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10 Tips for Tiger Woods (Professional Athletes) and the New Tax Law April 17, 2019

Posted by bradstreetblogger in : Business consulting, Depreciation options, General, tax changes, Tax Planning Tips, Tax Tip, Taxes , add a comment

The odds are good that this Tax Tip of the Week won’t reach more than a handful of professional athletes and maybe not even that many. Regardless, in the world of tax, many similarities exist between a professional athlete and an employee who travels around the country. Sadly, those similarities are the only things that I will ever have in common with the likes of Tiger Woods, Lebron James, Stephan Curry and Tom Brady. The commentary below was taken from an article dated April 23, 2018 by Travis Tandy who is a staff accountant with Ferguson, Timar & Co in Fullerton California. As you read through this article, please note that the tax laws are no different for you than for a professional athlete, especially if your job necessitates travelling between various taxing entities and you have been itemizing your deductions in the past.

                                                        – Mark Bradstreet

Whether you’ve provided tax and accounting services for professional athletes in the past or are just getting started, you’ll want to pay special attention to these 10 key issues that are unique to this type of client. Adding to the special circumstances these athletes have faced in the past year is the new tax law. Many business expenses that are common among professional athletes are no longer deductible or are limited. Tax planning opportunities abound for this type of client as we all sort through the ramifications of the new Tax Cuts and Jobs Act. Here are some of the many things you’ll face.

1. Jock Tax: Under the terms of what is commonly called the “Jock Tax,” athletes must report their income in each state in which they play. An additional challenge from a tax planning standpoint is player trades during the year. We may set up a tax plan, only to have the player traded to a different state or team in which they will play in an entirely different set of states.

2. Residency: Establishing residency can be most challenging for rookie players. Rookies are often young and unestablished outside of their parents’ home state. Veteran players have the benefit of choosing a permanent residency based on their tax situation. The key is to establish residency in a favorable county near the home stadium. Establishing residency can be done simply by finding a living space, obtaining a driver’s license in that state and setting up utilities in the player’s name. Many players choose states like Florida, Texas, and Washington that have no state tax requirements.

3. Charitable Giving/Non-profit: Players can take advantage of their status to help others through charitable giving. This allows them to support a cause close to their heart. You can help by explaining the value of maximizing charitable donations.

4. Agent Fees & Unions Dues: As of the tax year 2018, union dues and agency fees directly related to the generation of W-2 income no longer qualify as an itemized deduction. Rookie players have minimum dues exceeding $17,000 per year and agent fees of around 3%. These once-deductible items will need to be removed from the player’s tax plans moving forward, or different tax structures need to be explored. However, we are working diligently to review the NFL Collective Bargaining Agreement in conjunction with the new tax laws in hopes of changing the way this is handled.

5. Player Fines: Nobody wants to see a situation where a player does something to generate a fine against them. The fines are often donated in the name of the player, turning the fine into a tax deductible expense to the player. Fines not donated to a charity may be considered a necessary and ordinary business expense to the player, subject to new and limiting tax rules.

6. Athletic Equipment: Footballs, golf clubs, tennis rackets, racquetball rackets, basketballs, etc. are considered ordinary and necessary for the player to continue to play at a high level, and to maintain their employment with their team. Again, new tax rules cause us to reexamine the nature of this former itemized deduction. Look for professional athletes to start incorporating themselves to take advantage of more favorable tax provisions.

7. Royalties: Royalties can sometimes be a difficult issue with athletes. Most are unsure of the amount due to them through the year, making tax planning for royalty income a difficult task. Royalty deals also come and go based on player performance. A fluctuation in a multi-million dollar royalty deal can really change the outcome of the player’s tax situation.

8. Unknown increased salaries: It doesn’t happen all that often, but a veteran player may get sent to the injured list for the season. This means a lower paid backup player will be used to replace the player. Players moving from the bench to a starting position receive a significant increase in pay. This can cause a change in their current tax rate and plan.

9. Signing bonuses: The benefit of a signing bonus all comes down to the form in which the bonus is paid out. If the bonus is paid out properly by the league, it may not need to be included in state income.

10: Taxable Swag: Gifts or swag given to players is not truly a gift and it actually comes with a price tag. The items are almost always given in connection with an appearance or as a bonus for the player’s appearance. Unfortunately, the IRS will want a cut of that swag in the form of a tax payment. These fortunate events create additional taxable income for the players often overlooked in the excitement and lack of notice from the agency providing the swag.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.  

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 360 | It’s Not Personal, It’s Your Business June 22, 2016

Posted by bradstreetblogger in : Business consulting, Business Consulting, General, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | June 22, 2016 | No. 360 | It’s Not Personal, It’s Your Business

You may think of your business as an extension of yourself, especially if you’re a sole proprietor or the only shareholder. But keeping the two of you separate — particularly in the area of finances — is a tax-smart move. One reason: In addition to making sure the expenses you pay are ordinary and necessary, you need adequate records to support them so you can claim a deduction on your business return. Intermingling personal and business finances may lead to disallowed deductions.

Here are three ways to separate your personal and business life:

Set up a bookkeeping system. In general, federal income tax law does not specify a particular type of recordkeeping system. Your accounting records can be as simple as a logbook with pockets to store receipts. The main requirement is to track your expenses in a manner that provides a complete and accurate account of your business activities.

Open a business bank account. Having a separate bank account can help put to rest the question of whether you are running a business or indulging in a hobby. Why? To open a business account, financial institutions usually require employer identification numbers, business licenses, certificates of incorporation, and other legal documents that signify genuine business activity.

Take a salary.  (Not an option if you are a sole proprietor) Besides providing a clear separation between your personal and business expenses, paying yourself a reasonable wage helps you maintain a budget. Establishing a distinction is especially important for corporations. In some cases, amounts you withdraw from your corporation for your personal benefit can be considered dividends instead of a deductible expense.

If you need help establishing or organizing your business records, please do not hesitate to contact our office.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW…until next week.

Tax Tip of the Week | No. 332 | NSA Blasts Congress on IRS Cuts December 9, 2015

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Tax Tip of the Week | December 9, 2015 | No. 332 | NSA Blasts Congress on IRS Cuts

We thought you might be interested in this article we read recently……

The National Society of Accountants has delivered what it calls “a strongly worded letter” to the chairs and ranking members of the Appropriations Committees of the U.S. Senate and House of Representatives criticizing them for slashing the IRS budget by hundreds of millions of dollars.

According to the NSA, a House bill calls for an $838 million cut in 2016 from the 2015 budget of $10.9 billion, which is also $2.8 billion less than President Obama’s 2016 budget request. A Senate bill proposes a cut of $470 million.

“Individual and small-business taxpayers are being harmed by IRS budget cuts on a daily basis,” NSA executive vice president John Ams wrote. “They are desperate for the kind of help and guidance that only the IRS can provide, but for which the agency has little or no budgeted funds.” He added that these cuts continue a multi-year trend of declining budgets for the IRS.

The IRS Taxpayer Advocate found that in 2014, 35.6 percent of phone calls went unanswered by IRS customer service representatives, NSA added, and half of written correspondence was “not handled in a timely manner.”

The NSA letter expressed support for a November 9 letter signed by five former IRS commissioners sent to these same Congressional leaders. “If you truly believe, as you state, that, ‘We need the IRS to enforce tax laws, stop and prevent fraud, prepare forms and instructions, process refunds, collect revenue and assist taxpayers in complying with tax obligations,’ then the first step would be to develop a budget for the IRS that would actually provide the agency the means with which to do so,” NSA president Kathy Hettick concluded.

We can tell you from first-hand experience the IRS has become almost dysfunctional when we try to respond to correspondence audits.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 324 | Form 8300 Filing Requirements October 14, 2015

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Tax Tip of the Week | October 14, 2015 | No. 324 | Form 8300 Filing Requirements

What do you do when you receive a payment in excess of $10,000?

The IRS recently reminded business that they have an obligation to report any cash payments in excess of $10,000 on Form 8300.

The simple rule is:  You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive cash payments in excess of $10,000 cash per customer. These requirements apply to cash transactions occurring in all 50 states and the District of Columbia, as well as U.S. possessions and territories.

The IRS indicates you must report cash payments if they are:

– More than $10,000

– Received as:

One lump sum of more than $10,000, or Installments totaling more than $10,000 within one year of the initial payment

-Received in the ordinary course of your trade or business

Received from the same agent or customer

-Received in a single transaction or two or more related transactions

-Received from an individual, corporation, partnership, association, trust or estate

Avoid these common mistakes:

Not reporting in time.  Generally you must file Form 8300 within 15 days after you receive the payment. If the 15th day falls on a weekend or holiday, you must file the report by the next business day.

Not reporting related transactions. You must file Form 8300 for related transactions. Related transactions can be those occurring between you and the same customer within a 24-hour period, as well as transactions that occur outside of the 24-hour window, but may be one of a series of connected transactions.

Not getting the right information. You must provide the correct taxpayer identification number (TIN) of the person from whom you received the cash, and you may be subject to penalties if this is incorrect or missing. If you’re unable to obtain the TIN, file Form 8300 and include information about the circumstances surrounding the missing number.

Not providing a written statement to customers. Generally, when you file a Form 8300, you must provide written notification to your customer. You must provide the written statement on or before January 31 of the year following the cash payment.

Not keeping a copy of your records. Keep a copy of every Form 8300 you file – as well as the required statement sent to your customers – for at least five years from the date filed.

A complete discussion of this filing requirement goes beyond the scope of this article.  Just remember to give us a call if you receive a payment over $10,000.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 266 | Home Office Deduction Not Precluded by Minor Personal Use September 3, 2014

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Tax Tip of the Week | Sept 3, 2014 | No. 266 | Home Office Deduction Not Precluded by Minor Personal Use

A recent court case….

The Tax Court sided with the plaintiff in a recent case involving the rules surrounding the home office deduction. The deduction is allowed for the portion of a residence that is used exclusively and on a regular basis as the principal place of business for a taxpayer.

Setting aside an area of the dwelling for exclusive use is not always easy, however. In Lauren Miller’s case, the IRS challenged her deduction for the expenses allocable to one-third of her New York City studio apartment of 700 square feet.

Miller was employed by BrandingIron Worldwide (BIW), a company that provides public relations, advertising, and marketing services. BIW is headquartered in Los Angeles, while at the time she was hired; Miller was BIW’s only employee in New York.

Miller used part of her apartment as an office throughout 2009. BIW listed her apartment address and telephone number on its Web site as the address and phone number for its New York office.  Miller usually worked weekdays between 9 a.m. and 7 p.m., but was generally expected to be available at all times.

Miler’s studio apartment, a single room, was divided into three equal sections: an entryway, a bathroom, and a kitchen area; office space, including a desk, two shelving units, a bookcase, and a sofa; and a bedroom area including a platform bed and dressers. Miller has to pass through the office space to get to the bedroom area.

Miller frequently met with BIW clients in the office space, and she performed work for BIW using a computer on the desk. The bookcase and shelving units were used to store books, magazines, supplies and samples related to her work for BIW and its clients. Although she used the office space primarily for business purposes, she occasionally used the space for personal purposed. BIW did not reimburse Miller for any of the expenses related to her apartment.

The Tax Court, in Summary Opinion 2014-74, noted that if the taxpayer is an employee, the deduction for a home office is only allowable if the exclusive use of the office space is for the convenience of the taxpayer’s employer. In Miller’s case, BIW listed her apartment address on its Web site as its New York office address, and Miller “testified credibly that she regularly used one-third of her apartment space as an office to conduct BIW business, she met with clients there, and she was expected to be available to work well into the evening.”

The court agreed with Miller that her apartment was her principal place of business that she was obliged to use the space as an office for the convenience of her employer, and that BIW was not able or willing to reimburse her for any of her apartment-related expenses.

“Although Petitioner admitted that she used portions of the office space for nonbusiness purposes, we find that her personal use of the space was de minimis and wholly attributable to the practicalities of living in a studio apartment of such modest dimensions.”

Therefore, the court concluded that Miller was entitled to the home office deduction.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 261 | Do You Have A FROG File? July 30, 2014

Posted by bradstreetblogger in : Business consulting, General, Tax Planning Tips, Tax Tip, Taxes, Taxes , add a comment

Tax Tip of the Week | July 30, 2014 | No. 261 | Do You Have A FROG File?

Everyone needs one of these…

I recently attended a seminar on estate planning. The attorney presenting the class provided a nicely summarized list of important information that everyone should have prepared prior to their death.  She called this list a “FROG File” (For Your Own Good).

The list includes:

The Essentials

–    Executed Will Document
–    Trust Document(s)
–    Letter of Instructions:
o    Funeral Arrangements
o    Contact information for CPA, Attorney, Financial Advisor, Insurance Agents, Bankers, etc.

Proof of Ownership

–    Housing, land, and cemetery deeds
–    Proof of loans made and debts owed
–    Vehicle Titles
–    Stock Certificates, savings bonds and brokerage accounts
–    Partnership and/or Corporate Operating Agreements
–    Tax Returns (at least five years)

Bank/Brokerage Accounts

–    List of all Bank and Brokerage Accounts
–    List of all user names and passwords to access the accounts
–    List of safe-deposit boxes
o    For each, indicate who is the named beneficiary or has joint ownership

Health Care

–    Personal and family medical history
–    Durable health-care power of attorney
–    Authorization to release health-care information
–    Living Will
–    Do-Not-Resuscitate Order

Life Insurance and Retirement Accounts

–    Life Insurance policies
–    Individual Retirement Accounts
–    401(k) accounts
–    Pension documents
–    Annuity Contracts
o    Make sure beneficiary information is up-to-date!

Certificates and Licenses

–    Marriage License
–    Divorce Decrees
–    Military Records

Since we never know when we will be “hit by the bus” it would be a good idea to start your FROG file today!

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 256 | People with High Incomes Paying Zero Federal Income Taxes June 25, 2014

Posted by bradstreetblogger in : Business consulting, Tax Planning Tips, Tax Tip, Taxes, Taxes , 1 comment so far

Tax Tip of the Week | June 25, 2014 | No. 256 | People with High Incomes Paying Zero Federal Income Taxes

Now that takes some tax planning…

The Internal Revenue Service has released the spring 2014 edition of its quarterly Statistics of Income Bulletin, with statistics up through 2011 indicating there are still people who earn over $200,000 a year who pay no federal income taxes, although the number of them has been decreasing. “For 2011, there were 4.8 million individual income tax returns with an expanded income of $200,000 or more, accounting for 3.3 percent of all returns for the year. Of these, 15,000 returns had no worldwide income tax liability,” according to one report in the bulletin by Justin Bryan. “This was a 6.7-percent decline in the number of returns with no worldwide income tax liability from 2010, and the second decrease in a row since reaching an all-time high of 19,551 returns in 2009.”

However, the advocacy group Citizens for Tax Justice pointed out that the numbers are still high when looked at over a longer period.

“From the report’s first publication in 1977 through 2000, the number of high-income Americans paying no tax never exceeded 3,000.  But the past four years have seen an explosion of high-end tax avoidance: in each of these years, the number of zero-tax Americans found in this report has exceeded 30,000. In 2011 (the latest year for which data are available), almost 33,000 people with incomes over $200,000 paid no federal income tax. For this group—less than one percent of all Americans with incomes over $200,000 in 2011—tax-exempt bond interest and itemized deductions are among the main tax breaks that make this tax-avoiding feat possible.”

In addition to the report on high-income tax returns through 2011, the spring 2014 Statistics of Income Bulletin also contains articles on individual income tax rates and sharesindividual noncash contributions and individual foreign-earned income and foreign tax credits for 2011.

The IRS noted that of the 145 million individual tax returns filed in tax year 2011, 91.7 million were classified as taxable returns or returns with a total income tax greater than $0. Adjusted gross income (AGI) for taxable returns was nearly $7.7 trillion, up 6 percent from the prior year. Total income tax was more than $1 trillion. To be included in the top 1 percent of returns for 2011 required an AGI of $388,905.

For tax year 2011, there were more than 22 million individual taxpayers who reported a total of $43.6 billion in deductions for noncash charitable contributions. About a third (7.5 million) of these taxpayers reported nearly $39 billion in deductions for charitable contributions of $500 or more. Nearly 450,000 U.S. taxpayers reported $54 billion of foreign-earned income for tax year 2011, representing growth in real terms of over 32 percent since the last study in 2006.

The Statistics of Income Bulletin is available for download at IRS.gov/taxstats.

Give us a call to see how the tax code can work for you!

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 253 | An Update on ROBS June 4, 2014

Posted by bradstreetblogger in : Business consulting, Business Consulting, General, tax changes, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Taxes , add a comment

Tax Tip of the Week | June 4, 2014 | No. 253 | An Update on ROBS

Some recent court cases have shed more light on this risky funding plan.

A couple of years ago in TTW #109 we introduced ROBS as a strategy to fund a new business. The following is a recent article in Businessweek about this risky strategy.

Baby boomers are proving more likely to launch businesses in their 50s and 60s than members of past generations, in some cases risking retirement savings on the ventures. A small but growing number have adopted a complex strategy to use their retirement nest eggs early to buy or launch businesses—while avoiding taxes and penalties for early withdrawal.

The IRS has repeatedly warned that the strategy—known by the unfortunate acronym ROBS, for Rollovers for Business Startups—lies in a murky area of the law. Two recent tax court decisions show that the federal government may be looking to go after millions of dollars in back taxes.

The ROBS strategy has been around for decades and has gained popularity in recent years, especially with entrepreneurs buying franchise businesses. Guidant Financial, a Bellevue (Wash.) company that specializes in the transactions, handled $232 million in such rollovers in 2012.

Here’s one way the maneuver typically works: A would-be entrepreneur creates a shell company and sets up a 401(k) plan for it. She transfers some or all the savings from her personal retirement account into the new company’s 401(k). She uses the new 401(k) to invest in the shell company through an employee stock ownership plan. That gives the shell company cash to buy an existing business or to cover startup costs. The entrepreneur owns the company through shares held in the new retirement plan.

The IRS cast some doubt on ROBS in a 2008 memorandum (pdf) saying the strategy needed further study. “ROBS transactions may violate law in several regards,” the agency noted. In 2010, the agency called ROBS  “questionable” but provided the basis for continued use.

Last year the IRS won decisions against entrepreneurs who were found to have misused ROBS. In Peek v. Commissioner, filed in May, the tax court said two Colorado entrepreneurs owed more than $560,000 after they used their company’s retirement plan to guarantee a loan. In Ellis v. Commissioner, filed in October, the court ruled against a Missouri man who used a ROBS transaction to rent space for his business and pay himself a salary.

Proponents of the strategy say those decisions show the importance of hiring a company that knows what it’s doing to manage the transaction. Some tax experts, however, have warned recently that the cases show the IRS is preparing a crackdown on ROBS and could soon seek back taxes from other entrepreneurs.

A bigger question: Should anyone devote retirement savings to the inherently risky act of launching a business? Michele Markey, a vice president at the Kauffman Foundation, says older entrepreneurs should be more cautious about taking the plunge. “Boomers don’t have time to recover from failure like a 20-year-old does”.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Financial Statements – How They Can Help | Tax Tip of the Week | No. 62 October 13, 2010

Posted by bradstreetblogger in : Business consulting, Business Consulting, Tax Tip , 1 comment so far

Tax Tip of the Week | October 13, 2010 | No. 62
Financial Statements – How They Can Help

Analyzing Your Financial Statements
How financial statements can help grow your business.
You are working hard, very hard.  In fact, you have never worked so hard in your life.  Your employees are also working hard.   Therefore, your business must be doing, amazingly well.  Right?  BUT…your bank account is nearly empty, your desk drawer is full of checks that you can’t mail, and your line of credit is maxed.  So, what is wrong – where is all the cash going?  Often, the mystery may be explained by analyzing your financial statements.
You will want to use at least the following reports:

(1)  The Balance Sheet – this is a record of your business’s assets, liabilities, and equity as of a certain moment in time or a snapshot.
(2)  The Profit and Loss Statement or aka the Income Statement – this is a recap of your business’s sales, expenses, and net profit (or loss) over a specific period of time.
(3)  The Cash Flow Statement – this will show a recap of the actual increases and decreases of cash coming into and out of your checking account.

Analytical Analysis

Use your financial statements to compute your ratios or metrics.  Learn which ratios are typically used by your industry.  Compare your results to these ratios.  Some of these ratios may include – aging of accounts receivable and accounts payable, inventory turnover, gross profit margins and a percentage of net income to sales – just to name a few.   All of these and more will help you provide a scorecard on the health of your business and explain what is going on behind the scenes.  For example, is your cash funding higher accounts receivables and higher inventory levels because of double digit growth in your sales?  Or, is your cash funding an operating loss because your sales are not high enough to cover your overhead? Your financial statements will also show you why your checkbook balance has little value in determining your profits.

Flash Reports

In addition to using monthly financial statements many companies will also use the underlying data for them to create daily or weekly flash reports.  One rule for flash reports is they should not exceed one page – keep them short.  They typically include the information necessary to drive the business forward to meet your strategic plan.  For example, they may show the sales or parts produced for the preceding day as compared to a predetermined target in an effort to change direction and methodology as needed on a very short notice.

Side note:  Timely (within 10 days following month end) and accurate financial statements that use the accrual method of accounting (i.e. where accounts receivable, inventory, accounts payable and various accrued liabilities are recorded) is crucial.  One cannot expect to make great decisions from poor information or information that is outdated.   And, don’t forget the IRS expects accurate reporting as well.

This week’s author: Mark Bradstreet, CPA

Rick Prewitt – the guy behind TTW

…until next week.