Thursday, July 30, 2009

Even More Celebrity Tax Evasion

Just the other day, I posted this entry about three new celebrities who owe taxes either to the IRS or the state of California. Now, according to new reports, another handful of famous taxpayers can be added to the list of celebrities with tax problems.

Steve Austin

Retired wrestler Steve Austin, known as “Stone Cold” Steve Austin to his fans, reportedly owes the State of California over $22,000 in unpaid taxes. The state even filed a lien against his property last month. Austin’s agent could not be reached for comment, so the reason for his tax debt is still unknown.

David Brenner

Famed comedian David Brenner owes the IRS a staggering $68,222 in delinquent taxes. Brenner, who filed for bankruptcy in 2004, does not deny that he owes the taxes, and states that he has already negotiated a payment plan to pay his debts off over time. When asked how he incurred the debt, Brenner jokingly explained, "I lost a bet that President Bush would learn how to pronounce the word 'nuclear,'"

Anna Kournikova

Although her total tax debts are less than the rest of the celebrities on the list, I was especially surprised to see that tennis star Anna Kournikova has tax problems with the state of California. Just last week the filed a $6,381 tax lien against her for unpaid tax debts. When reached, the athlete’s agent could not comment as to where the tax debt came from.

Lea Thompson

Lea Thompson, famous for her role playing Marty McFly’s Mom in the popular “Back to the Future” films probably wishes she could go back to the future and pay her taxes correctly. Earlier in the week it was revealed the actress owes $8,691 in unpaid state taxes.

Housing Market Shows Some Signs Of Recovery

This week NPR posted an article with good news for the housing market. According to new studies home prices in cities like Boston, Chicago, San Francisco and Dallas were on the rise last month. Although in some parts of the country housing prices are stagnant or still on the decline, any increases in home values anywhere is a good sign. Yale University professor Robert Shiller even stated that "this is the first time in almost three years that we've seen price increases,"

What do Boston, Charlotte, Chicago, Cleveland, Dallas, Minneapolis and San Francisco have in common? They're cities where home prices rose recently.

That's according to the Standard & Poor's Case-Shiller Home Price Index, which shows that prices are actually starting to rise again in some parts of the country.

Other recent data show that there are some tentative signs that the real estate market may be starting to recover. The housing crisis helped propel the country into the worst recession in decades.

"This is the first time in almost three years that we've seen price increases," says Yale University professor Robert Shiller, who helped design the home price index. "So when we see a break in the downward trend that's definitely encouraging news."

For a long time Shiller was known as a pessimist about the housing market. And it turned out he was absolutely right.

But now, he's striking a different tone.

"Well, I think the worst is probably behind us — the worst pace of decline," he says. "We were going down at 2 percent a month for a number of months in a row nationally. That was really something. Now home prices relative to rents or construction costs are back at normal levels."

Shiller stresses that he doesn't think we're about to see another housing boom.

During this downturn, we've seen record drops in prices. And when it comes to new homes — it's been more than 50 years since we were building and selling so few of them.

But over the course of the spring, sales have been picking up.

Is The Ball In Obama’s Court? Health Care Bill May Affect 2010 NBA Drafts

Rising taxes for the wealthy combined with the expiration of the Bush tax cuts may affect the 2010 NBA more than some States would like to admit. For example, some teams like the Chicago Bulls may have more trouble drafting popular free agents like Dwayne Wade, due to much higher state income taxes. Checkout the story from below.

Could, in the end, the biggest barrier to the Bulls attracting a major free agent next summer like Dwyane Wade be the health care legislation now being debated in Washington?

Let’s face it. The prize next summer is Wade. LeBron James seems almost certain to remain in Cleveland given the weak state of the New York Knicks’ roster and uncertainty regarding the moving plans of the New Jersey Nets, supposedly James’ two speculated destinations. And do you really want to give a maximum contract to Chris Bosh, who doesn’t seem to impact winning very much? It seemed to me Bosh's Toronto had a much better roster last season than Wade’s in Miami and yet the Heat was far better than the Raptors. And the reason why Wade could well move is that roster. There’s no way, given how much Wade had to do last season that he could hold up carrying a team like that. It’s why you figure Miami is so desperate to make a major move now and why Wade, seemingly, has challenged them to do so.

Michael Beasley was at the USA Basketball mini-camp in Las Vegas Saturday hanging out in the media and family area after the scrimmage. He was the most obvious omission among the young players invited to try out for the Olympic team. Beasley couldn’t have been more gracious after the game staying around and signing autographs for everyone who asked. But he also was wearing his shorts so low you got way too much of a view of his underwear as he walked away. I know it was Vegas, but leave something to imagination. That streak of insouciance coupled with extreme immaturity suggests Miami has work to do with its roster to appease Wade.

And now comes the health care legislation, and you wonder what that has to do with anything?

The answer is taxes. The closest anyone seems to a plan now to pay for the changes is to tax the so-called rich. That would include just about every player in the NBA. I know we’re not supposed to feel sorry for rich people and assume they have so much that giving up more doesn’t matter. It does, just as comfortable people in the middle class with two cars and a nice health club membership don’t want to pay more taxes, either, even though they can afford to.

So I contacted a tax expert in Chicago, Noel Wilner, president of CBIZ MHM, an accounting and tax advisory company, and asked him to do some calculations. The assumption was single tax payer, the 2011 tax rates when the presumed five percent health care surtax would go into effect with the higher rates that year, salaries of $5.5 million, which is about the NBA average, and $17 million, which would be a high earner like Wade and no deductions.

Continue reading here…

Facing Budget Gaps, U.S. States Shuffle Tax Codes


Caught with near-chronic budget shortfalls, U.S. states are scrambling to change their tax codes and bring in more revenues, the Tax Foundation said on Wednesday.

The foundation has compiled an annual index on 37 categories of states' taxing and spending since 1937. This is the first time that it has had to update the report in the middle of the year.

"Many states have started the new fiscal year with tax codes that are vastly different compared to just a few months ago," Tax Foundation President Scott Hodge said in a statement.

Hawaii, for example, has recently increased its top marginal tax rate to 11 percent, making it tied for first in the country with Oregon. New Jersey, New York, Wisconsin and Delaware also increased individual income taxes for high earners in recent months.

"It's a bit of a troubling trend to see," Mark Robyn, the foundation's staff economist, said on a conference call with reporters. "One of the problems we see with taxing high income individuals is that high-income individuals tend to have volatile incomes."

Their business and capital gains income fluctuate with the economy "even more than the average person's income," he said, adding they shy away from starting businesses in states with higher income tax rates.

On the other hand, Maine, North Dakota and Vermont have cut income taxes since January, the foundation found.

Ten states have pumped up their taxes on cigarettes, while four have increased sales taxes.

California raised its sales tax to 8.25 percent this year, the foundation said. The state, which finalized its budget this week after a drawn-out battle in Sacramento, also allows local governments to add to the sales tax.

In the Los Angeles area, five communities have sales taxes of 10 percent, according to the group.

California has also moved up one spot to No. 2 in the rankings of states with the highest gasoline taxes, as it has raised its levy to 39.9 cents per gallon from 35.3 cents. New York remains the state with the highest gas tax, with an increase to 42.5 cents per gallon from 41.3 cents in January.

According to the National Governors Association, U.S. states will likely face deficits totaling at least $200 billion over the next three years, and most are required to eliminate any gaps at the end of their fiscal years.

Wednesday, July 29, 2009

Newsweek Claims the “Recession is Over” – but Many, Including Obama, Disagree

In their latest issue, Newsweek magazine claims, “the recession is over, now what we need is a new kind of recovery.” However, dozens of experts have spoken out disagreeing with the publication and even President Obama expressed that he disagreed with the publication’s claims.

“I don't know whether you've seen the cover of the latest Newsweek magazine on the rack at the grocery store, but the cover says, 'The Recession is Over.'"

"I bet you found that news a little startling. I know I did. Now, it's true that we've stopped the free-fall. The market is up and the financial system is no longer on the verge of collapse. We're losing jobs at nearly half the rate we were when I took office six months ago.

"So, we may be seeing the beginning of the end of the recession. But that's little comfort if you're one of the folks who have lost their job, and haven't found another. Unemployment in North Carolina is over ten percent today. A lot of small businesses like Sara's are still struggling with falling revenues and rising costs. Health care premiums, for example, are rising twice as fast as wages, and much more for small businesses -- something I'll address in a minute.

"So, we know the tough times aren't over."

You can read Newsweek’s full story here, but after looking over the text it looks like their assertion that the recession is over was mostly an attention grabber. The main point of the story is that the worst part of the recession might be over technically, but that the country still has a long way to go.

“When economists proclaim a recession over, they're celebrating a technicality: they mean economic output has stopped contracting. And while that is good news, you might wait a while before adding Judy Garland's rendition of Happy Days Are Here Again to your iPod. GDP growth alone can't feed a family, or pay a mortgage. Cursed with a high national debt load and blessed with a dynamic, growing workforce, the U.S. economy needs annual growth of at least 1.5% just to feel like we're standing still.”

Sacramento County Facing Budget Deficit of $38 million

The State of California has been dealing with enough of their own budget problems, and now the state’s capitol – and my hometown – is beginning to have their own problems. New reports suggest that the Sacramento County is facing a budget deficit of nearly $38 million, and it could get worse soon. An article from the Sacramento Bee explains how this new revelation could affect all Californians.

Less than a month into the fiscal year and Sacramento County officials are already saying there's a near $38 million budget shortfall that could get even worse.

In addition to the $9.8 million in projected welfare costs the county chose not to fund in June, sales tax, property tax and other revenue projections made just months ago are already proving to be overly optimistic. Then there's the matter of the $10 million the supervisors have said they want to restore to the Sheriff's Department.

All of that means the county -- which laid off 243 employees and eliminated numerous contracts earlier this month in order to pass a "balanced" $2 billion general fund spending plan -- could be making more big cuts in a couple months.

The board will discuss the worsening budget situation at its meeting this afternoon. Originally the supervisors were going to talk about where they would cut $10 million from the budget in order to restore some funding to the Sheriff's Department and save 70 deputy jobs.

County Executive Terry Schutten's office, however, is recommending that "instead of a piecemeal approach...all these issues be dealt (with) at final budget hearings."

The Sheriff's Department has enough money in its budget to cover the cost of those 70 deputies until the fall when the board amends the spending plan it passed last month, according to Schutten's office.

The board will begin discussing the so-called "final budget" at a hearing Sept. 10.

The Latest on FICO’s Lawsuit and What it Means to Consumers

Earlier today the Wall Street Journal posted a new story on Fair Isaac, or as they refer to the company, the “keepers of your credit history.” For those of you who may not know, Fair Isaac maintains the FICO scores most lenders use to determine your eligibility for a loan and potential interest rates. The lawsuit surrounds the difference between what the company calls bono fide FICO scores, and non-FICO scores, sometimes called “FAKO” scores. Check out the following article on the development courtesy of the Wall Street Journal.

In a suit filed in October 2006, FICO alleged that Experian and TransUnion deliberately marketed VantageScore to customers as the bona fide FICO score, when they are actually purchasing access to Experian or TransUnion’s proprietary score.

There’s argument over how credit scoring played into the current financial crisis, but there’s little argument that credit scores have become a fundamental part of our consumer economy in the past decade. The FICO score is comprised of information submitted by all three major credit-reporting agencies, Experian, TransUnion and Equifax.

However, all three agencies sell additional products, like credit monitoring services and their own scores. Although some consumers like seeing these separate scores, these scores aren’t what most lenders consult when deciding whether to extend credit. Sometimes, these scores can be very different from a FICO score — which FICO says causes confusion and error should a consumer apply for a loan.

“There’s been some confusion in the marketplace,” said FICO CEO Mark Greene. (Anyone who has seen one of those ads knows this.) Credit score ads online have proven particularly problematic, he says.

It poses a company challenge for FICO, which has to work with credit reporting agencies Experian and TransUnion to gather information from credit reports to formulate its scores.

Fraudulent Homebuyer Tax Credits Being Eyed by the IRS, Fines “Steep”

From Inman News:

The Internal Revenue Service says a Jacksonville, Fla.-based tax preparer is the first to be convicted of fraud related to the federal first-time homebuyer tax credit.

James Otto Price III, 47, pleaded guilty on July 23 to falsely claiming the first-time homebuyer credit on a client’s federal tax return, the IRS said. He faces up to three years in jail and a fine of up to $250,000 when he is sentenced.

Price was indicted in May on 35 tax-fraud counts, including 15 involving the first-time homebuyer tax credit, The Florida Times-Union reported. Most of Price's clients were unaware he was claiming the credit on their behalf and paying himself a $1,000 fee from their electronic refunds, a prosecutor told the paper.

In announcing Price's conviction, the IRS claimed to have "a number of sophisticated computer screening tools" to identify tax returns that may contain fraudulent claims for the tax credit. The IRS says it has executed seven search warrants and currently has 24 open criminal investigations of potential instances of fraud involving the credit.

Cosmetic Surgery Tax Talk

While reading my favorite tax blogs, I came across this entry from Don’t Mess with Taxes on the newest suggestion to help pay for health care reform: taxing cosmetic surgery.

To be precise, they {congress} want the beautiful people who got their good looks thanks to plastic surgery to pay.

According to the Drudge Report (via Tax Policy Blog), Senate Finance Committee members have discussed imposing a 10 percent excise tax on cosmetic surgery deemed unnecessary for medical purposes.

Personally, I plan to continue to age gracefully, mainly because my pain threshold is markedly lower than my vanity threshold, so this proposed tax wouldn't affect me. But I still think it's a bad idea.

It singles out a group of taxpayers who, for the most part, already foot these types of medical bills on their own since tax law doesn't allow for purely cosmetic surgery costs to be counted as deductible expenses.

Moreover, it makes the implicit assumption that folks getting face-lifts or tummy tucks or various enhancements are wealthy. That's not necessarily true.

Tuesday, July 28, 2009

Newest Celebrity Tax Evaders

It seems like every day there is a new celebrity making headlines for tax problems. Over the past week, there have been three different famous faces that got added to the list of stars who mishandled their taxes. Check out the following explanations of each celebrity’s tax debts, or to learn more about other celebrities with tax problems check out this list of the 10 most famous tax evaders of all time.

Sean “P. Diddy” Combs

Yesterday it was announced that P. Diddy’s Atlanta based “Justin's Restaurant” reportedly owes the IRS $7,373 in unpaid back taxes. According to Detroit News, the IRS filed tax lien against the restaurant on May 18th in the New York Department of State. Combs’ spokesman blamed the tax debt on a series of errors, and claimed that a check has already been mailed out to the IRS.

"{The restaurant’s} new address was on file with the IRS, so it is surprising this happened," the spokesman said.

Chris Tucker

Another surprising recent celebrity tax evader is none other than Rush Hour star Chris Tucker, who’s problems are much more serious then Combs’. According to Tucker owes a whopping $3 million to the state of California. Reports suggest that the problems stem from the years 2001-2002 and 2004-2007.

Stephen Baldwin

Stephen Baldwin, who has appeared in numerous reality television programs, filed Chapter 11 bankruptcy protection with his wife earlier in the week. The Baldwin’s owe the IRS $749,974.03 for unpaid taxes between 1999 and 2008. They also owe withholding taxes in the amount of $139,288.30 for a company, Predestined Pictures.

Stephen, 43, is the brother of fellow actors Alec, Daniel and William Baldwin. His movies include “The Young Riders,” “Last Exit to Brooklyn,” “The Usual Suspects” and “Mrs. Parker and the Vicious Circle.” More recently, he has appeared on reality TV series such as “The Celebrity Apprentice” and “I’m a Celebrity … Get Me Out of Here.”

Swiss, U.S. Seen Needing Time to Ink UBS Tax Deal

The August 3rd deadline for a settlement between Switzerland and the U.S. on the UBS case seems unlikely, according to several sources close to the case. recently published a great article on the topic, explaining why a settlement is so hard to reach, and what the outcome is likely to be. You can read a segment of the story below.

Talks between Switzerland and the United States to end a tax row targeting UBS could stretch beyond an Aug. 3 deadline to allow more time for a detailed settlement, a source familiar with the situation said on Friday.

U.S. tax authorities are seeking to force Swiss wealth management giant UBS to disclose the identity of an estimated 52,000 U.S. holders of secret Swiss accounts suspected of dodging taxes even though this breaches Swiss bank secrecy laws.

A trial against UBS was scheduled to start in Miami on July 13 but presiding judge Alan Gold agreed to delay it until Aug. 3 to allow time for a settlement.

A status call between Gold and lawyers from UBS and the U.S. Internal Revenue Service on July 29 could be an opportunity for an announcement of a delay. A meeting between Swiss Finance Minister Micheline Calmy-Rey and U.S. Secretary of State Hillary Clinton is also scheduled on July 31.

"I would not be surprised if during the July 29 call or at the weekend there may be another request for a delay," a source familiar with the situation told Reuters.

Many investors believe the judge will again postpone the trial as the tax talks are complex and working out a deal that without further weakening bank secrecy requires time.

"Nothing will happen on Wednesday. The parties will agree to postpone the deadline until September to reach an agreement," a Swiss-based trader told Reuters.

Two Swiss-based sources familiar with the situation said a deal was unlikely to come before July 29.

Senators Near Bipartisan Health Deal

Earlier today, I came across a new entry on the Huffington Post asserting that a bipartisan group of Senators are nearing a compromise on health care reform. The compromise is said to exclude several key democratic priorities, but is low on costs, which they are hoping will generate support for the bill. But with a month long recess only a few days away, will these last minute negotiations be successful?

The fiscally conservative Blue Dogs were at odds with the leadership over how to pay providers in a government-run health plan that would compete with private insurance. The House bill models the payments based on Medicare, but the so-called Blue Dogs want a negotiated rate similar to private insurance. Other issues remain sticking points for the Democrats.

"We're not ready to support a bill yet," said Rep. Baron Hill, D-Ind., a member of the Blue Dog group, who added: "We'll get there. We are going to pass a health care bill, whether it's now or in the fall remains to be seen."

Without the backing of the 52-member Blue Dogs, it would be difficult for Democratic leaders to pass a bill, especially since no Republican supports the legislation.

"I think there's still a bit of daylight between the positions," said Rep. Earl Pomeroy, D-N.D. "I think the bottom line of Blue Dogs has not been met as of this time."

Continue reading here…

CA Gives Nearly $68M in Hollywood Tax Credits

From Mercury News:

California on Monday announced the first batch of movie and TV productions to qualify for tax credits under a film incentive program that former "Terminator" actor Gov. Arnold Schwarzenegger pushed through the Legislature and signed into law in February.

So far, 25 productions have qualified for $67.5 million in state tax credits, most of which would have relocated elsewhere if the state money hadn't been in place, said California Film Commission Director Amy Lemisch.

"On most of these productions, they were indeed location-scouting and budgeting in other areas outside of California," she said.

The Walt Disney Co.'s "Beverly Hills Chihuahua 2," was slated for filming in Vancouver had the funding not come through, and "Christmas in Beverly Hills" by Fast Lane Productions LLC might have become "Christmas in Arizona" if it had not qualified for state credits, she said.

One TV series, Comedy Central's "Important Things with Dmitri Martin," will likely hire 100 staffers based in California, she said.

Lemisch said the projects are budgeted to spend $347 million on basic production in California, and are expected to spend 30 percent to 40 percent more on actors, directors, producers and other creative talent and rights.

Monday, July 27, 2009

Back to School Sales Tax Holidays

As you may already know, every year various states and local government agencies have designated “sales tax free” holiday weeks or weekends. Some states feature these holidays before storm season, but many of them do it to help parents cut down on back to school costs. The first round of sales tax free weekends actually begin later this week, so to help my readers find out if their state is participating, I have organized the following list of sales tax holidays based on when they begin.

This Weekend (July 31 – August 2)


Kicking off the back to school holiday, Georgia’s tax-free weekend begins this Thursday morning and runs through Sunday night. Any school supplies priced under $20 are exempt from the state’s sales tax, as well as clothing under $100, and computer equipment under $1,500. The rules on clothing purchases are somewhat specific and exclude most accessories. For more information check out the Georgia Department of Revenue’s website.


This Friday (July 31) and Saturday (August 1) in Mississippi all clothing and shoes under $100 will be exempt the state’s 7 percent sales tax. Unfortunately, the holiday does not include school supplies and this has angered many retailers. However, the legislature has no plans to make any changes to the current tax-free weekend. For more information, check with the Mississippi State Tax Commission.

Next Weekend (August 7 – August 9)

Iowa and Oklahoma

I decided to lump these two states together because they both have essentially the same tax free holiday on August 7th and 8th. Both states waive the sales tax on an all items of clothing valued at under $100. Unfortunately, the program only applies to clothing and not additional back to school supplies. For more information be sure to check the following links: Oklahoma and Iowa.


If you buy any of the following items in Alabama either next Friday or Sunday then you will not have to pay the state’s sales tax rates. Items of clothing under $100, computers costing under $750, random school supplies under $50, and books under $30. Click here to find out exactly what purchases are included and which are excluded.


The sales tax holiday that takes place in Louisiana next weekend seems to be pretty general. According to Louisiana Department of Revenue, nearly all purchases of personal, tangible property valued at under $2,500 are excluded from the states sales tax. This does not include vehicles or items for business use.

Missouri, New Mexico, North Carolina, South Carolina, Tennessee, and Virginia

I’ve lumped these last six states participating in a sales tax free holiday next weekend together because they all have similar rules. The exclusion runs from Friday the 7th, through the night of Sunday the 9th. Although each state’s specific item limits vary widely, they each include clothing, school supplies, and computers. To see each state’s individual rules and limitations check out the following links: Missouri, New Mexico, North Carolina, South Carolina, Tennessee, and Virginia.

Future Holidays


If you purchase qualifying clothing and footwear in Connecticut between August 16th and the 22nd then you will not need to pay their sales tax. Unlike other states, their limit on clothing expenses is $300, but to learn more about their specific rules check out this link.


The final tax-free holiday of the back to school season occurs in Texas between August 21st and 23rd. According to their Window on State Government, all qualifying clothing, backpack, and school supplies valued at under $100 are eligible for the holiday.

While I was researching this article, I also came across this great article on by Apryl Duncan with a handful of tax-free holiday shopping tips. If you live in one of the states mentioned above and are thinking of going out this weekend then I definitely recommend you check out Apryl’s article.

Questions for the Tax Lady: July 27th, 2009

Every Monday I am going to post a set of answers to tax questions I’ve received over the past week. Additionally, I also seek out a few general tax questions from other users in the social communities I am active in. If you have a question you would like to ask me then check out the following links to my profiles. You can send me either a direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Hey Roni, I am thinking about moving to Oregon as property values are lower there. I am hoping my income tax and property tax situation will be better as well as my business. I have one part time employee, and costs here in California are killing me! Would Oregon be better for me personal and/or business-wise?

This is tricky question as there are a lot of things you are going to want to consider in making your decision. First of all, I am going to assume that you have a business that can easily be moved to Oregon without suffering any reduction in revenue. Depending on where you move to you might find a property in Oregon cheaper then the average home in California. However, according to Wikipedia, the minimum wage in Oregon is actually 40 cents higher then in California.

As far as taxes, Oregon has no state sales tax while California levies a hefty 8% sales tax (the highest in the country). According to reports, business tax rates are lower in Oregon then they are in most places in the country. However, the type of taxes you are going to pay will depend on the type of business structure you have (sole proprietorship, corporation, etc). With regard to income taxes, California has a very progressive income tax range of between 1% and 10.3%. California’s 9% tax rate is only for taxpayers making between $47,056 and $1,000,000 per year, and the 10.3% rate is only for those making over a million dollars a year. On the other hand, Oregon’s income tax rates are much less progressive. The top tax rate is 9%, but it’s assessed on all taxpayers making $7,601 or more per year.

No matter what, moving to a different state is a big decision. To better understand if it would be a good financial move, I would recommend researching tax rates and property values in cities you are thinking about moving to.

Question #2: What are the tax and legal complications of either short selling or a foreclosure? Do I have to claim to the difference from sales price to loan amount as income on my taxes?

No. Whether you go with a short sale or foreclosure, you will not need to claim the difference between the sales price and new value as income. Unlike forgiven credit card debt, the Mortgage Debt Relief Act of 2007 prevents the IRS from taxing you on forgiven mortgage debt. If you do get a 1099 next January from your mortgage company then you will simply need to file Form 982 with the IRS to exclude the debt from your taxable income.

Question #3: Food blog tax deduction question… Someone told me they write off all their grocery expenses because they blog - is that possible?

Probably not. Moreover, the person could actually get in trouble with the IRS for writing off all of their grocery expenses.

People often make the mistake of assuming that just because they do something for a little extra income means then can deduct all kinds of unrelated expenses. Although your friend might be able to deduct certain qualifying expenses related to their blogging (if they are in fact earning income), they must be able to verify the expenses claimed were ordinary and necessary for the type of business he or she was in. An ordinary expense is one that is common and accepted in the industry. A necessary expense is one that is helpful and appropriate for the trade or business. An expense does not have to be indispensable to be considered necessary. Thus, if your friend blogs about food or cooking as a source of income, then he or she may be able to claim the grocery bills.

It is important to note that the IRS auditors are very aggressive with the self-employed and independent contractors when it comes to claiming business expenses. So, your friend should definitely seek professional advice if he or she plans on deducting any expenses related to his or her blog.

Jury Indicts IRS Officer in Mortgage Refinance Scheme

According to Web CPA a federal grand jury indicted Mark Claybrooks on charges of fraud last week. Claybrooks is an IRS revenue officer who has been accused of his position to pressure taxpayers who were in debt with the IRS to refinance their mortgages with a company he was associated with.

Mark Claybrooks, 41, was charged with three counts of “acts affecting a personal financial interest” and two counts of fraud for using IRS computers without authorization. He allegedly contacted overdue taxpayers and tried to steer them toward Faith Mortgage Group in Antioch, Calif., where he worked from 2003 to 2005. He received over $20,000 from the mortgage company in exchange for his referrals.

The Contra Costa Times also ran a story about the development and notes that Claybrooks could not be reached for comment but that he is scheduled to make an initial appearance 10 a.m. this Thursday in U.S. District Court. They also found that the phone number for Faith Mortgage in Antioch had been disconnected.

The Tax Implications of Gambling

Last week the Roni Deutch Tax Center – Tax Help Blog posted a new article explaining the tax implications of gambling. As many of you may already know, all winnings from gambling are viewed as taxable income by the IRS. To help anyone confused on how to report these winnings, check out the following article courtesy of the Tax Help Blog.

Get the Form

Whenever you win a “qualifying amount” at a casino, they are legally required to report it to the IRS. Therefore, they will collect your social security number and send you an IRS Form W-2G. As such you want to make sure to report these winnings on your tax returns because the IRS obviously already knows about them. Do not make the mistake of trying to avoid the taxes by giving the casino incorrect information as this is very illegal and could get you into a lot of trouble.

What Qualifies?

According to the IRS, a casino will need to report your winnings to the IRS if you win: $600 or more at a casino or horse track, $1,200 or more at bingo game, or $1,500 or more in a game of keno. Depending on your winnings the casino may even withhold taxes from your payout.

Smaller Fortunes

Although smaller winnings will not be automatically reported to the IRS, it is still your legal duty to report them. While the IRS may not catch you in the act if you do not report these smaller winnings once or twice, they may get suspicious if you report gambling winnings often, but only those that are verified by a W-2G Form.

On the 1040

You must report your gambling winnings, prizes, or non-cash prizes on your Form 1040 come tax season. They will need to be put on line 21, with "other income". 1040EZ forms cannot be used to report gambling winnings.

Gambling Losses

In addition to reporting your gambling winnings, you will also want to deduct your gambling losses. However, you cannot report gambling losses that exceed your total gambling winnings. When you deduct the losses, do so on Schedule A of the IRS Form 1040 as an itemized deduction.

Continue reading at

A Bid to Tax Health Plans of Executives

From NY

Goldman Sachs is one of the nation’s richest banks, and hundreds of top Goldman employees have a health care package to match — one of the “gold-plated Cadillac” plans cited by those involved in the health care debate in Washington.

Goldman’s 400 or so managing directors and its top executive officers participate in the bank’s executive medical and dental program as part of their benefits, according to documents filed with the Securities and Exchange Commission. The program generally costs the bank $40,543 in premiums annually for each participant’s family.

Those taking part in the plan include the company’s chief executive, Lloyd C. Blankfein, and four other top officers, as well as managing directors, whose base salary is $600,000.

Goldman’s medical coverage entered the health care discussion on Sunday when David Axelrod, senior adviser to President Obama, cited the Goldman program as an example of the expensive benefits the administration might consider taxing to help pay for its health care program.

“The president actually was asked this the other day by Jim Lehrer, and what he said was that this was an intriguing idea to put an excise tax on high-end health care policies like the ones that the executives at Goldman Sachs have, the $40,000 policies,” Mr. Axelrod said.

Thursday, July 23, 2009

How to Stay Charitable During the Recession

Although the recession is affecting each of us in some way – commonly through declining home values or job losses – charities and non-profit organizations are being hit the hardest. However, even as everyone is tightening their personal budgets, being charitable is still your best interest as a U.S. taxpayer. In addition to the feeling of knowing you have done something good for a fellow American, you will be able to deduct your donations come tax season.

One of the biggest reasons charities are suffering so much is the obvious decline in donations. As Americans across the country make a greater effort to save money, many are choosing to decrease – and frequently halt – regular donations to their favorite charities. In addition to less personal donations, giant corporations that used to donate millions of dollars per year are being forced to make cuts. Likewise, dozens of small business owners and sole proprietors that also used to make large charitable contributions are cutting back. In fact, the Red Cross is reportedly seeing a reduction in donations by around 30% this year.

As if a decline in donations was not enough, due to massive job losses and home losses, the country has a greater need for charity now then it has in decades. Homeless shelters in some cities are becoming so crowded that they are turning people away. At the same time, those overcrowded homeless shelters are struggling to stay open because of a decline in donations and financial support. The same can be said for food aid programs, blood drive programs, or just about any charitable or non-profit organization you can think of.

As the recession continues more and more charitable groups are struggling. However, even if your income has gone down there are still plenty of ways to remain charitable.

1. Do NOT Spread it Out

A lot of people who are used to donating to multiple charities – but can no longer afford to make large monetary contributions – are hoping to simply make much smaller donations to each charity or non-profit. However, charity organizers say that while making small donations are always appreciated; donating a larger amount to one or two charities will often make a much larger impact.

2. Volunteer your Time

If you cannot afford to help out a non-profit by donating money, then you can volunteer your time. You could deliver foods for a local "Meals on Wheels" chapter, or help out at a food shelter. Although you cannot take a tax deduction for your time, you can deduct any direct expenses you incur as long as the charity you are working with is qualified. Therefore, if you bought gas for your car to participate in a "Meals on Wheels" program then you could deduct it on your tax return. Just be sure to keep the receipts!

3. Business Donations

If you own your own business, or are self-employed, then you can make donations on behalf of your business. This means you could donate any old office equipment you are no longer using, and if your business does free work for a charity then you can consider the time spent working on the project as a donation.

4. Non-Cash Donations

Since most of us are tight on cash because of the poor economy, you can also consider donating non-cash items such as clothes, food, or even a vehicle. Even though the donation is not money, you can still get a tax deduction as long as you get a receipt for the donation. However, the IRS has become very weary of non-cash deductions, so make sure you only claim the “fair market value” of the item donated.

5. Get More People Involved

When it comes to charity the more people you can get to help the better. Gathering your family, church group, or coworkers to help out at a charitable event will make volunteering both more enjoyable and more efficient. You could even speak with your employer, or human resources department, to help organize a company wide donation event.

New Tax Scams

In my 18 years of tax law practice, I have seen a number of tax scams. Most of the time, people try to hide assets, or under report income so their tax liability will appear lower. It is fairly common. Illegal, of course, but common nonetheless. But, I recently heard of a tax scam that seems rather creative in its fraud.

(Remember that this is highly illegal, and punishable by hefty jail sentences.)

Rather than under reporting income, some self-employed individuals are actually over reporting their income. Now, what is the benefit of doing this? They get to claim the maximum Social Security payments without paying into the system.

This scam only works for self-employed individuals. You see the Schedule SE is the self-employed person’s record of Social Security taxes you paid out. So, if you under report your income, your Social Security benefits get under reported as well. Meaning when you finally retire, your benefits will be greatly reduced.

Now, here is where the tax scammers found their loophole. The way the law is written, to get the highest amount of Social Security benefits, you must report 40 quarters (or 10 years) wherein you owed the maximum Social Security taxes. You only have to owe that amount, nothing in the law says you must pay that amount.

Therefore, if a self-employed person reports that they owe the maximum Social Security tax for 10 years straight, they need only avoid IRS collections until the liability runs out. Those who successfully run this scam avoid collections by not having bank accounts, not having assets, and running their business on a strictly cash basis.

With all the work and inconvenience in the scam, you are probably wondering how much this actually pays. The maximum Social Security benefit is $2,323 a month. So, collect that for 20 years, and you’re looking at hundreds of thousands of dollars.

Now, my purpose for writing about this scam is not to help you defraud the government. (I repeat, this is highly illegal. Do not do this!) Instead, this just illustrates how much effort some people will put into fraudulent schemes, while so many others refuse to put half the time into legally reducing their tax liability by increasing their tax knowledge.

(Hat tip to fellow tax blogger: Anthony Parent.

State Budget Plan to Demand Faster Tax Payments

California lawmakers are voting on their new budget plan today, and the San Francisco Gate posted a new article taking a look at the proposed budget. According to their article, the State would “increase the amount withheld from employee paychecks by 10 percent, speed up estimated tax payments, and begin withholding state income tax from certain payments - such as interest, dividends and gambling winnings”. Although the plan has a lot of critics, it is expected to help close the state’s budget gap.

These maneuvers will not increase tax revenue by more than a token amount. They will simply bring revenue that normally would be paid in the fiscal year that begins July 1, 2010, into the current fiscal year, which ends June 30, and thereby help "balance the budget."

And what about the hole in next year's budget? The state could fill it by stealing from the next year.

"It's a gimmick," says Gina Rodriquez of Spidell Publishing, which provides information to tax professionals.

Here's a closer look at how this would impact taxpayers. Remember that the state's fiscal year ends June 30 but the tax year ends Dec. 31:

-- Starting in October, employers would have to increase the amount withheld from employee paychecks for state taxes by 10 percent. If you were having $50 withheld, starting in October you would have $55 deducted.

When you file your 2009 tax return, you would owe less or get a bigger refund than you would if this change did not take place.

People could prevent or reverse the withholding increase by filing a new Form DE 4 with their employer. But the state figures most people won't, because they're lazy or busy or like getting a big tax refund.

This move would accelerate $1.7 billion of personal income tax receipts into 2009-10, mainly through increased withholding in January through June. Any excess revenue collected during that period would not have to be refunded until taxpayers file their 2010 returns in early 2011, which falls into next fiscal year.

Continue reading at SF…

Toyota to End Calif. Joint Venture with GM

Just last week I posted a blog entry discussing how California lawmakers were struggling to find a way to save the State’s last remaining auto plant. However, earlier today I came across this Associated Press article published by the announcing that Toyota Motor Corporation has indeed decided to liquidate its joint venture with General Motors. For those of you who do not recall, the plant assembled vehicles for both Toyota and GM. However, just because Toyota is pulling out does not mean the factory will close, but it does not give GM a short time frame to decide the fate of the factory and the 6,400 California taxpayers it employs. Check out a clip from the AP story below, or check out the full article below.

Toyota Motor Corp. has decided to liquidate its stake in a California manufacturing plant that it jointly operated with General Motors, a Japanese news agency reported Thursday.

The Japanese carmaker will begin negotiating with the "Old GM" starting next week, Kyodo News reported, citing unnamed company officials.

Toyota spokesman Mike Goss would not confirm that the Japanese automaker had made a final decision on the fate of Fremont, Calif.-based New United Motor Manufacturing Inc., also known as NUMMI. Goss said Toyota will begin negotiations with the GM officials about the plant and added that the company is conducting an "extensive review" of its production needs.

A GM spokeswoman was not immediately available to comment.

Nummi's fate was thrown into question last month when GM announced it was withdrawing from the 50-50 joint venture. GM emerged from bankruptcy protection shortly after the announcement and the company's stake in NUMMI is now part of Motors Liquidation Co. - also known as Old GM - where it will be liquidated under court supervision.

The NUMMI plant, established in 1984, employs 4,600 workers and makes the Pontiac Vibe station wagon for GM, and the Corolla compact car and Tacoma pickup truck for Toyota.

Report on Home Sales Gives Wall Street a Push

Some good news for the housing industry arrived today with the announcement that sales of previously occupied homes jumped 3.6 percent last month. According to the National Association of Realtors, “sales rose at a seasonally adjusted annual rate of 4.89 million last month, above the 4.84 million units analysts had been expecting. That further encouraged market hopes that housing, and in turn the overall economy, are recovering.”

Due to the good news on the housing front, the U.S. stock market also saw some improvements. According to the New York Times the down topped 9,000 today, the first time it has gone so high since January 2nd. I’ve included a clip of their story on the topic below.

The Dow Jones industrial average was up 148 points or 1.7 percent. The Dow last closed above 9,000 on Jan. 2. The index had been up 24 points ahead of the report. The Standard & Poor’s 500-stock index gained 16 points, or 1.7 percent, while the Nasdaq was 32 points, or 1.7 percent, higher.

Stocks had already been rising after another batch of generally positive earnings reports.

Earlier, the Ford Motor Company surprised the market with a second-quarter profit of $2.3 billion, due mainly to a huge gain for debt reduction, while the drug maker Wyeth, the cigarette maker Philip Morris International and the candy maker Hershey all raised their profit forecasts.

A report from UPS, however, was less upbeat. The world’s largest shipping carrier said its second-quarter profit plunged 49 percent as sales tumbled. The company also issued third-quarter guidance below analysts’ forecast.

Also on Thursday, the government reported a bigger-than-expected rise in new jobless claims, though the report was distorted by the timing of auto plant shutdowns.

The Labor Department said the number of new claims for unemployment benefits rose by 30,000 last week to a seasonally adjusted 554,000 — above analysts’ estimate of 550,000.

However, total unemployment benefit rolls fell to the lowest level since mid-April.

Continue reading here…

IRS Reminds Taxpayers to Take Advantage of Recovery Act Benefits

According to a new press release earlier this week, the IRS is reminding “taxpayers to take advantage of the numerous tax breaks made available earlier this year in the American Recovery and Reinvestment Act.”

The recovery law provides tax incentives for first-time homebuyers, people purchasing new cars, those interested in making their homes more energy efficient and parents and students paying for college. But all of these incentives have expiration dates so taxpayers should take advantage of them while they can.

First-Time Homebuyer Credit

The Recovery Act extended and expanded the first-time homebuyer tax credit for 2009.

Taxpayers who didn’t own a principal residence during the past three years and purchase a home this year before Dec. 1 can receive a credit of up to $8,000 on either an original or amended 2008 tax return, or a 2009 return. But the purchase must close before Dec. 1, 2009, and an eligible taxpayer cannot claim the credit until after the closing date. This credit phases out at higher income levels, and different rules apply to home purchases made in 2008.

New Vehicle Purchase Incentive

ARRA also provides a tax break to taxpayers who make qualified new vehicle purchases after Feb. 16, 2009, and before Jan. 1, 2010.

Qualifying taxpayers can deduct the state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. There is no limit on the number of vehicles that may be purchased, and you may claim the deduction for taxes paid on multiple purchases. But the deduction per vehicle is limited to the tax on up to $49,500 of the purchase price of each qualifying vehicle and phases out for taxpayers at higher income levels. This deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A.

Energy-Efficient Home Improvements

The Recovery Act also encourages homeowners to make their homes more energy efficient. The credit for non-business energy property is increased for homeowners who make qualified energy-efficient improvements to existing homes. The law increases the rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to a total of $1,500 for improvements placed in service in 2009 and 2010. Qualifying improvements include the addition of insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.

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GOP's New Youth Ambassador: Lady Gaga?

According to CNN Republicans attending a GOP weekly conference meeting earlier in the week were shown a video titled “Just Tax.” The viral video was made with the same tune and style of popular recording artist Lady Gaga’s “Just Dance,” only those words were replaced with “Just Tax”. It was made by 23 year old Peter Cowman, a recent graduate from the university of Washington, and was shown to GOP leaders as an example of how they could reach out to younger voters. Check out the full video below.

Franchising Consultant Recognized at Annual Convention

Earlier today published a new press release about Alex Cunningham, a franchise consultant whom I recognized in my speech at the Roni Deutch Tax Center's 2nd Annual Franchise Convention in May. Check out a clip from the release below, or read the full story here.

The Consultant of the Year Award recognizes Alex Cunningham for strengthening the Roni Deutch brand by selling 20 Roni Deutch Tax Center franchise territories in Florida and New Jersey in 2008-2009. To continue his success and to keep the momentum going forward, Cunningham is currently working on additional development deals in Connecticut, Louisiana, Texas, and New York that could total more than forty new territories for Roni Deutch Tax Center.

"It is a tremendous honor to receive this award," said Alex Cunningham. "To win the Consultant of the Year Award takes an incredible amount of effort, discipline, and energy. This award is not only for me, but for the great entrepreneurs I have worked with that have seen the immense opportunity in this industry."

For over two decades, Alex Cunningham has specialized in helping mid-level executives transition into franchising, and has built partnerships with over 85 companies, as well as helped pair more than 1,000 entrepreneurial prospects with franchises that closely match their experience, long-term goals, and passion. He has the expertise and knowledge to consult extensively with national franchisor operations, and help potential franchisees match their goals and qualifications to the "best fit" franchise opportunity.

“Should You Be the Face of Your Business?”

Earlier in the week Business Wizard published an article on whether business owners should be the face of their business or not. The author interviewed me weeks ago, and I am even quoted at the end of the article. You can read a short segment of the story below, or go to for the full version.

Further, having the company so open at so many points gives the company an edge in the competitive field of enterprise software. “The bigger you get, the more faceless you become,” Simpson says. “If you had a problem at IBM, who would you call? There are too many gates at a big company. We have all these little pieces of evidence that we are incredibly available to you.”

Many entrepreneurs choose not to self-brand out of fear that doing so could hinder or prevent selling the company. Vietia says that a self-branded firm can be sold with careful planning. For 18 years, Roni Deutch has been the face and voice of her tax law firm, making regular appearances on network news, TV commercials, blogs and online videos. While she has no plans to sell, she imagines her persona would be an asset to potential buyers. “Colonel Sanders later sold his business, and they continued to use his face to promote it,” she said. When reminded that Sanders was a caricature to begin with–one that was further simplified post mortem, Deutch says: “If I had to change to become a caricature I absolutely would.”

Tuesday, July 21, 2009

Foxy Brown Owes the IRS Too

It seems like nearly every week I come across a new story about a celebrity or professional athlete who some how forgot to pay their full tax bill. Well it seems like the latest addition to the list is pop music artist Foxy Brown, who has been charged with evading taxes for over 6 years. According to Contact Music Brown owes the IRS over $640,000. Check out a clip of their story below.

Rapper Foxy Brown has been hit with a lawsuit from U.S. tax officials after running up debts of $641,558 (£427,705). The star is accused of failing to keep up with her taxes since 2003, and Internal Revenue Service (IRS) agents have taken their case to a court in New York to try to recoup the cash. IRS officials have filed tax lien documents against Brown for allegedly missing payments between 2003 and 2006, reports

Pelosi Explains Tax Proposal In Health Care Bill

With all the concern over the House’s health care bill, and Obama’s recent omission that he was not familiar with all the provisions in it, Speaker of the House Nancy Pelosi tried her best to defend the proposed tax increases. She asserted that only very wealthy Americans will be paying more taxes, and that the Middle Class would not be affected. Check out the following story on Pelosi’s arguments below courtesy of USA Today.

Ensuring that the middle class doesn't have to pay the $1 trillion-plus price for overhauling the nation's health care system could mean that the wealthiest Americans will pay a higher rate than the House originally proposed, Speaker Nancy Pelosi, D-Calif., told USA Today’s editorial board Tuesday.

"I wanted to remove all doubt that we were not touching the middle class on this," Pelosi said, explaining why she has advocated in recent days for a higher income threshold for taxes proposed in the House version of the health care bill. "When you go there you get less money because there are fewer people so you have to adjust the fee, but you can't adjust it endlessly. It has to be responsible."

President Obama continued to push for quick legislation Tuesday and had harsh words Tuesday for those who want to "block" health care legislation.

"Time and again we've heard excuses to delay" health care reform, Obama said in brief remarks from the White House Rose Garden. But he also stressed the "common ground" that has already been forged on Capitol Hill.

"We have traveled long and hard to reach this point," Obama said adding that "we are closer than ever before to the reform that the American people need, and we're going to get the job done."

Lawmakers in Congress are debating ways to pay for Obama's pledge to provide health insurance to the 50 million people in the country who do not have it.

California Budget Deal Closes $26 Billion Gap

California Governor Arnold Schwarzenegger and the California legislature announced yesterday that they had finally put together a budget deal that settles the states whopping $26 billion deficit. Reactions to the budget are mixed, but at least the state is finally taking responsibility for their budget. According to the LA Times, the following changes will be made to the stat budget. However, as the author points out the reductions do not add up to $26 billion, and are pretty general to say the least.


  • K-12 and community college education -- $4.3 billion
  • Higher education -- $3 billion
  • Medi-Cal -- $1.3 billion
  • State worker pay -- $1.3 billion
  • Corrections -- $1.2 billion
  • CalWorks/welfare -- $528 million
  • Home health aides -- $226 million
  • Healthy Families children’s insurance -- $124 million
  • Local transportation -- $1 billion
  • Redevelopment agencies -- $1.7 billion

Additional Revenues

  • Accelerate income tax withholding -- $1.7 billion
  • Increase estimated tax payments for businesses and the self-employed -- $610 million

New Funds

  • Sale of State Compensation Insurance Fund -- $1 billion
  • Assumed federal funds for Medi-Cal program -- $1 billion

Accounts Shift / Borrowing

  • Local government borrowing -- $2 billion
  • Education deferrals -- $1.7 billion
  • June 2010 state worker paycheck deferral -- $1.2 billion

The Wall Street Journal also published a piece with strong opinions on some of the cuts. Check out a clip of their article below, or find the entire full here.

Under the budget plan, state lawmakers would cut $15 billion in spending. The rest of the gap would be filled by taking funds from local governments and through one-time fixes and accounting maneuvers. The deal must still be approved by rank-and-file legislators, who are expected to vote on it Thursday.

"We have accomplished a lot in this budget," Mr. Schwarzenegger told reporters after lawmakers struck the deal Monday evening. "We dealt with the entire $26 billion deficit," he said.

The nation's most populous state faces a $26 billion gap in a $92 billion general-fund budget through June 2010. Mr. Schwarzenegger and legislators have been wrestling over the budget for weeks, forcing the state's chief accountant to issue IOUs to many creditors, including some welfare recipients.

As of Friday, the state had issued 153,711 IOUs, worth a total of $682 million. The office of Controller John Chiang said it would need to evaluate the budget proposal before determining when it could stop issuing the warrants.

Economists said the spending cuts would bruise a California economy already slammed by rising unemployment and foreclosure rates. "It will certainly offset a fraction of the federal-stimulus effect this fall," said Roger Noll, a professor emeritus of economics at Stanford University. "That will mean the depth and duration of the recession [in California] will both be bigger than otherwise would've been the case," he said.

The leaders of the Democratic-controlled state legislature said that of the $15 billion in cuts, $9 billion would come from education, $1.3 billion from state-worker furloughs and $1.2 billion from the prison system.

"For Democrats, I have to tell you that many of cuts we had to make, at another time, we would've thought unthinkable," said Assembly Speaker Karen Bass.

Ms. Bass also said that local governments "will have to share the pain." The state will take away $4.3 billion from local governments by borrowing from them or redirecting funds that had been earmarked for them.

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