "seven figures" building his collection. Today it's said to be worth as much as $15 million. That sort of appreciation would seem to invite attack from the troops at the IRS. (And collectibles like the Alamo artifacts are even subject to a special 28% rate, 8% higher than the regular 20% for regular long-term gains). But there's an easy way for donors like Collins to avoid that tax, and get an even bigger charitable deduction for their gifts.

Let's say you spend $5 million building a collection that grows to be worth $15 million. Then you decide you want it to go to a museum. If you sell it to the museum, you'll owe $2.8 million in capital gains tax, plus $380,000 in "net investment income tax" on your $10 million gain. That's probably not as bad as being overrun by 1,500 soldiers — but it still leaves you with just $6,820,000 of after-tax gain.

Now let's say that instead of selling your collection to the museum, you donate it. Now you won't pay any tax at all. (Why should you? You never really "realize" your gain.) And, because you're making a charitable gift, you get to take a charitable deduction for the full $15 million value of your donation!

That same strategy works for any sort of appreciated property. Let's say you paid $1 million for a piece of property, which is now worth $3 million. Now you want your alma mater to have that $3 million, even though you know they can't use the property itself. You could sell the property, donate the after-tax proceeds, and take a deduction for your after-tax gift. Or, you could just donate the property and let the school sell it. That would avoid the tax on the gain and give you a deduction for the full pre-tax value!

Tax planning couldn't save the Texans at the Alamo. But it can save you from the IRS artillery. So if your year-end plans include charitable gifts, call us. We can help you with ideas to make the most of those gifts, even if you're not deducting the Alamo.

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.

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.

October 29, 2014

Illegal Deduction in the Backfield

by Kenneth Hoffman in Business Counsel, Tax Counsel

The 1985 Chicago Bears were one of the greatest teams in NFL history — in fact, ESPN ranked them the greatest ever. Quarterback Jim McMahon, Hall-of-Fame running back Walter Payton, defensive tackle William "Refrigerator" Perry, and the rest of the team captured America's heart as they sent nine players to the Pro Bowl and shuffled their way to victory in Super Bowl XX.

Hard to believe that was just 29 short years ago. Today's "Monsters of the Midway" are 3-5 after going into hibernation against the New England Patriots this week. They've lost to the Bills, the Packers, the Panthers, and the Dolphins. They're even losing to the Cook County Revenue Department! And that contest illustrates the sort of hair-splitting that seems to define so much of tax law.

In 2003, the Chicago Park District renovated the team's home at Soldier Field. The new venue includes 8,000 "club seats" on the Lake Michigan side of the field that come with all sorts of extra goodies like access to the heated "Club Lounge," parking, and gameday programs. There are also 133 luxury suites that rent for up to $300,000 per year and include private seating, private bathrooms, food and drinks, and even individual temperature controls. (If you've ever shivered through a December game at "the Eyesore on the Lake Shore," you'll realize that heat may be the most valuable perk of all!)

Cook County, where the stadium sits, levies an amusement tax equal to "three percent of the admission fee or other charges paid for the privilege to enter, to witness or to view such amusement." (We're not sure how "amusing" it is to watch Da Bears fall to the lowly Carolina Panthers, but that's a topic for a different day.) However, that tax specifically excludes "any separately stated charges for nonamusement services or sales of tangible personal property."

And that's where it starts getting tricky. How much of the premium ticket price should be subject to that tax and how much should be exempt?

The team broke out a separate "club privilege fee" from the price of the club seats and argued that it shouldn't be taxable because it's separate from the right to enter the stadium and watch the game. As for the luxury suites however, they did not break out a separate fee for the extras, but assigned those seats a flat $104 value and paid the tax on that amount. In 2007, the county threw a penalty flag, holding that it's impossible to separate the extra perks from the price of a seat, and sacked the team for $4.1 million in extra taxes.

Naturally, the Bears challenged the ruling on the field. They took it to an administrative law judge, who sided with the county.

If this had been an on-field call, the Bears would have been allowed just one challenge — and they would have been charged with a timeout too, for losing it! But that's not how it works with taxes. So the team appealed to the replay judges at the Cook County Circuit Court, and won. But now the county had possession. They advanced the ball to the First District Appellate Court, which re-affirmed the tax. (Don't rule out a Hail Mary to the Illinois Supreme Court. And you thought football games have gotten too long!)

Coach Mike Ditka would never have led his '85 Bears to the field without a game plan to minimize his opponents' strengths and take advantage of their weaknesses. It works the same way with your taxes. So call us when you're ready for your own plan. But do it fast! December 31 is closer than you think, and the clock is about to run out on some of the most valuable strategies!

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.

October 8, 2014

What Do You Give The Man Who Has Everything?

by Kenneth Hoffman in Tax Planning

Last week, New York Yankee shortstop and future Hall-of-Famer Derek Jeter played his last Major League Baseball game. He chopped a single to third in the third inning to drive in a run, then took himself out for good. That final hit brings his total to 3,465 hits, along with a .310 batting average, five Gold Glove awards, and five World Series rings. Jeter was that rare player who stayed with a single club for his entire career. He's also untainted by so-called "performance enhancing drugs" plaguing the game (or, in the case of Jeter's teammate Alex Rodriguez, you can leave off "performance enhancing"). Jeter goes out a very popular guy — and that popularity is about to send him into extra innings with our friends at the IRS.

Jeter earned over $265 million over the course of his 20-year career. And that's before his endorsement deals with Gatorade, Fleet Bank, Ford, VISA, Discover Card, Florsheim, Gillette, Skippy peanut butter, XM Satellite radio, and even his own Nike shoe. If ever there were a guy who could buy anything he wanted, it's "Captain Clutch."

But that didn't stop the baseball world from showering him with gifts upon his retirement. The Tampa Bay Devil Rays gave him a custom-painted kayak that cost more than $6,000. The Cincinnati Reds gave him framed autographed jerseys of fellow shortstops Dave Concepcion and Barry Larkin, along with three photos from the weekend in Cincinnati when Jeter was named captain of the Yankees. The Seattle Mariners gave him a seat from the Kingdome, where he made his major league debut on May 29, 1995. Even the lowly Chicago Cubs, which hosted Jeter for just five career games, honored him with a number from the hand-operated scoreboard. All told, the gifts are said to be worth about $33,000.

So, naturally, Jeter will owe another $16,000 or so in tax on those gifts. That includes 39.6% federal income tax, 3.8% Medicare tax, plus whatever state and local taxes apply where he receives the gifts.

Wait a minute. We're talking gifts here, right? How can Jeter owe income tax on gifts?

It all comes down to why the giver makes the gift. If a gift is made out of "detached and disinterested generosity," like when you give your children a birthday present, the officials in charge of collecting income tax generally turn a blind eye. (If the value of gifts to any single individual exceed $14,000 per year, the officials in charge of collecting gift taxes start getting interested.) But if the gift is really a marketing gesture in disguise — like when a team hosts a ceremony to present Jeter with his gift, then uses it as part of its marketing — that "gift" becomes taxable income.

What could Jeter do to avoid the tax? He could refuse the gifts, which wouldn't seem very sporting. Or he could request they go to his charitable foundation. But that would defeat the purpose of gifts like the Cincinnati shortstops' jerseys that are intended to be sentimental rather than valuable.

Jeter's final-season salary was $12 million, which works out to about $74,000 per game, or $8,230 per inning. So the good news is that the tax on the gifts should only eat up a couple of inning's worth of income.

Are your business associates planning to lavish you with gifts this holiday season? Call us. We know you won't be happy to pay tax on them, but at least we can help you with a plan to pay the least amount allowed. And remember, we're here for the rest of your teammates, too!

September 24, 2014

Lipstick on a Pig?

by Kenneth Hoffman in Tax Counsel, Tax Planning

The personal finance website mint.com reports the average American woman spends $15,000 on makeup in her lifetime, including $3,770 on mascara, $2,750 on eyeshadow, and $1,780 on lipstick. Americans spent $33.3 billion on cosmetics and other beauty products in 2010 alone. ("Being a woman is easy and inexpensive," said no one, ever.)

Our friends at the Internal Revenue Service don't bat an eyelash at all that spending. Cosmetics companies pay billions in taxes. And the product they sell is a nondeductible personal item. But that doesn't stop people from trying — including, we now learn, former United States Senator Scott Brown.

Brown has always been an ambitious sort. In 2010, after a career as a lawyer and state legislator, he won a special election to replace the late Ted Kennedy, becoming the first Republican Senator from Massachusetts since 1972. Then, in 2012, he lost his reelection bid to former Harvard professor Elizabeth Warren. Following his defeat, he moved north to New Hampshire and announced plans to run from the Granite State.

But Brown has always had a bit of a vain streak, too. At age 22, while studying law at Boston College, he won Cosmopolitan's "Sexiest Man in America" contest, posing nude for the magazine's centerfold. So it can't have come as too much of a surprise when he made six years of tax returns available to reporters and revealed that he deducted $2,149 in 2010 and $1,401 in 2011 for "TV makeup and grooming" to help promote his memoirs.

At first blush, deducting makeup might seem perfectly appropriate. Brown probably wouldn't wear it if he hadn't been promoting his book. The problem here is that the rules say that's not enough. IRS Publication 529 reports that you can deduct the cost of work clothes if: 1) "you must wear them as a condition of your employment" and 2) "the clothes are not suitable for everyday wear." Courts have extended this foundation to grooming expenses, holding that they're inherently personal and nondeductible.

Most recently, the Tax Court reviewed the case of Anietra Hamper, who worked as a morning and noon news anchor for WNBS-TV in Columbus. Her station's Women's Wardrobe Guidelines required her to maintain her hair in a neat and professional cut and keep her fingernails at a reasonable length, finished with conservatively colored polish. Yet the Court smeared off thousands in deductions she took for contact lenses, makeup, haircuts, manicures, and teeth whitening.

Last week, a Democratic watchdog group by the name of the American Democracy Legal Fund sent a letter asking the IRS to investigate Brown's deductions and citing a litany of cases holding that personal grooming and makeup expenses are nondeductible. Brown's campaign glossed over the letter as a partisan attack. But Brown is polling about four points behind incumbent Jeanne Shaheen, in a close election that will help determine which party controls the Senate for the final two years of President Obama's administration. This sort of negative publicity can't help Brown's chances. And it does nothing to conceal the stereotype of politicians as slick, blow-dried phonies.

Only time will tell if the IRS takes up Brown's case, or if the controversy affects his election. In the meantime, call us if you're worried about blemishes in your finances. We'll give you the plan you need to look flawless under the hottest lights!

September 17, 2014

Can We Talk?

by Kenneth Hoffman in Tax Planning, Tax Counsel

The world of comedy lost a giant this month. Joan Rivers may have topped out at just 5'2" and weighed 110 pounds soaking wet, but when it comes to influence, she towered above her peers. Rivers established that women can be just as funny as men and paved the way for the Sarah Silvermans and Tina Feys of today. She could alienate people with sometimes-offensive takes on her fellow celebrities. ("Is Elizabeth Taylor fat? Her favorite food is seconds.") But she was never afraid to turn her wit on herself. ("I've had so much plastic surgery, when I die, they will donate my body to Tupperware.")

Rivers hated Washington, and considered herself apolitical. But it's hard to go 50 years in the public eye without having something to say, especially when it comes to taxes. So here are three quick observations:

Money was important to Rivers. ("People say that money is not the key to happiness, but I always figured if you have enough money, you can have a key made.") She worked hard to make it and worked hard to keep it. Back in 2012, she criticized President Obama's proposal to raise taxes: "If I work very hard, I should be able to gather the fruits of my labor." Of course, this was a woman who also said "I'm definitely in favor of a monarchy because they're there, they look good, and always have good gift shops when you leave the palace." So, you might want to take her specific policy recommendations with a grain of salt!
Rivers wasn't afraid to take on the jokers at the IRS. Back in 1993, she lost a Tax Court case involving disability insurance premiums. The dispute established the rule that a corporation can't deduct those premiums on an employee unless there's a contractually binding obligation to pay the benefits to the employee. (We'll skip the details because they're so boring and technical that even she couldn't make them amusing.)
Rivers will get a pretty nice final tax break from the IRS, even though it comes too late for her to enjoy it. Code Section 2053 says that when it comes time to calculating estate tax, you can deduct funeral expenses. And Rivers made it clear that she wanted to go out in style. Here's what she said in her 2012 book, I Hate Everyone . . . Starting with Me:
"When I die, I want my funeral to be a huge showbiz affair with lights, cameras, action. I want Craft services, I want paparazzi and I want publicists making a scene! I want it to be Hollywood all the way. I don’t want some rabbi rambling on; I want Meryl Streep crying, in five different accents. I don’t want a eulogy; I want Bobby Vinton to pick up my head and sing 'Mr. Lonely.' I want to look gorgeous, better dead than I do alive. I want to be buried in a Valentino gown and I want Harry Winston to make me a toe tag. And I want a wind machine so that even in the casket my hair is blowing just like Beyoncé’s."

She may not have gotten the funeral she joked about. But she did get a pack of celebrities, a troupe of bagpipes, and a celebration of a life well lived.

Joan Rivers entertained millions over the course of her career. But there's nothing entertaining about wasting money on taxes you don't have to pay. And you'll get the last laugh if you know you've done everything you can to keep what you make. So call us for a plan to pay less, before the comics at the IRS throw out the punch line for you!

September 10, 2014

No Such Thing As a Free Lunch!

by Kenneth Hoffman in Business Counsel, Tax Counsel

Silicon Valley's high-tech employers are famous for feeding their employees at work. It's not entirely selfless — feeding people helps attract talented workers and keep them chained to their desks. At this point, it's no longer a novelty — it's an expected part of Silicon Valley culture. Companies routinely make headlines for luring away each others' executives and programmers. But back in 2008, Facebook made headlines for poaching Google's chef!

Employers know that if they're going to use lunch to compete for talent, it oughta be good. The average computer nerd may be perfectly happy scarfing down Cheetos in his parents' basement. But six-figure software engineers demand more. So, for example, Google offers employees 30 different "cafes" at their Mountain View campus, serving delicacies like squash-corn-pecan dumplings, and daal saagwala from Northern India: "a mix of soft kale, spinach, and mustard greens, tossed with three types of beans and lentils in a broth singing with distinct cumin notes and a pleasant cilantro flourish." (We suspect that if they had served anything in honor of last month's International Bacon Day, it would have been so insanely good that you could never look a pig in the eye again.)

The best part? It's all free! But that may not be true much longer, if the food critics at the IRS have their way. Last month, they released their 2014-2015 Priority Guidance Plan, which reveals their 317 priority "projects we intend to work on actively during the plan year." And there on Page 7, sandwiched between "Regulations under §86 regarding rules for lump-sum elections" and "Regulations on cafeteria plans under §125," you'll find "Guidance under §§119 and 132 regarding employer-provided meals."

Ironically, free lunches have nothing to do with "cafeteria plans." The relevant regulations at 26 CFR 1.119-1 provide that "The value of meals furnished to an employee by his employer shall be excluded from the employee’s gross income if two tests are met: (i) The meals are furnished on the business premises of the employer, and (ii) the meals are furnished for the convenience of the employer."

Sounds pretty straightforward, right? Marketing software maker Moz.com gives employees a never-ending cereal bar. They serve it at their business headquarters, and they do it to keep employees from running to the In-N-Out Burger down the street. So what's the problem? Well, the IRS thinks that all that Cap'n Crunch may be more than just a convenient employee perk. They're worried that it's actually disguised compensation. And they're licking their chops at the thought of all the tasty revenue they can raise if they're right. (Don't even get them started on that 24-7 on-tap keg at apartmentrental.com!)

If the IRS concludes that meals are part of compensation, they'll be included in employees' W2s and taxed just like the rest of their paychecks. And while the occasional daal saagwala might not sound like much, those meals can add up fast. Let's see here . . . 1,000 employees eating $8 meals, five times per week, adds up to $2 million in new taxable income per year from just this one example — plusmore for Social Security and Medicare. No wonder the carnivores at the IRS are sharpening their knives! (Of course, they'll have to issue even more new regulations telling us how to value all those meals. But bureaucrats love writing regulations even more than they love Cap'n Crunch!)

You may not be worried about all this if you're not getting a free lunch at work. But remember, the IRS has 316 other"priority projects" on its plate. And it's our job to keep an eye out for the ones that hit your wallet. So call us when you're ready for the plan you need to protect yourself from them all!

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.

August 30, 2014

It's International Bacon Day!

by Kenneth Hoffman in Tax Counsel

The last Saturday in August is International Bacon Day here in the United States. (Yes, it's really a thing.) Hang your bacon decorations and warm up your voice for carols! IBD is your chance to celebrate all things bacon, like peanut butter-bacon pop tarts, bacon-flavored ice cream, and bacon cocktails. There's even THC-infused chocolate-covered bacon (!) for the Cheech & Chong set. It's all great fun for everyone except the pig.

There's no denying that bacon mania has swept the country. (Cupcakes? Soooo yesterday.) But today's clever chefs are combining all sorts of unexpected ingredients to make all sorts of new dishes. They're drizzling chocolate on things that never went with chocolate. They're deep-frying things that should never, ever be deep-fried. Today's eaters are having more fun with food than at any time since John Montagu, the fourth Earl of Sandwich, decided not to get up from his card game to eat lunch.

What does any of this have to do with taxes? Glad you asked! We've said before that every financial decision you make has at least some tax consequence, even if it's a simple sales tax. So let's look at three random nuggets about food and taxes to whet your appetite for this weekend's global celebration of all things bacon:

What fun is a business meeting without food? Meals and entertainment that include a bona fide business discussion are ordinarily 50% deductible. But claiming a tasty deduction for a delicious meal doesn't have to mean eating at a restaurant. Did you know you may be able to write off the cost of entertaining at your Labor Day barbecue? It's true even if you don't serve bacon. And you don't even need receipts for expenses under $75. Just record who you host, when you host them, how much you spend, your business relationship with your guest, and the specific benefit you hope to gain by hosting them.
Some business meals and entertainment are 100% deductible. You can deduct 100% of your expenses for meals and entertainment for sales seminars and similar events where the meal is integral to the presentation. You can also deduct 100% of the cost of sporting events you organize to benefit charitable organizations, and recreation expenses for your employees. Be generous with those delicious little bacon-wrapped scallops on toothpicks that everyone loves — it's on the IRS!
Switching gears a bit, here's another new food hit. Taco Bell's new Doritos Locos taco is a fiesta wrapped up in a tortilla for customers and tax collectors alike. Taco Bell sold 100 million of the messy faux-Mexican creations in the first ten weeks, and still sells a million a day. In fact, Taco Bell claims the phenomenon is responsible for 15,000 new jobs. And while those probably aren't the sort of high-paying positions that prop up an economy, they still generate millions in federal, state, and local income, payroll, and sales taxes. (Just imagine how many more they would sell if they came with bacon!)

So enjoy International Bacon Day. If you're a vegetarian, help yourself to some tofu "facon." Don't call us for recipes — but do call us with any tax questions before you make important financial decisions. We'll help you get the satisfying results you crave, without any financial gluten, trans fats, or heartburn.

August 21, 2014

Tax Issues When Selling a Gift

by Kenneth Hoffman in Tax Counsel

Receiving a gift is not a taxable event to the one who receives the gift. If the gift is large enough, it could result in gift tax being paid by the donor.

In any case, except for certain gifts or inheritances from foreign sources, you are not to report any gifts you receive to the IRS. This is true whether the gift is in cash or a gift of property.

When you sell the gifted property, you have a whole new story. Your basis (cost) in the property is the same as it was in the hands of the donor. You are considered to have owned the property for as long as the donor owned it, and you also take the donor's cost. This is true for gifts made while the donor is alive. Property received from an estate is treated differently.

So how does this work on your tax return? Let's assume that you received a piece of real estate from your mother three months ago, and the real estate has a current value of $100,000. We will further assume that your mother owned the property for twenty years and had paid $30,000 for it.

If you sell the property this year for $100,000, you will have a long-term capital gain of $70,000 ($100,000 minus your mother's cost of $30,000). You get the favorable long-term capital gain treatment because you are deemed to have owned the property for twenty years.

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.

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.

August 20, 2014

"Gaming the System"?

by Kenneth Hoffman in Business Counsel, Tax Counsel

America's biggest companies fight like tigers for surprisingly tiny advantages. Grabbing as little as a single extra percent of market share can mean millions in new revenue, especially in popular categories like soft drinks or laundry detergent.

The same is true when it comes to taxes. A chief financial officer who cuts his company's tax rate by a percent or two is a hero — and while his name may not make headlines, his paycheck will show it. The Fortune 500 compete for tax planning talent like baseball teams compete for starting pitchers. General Electric is a great example — from 2002 through 2011, it earned billions in profit and paid an average tax rate of just 1.8%. No wonder its tax department has been called "the world's best tax law firm."

Right now, the coolest kids in corporate America's tax departments are all talking about "tax inversions." The strategy involves buying a foreign company headquartered somewhere with lower taxes, then moving their "tax domicile" to the new country while leaving their core business here. Nine U.S. companies have taken the plunge in 2014, and a dozen more are currently weighing it. Take Medtronic, for example. The Minnesota-based pacemaker manufacturer was groaning under a combined 39.1% federal and state tax rate. That's enough to give any CFO a stroke. So what do the tax doctors prescribe? Merge with Covidien, in Ireland. Take advantage of the Emerald Isle's 12.5% rate, and party like it's 1999. The move could save as much as $4.2 billion in U.S. taxes.

If you think this sounds like the sort of move that would upset our friends at the IRS, you're right. (Google "tax inversion + weasel" and you'll get 4,450,000 results.) Last month, President Obama condemned it as "gaming the system," and urged Congress to slam the doors shut, saying "stopping companies from renouncing their citizenship just to get out of paying their fair share of taxes is something that "cannot wait.” Of course, inversions have their champions, too. Defenders point out they're perfectly legal under Internal Revenue Code Section 7874. They argue that the tax savings created by inversions flow through to customers, employees, and shareholders in the form of lower prices, higher wages, and higher profits. And they assert that the deals will help American companies compete against rivals in lower-taxed jurisdictions, protecting jobs and wages.

But not everyone is jumping on the tax inversion bandwagon. This summer, Walgreens announced they would be completing their acquisition of Alliance Boots, Europe's largest pharmacy. Walgreens had contemplated using the deal to move their tax headquarters to Switzerland, but ultimately decided to pass. Since then, the company's stock has dropped 15%. So . . . a mistake? Well, moving could have saved a bundle — as much as $4 billion over the next five years. But it also could have backfired, big time. Executives worried it could spark a decade-long fight with the IRS, chase customers away, and even jeopardize the millions of dollars in federal revenue that Walgreens rakes in from Medicare and Medicaid. Senator Dick Durbin reported he was thrilled that "the corner of happy and healthy" would stay "right here in Illinois."

What do you think? Are the folks who take advantage of tax inversions really "gaming the system," as President Obama has said? Or are they just playing the hand they're dealt, protecting themselves as best they can against the aces up everyone else's sleeves? Whichever you think, remember that we're here to help you play the cards you're dealt. So call us with your questions, and let us help you pay the least tax you can!