Better Numbers for Lawyers http://betternumbersforlawyers.com Certified Public Accounting Firm Fri, 19 Oct 2018 18:39:03 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.9 62471676 No Extra Credit Here http://betternumbersforlawyers.com/no-extra-credit-here/ http://betternumbersforlawyers.com/no-extra-credit-here/#respond Tue, 27 Oct 2015 17:49:10 +0000 http://betternumbersforlawyers.com/?p=626 Paying your taxes is one of those responsibilities that most of us accept when the time comes. Sure, we grumble about it. But we pay, then get on with the day. We don’t expect to get brownie points just for doing our duty. In fact, if you give yourself too much credit for doing it, […]

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Paying your taxes is one of those responsibilities that most of us accept when the time comes. Sure, we grumble about it. But we pay, then get on with the day. We don’t expect to get brownie points just for doing our duty. In fact, if you give yourself too much credit for doing it, you might get yourself in trouble, as one tone-deaf tech company recently found out.

Airbnb (shortened from “AirBed & Breakfast”) is an online marketplace for short-term rentals that lets people list and find accommodations across the world. Are you visiting the company’s hometown of San Francisco and don’t feel like checking into a hotel? Check out www.airbnb.com, where you can find everything from a spare guest room in someone’s house to a fully furnished three-bedroom condo overlooking the Golden Gate Bridge. The concept has definitely caught on — the company currently offers over 1,500,000 listings in 34,000 cities and 190 countries, and boasts a $25.5 billion valuation.

However, many of the temporary innkeepers who list their homes on the site don’t know they should be paying local hotel or occupancy taxes, which typically range from 5-15%. Airbnb has stepped in to help their users comply with these rules, reaching agreements with cities including Portland, San Jose, Chicago, and even Amsterdam to collect the taxes and pay them over to the right places.

In San Francisco, the company collects and then pays pays about a million dollars a month in tax. But city residents are about to vote on a ballot initiative that would limit short-term rentals to 75 nights per year. At a time when rents in the city have shot insanely high (the average studio apartment rents for over $2,800 per month), the goal of the initiative is to discourage landlords from reserving properties for tourists, which limits the housing stock and puts even more upward pressure on rents. Airbnb has committed $8 million to defeat the initiative, which is more than all 14 mayoral candidates together spent in the last election.

But here’s where Airbnb took things a little far. Last week, the company irritated the City by the Bay with a snarky series of ads on billboards and city bus kiosks. “Dear Public Library System,” read one. “We hope you use some of the $12 million in hotel taxes to keep the library open later. Love, Airbnb.” Others urged the city to build more bike lanes, plant more trees, put escalators up the hills, keep parks clean, and keep art in schools. The company also told tax collectors not to spend the $12 million all in one place (unless they spend it on burritos).

Good stuff stuff, right? Well, maybe not so much. One resident crunched the numbers on the library ad and calculated the hotel tax might contribute as much as 78 cents per employee per day — hardly enough to keep the libraries open longer! Others commented that the ads were good at going viral, but not much else. Airbnb has already admitted the ads took the wrong tone, apologized to anyone they might have offended, and pledged to take the ads down.

So here’s the moral of the story. You don’t get brownie points for paying your taxes — so why pay more than you have to? Companies like Airbnb spend millions on plans to keep their tax burden as low as possible. But you can do the same thing for a far smaller investment — and with December 31 fast approaching, now is the time of year to plan. So call us, and see how much extra you might save!

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Yogi Berra on Taxes http://betternumbersforlawyers.com/yogi-berra-on-taxes/ http://betternumbersforlawyers.com/yogi-berra-on-taxes/#respond Mon, 12 Oct 2015 13:08:42 +0000 http://betternumbersforlawyers.com/?p=622 Last month, one of the most truly American lives came to an end at age 90. Baseball legend Lawrence “Yogi” Berra was a superstar both on and off the field. As a player, he won 10 World Series rings and made the All-Star team 18 times in 19 seasons. He was American League MVP five […]

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Last month, one of the most truly American lives came to an end at age 90. Baseball legend Lawrence “Yogi” Berra was a superstar both on and off the field. As a player, he won 10 World Series rings and made the All-Star team 18 times in 19 seasons. He was American League MVP five times and won election to the Hall of Fame in 1972. Off the field, he managed and coached the New York Yankees, New York Mets, and Houston Astros.

Yogi Berra was more than just a baseball legend. Many people are surprised to learn that he served on a Navy rocket boat and stormed Omaha beach on D-Day. He endowed the Yogi Berra Museum and Learning Center and Yogi Berra Stadium at New Jersey’s Montclair State University. He even opened a bowling alley with former teammate Phil Rizzuto

But when you think of Yogi, you think of Yogi-isms – those pithy one-liners that leave you simultaneously befuddled and enlightened. And as we looked over some of the quotes that inspired The Economist to name him the “Wisest Fool of the Past 50 Years,” we were struck by how many of them he could have uttered in a parallel universe as Yogi Berra, tax planner. Consider these:

  • “It ain’t over ’til it’s over.” Fighting the IRS can take a long time, long enough to make 16 or 18 scoreless innings fly by in comparison. If you get audited and wind up behind the count with a deficiency notice, you can appeal it within the IRS. Then, depending on the specifics, you can take it to the Tax Court, appeal a decision to the U.S. Court of Appeals, and even take it to the Supreme Court. The whole process can take years.
  • “The future ain’t what it used to be.” Some of your most important tax-planning calls require you to weigh uncertain future alternatives. Are you better off with a traditional 401k (where you deduct your contributions today and pay tax at unknown future rates on your withdrawals) or a Roth 401k (where you pay tax on your contributions today and avoid an unknown future rate on your withdrawals)? Choose right and save big. Choose poorly and pay for it!
  • “You should always go to other people’s funerals, otherwise, they won’t go to yours.” Clearly Yogi was anticipating estate tax here. He would have been disappointed to learn the IRS never attends a funeral, even if they plan on stripping millions from the guest of honor!
  • “We made too many wrong mistakes.” Lots of our clients come to us after making expensive mistakes that cost them thousands. Fortunately, good tax planning can correct those mistakes and stop the bleeding. Sometimes we can even “turn back the clock” and recover past overpayments!
  • “A nickel ain’t worth a dime anymore.” This one’s pretty obvious, isn’t it? Yogi must have said it after he saw how much the IRS took out of his last paycheck!

Finally, who can forget, “When you come to a fork in the road, take it”? Tax planning is full of forks in the road. Cash or accrual? C-corp or S-corp? Medical expense reimbursement plan or HSA? As Yogi says, “You’ve got to be very careful if you don’t know where you’re going, because you may never get there.” So call us for the plan you need if you don’t want April 15 to feel like deja vu all over again!

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Share a Coke with the IRS http://betternumbersforlawyers.com/share-a-coke-with-the-irs/ http://betternumbersforlawyers.com/share-a-coke-with-the-irs/#respond Mon, 21 Sep 2015 19:28:54 +0000 http://betternumbersforlawyers.com/?p=617 Coca Cola has earned a lot of headlines for their “Share a Coke with . . . ” marketing campaign, printing bottles and cans with 1,000 of the most popular names in the country, along with nicknames like “Mom,” “Dad,” Soulmate,” and “BFF.” You can even go online to customize your own bottle for just […]

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Coca Cola has earned a lot of headlines for their “Share a Coke with . . . ” marketing campaign, printing bottles and cans with 1,000 of the most popular names in the country, along with nicknames like “Mom,” “Dad,” Soulmate,” and “BFF.” You can even go online to customize your own bottle for just five bucks. (Just imagine the possibilities . . . “Share a Koke with a Kardashian” for reality-TV wannabes, or “Share a Diet Coke with Your Yoga Instructor” for fitness fanatics? The Center for Science in the Public Interest even created a “Share a Coke with Obesity” can.)

Last week, our friends at the IRS decided to open a little happiness of their own. And apparently, they want more than just a can or two of fizzy sugar water. On Friday, Coca Cola Enterprises filed a Form 8-K with the Securities and Exchange Commission revealing that, after a five-year audit, the IRS is dunning them for $3.3 billion in extra taxes. Plus interest! (Fun fact: the audit covered just three tax years from 2007-2009. That means the IRS spent more time auditing Coke’s income than Coke spent earning it!)

The issue centers on “transfer pricing,” which governs how businesses set prices between controlled or related entities. Let’s say Coca Cola sells a bottle of their delicious Vanilla Coke in Bermuda. (That sounds especially delicious, right?) How much of their profit should be taxed in Bermuda, where the average effective tax rate for multinational corporations is just 12%? And how much of it should be taxed back here in the U.S., where the rate tops out at 35%? That may not sound like a huge difference on something you can buy for a pocket change at a highway rest stop. But Coca Cola sells a lot of beverages — $46 billion worth last year. And 57% of that revenue comes from international markets.

With all that money sloshing back and forth across international borders, you can see how shifting tax rates on a few cents of income per drink can really add up. Transfer pricing issues may sound boring (and they are), but they’re a big deal. The very serious lawyers who specialize in these sorts of disputes work out of stuffy offices in high-rent big-city buildings, and they’ve never even heard of casual Fridays.

Naturally, the folks at Coke don’t think it will be especially refreshing to send the IRS an extra $3.3 billion:

“The Company has followed the same transfer pricing methodology for these licenses since the methodology was agreed with the IRS in a 1996 closing agreement that applied back to 1987. The closing agreement provides prospective penalty protection as long as the Company follows the prescribed methodology, and the Company has continued to abide by its terms for all subsequent years. The Company’s compliance with the closing agreement was audited and confirmed by the IRS in five successive audit cycles covering the subsequent 11 years through 2006, with the last audit concluding as recently as 2009.”

Coke says they plan to file a notice challenging the deficiency in Tax Court. They’ve reassured shareholders that they have “adequate tax reserves,” which means they can pay up if they lose. And if all else fails, they’ve got that secret formula locked up in a vault in Atlanta. That’s got to be good for something, right?

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Alibaba and the Forty Percent http://betternumbersforlawyers.com/alibaba-and-the-forty-percent/ http://betternumbersforlawyers.com/alibaba-and-the-forty-percent/#respond Thu, 17 Sep 2015 16:48:59 +0000 http://betternumbersforlawyers.com/?p=615 Turn on the financial news and you’ll hear all sorts of explanations for the stock market’s ups and downs. Oh no, the Fed’s going to raise rates! Oh no, they’re not! Who knows what the real answer is? But last week, the IRS moved the market — when they casually signaled they wouldn’t be greenlighting […]

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Turn on the financial news and you’ll hear all sorts of explanations for the stock market’s ups and downs. Oh no, the Fed’s going to raise rates! Oh no, they’re not! Who knows what the real answer is? But last week, the IRS moved the market — when they casually signaled they wouldn’t be greenlighting Yahoo’s plan to spin off their remaining stake in the Chinese company Alibaba.

Yahoo was the first big online search engine, and they helped popularize services like free email addresses. It’s still the most-read news website and fourth-most visited site in the world. But those eyeballs just aren’t translating into dollars, especially now that search engine advertisers have surfed their way over to Google.

But Yahoo can brag about one grand-slam home run — back in 2005, they paid $1 billion for a 40% stake in Alibaba, “the Amazon of China.” Since going public, Alibaba’s “market capitalization” (the total value of outstanding shares) has climbed as high as $248 billion. (It’s down to a paltry $162 billion today.) In fact, some analysts argue Yahoo’s entire market capitalization was worth less than its holdings in Alibaba and Yahoo Japan, making its core U.S. businesses worth less than zero!

Naturally, Yahoo’s long-suffering shareholders want to unlock that value. So when Alibaba went public, Yahoo sold a slice of their stake for $7.6 billion — but therefore got hit with a $2 billion tax bill. The folks at the IRS said “Yahoo!” But shareholders, not so much.

Earlier this year, Yahoo proposed a different strategy for the rest of their stake. First, create an entirely new company. Then stuff it full of their remaining Alibaba stock, along with a dinky slice of Yahoo’s remaining operating business. Then spin it off to their existing shareholders. Why jump through all those hoops? Well, if Yahoo just distributes cash and prizes like the Alibaba stock, the IRS gets their usual cut. But if they include an active trade or business in the new entity, Code Section 355 says it’s tax-free. (Wink, wink.)

There’s just one problem. The IRS doesn’t say how big that operating business has to be to make the whole thing work. Would a lemonade stand work? How about a hot-dog cart? Just to be sure, Yahoo went to the IRS to get their blessing first. They applied for a “private letter ruling,” which is a written ruling that interprets and applies tax laws to one specific taxpayer’s facts. Fees for a letter ruling range from $625 to $50,000, which makes them a cheap form of insurance against billions in taxes. (Of course, the kind of law firm that handles those sorts of requests can run up that much in legal fees just answering the phone!)

Here’s where our story gets interesting. Last week, an IRS attorney announced at a bar association conference that the IRS was “reconsidering their ruling policy” on spinoff requests — and Yahoo’s stock price promptly dropped 7.6%. That meant over $2 billion in value vanished in a heartbeat. Now, Yahoo can certainly proceed with the deal. They still have an opinion letter from their lawyers telling them it will work. But their profile is high enough that they’re under constant audit. It’s not like they can pretend they never asked for the ruling, or just hope that nobody at the IRS “notices” the spinoff!

Here’s the lesson. Tech companies like Yahoo understand the value of proactive tax planning. They’ve used it to save billions in taxes, and they realize the money they spend on it is an investment, not an expense. Shouldn’t you take advantage of that same opportunity yourself?

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Vive le Tax! http://betternumbersforlawyers.com/vive-le-tax/ http://betternumbersforlawyers.com/vive-le-tax/#respond Wed, 09 Sep 2015 15:39:20 +0000 http://betternumbersforlawyers.com/?p=612 This year, as usual, millions of American tourists took advantage of summer vacation to travel abroad. Favorable exchange rates made European destinations especially attractive. Seeing Old World cultures gives us perspective that we just can’t get when we load up the family truckster and head for Disney World. The sights, the sounds, and the great […]

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This year, as usual, millions of American tourists took advantage of summer vacation to travel abroad. Favorable exchange rates made European destinations especially attractive. Seeing Old World cultures gives us perspective that we just can’t get when we load up the family truckster and head for Disney World. The sights, the sounds, and the great big smells we encounter abroad shed new light on our ordinary lives. New languages, new governments, and even new taxes can prompt us to reconsider our place in the world.

Take Paris, for example. France is the most popular tourist destination in the world, and the City of Light sees almost 2 million American visitors per year. So what sort of tax system do visitors to Paris encounter?

Income taxes are the first place to start. We don’t see them, of course, but our French hosts certainly do! Impôts sur le revenu start at 14% on taxable incomes over €9,691 (about $10,800) and rise to 45% on amounts over €151,956 ($169,400). There are also surcharges on incomes above €250,000, and again at €500,000.

Income taxes are just the start. French taxpayers also shell out 7.5% for their version of Social Security, a 0.5% “social debt” tax, plus 3.4% in “additional sampling social contribution” and 1.1% in “solidarity labor” tax on investment income. And that’s all before they pay their local professional taxes, residence taxes, and land taxes!

That may sound like a lot. But French employers have even more to grumble about. Employers pay 13.1% of their employees’ wages for medical and disability programs, 5.4% for parenting benefits, 4% for unemployment programs, and at least 18.2% for retirement benefits. Granted, that first 13.1% replaces much of what American employers pay for health and disability insurance. But you can certainly see why the Parisians think twice before deciding to hire someone new. Oh, and don’t forget the 33.1% corporate income tax!

No visit to Paris would be complete without a pain au chocolat at a sidewalk cafe or a late-night degustation of foie gras, escargot, and cheese. The good news is, the price you see on the menu is the price you actually pay. Value-added taxes (which take the place of our sales taxes) and even service charges are included in the marked price. It’s customary to leave a small amount of cash (5% or so) as a tip. But it’s reassuring to know that when the snooty waiter brings you l’addition and sneers at your American Express card, you won’t have to calculate the usual 15-20% that we tack on here. (Go ahead, have an extra macaron, they’re delicious!)

We’re not done yet. France levies an impôt de solidarité sur la fortune (wealth tax), starting at 0.55% on net worth over €790,000 and rising to 1.80% on fortunes over €16,540,000. The wealth tax only raises about two percent of the country’s revenue, but it’s quite controversial — some consider it a symbol of worker solidarity, while others object that it encourages the wealthy to leave the country. Last but not least, droits de succession et de donation (gift and estate taxes) climb as high as 60%, with no unlimited marital exclusion like we enjoy here in the U.S.

Here in the states, we complain that our taxes are too high. But a quick look at the French tax system reveals that liberté, égalité and fraternité don’t come cheap, either! Fortunately, our tax code is stuffed like a crepe with all sorts of deductions, credits, loopholes, and strategies to cut your bill. So call us when you’re ready to pay less, and see how much more you can put towards your dream vacation!

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Cadillac Taxes for Everyone! http://betternumbersforlawyers.com/cadillac-taxes-for-everyone/ http://betternumbersforlawyers.com/cadillac-taxes-for-everyone/#respond Wed, 26 Aug 2015 17:43:19 +0000 http://betternumbersforlawyers.com/?p=610 Employers have played a key role in financing their employees’ healthcare since World War II, when they threw in tax-free benefits to attract talent in a time of wage controls. So it’s no surprise that when Congress passed the Affordable Care Act, they gave employers all sorts of carrots and sticks to boost coverage. But […]

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Employers have played a key role in financing their employees’ healthcare since World War II, when they threw in tax-free benefits to attract talent in a time of wage controls. So it’s no surprise that when Congress passed the Affordable Care Act, they gave employers all sorts of carrots and sticks to boost coverage. But Congress wanted to control overall costs, too, and didn’t want employers being too generous. So they imposed a new tax on so-called “Cadillac” plans. Technically, it takes the form of a 40% penalty on annual premiums exceeding $10,200 for an individual or $27,500 for a family. But everyone knows what the term “Cadillac” plan means, even if Cadillacs have nothing to do with the cost of healthcare.

That got us to thinking . . . if the folks in Washington think a tax on Cadillac plans is a good idea, why stop there? What other sorts of taxes could they think of imposing?

  • The “Tiffany” Tax: The DeBeers group of companies, which monopolized rough diamond sales for much of the last century, helpfully “suggests” a young man spend two months’ salary on an engagement ring for his betrothed. That’s sweet and touching for the man who waits until he’s that established before wooing a bride. But blowing two months’ pay on something so purely symbolic hardly seems practical in today’s era of six-figure student loans and increasingly pricey starter homes. (And is that two months’ pre-tax or two months’ take-home?) A 40% premium on anything over a carat sounds about right here.
  • The “Big Mac” Tax: Let’s face it, when you think of junk food, you think of McDonald’s. We know we need to eat less, but how? Former New York City Mayor Michael Bloomberg raised hackles when he tried to ban “Big Gulps” with more than 16 ounces of liquid candy in a single serving. He should have known that Americans will swallow a tax a lot faster than they’ll swallow a ban. Today’s point-of-sale computer systems could easily supersize sales taxes as calories, trans fats, and salt content go up.
  • The “McMansion” Tax: The average American family has dropped from 3.01 people in 1973 to just 2.54 today. Yet the average American house has added 1,000 square feet in that same time. Do we really need all those extra bathrooms? And nobody really parks a third car in that oversized garage, do they? Property-tax authorities can easily build out their assessments to penalize bloated square footage, fake turrets, more than seven gables, and random stone accent walls.
  • The “Dom Perignon” Tax: A generation ago, Orson Welles promised wine drinkers that Paul Masson would “sell no wine before its time.” (Paul Masson himself stomped on the grapes at 9AM, and it was in the freezer at your local 7-11 at 3PM, but who’s counting?) Now, it’s all “vintage” this and “artisanal” that, and you’re not a real wine aficionado if you haven’t sampled the latest Chilean Malbec. Governments already load up wine with hefty excise and sales taxes, but why not fortify them with an extra 40% for anything over, say, $40 a bottle?

Fortunately, none of those taxes are real . . . yet. That’s just as well, since we’ve got our hands full helping you pay less of the taxes Washington already imposes. The key, of course, is a plan. And with Labor Day just around the corner, it’s not too soon to start thinking about year-end planning. So call us when you’re ready to save. And don’t pass along any of these ideas to anyone who could actually make them happen!

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Ready or Not, Here We Come! http://betternumbersforlawyers.com/ready-or-not-here-we-come/ http://betternumbersforlawyers.com/ready-or-not-here-we-come/#respond Fri, 14 Aug 2015 20:44:10 +0000 http://betternumbersforlawyers.com/?p=607 Campaign 2016 is here! Last Thursday, 10 Republican presidential candidates squared off against each other in Cleveland’s Quicken Loans Arena, tackling such crucial topics as hugs, pimps, and Rosie O’Donnell. That same day, the Democratic National Committee announced their schedule of six debates to begin on October 13 in early-primary state Nevada. Sooner rather than […]

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Campaign 2016 is here! Last Thursday, 10 Republican presidential candidates squared off against each other in Cleveland’s Quicken Loans Arena, tackling such crucial topics as hugs, pimps, and Rosie O’Donnell. That same day, the Democratic National Committee announced their schedule of six debates to begin on October 13 in early-primary state Nevada. Sooner rather than later, we’ll all be drowning in the vicious sort of campaign commercials that make some of us envy the North Koreans.

That also means now’s the season when candidates are releasing tax returns and financial disclosures. Mitt Romney took heat when he ‘fessed up to paying just 14% tax on $20 million in 2011, reinforcing the “GotRocks McBucks” caricature he worked so hard to shake. So candidates are doing their best to spin their numbers to look like they grew up in log cabins. Let’s take a peek inside some of their wallets, shall we? (No fair crying if we poke a little fun at your favorite candidate!)

  • Former Florida Governor Jeb Bush takes the path of early and full disclosure, sharing 33 years of tax returns dating nearly back to his first job bussing tables at the Kennebunk Yacht Club. He paid an average tax of 36% on $44 million of lifetime income, including $7.4 million in 2013 alone.
  • Wisconsin Governor Scott Walker takes pride in being a financial Everyman who cuts his own grass and shops at discounter Kohls. Apparently that means he’s up to his eyeballs in debt like so many voters. Walker’s disclosure shows his net worth is actually $72,500 in the red. He also owes over $10,000 on a Barclays credit card with a 27.24% interest rate.
  • Developer Donald Trump hasn’t released his taxes, and some observers scoff at his self-proclaimed $10 billion net worth. However, previous investigations reveal him to be a stingy charitable giver, at least as far as billionaires go. The hotelier and reality-TV star, who appears to dye his hair with Orange Tang, established The Donald J. Trump Foundation nearly 30 years ago in 1987 — but he’s given it just $3.7 million since then.
  • On the Democratic side, Hillary Clinton just released her last eight years of returns, showing $139.1 million of earnings since 2007. She and husband Bill paid 31.6% in tax on that income — which works out to $43.8 million, or just enough to pay for an F-18 Hornet fighter jet. The Clintons also gave $15 million to charity, with 99% going to the Clinton Family Foundation and Clinton Global Initiative.
  • Clinton’s chief rival, Vermont Senator Bernie Sanders, shows a net worth of $330,000. That lands him 14th from the bottom in the Senate, where the average net worth tops $2.8 million. The self-professed Democratic Socialist, who drives a Chevy Aveo (not the Prius you expected), reported $4,900 in income from his wife’s position on a radioactive waste commission. (Of course, Sanders’ most conservative rivals might say his entire economic platform consists of radioactive waste!)

We have no idea who’s going to take the oath of office on January 20, 2017. But we can promise you, the new President will want to make changes to the tax code. And odds are good that at least one of those changes could cost you. So count on us to help you navigate those changes as favorably as possible. We work with Democrats, Republicans, and everyone in between!

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A Tax Odyssey http://betternumbersforlawyers.com/a-tax-odyssey/ http://betternumbersforlawyers.com/a-tax-odyssey/#respond Wed, 12 Aug 2015 15:18:26 +0000 http://betternumbersforlawyers.com/?p=606 On July 23, NASA announced the discovery of Kepler-452b, the first potentially Earth-like planet within the “habitable zone” of a star like our Sun. Kepler-452b is 1,400 light-years away, meaning the New Horizons space probe that just passed Pluto should get there in another 26 million years. (Mom, are we there yet?) It’s 60% bigger […]

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On July 23, NASA announced the discovery of Kepler-452b, the first potentially Earth-like planet within the “habitable zone” of a star like our Sun. Kepler-452b is 1,400 light-years away, meaning the New Horizons space probe that just passed Pluto should get there in another 26 million years. (Mom, are we there yet?) It’s 60% bigger than Earth, with a “better than even chance” of having a rocky composition, and takes 385 of our days to orbit its sun. Reporters instantly dubbed the planet “Earth 2.0,” and scientists from the Search for Extraterrestrial Intelligence Institute have already begun targeting it for signs of intelligent life.

Ironically, at the same time, officials in Washington are searching for signs of intelligence in the tax code. (So far, they’re not doing any better than the astronomers at NASA.) So we got to wondering . . . is there any way that our search for extraterrestrial life might help us out of our current budget jam? In plainer terms, can we tax it?

Let’s start closest to home. Our own astronauts are subject to U.S. tax on all of their worldwide income, regardless of where they live. (They get an automatic two-month extension to file if they’re outside the U.S. on April 15. We’d assume “off the planet” counts.) Astronauts pay regular tax on their salaries, which range from $64,724 to $141,715 per year. So, while our astronauts might escape earth’s gravity, there’s no escaping the IRS. On the brighter side, they also get a tax-free “dwarf” per diem for their time on the space station. (Seriously. Former astronaut Clayton Anderson reported he had $172 in his account after 152 days in the International Space Station.)

Further outside Earth’s orbit, asteroid mining might lead to some nice new tax gains. Our home planet is running out of key elements like phosphorus, antimony, zinc, tin, lead, silver, and gold. So companies like Planetary Resources are working to expand Earth’s dwindling resource base by mining asteroids. While their “cost of goods sold” will be higher than for comparable land-based minerals, the profit will be taxed as ordinary income at rates up to 35%. That’s a pretty sweet deal for the IRS, considering the asteroid miners just find this stuff drifting out in space.

The real tax jackpot comes when extraterrestrials join us here on Earth. U.S. resident aliens — presumably including space aliens — are generally taxed the same way as U.S. citizens, which means their worldwide income is subject to U.S. tax. While we don’t know anything about the economy on Kepler-452b, it’s safe to assume that a civilization advanced enough to travel 1,400 light years has created high amounts of material wealth — and as sure as the sun rises in the east, our federal, state, and local governments won’t hesitate to ask for their cut. (While we’re at it, when E.T. phones home, the telephone excise tax alone has to be pretty phenomenal.)

Finally, there’s one unsettling possibility we can’t ignore. What if we do find intelligent life somewhere out there, and they don’t like us? Famed physicist Stephen Hawking suggests we’re safer not waving too hard to attract alien attention, simply because if they can find us and reach us, they can probably destroy us, too. “If aliens ever visit us,” Hawking says, “I think the outcome would be much as when Christopher Columbus first landed in America, which didn’t turn out very well for the American Indians.” If that’s the case, the only tax worth collecting will be the estate tax — if there’s anyone left to collect it!

Our friends at the IRS may be yearning to boldly tax where no man has taxed before. But they can’t ever count on it, which means squeezing more and more revenue out of us here on Earth. The best way to beat them, without fleeing the planet, is a plan. So count on us to give you the “right stuff” — and remember, we’re here for your friends, family, and capsule-mates, too!

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Toxic Deductible Sludge http://betternumbersforlawyers.com/toxic-deductible-sludge/ http://betternumbersforlawyers.com/toxic-deductible-sludge/#respond Mon, 03 Aug 2015 16:28:52 +0000 http://betternumbersforlawyers.com/?p=604 Back in 2010, British Petroleum’s Deepwater Horizon drilling rig exploded and spilled millions of barrels of oil off the Louisiana coast. Countless small business owners, including fishermen, hotel operators, restaurants, rental companies, and seafood processors, suffered and went bankrupt. State and local governments lost billions more in tax revenue. Lawyers, who may be some of […]

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Back in 2010, British Petroleum’s Deepwater Horizon drilling rig exploded and spilled millions of barrels of oil off the Louisiana coast. Countless small business owners, including fishermen, hotel operators, restaurants, rental companies, and seafood processors, suffered and went bankrupt. State and local governments lost billions more in tax revenue. Lawyers, who may be some of the few people to actually profit from the disaster, are still fighting over compensation and claims, and will probably still be fighting until long after anyone reading these words is still alive.

BP has been gushing cash ever since the spill to clean up its mess and restore its reputation the damaged environment. The total includes $20 billion for a trust fund to settle financial claims, $4.5 billion in criminal fines and other penalties, and $18.7 billion to settle federal and state claims. But there’s good news for the company, too — they’ll be getting billions in help from their friends at the IRS!

Here’s how that little plot twist works. Section 162(f) of the Internal Revenue Code states that “no deduction shall be allowed . . . for any fine or similar penalty paid to a government for the violation of any law.” But defining exactly what makes up a “fine or penalty” isn’t as obvious as you might think (and it gives those lawyers we just talked about the opportunity to bill a lot of hours arguing about it). Payments that aren’t considered fines or penalties are deductible just like any other business expense. So let’s take a look at exactly how BP will be structuring this final settlement:

  • $5.5 billion goes towards a Clean Water Act penalty. This amount should be nondeductible. However, the press release announcing the settlement states that 80% of the penalty “will go to restoration efforts in the affected states pursuant to a Deepwater-specific statute, the RESTORE Act.” That should give a clever lawyer more than enough rope to argue for deductibility!
  • $8.8 billion goes towards natural resource damage and funding Gulf restoration projects. Since it’s not explicitly designated a “fine” or “penalty,” BP will probably deduct it.
  • $5.9 billion goes towards state and local governments to settle their claims. Again, since it’s being paid to “settle” claims, BP will likely deduct it.
  • $600 million goes towards “other claims,” including “unreimbursed federal expenses due to this incident.” (Sounds like the sort of “slush fund” favored by Louisiana politicians of yore, doesn’t it?) And really, how much fun is a slush fund if you have to pay tax on it?

We may never know exactly how much BP writes off because deductions on settlements are confidential business information. But we know the company’s federal tax rate is 35%. So that means, if BP writes off, say, $20 billion of the payments, they’ll save $7 billion in taxes. That money, of course, comes out of all of our pockets. So pat yourself on the back for playing your part in cleaning up the Gulf.

Nobody ever plans to suffer through a disaster like the Deepwater Horizon spill. But it’s worth remembering that how you clean up your mistakes can make a real difference. So think of us as your financial “911,” and don’t hesitate to call if trouble strikes!

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Click! http://betternumbersforlawyers.com/click/ http://betternumbersforlawyers.com/click/#respond Tue, 21 Jul 2015 14:42:59 +0000 http://betternumbersforlawyers.com/?p=601 Nina Olson is the most important person you’ve never heard of at the IRS. She’s the “National Taxpayer Advocate,” and she heads up an organization created to cut through the red tape when the Service can’t get the job done itself. If you’re stuck between cogs in the IRS machine, Olson and her staff of […]

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Nina Olson is the most important person you’ve never heard of at the IRS. She’s the “National Taxpayer Advocate,” and she heads up an organization created to cut through the red tape when the Service can’t get the job done itself. If you’re stuck between cogs in the IRS machine, Olson and her staff of 1,400 Case Advocates are poised to pull you out. She’s like the Lorax, except she speaks for the taxpayer instead of the trees.

Last week, Olson released her mid-year report to Congress. It’s hundreds of pages long, full of dense bureaucratese and government jargon, all leading to one inescapable (and rhyming) conclusion: the IRS is a mess. Olson likened the situation to Charles Dickens’ Tale of Two Cities. “For the majority of taxpayers who filed their returns and did not need IRS assistance,” she writes, “the filing season was generally successful. For the segment of taxpayers who required help from the IRS, the filing season was by far the worst in memory.”

Take a look at some of the “customer service” statistics Olson revealed, and you’ll see why we put the term “customer service” in quotes:

  • The IRS answered just 37% of the phone calls taxpayers made to customer service representatives, with an average hold time of more than half an hour. That’s down from 71% for the 2014 filing season.
  • Olson’s own unit did barely better, answering just 39% of calls made to the National Taxpayer Advocate Toll-Free Hotline. (Hint: a toll-free number won’t save taxpayers much money — and really, it isn’t much of a “hotline” — if nobody answers the phone!)
  • Tax professionals have always been able to “cut the line” by calling the Practitioner Priority Service line. Surely they get better service, right? Not so much. The IRS answered just 45% of those calls, with an average hold time of 3/4 of an hour.

Where do all those unanswered calls go? Here’s a clue: the number of “courtesy disconnects” jumped from 544,000 last year to 8.8 million this year. “Courtesy disconnect” is the ironic term the IRS uses when the phone lines get so jammed there’s no hope you’ll ever reach an actual human being anyway — so the system just says “peace out” and hangs up on you.

Why are things so miserable? The problem, of course, is money. The IRS budget is down 17% (adjusted for inflation) from 2010. Yet even as Congress has gleefully slashed funding for everyone’s least-favorite agency, they’ve stuck the IRS with the responsibility of riding shotgun over big chunks of both the Affordable Care Act and the new “FATCA” rules designed to sniff out hidden offshore accounts. The end result is a “customer service” experience that makes a trip to the DMV look like a beach vacation.

If you’ve never gotten a dreaded “CP-2000” notice, you might not see the connection between IRS “service” and what we do. But here it is, in a nutshell: the sort of tax planning we offer doesn’t just save you money, it helps protect you from IRS bureaucracy to save you time. So make sure you’ve got a plan in place before you file your next return!

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