jump to navigation

Tax Tip of the Week | Real Estate – Tax Basis April 24, 2019

Posted by bradstreetblogger in : Depreciation options, General, Section 168, Section 179, tax changes, Tax Tip, Taxes, Uncategorized , add a comment

In an earlier Tax Tip, different tax categories of real estate were briefly discussed. This week we will discuss how a tax gain or loss is treated upon sale by the various classifications as listed below:

1.    Principal residence – Your gain (loss) is calculated by subtracting your tax basis from your sales price. Your tax basis starts with your original cost, adds in any qualifying improvements, and includes most of the selling expenses you incur when sold. Provided certain tests are met, gain is excludable up to $500,000 on a joint return, or $250,000 for a single filer. Exception: Any depreciation taken after May 6, 1997 is usually taxable. Depreciation may have been taken on an office in the home or any business usage. Any loss upon the sale of a personal residence in non-deductible.

2.    Second home – Your tax basis is calculated in the same manner as a personal residence. Any gain is taxed as capital gain. No exclusion is allowed as with a personal residence. No one may designate more than one property as a personal residence. Just as with a personal residence, any loss upon the sale of a second home is non-deductible.

3.    Rental property – The tax basis is calculated in the same manner as a personal residence with one major exception.   Because rental properties are depreciated over time, basis has to be reduced by the depreciation allowed or allowable. Any gain on the sale of a rental property is taxed as capital gain. However, the gain attributable to the depreciation taken could be taxed as high as 25%. This in known as Section 1250 recapture. Any excess gain is taxed as normal capital gain with a maximum rate of 20%. A loss on the sale of a rental property is normally deductible as an ordinary loss (not subject to the $3,000 per year net capital loss limitation).

4.    Investment property – Depreciation is not normally allowed on investment property. A loss is deductible to the extent of capital gains plus $3,000 per year for joint or single filers, and $1,500 per year for a married filing separate return.

5.    Business property – Same as rental property above if owned individually.

6.    Gifted property – Your tax basis in a property received as a gift is the same as the basis was in the hands of the giver.

7.    Inherited property – Your tax basis in an inherited property is generally the fair market value of the property as of the date of death of the decedent, commonly called a “stepped-up basis”.

As noted above, gains and losses are often treated very differently depending upon the type of property. Please understand what your type of property is and that its character may change for a variety of reasons including your intentions. Being able to substantiate all of this may be important.

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 – Norman S. Hicks, CPA

–until next week.

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 | Mortgage and Real Estate Scams April 10, 2019

Posted by bradstreetblogger in : tax changes, Tax Tip, Taxes, Uncategorized , add a comment

Computer hackers/cyber-terrorists are drawn to money like moths to a flame. And, significant monies exist in the mortgage and real estate industries. These types of transactions often involve very large sums of money. Since most people purchase and finance real estate transactions only on a sporadic basis they tend to be very trusting not knowing anything differently. Also, many of these financial institutions have streamlined their process via the internet in an effort to reduce their own expenses. This streamlining opens the doors to the criminals who may even be working for another country. Clicking on this link and that link and not knowing what is really behind the curtain is dangerous. Don’t just assume the email addresses, accounts numbers, and phone numbers that were emailed or called to you are correct. This is true not only for those individuals that are not computer and internet savvy but for the general public as a whole. There is nothing ever wrong with sitting down across the table with your representatives from your financial institution and getting their assistance. Monies that have been incorrectly wired to another country are typically irretrievable. You cannot be too careful!

The accompanying article offers further valuable information. 

                                By Mark Bradstreet

The last thing consumers should have to worry about is being scammed when they buy or rent a home, or consider refinancing options. Unfortunately, criminals are getting more creative in how they target their victims, leading to major financial headaches for their unsuspecting victims.

In 2017 alone, 9,645 victims reported real estate fraud, resulting in losses of more than $56.2 million, according to data from the Federal Bureau of Investigation’s Internet Crime Complaint Center.

Many people are too embarrassed to file complaints, making it harder to catch the scammers who repeatedly victimize unwitting homeowners and homebuyers, says Melinda Opperman, executive vice president of community outreach and industry relations with Credit.org — a nonprofit credit counseling agency and member of the National Foundation for Credit Counseling, or NFCC.

“It’s a huge problem,” Opperman says. “A lot of the time, people don’t realize that using public Wi-Fi connections where they conduct personal business through email or websites opens them up to [these scams] because the communications are not secure.”

Here are four common real estate and mortgage scams to keep on your radar — and tips to avoid becoming a scammer’s next victim.

1. Escrow wire fraud

What it looks like: You get an email, phone call or text from someone purporting to be from the title or escrow company with instructions on where to wire your escrow funds. Fraudsters set up fake websites that appear similar to the title or lending company you’re working with, making it seem like the real deal. Scammers use spoofing tactics to make phone numbers, websites and email addresses appear familiar, but one number or letter is off — an easy thing to miss at first glance, Opperman says.

So you follow the wire instructions and assume all is well when, in fact, you’ve just become the latest victim of escrow fraud. The scammers? They’ve withdrawn the funds from an offshore account somewhere and are sailing into the sunset with your hard-earned money. Meanwhile, you have few options for retrieving it.

How to protect yourself: Before you send money to a third party, go back to the original documents you received from your lender and call the phone numbers listed there to verify the wiring instructions you received. Never click on email or text links, or send money online, without verifying wire instructions with a live person on the phone from a number that you’ve called and verified, Opperman says.

Be wary of any email or text requesting a change to wiring instructions you already have, says Odeta Kushi, senior economist with First American Financial Corporation. Always confirm the escrow account number before wiring money, and call your settlement agent to verify the transfer of the funds immediately after you’re done, she advises.

2. Loan flipping

What it looks like: Loan flipping is when a predatory lender persuades a homeowner to refinance their mortgage repeatedly, often borrowing more money each time. The scammer charges high fees and points with each transaction, and homeowners get stuck with higher loan payments they can’t afford after being duped into borrowing most of their home’s equity, Opperman says.

Seniors with memory impairment are especially vulnerable to these scams because they have significant home equity and may not realize they’re being taken advantage of, Opperman says. Predatory lenders convince homeowners they can help them find a better loan product or use a cash-out refinance to pay for home renovations to make their homes more accessible as they age in place, Opperman says.

How to protect yourself: Elderly homeowners who have cognitive issues should involve a trusted relative or friend in any key financial discussion, especially about tapping home equity. If you’ve recently completed mortgage refinance, it’s usually not in your best interest to do another transaction right away, Opperman says.

If predatory lenders are actively seeking you out and you haven’t requested their help, that’s another warning sign that something is off. Work only with known banks or lenders, and question all fees and penalties presented to you, Opperman says. Lenders are required to provide loan estimates and closing disclosures that list all fees and third-party costs; review these documents carefully, or have a trusted advisor do this, if you are refinancing your mortgage.

3. Foreclosure relief

What it looks like: People who fall on hard times and get behind on their mortgage payments can become desperate to save their homes. That’s when scammers, who have access to public records of homes in pre-foreclosure, swoop in with offers of foreclosure relief to capitalize on homeowners’ vulnerability, Opperman says.

“Scammers will claim that they can help homeowners save their homes and reduce their mortgage payments for a large, up-front fee,” Opperman says, “but they often leave our clients in worse financial shape.”

Some fraudsters claim they’re affiliated with the government or government housing assistance programs, and can swindle homeowners out of hundreds or even thousands of dollars in fees, according to the Federal Trade Commission, or FTC.

How to protect yourself: The best way to avoid foreclosure is to work directly with your loan servicer to modify your existing loan, request forbearance, or make some other arrangement. Homeowners can first enlist the help of a HUD-accredited housing counselor to see what options they have, then include their counselor on a three-way call to their lender to find solutions, Opperman says.

“A scammer will tell you not to talk to your lender, and that’s a huge red flag,” Opperman says. “It’s hard to speak to your lender when you’re in imminent default or become delinquent because you’re afraid it might speed up [losing your home]. But you have to open the lines of communication with your lender.”

4. Rental scams

What it looks like: Scammers post property rental ads on Craigslist or social media pages to lure in unsuspecting renters, sometimes using photos from other listings. The scammers, who have no connection to the property or its owner, will ask for an upfront payment to let you see the property or hold it as a deposit. In reality, they’re just looking to get quick cash through nefarious means.

Rental scams are alarmingly common. An estimated 5.2 million U.S. renters say they have lost money from rental fraud, according to a recent survey from ApartmentList. Younger renters are the likeliest victims, with 9.1 percent of 18- to 29-year-old renters having lost money on such a scam, compared with 6.4 percent of all renters, the survey revealed. And of those who did lose money to scammers, one in three lost more than $1,000, likely after paying a security deposit or rent on a fake rental property, ApartmentList found.

How to protect yourself: Be suspicious of anyone who asks for a cash deposit upfront to see a property, says Nicole Durosko of Warburg Realty in New York City. Ensure you’re dealing with the real property owner before negotiating rental terms or seeing a property in person. You can search the local property appraiser’s website to find out who the current property owner is and look for contact information online.

“Avoid doing transactions via email or on the phone,” Durosko says. “It’s best to be face-to-face to confirm the property ownership, sign any required documentation, and [make a] payment.”

Use a check (never cash) to make a payment so you have an automatic receipt of it, Durosko advises. Finally, always insist on speaking with the property owner before signing a contract or making a payment if someone says they’re representing the owner. If someone claims to be a real estate agent, ask to see their license and take a picture of it so you can confirm the information online through your state’s division of real estate licensing, Durosko says.

Next steps to take if you’re targeted

Trust your gut if something doesn’t feel right or seems too good to be true. Work with only professional lenders associated with local and/or national trade associations, and ask for referrals from family members and friends. If you’re an older homeowner (or a caregiver to someone who is), be on your guard when companies pressure you to tap your home equity.

If you suspect a scammer is trying to target you, don’t open any email links or respond to any messages. Instead, report the activity to your local police department. To report fraud, identity theft or financial scams, visit the FTC’s complaint website, click on the FTC Complaint Assistant icon, and answer the questions.

Credit given to:  DEBORAH KEARNS@DEBBIE_KEARNS JANUARY 16, 2019 in MORTGAGES (BankRate)

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. 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 C. Bradstreet, CPA

-until next week

Tax Tip of the Week | All You Need to Know About Student Loan Forgiveness March 27, 2019

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Deadlines, Tax Planning Tips, Taxes , add a comment

The sheer magnitude of our outstanding student loan debt is beyond my feeble comprehension. According to the Federal Reserve, student-loan debt hit $1.53 trillion at the end of the second quarter of 2018. I may understand “millions” and just perhaps “billions,” but the concept of “trillions” totally escapes me. Almost two-thirds of that total debt or about $900 billion is carried by women.

An article written in the WSJ on December 17, 2018 by Ms. Berman, a reporter at MarketWatch follows. Her article discusses some limited options on having some of the student-loans forgiven, but, very often someone has to jump through some really high hoops to qualify. So keep your fingers crossed, but I wouldn’t hold your breath.

                                                                                                    – Mark C. Bradstreet

“Student-loan forgiveness might seem out of reach for many of the 44 million people who have educational debt. But some of these borrowers may qualify for relief—if they know where to look.

Student-loan forgiveness has gotten somewhat of a bad rap in recent months, largely because of controversy surrounding the federal Public Service Loan Forgiveness program, which allows public servants with a certain type of federal student loans to have their debt discharged after 120 monthly payments.

The first cohorts of borrowers became eligible for forgiveness under PSLF in the fall of 2017 and in the months since, advocates have grown concerned that confusion about the program’s requirements, combined with sloppy implementation on the part of student-loan companies and the government, has made it difficult for eligible borrowers to qualify. Of the roughly 28,000 people who filed an application for debt forgiveness under the program as of June 2018, just 96 had their loans forgiven, government data show.

PSLF may be the best known loan-forgiveness program, but it isn’t the only one. Not only are there other federal programs, cities and states across the country offer some debt forgiveness for people who work in certain jobs or even live in certain areas.

Here is a closer look at some programs and their requirements:

Federal programs

PSLF: To be eligible, borrowers must work full-time in a public-service job for the right type of employer—typically a federal, state or local government or a nonprofit with a 501(c)3 designation. They must have the right type of loan—a federal Direct Loan—and be in an income-driven repayment plan to benefit. Borrowers also need to have made 120 on-time payments toward their debt to have the remainder forgiven under PSLF.

It’s hard to say exactly why so many borrowers who applied to have their loans forgiven were rejected. It could be that many simply hadn’t been working in public service or paying down their loans for the full 10 years. But some data indicate that confusion over the program’s requirements played a role.

Of borrowers who have had at least one employment certification form (the document borrowers can use to ensure they’re on track toward forgiveness) approved, nearly 12% are repaying their loans under a nonqualifying repayment plan, according to the Education Department. Congress authorized a temporary expansion of PSLF earlier this year for borrowers who met all of the program’s other requirements but were using certain nonqualifying repayment plans.

Advocates also worry that borrowers who have Federal Family Education Loans, which don’t qualify for PSLF, are working in eligible jobs and repaying their debt, assuming they’ll qualify for forgiveness only to later face a rude awakening. Borrowers can consolidate FFEL debt into Direct Loans, but they may not know to do that unless they receive information about it from their student-loan servicer. (Borrowers who think they might qualify for PSLF should reach out to their servicer and ask whether they have Direct Loans, and if not, how they can consolidate their student debt into Direct Loans.)

Liz Hill, an Education Department spokeswoman, says the agency’s office of Federal Student Aid is approving every eligible application for PSLF under the “strict rules” established by Congress. It is also conducting regular outreach to borrowers about the program via social media, webinars and in person events.

“FSA is committed to enhancing the process, outreach, and communications related to the program,” she wrote in an email.

Are You Eligible?
Borrowers who want to know if they are on track to qualify for the federal Public Service Loan Forgiveness program can submit an employment certification form. A separate application is needed to claim forgiveness.

Teacher loan forgiveness: Teachers who work for five consecutive years in qualifying schools—typically those serving low-income students-—can receive up to $17,500 in forgiveness on certain federal loans; depending on what subject they teach. They need to have been a new borrower as of Oct. 1, 1998, meaning that they had no prior loans still outstanding as of this date. Also, they must have completed at least one of their qualifying years of teaching after the 1997-1998 academic year.

Teachers can’t use this program and PSLF at the same time, so they need to pick that one that best suits their financial needs. The American Federation of Teachers, a national teachers union, tends to advise borrowers to focus on PSLF, which offers superior benefits, unless the borrower doesn’t plan to stay in public service for the full 10 years.

Perkins Loan cancellation: Nurses, firefighters, public defenders and others may be eligible for cancellation of their Perkins Loans, federal need-based loans for both undergraduate and graduate students. Typically, a percentage of the loan is forgiven for each year of service, culminating in 100% of the loan being discharged after up to seven years.

Congress ended schools’ authority to make new Perkins Loans last year, so there won’t be any new borrowers receiving them—at least for now.

Income-driven repayment forgiveness: Borrowers using income-driven plans for federal loans can have the balance of the debt discharged after 20 or 25 years of payments, even if they aren’t working in public service. But under current law, debt relief is taxed as income, so borrowers may face a heftier-than-normal tax bill after their loans are discharged.

State, local programs

States and regions across the country offer a variety of student-loan forgiveness programs, most of which fall into two categories: those tied to a specific occupation or those tied to living in a specific region, or both. Many of these programs cover private student loans, which federal debt-forgiveness programs don’t.

“Almost every single state has at least one program,” says Betsy Mayotte, president of the Institute of Student Loan Advisors, which recently compiled a list of 115 debt-forgiveness programs.

While the list is a good place to start, Ms. Mayotte cautions that the eligibility criteria and funding available for many of these programs changes constantly, so borrowers need to check with the entities offering forgiveness directly before making a financial plan based on them.

In some cases, borrowers may be able to combine a state or local program with Public Service Loan Forgiveness, says Heather Jarvis, an attorney and student-loan expert. For example, borrowers can use some loan-repayment assistance programs sponsored by states, nonprofits or their employers to help defray the cost of their loan payments during the 10 years they’re working to become eligible for PSLF.

Occupation-focused programs typically center on health care, education or legal-services jobs, Ms. Mayotte says.

Michigan’s Department of Health and Human Services will pay off a significant chunk of health professionals’ loans—both federal and private—if they agree to work in primary care in an underserved area. The initiative, which doctors, dentists, nurse practitioners and other health professionals can use to pay off up to $200,000 of debt over eight years, was designed “specifically to recruit and retain primary-care providers in underserved areas in Michigan,” says Elizabeth Nagel of the policy, planning and legislative-services administration at the Michigan Department of Health & Human Services.

Location-based programs, while not as widespread, simply require the borrower to live in a certain region, Ms. Mayotte says.

Kansas launched its Rural Opportunity Zones program in 2011 to encourage educated workers to move to certain rural regions experiencing population decline, says Rachéll Rowand, the program manager.

Borrowers with an associate’s, bachelor’s or graduate degree and a student-loan balance in their own name can become eligible for some debt relief by establishing residency in a ROZ county on or after the date the county opted into the program. They also need a sponsor, which can be an employer or the county itself. Borrowers can receive up to $15,000 in assistance on federal and private student loans over five years. And they can use the program along with PSLF if they qualify.

Of course, when considering any loan-forgiveness program tied to a job or place, borrowers need to ask themselves how committed they are to staying put for a long period.

While a loan-forgiveness program essentially helps to make a low-paying career possible with high student-debt levels, it “really isn’t an incentive to go into a particular occupation,” says Mark Kantrowitz, the publisher of Savingforcollege.com and a financial-aid expert.

“In most cases,” he says, “you might actually be better off taking a job in a different field that pays better.”

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. 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 C. Bradstreet, CPA

-until next week

Tax Tip of the Week |Offshore Tax Cheats – The IRS is Still Coming for You March 6, 2019

Posted by bradstreetblogger in : General, tax changes, Tax Tip, Taxes, Taxes, Uncategorized , add a comment

Having an offshore account is not illegal, provided the accounts are in compliance with U.S. tax laws which include appropriate disclosure. And, yes, you can get into serious trouble for failing to attach the appropriate forms to your income tax return. So, please be certain to advise your tax preparer of any foreign assets you may have. But, where things get really dicey, is the situation of using these “secret” accounts to hide your money and not paying any income tax (offshore tax evasions is a criminal act). More details from Laura Saunders follow.

  • Mark Bradstreet

“Hiding money from the U.S. government is a lot harder than it used to be.  

On Sept. 28, the Internal Revenue Service will end (now ended) its program allowing American tax cheats with secret offshore accounts to confess them and avoid prison. In a statement, the IRS said it’s closing the program because of declining demand.

But the agency vowed to keep pursuing the people hiding money offshore and said it will offer them another route to compliance.

What a difference a decade makes.

Before 2008, an American citizen could often walk into a Swiss bank, deposit millions of dollars, and walk out confident that the funds were safe and hidden from Uncle Sam, says Mark Matthews, a lawyer with Caplin & Drysdale who formerly helped the IRS’ criminal division.

Now he says, “Americans hiding money abroad have to go to small islands with sketchy advisers and less reliable financial systems.”

The reason:  a historic crackdown on the longstanding problem of U.S. taxpayers hiding money offshore, U.S. officials ramped it up after a whistleblower revealed that some Swiss banks saw U.S. tax evasions as a profit center and were sending bankers onto U.S. soil to hunt for clients.

The defining moment came in 2008, when Justice Department prosecutors took Swiss banking giant UBS AG to court and managed to pierce the veil of Swiss bank secrecy. In 2009, UBS agreed to pay $780 million and turn over information on hundreds of U.S. customers to avoid criminal prosecution.

The Justice Department repeated the UBS strategy, with variations, for scores of other banks and financial firms in Switzerland, Israel, Liechtenstein and the Caribbean. So far, institutions have paid about $6 billion and turned over once-sacrosanct customer information. More major settlements are still to come.

Prosecutors also successfully pursued more than 150 individuals hiding money abroad. Some defendants earned jail time, and many paid dearly – a total of more than $500 million so far. Dan Horsky, a retired business professor and a startup investor, appears to have handed over the largest amount: $125 million for hiding more than $220 million offshore.  

In many cases, a taxpayer can owe a penalty of half a foreign account’s value, if it’s greater than $10,000 and it’s not reported to the Treasury Department. Ty Warner, the billionaire creator of Beanie Babies plush toys, paid $53.6 million for hiding an account with more than $100 million.

The IRS capitalized on tax cheats’ fears of detection with its Offshore Voluntary Disclosure Program, the limited amnesty that’s ending. It hit confessors with large penalties in exchange for no prosecution. Since 2009, more than 56,000 U.S. taxpayers in the program have paid $11.1 billion to resolve their issues.

To be sure, the U.S. crackdown hasn’t reached everywhere – notably Asia.

Edward Robbins, a criminal tax lawyer in Los Angeles formerly with the IRS and Justice Department, attributes the enforcement gap to the widespread use of human beings, rather than structures like trusts, to shield account ownership in Asia.

“In the Far East, individuals often use other individuals who use other individuals to hold assets. Finding the true owner is a tough nut to crack, unlike in the West,” he says.

The crackdown also had drawbacks, making financial life difficult for many of the roughly 4 million U.S. citizens living abroad. Unlike most countries, the U.S. taxes citizens on income earned both at home and abroad. Often expatriates were stunned to find they could be considered tax cheats under the expansive U.S. Law and that compliance would be onerous.

In reaction, more than 25,000 expats have given up U.S. citizenship since 2008, with some paying a stiff exit tax. Others are working to get Congress to change the taxation of nonresidents.

For expats and others, the IRS now offers a compliance program with lesser penalties, or none, for offshore-account holders who didn’t willfully cheat. About 65,000 taxpayers have entered the program and the IRS says it will remain open for now.

Current and would-be tax cheats should take seriously the IRS’s vow to keep pursuing secret offshore accounts, says Bryan Skarlatos, a criminal tax lawyer with Kostelanetz & Fink who has handled more than 1,500 offshore disclosures to the IRS.

Although the IRS’s staffing is way down, he says, the agency and the Justice Department have far better tools for detecting and combating evasion than 10 years ago.

Among these agencies’ tools are the Fatca law, which requires foreign firms to report information on American account holders.This law is providing the IRS with streams of useful information it’s using in prosecutions.This week brought the first guilty plea for a violation of Fatca rules by a former executive of a bank in Hungary and the Caribbean.

The IRS is also mining data from foreign bank settlements and whistleblower information. The payment of $104 million to UBS whistleblower Bradley Birkenfield, apparently the largest ever, has inspired other informers.

To detect clusters of cheats, U.S. officials now can use a “John Doe summons” to force firms to release information on a class of customers suspected of evading taxes – even if their identities aren’t known, and even if the information isn’t in the U.S.

This strategy has been so successful that the IRS has broadened its use to identify possible tax cheats using cryptocurrencies.

“More than ever, there’s no place to hide,” say Mr. Skarlatos.”

Credit given to Tax Report, Laura Saunders, WSJ, September 15-16, 2018

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. 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 C. Bradstreet, CPA

-until next week

Tax Tip of the Week | Sales Tax (Where You Have No Physical Presence) February 13, 2019

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Planning Tips, Tax Tip, Taxes, Taxes, Uncategorized , add a comment

Sales Tax ( Where You Have No Physical Presence)

I would rather have an IRS audit than a sales tax audit for a multitude of reasons that I won’t bore you with. Just take my word for it! Too many taxpayers are more diligent with meeting their IRS tax compliance than with their sales tax requirements.  You better be diligent with both of these taxes or you have a lot to lose!

Excerpts from an article follows on South Dakota v. Wayfair, Inc., U.S. (2018).  As businesses increasingly use internet to sell, their sales tax compliance has become even more cumbersome and complex.

I have spared you a lot of history in this article and just shown the author’s FAST FACTS.  You may also go directly to the online article if you are interested in more details.

-Mark Bradstreet

Credit to Rich Molina, CPA, CPA Voice, The Ohio Society of Certified Public Accountant, Sep/Oct 2018

FAST FACTS:

1.    “Reversing precedent, the U.S. Supreme Court finally upheld a requirement that retailers withhold and remit sales taxes for purchases made by customers in states in which the retailers have no physical presence.
2.    South Dakota, like other states, experienced a substantial decline in tax revenues as more and more of its residents purchased goods and services online from out-of-state retailers.
3.    On a national level, states were losing $8-33 billion of tax revenue per year in uncollected sales taxes by out-of-state sellers. In addition, at the time the Supreme Court rendered the Quill decision in 1992, less than 2% of Americans had internet access while that number is 89% today.
4.    The court’s holding has evolved along with modern day commerce just as the court is finding itself having to adapt to new areas in other parts of the law, including privacy in the digital age.”

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. 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 | Stop Helping Cybercriminals Steal Your Info January 9, 2019

Posted by bradstreetblogger in : General, Tax Tip, Taxes, Taxes, Uncategorized , 1 comment so far

Stop Helping Cybercriminals Steal Your Info

We all face computer security threats on a daily basis. Some attempts by cybercriminals are outright obvious! But, others, admittedly are ingenious, sneaky (see (2) below – that is a new one for me) and can literally put you out of business. An IT instructor I had a few weeks ago said he could hack our hotel’s Wi-Fi and be on our cell phones in 2-3 minutes. He said if he was really good it could be done in 30 seconds. Ouch! Also, too many people use passwords that are simply too short and too easy to guess. Please read on…

-Mark C Bradstreet, CPA

“When you take a moment to think about the various data breaches and identity theft scams that have occurred over the past few years – from Equifax to WannaCry – there tends to be a common theme:  These wounds are self-inflicted.

Because we face data security threats every day, it helps to know the most common tactics cybercriminals use and how to prevent falling victim to them.

(1) Spear phishing
Phishing scams are one of the most common and successful methods of data theft, which makes sense. They target the single most vulnerable part of the security apparatus:  People. And there’s one subset of phishing that is particularly effective.

“Spear phishing” specifically targets individuals by using personal information to convince the victim that the criminals are a familiar entity – an employer, family member, or favorite retailer – to gather private data: bank accounts, credit card information, and Social Security numbers are common requests. Luckily, there are usually a few clues that the communication isn’t legit and knowing how to spot them can protect you from being a victim.

First, businesses will not request your bank account number or Social Security number in an email. If someone on the phone is claiming to be from a collection agency, you can perform a few quick Google searches to verify their identity. Second, a legitimate agency will never ask for payment via cryptocurrency or gift cards. Third, email and letter phishing scams tend to feature glaring spelling and grammar issues.

The other, most obvious way to avoid email phishing scams is to avoid opening unsolicited emails and, on those occasions when you do open them, never clicking links or downloading attachments. If you’re worried about not being able to receive files from customers or coworkers, secure client portals and shared folders are viable options.

(2) Evil Twins
Evil twin attacks are when cybercriminals create a fake wireless access point that impersonates a real Wi-Fi- network, enabling cybercriminals to directly monitor victims’ traffic or redirect victims to websites containing malware. Criminals usually set up shop in high-foot-traffic areas that advertise free Wi-Fi, like airports, coffee shops and shopping malls. Unfortunately, there’s no way to know which “hotel Wi-Fi” is legit.

If you don’t want to self-regulate what you do while connected to public Wi-Fi, one solution is a virtual private network (VPN) service. When you use a VPN, your device’s traffic is encrypted, which – while not impenetrable – places a barrier between your data and would-be cybercriminals.

(3) Ransonware
Stop me if you’ve heard this one:

You’re working late on a project that’s due tomorrow morning, but a Windows notification asking to download and install an operating system update stops you dead in your tracks. Rather than taking a break that could last an hour or more, you click “Remind Me Later” and keep working on that deadline. Six months later, the update is waiting patiently for you to find the time. It’s essential for us to find the time to update our operating systems because such updates often include security patches that can help prevent attacks that compromise our cybersecurity.

Ramsonware holds your computer’s data hostage until you make a payment to the cybercriminals responsible for the attack. Generally, if you don’t make a payment by a specific date, all your data is deleted. But even if you pay the ransom, there’s no guarantee you’ll get your data back – and since most of these scams ask for payment in Bitcoin, it’s not possible to simply reverse the charges.

The May 2017 WannaCry ransomware attack succeeded because people failed to update their Windows operating system. Before installing the update, Windows users were vulnerable to an exploit that didn’t even require they actively download malware to their system – even worse, if one computer on a network became infected, it was likely that WannaCry would spread to others. Here’s the rub:  Microsoft issued a fix for supported versions of Windows two months before the attack took place.

(4) Wrapping things up
What else can you do to protect your data?

Aside from installing security software like antivirus and antispyware programs, you probably need to address your password hygiene.The problem with passwords is if they’re easy to remember, they’re usually not very secure. Since every account needs a strong unique password, a password manager can be a relatively easy solution.

Password managers randomly generate and store passwords associated with your accounts, and some will even auto fill website forms with all of your login information. In the event of an account compromise, you just generate a new password. When you use a password manager, you only need to remember the password that logs you into that service.

Criminals have many ways to get their hands on your private information. Let’s stop making their job easier.”

Credit to Ryan Norton, CPA Voice The Ohio Society of Certified Public Accountants  – September/October 2018. Ryan is a GruntWorx contributor. This originally appeared on the Boomer Consulting, Inc. blog on June 14, 2018.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. 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 C. Bradstreet, CPA

–until next week

Tax Tip of the Week | No. 470 | The Offer In Compromise – IRS Debt Relief For Those Who Are Eligible July 25, 2018

Posted by bradstreetblogger in : Deductions, General, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | July 25, 2018 | No. 470 | The Offer In Compromise – IRS Debt Relief For Those Who Are Eligible

Do you owe a huge tax bill to the IRS? If you meet certain conditions, you might be eligible to file for an Offer in Compromise (OIC), and if successful, to eliminate thousands of dollars in tax, penalties and interest – permanently! An OIC is not a payment plan, although there will undoubtedly be some payments involved. Some OIC’s will require payments for 24 months, others for 5 or 6 months, and some will require only one or two payments, depending on the “offered” terms, and / or the “accepted” terms.

There is a multitude of paperwork involved in applying for an OIC. Forms that will have to be submitted will include Collection Information Statements and the Offer in Compromise packet itself. These are not easy forms to fill out. They require information on all of your assets, liabilities, and income and expenses. You will also have to provide at least three months of bank statements, any mortgage statements, pay stubs and other personal information. If you want to see if you qualify for an OIC before filling out all of the paperwork, you can go to IRS.gov and use the Offer in Compromise Pre-Qualifier tool.

An OIC is an agreement between the taxpayer and the IRS that settles a tax debt for less than the full amount owed. It can provide the taxpayer with a fresh start for tax purposes. In order to get an offer accepted, the offer must be appropriate based on what the IRS considers your true ability to pay, but there are conditions. For example, you must have filed all tax returns legally required to be filed. You must also be receiving notices from the IRS for your tax debts. And you cannot be in an open bankruptcy proceeding. Generally, the IRS will not accept an offer if they believe you can pay your tax debt in full, either currently with cash or equity in assets, or through an installment agreement.

The IRS will look at your situation extensively before accepting your OIC. They will only agree to proceed if they believe one of the following situations exists: there is Doubt as to Collectibility, Doubt as to Liability, or it will help with Effective Tax Administration. Doubt as to Collectibility is the reason used most often.

In the application for an Offer in Compromise, you have to name the terms of the offer you are submitting, and 24 months is the default time span for payments. For example, you might offer to pay $100 per month for 24 months on a $50,000 debt, thereby saving over $47,000. And there is generally an application fee of $186. So there will be a payment due with the submission of the OIC of the application fee plus the first payment as offered in your application. Both of these payments can be waived if you meet the Low-Income Certification.

As you might suspect, submitting an Offer in Compromise can be a very long and drawn out process. After submission of the application and any payments due, it might take a few months for the IRS to get back with you. And undoubtedly, they will want more information. However, the end result can be very rewarding if the offer is accepted. Rules continue to apply though, even after acceptance. You must stay current on your tax returns and any taxes due after acceptance, and any refunds on returns filed while the offer is being considered or while it runs its course are applied toward your tax debt, and are not considered payments toward your offer. Other rules might also apply and remember, this is a negotiation, so you should probably have a professional on your side.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Norman S. Hicks, CPA

–until next week.

Tax Tip of the Week | No. 469 | Medicare Costs Set to Rise for the Wealthy (ANOTHER Sneak Attack) July 18, 2018

Posted by bradstreetblogger in : General, Tax Tip, Taxes , add a comment

Tax Tip of the Week | July 18, 2018 | No. 469 | Medicare Costs Set to Rise for the Wealthy (ANOTHER Sneak Attack)

The federal government is becoming sneakier and sneakier about getting the wealthy to pay an even greater share of Medicare costs. Many of these “sneaky” taxes already exist on your income tax return. These include phase-outs of this and that, various floors and ceilings, tax bracket triggers, the alternative minimum tax, the net investment income tax, the additional Medicare tax, and so forth and so on.

Beginning in 2019, individuals with incomes of $500,000 or more and couples with earnings of more than $750,000 will be required to pay 85% of the costs of Medicare Parts B and D – up from 80% now. This increase in premium is called the income-related monthly adjustment amount. In contrast, Medicare beneficiaries with incomes of less than $85,000 and less than $170,000 for couples – pay only 25% of the costs.

Some of our clients (and their accountants) have been surprised by this extra Medicare tax which may be triggered by increased income levels from events such as selling their business and/or farm, etc. This extra tax is not on your income tax return but appears as additional Medicare withholding from your social security benefits. If your social security benefits are less than the Medicare tax deductions, you have the luxury of sending a check to the Social Security Administration each month and helping to reduce their current deficit.

Certain appeal rights are available if a spike in your income has resulted from a “once in a lifetime” event. If such an event has occurred in your life, there is an actual form titled “Medicare Income-Related Monthly Adjustment Amount – Life Changing Event” that can be filed to help reduce your premium costs.This form may also be filed to report a decrease in your income.

In addition, because the Social Security Administration bases their computations on your modified adjusted gross income, if you file an amended return that lowers your income, you should provide a copy to the SSA along with your acknowledgment receipt from the IRS, as this may help to reduce your premiums.

One final option, if you disagree with the income-related monthly adjustment amount, is to file an appeal. You may file online, or in writing by completing a Request for Reconsideration, or contact your local Social Security office.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA & Norman S. Hicks, CPA

–until next week.

Tax Tip of the Week | No. 462 | The 10 Worst Corporate Accounting Scandals of all Time May 30, 2018

Posted by bradstreetblogger in : General, Taxes, Uncategorized , add a comment

Tax Tip of the Week | May 30, 2018 | No. 462 | The 10 Worst Corporate Accounting Scandals of all Time

Let’s take a break from the new tax law this week. Instead, let’s go back into the past and revisit some of the HUGE accounting scandals. For those who fail to learn from history are doomed to repeat it.

I have focused for the most part on only three facets of these scandals – 1) How they did it, (2) How they got caught, and 3) Fun facts. Not sure what the author defines as “Fun” fits my definition. The word ”Interesting” at least in my humble opinion may have been a better choice. I will let you be the final judge. The top 10 accounting scandals of the last twenty or so years follow:

Waste Management Scandal (1998)

•    How they did it:  The company allegedly falsely increased the depreciation time length for their property, plant and equipment on the balance sheets.
•    How they got caught: A new CEO and management team went through the books.
•    Fun fact:  After the scandal, new CEO A. Maurice Meyers set up an anonymous company hot-line where employees could report dishonest or improper behavior.

Enron Scandal (2001)

•    How they did it:  Kept huge debts off balance sheets.
•    How they got caught:  Turned in by internal whistle-blower Sherron Watkins; high stock prices fueled external suspicions.
•    Fun fact:  Fortune Magazine named Enron “America’s Most Innovative Company” 6 years in a row prior to the scandal.  (That is funny!)

WorldCom Scandal (2002)

•    How he did it:  Under-reported line costs by capitalizing rather than expensing and inflated revenues with fake accounting entries.
•    How he got caught:  WorldCom’s internal auditing department uncovered $3.8 billion of fraud.
•    Fun Fact:  Within weeks of the scandal, Congress passed the Sarbanes-Oxley Act, introducing the most sweeping set of new business regulations since the 1930s.

Tyco Scandal (2002)

•    How they did it:  Siphoned money through unapproved loans and fraudulent stock sales.  Money was smuggled out of company disguised as executive bonuses or benefits.
•    How they got caught:  SEC and Manhattan D.A. investigations uncovered questionable accounting practices, including large loans made to Kozlowski that were then forgiven.
•    Fun fact:  At the height of the scandal Kozlowski threw a $2 million birthday party for his wife on a Mediterranean island, complete with a Jimmy Buffet performance.

HealthSouth Scandal (2003)

•    How he did it:  Allegedly told underlings to make up numbers and transactions from 1996-2003.
•    How he got caught:  Sold $75 million in stock a day before the company posted a huge loss, triggering SEC suspicions.
•    Fun fact:  Scrushy now works as a motivational speaker and maintains his innocence.

Freddie Mac (2003)

•    How they did it:  Intentionally misstated and understated earnings on the books.
•    How they got caught:  An SEC investigation
•    Fun fact:  1 year later, the other federally backed mortgage financing company, Fannie Mae, was caught in an equally stunning accounting scandal.

American International Group (AIG) Scandal (2005)

•    How he did it:  Allegedly booked loans as revenue, steered clients to insurers with whom AIG had payoff agreements and told traders to inflate AIG stock price.
•    How he got caught:  SEC regulator investigations, possibly tipped off by a whistle-blower.
•    Fun fact:  After posting the largest quarterly corporate loss in history in 2008 ($61.7 billion) and getting bailed out with taxpayer dollars, AIG execs rewarded themselves with over $165 million in bonuses.

Lehman Brothers Scandal (2008)

•    How they did it:  Allegedly sold toxic assets to Cayman Island banks with the understanding that they would be bought back eventually. Created the impression Lehman had $50 billion more cash and $50 billion less in toxic assets than it really did.
•    How they got caught:  Went bankrupt.
•    Fun fact:  In 2007, Lehman Brothers was ranked the #1 “Most Admired Securities Firm” by Fortune Magazine.

Bernie Madoff Scandal (2008)

•    How they did it:  Investors were paid returns out of their own money or that of other investors rather than from profits.
•    How they got caught:  Madoff told his sons about his scheme and they reported him to the SEC.  He was arrested the next day. Penalties:  150 years in prison for Madoff + $170 billion restitution. Prison time for Friehling and DiPascalli.
•    Fun fact:  Madoff’s fraud was revealed just months after the 2008 U.S. financial collapse.

Satyam (2009)

•    How he did it:  Falsified revenues, margins and cash balances to the tune of 50 billion rupees.
•    How he got caught:  Admitted the fraud in a letter to the company’s board of directors.
•    Fun fact:  In 2011, Ramalinga Raju’s wife published a book of his existentialist, free-verse poetry. Raju and his brother charged with breach of trust, conspiracy, cheating and falsification of records. Released after the Central Bureau of Investigation failed to file charges on time.

Credit to CPAGold Newsletter/Blog by Richard Jorgesen May, 2018

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.