Tax Mistakes Industry Business Owners Make

Tax Mistakes Industry Business Owners Make

May 3, 2012 at 5:00 PM - 8:00 PM

Collinsville VFW Post 5691, Collinsville

Write-off Strategies Most Business Owners Miss focusing on the benefits that proactive tax planning can deliver for small buisness owners and real estate investors. Larry Stone has learned thousands of legal tax loopholes that drastically slash your tax bill and position... you to pay the lowest amount of tax possible. You waste thousands of dollars every year in taxes you don't need to pay. Attend our entertaining, fast-paced seminar to learn how to take advantage of every available break!

To register for the HBA membership Event, please call the HBASWIL office at 618.343.6331. Reservations are $25 per person.

A Dubious Privilege

A Dubious Privilege

The "Occupy Wall Street" movement argues that we live in a divided nation. First there's a gilded "1%" enjoying lives of ease and privilege. Then there's a downtrodden "99%" struggling just to stay in place. But here's a take on "the 1%" that you won't hear at your local tent city . . .

The IRS is struggling just like the rest of us to carry out its mission with limited resources. Back in 2003, they audited just one out of every 203 returns. By 2010, that number was up to one out of 90. To stretch that audit budget even further, they're auditing more and more taxpayers by mail. But one study shows that 10% of IRS mail never gets where it's supposed to go, and 27% of those who do get their mail don't even realize they're actually being audited! Naturally, that leads to more and more of the paperwork screwups that every taxpayer fears.

Enter Nina Olson. She's the IRS's first and only Taxpayer Advocate, a position created by the 1998 "Taxpayer Bill of Rights" act. She supervises the Taxpayer Advocate Service, a nationwide group of 2,000 caseworkers who specialize in cutting through red tape and greasing the wheels of the great gummy IRS machine. If the IRS sends your mail to the wrong address, slaps you with a lien after you've already paid your bill, or just makes a mistake they can't seem to fix, Olson's office is the one we'll call.

Last month, Olson delivered a presentation to the Federal Bar Association on how "the 99%" experience the tax system. And the picture she painted makes a tent in lower Manhattan Park look like a room at the Ritz. One in three taxpayers who call the Service don't get an answer. Only half of those who write hear back within six weeks. The IRS is relying on computers instead of people to audit all but the highest-income taxpayers. And perhaps most curious of all, she says, "we're getting to a situation where the only people who get face-to-face audits are the 1%"!

Now, correct us if we're wrong, but do you really consider face time with an IRS auditor a "privilege"? We all know that at least some level of government is necessary. But there are just some parts you don't want to see up close and in person. Like the "Level 4" Biolab at the Atlanta Centers for Disease Control, for example, where we store the Ebola virus, Crimean-Congo hemorrhagic fever, and other superbugs we can't risk having out on the loose. Or the "Supermax" penitentiary in Florence, Colorado, where we "store" the most dangerous felons we can't risk having out on the loose. Or the inside of any IRS Service Center!

Does Olson's "1%" comment conjure up images of plush IRS offices, with thick oriental carpets and rich leather upholstery, staffed by discreet, white-gloved concierges sitting at granite-topped desks? We can assure you that when it comes to getting audited, even the 1% have to settle for the same government-issue linoleum floors, metal chairs, and battleship gray desks as everyone else. (And really, in the unlikely event you are audited, we probably won't let you go with us anyway! Trust us -- it's for your own protection.)

We talk in these emails about how proactive planning cuts your tax bill. But paying less tax isn't the only perk of a good tax plan. Did you know that smart tax planning can also cut your audit risk? In fact, some strategies -- like choosing certain business entities -- can cut that risk by as much as 90%. So call us if you think face time with an auditor is a "privilege" you can do without!

Mad at Taxes

Mad Men creator Matthew Weiner is famed for his obsessive attention to period detail. (One episode featured junior executive Pete Campbell displaying a spectacularly ugly "chip and dip" platter he received as a wedding present — the very same chip and dip that Weiner's own parents received for their wedding back in 1959.) So, fashion mavens predictably ooh'ed and ahh'ed over the period costumes, which have inspired today's Banana Republic to introduce an entire collection. Interior design aficianados ooh'ed and ahh'ed over Don and his new bride Megan's stylish Upper East Side penthouse, with its white carpeting, sunken living room, and broad terrace. But tax professionals cheered loudest of all when partner Roger Sterling bribed media buyer Harry Crane $1,100 to give up his office for rising star Campbell. "That's more than you make in a month," Sterling whee dled, "after tax!"

Prices from 1966 seem comically quaint today. A gallon of gas cost just 32 cents. A dozen eggs cost 60 cents. Postage stamps cost a nickel. But there was nothing comical or quaint about taxes. Rates in 1966 started at 14% on income over $1,000 (roughly $7,000 in today's economy), and rose to 70% on income over $200,000. 70% is a lot compared to today's 35% maximum — but 70% was actually a big step down from the 91% top rate that Don and his colleagues faced just three years earlier in 1963. One small consolation — Don's was quite a bit simpler. However, the "Expense Account Information" section at the bottom of page two includes an intimidating box to check — and separate instructions to follow — "if you had an expense account or charged expenses to your employer."

If we had been practicing back in 1966, we would have looked just as good wearing the silhouettes of 1960s style. But Don Draper would have appreciated us more for the way we cut his taxes. There's no need to get mad at the IRS if you have a proactive plan. And there's no pesky two-drink minimum, either!

Tax Business, Russian Style

Tax Business, Russian Style

Working in the tax business is usually a pretty safe gig. You really just need an office, a computer with an internet connection, and a fast laser printer for all those piles of paper. There's not much heavy lifting -- and even less intrigue or danger. But sometimes the tax business is a different story. Just ask Pavel Petrovich Ivlev, who works (now) in suburban New Jersey.

Pavel was born in 1970 just outside Moscow. He earned a law degree from Moscow State University in 1993, studied more in Amsterdam and London, then joined an international law firm. At that point, he appeared set to become another one of a new breed of Russian lawyers, helping newly-privatized companies negotiate the awkward transition to "real" capitalism.

Pavel's clients included Yukos Oil, and its charismatic chairman, Mikhail Khodorkovsky. Khodorkovsky had started out collecting dues for the Communist Youth League. But as the Soviet Union collapsed, he rejected his old Leninist ideology. Taking advantage of glasnost and his party connections, he became an entrepreneur, published his own capitalist manifesto called The Man with the Ruble, and traded his way up to controlling 20% of Russia's lucrative oil production. For one brief shining moment, Khodorkovsky's $16 billion fortune made him the richest man in Russia and the 16th-richest man on earth.

In 1999, Vladimir Putin succeeded to Russia's Presidency. Putin had started his career in the KGB -- working counterintelligence, no less -- and he was no stranger to blunt force. (Google "Putin+thug" and you get 2,190,000 hits. 'Nuff said.) Putin quickly moved to tighten his grip on power, clamping down on elected officials and billionaire oligarchs alike. Khodorkovsky naturally pushed back, and at one point in 2003, embarrassed Putin in a nationally televised meeting of business leaders. Unfortunately, such resistance amounted to bringing the proverbial knife to a gunfight.

Eight months later, Putin had Khodorkovsky arrested, and slapped everyone else associated with Yukos with tax and fraud charges. And that's where our tax attorney friend Pavel comes back into the picture. Here's how he describes his own interrogation by government investigators. Clearly, they felt no need to screw around with the usual "good cop-bad cop" shtick -- or maybe the good cop was just off grabbing a ponchiki (Russian doughnut):

"On November 16, the lead detective in the case said to me 'Now I am going to interrogate you.'
I said, 'You can't do that, it's against the law.'
'I guess we are going to have to break the law then. Tell me all.'
'What do you want me to say?'
'You are the lawyer -- you know the penal code. Whatever you say, we'll use.'
'You want me to describe how we took sacks of cash out of Yukos and delivered them to Khodorkovsky personally?'
'Yes.'
'But nothing like that ever happened.'
That's when he threatened to arrest me."

Pavel's momma didn't raise any dummies. He caught the next plane out of Moscow and didn't even call his wife till he landed. But he remains under indictment in his homeland for stealing $2.4 billion, laundering $810 million, and evading tax on the gain. At least he's better off than his former client -- Khodorkovsky has spent the last seven years in a series of former Soviet prisons.

Look, there's nothing fun about the IRS. And we've all met someone who went through an "audit from hell." But few people actually flee abroad to shake off the tax man! So while we gripe about how much we pay, we can at least appreciate the IRS playing on a level field. Let Pavel's story help you feel fortunate that we won't be chased out of this country for paying less tax!

England's Tax-Subsidized Style

England's Tax-Subsidized Style

England's creative class is known throughout the world for the richness and variety of its work. Some is good (think Savile Row tailoring and the architecture of Sir Christopher Wren). Some is not (Princess Eugenie's royal wedding hat). And some is just sublime (the 1961 Jaguar E-type). But there's one art form the English are better at than anyone else, and that's highbrow television.

It all started with Upstairs Downstairs. Next came 1981's lavish Brideshead Revisited. And now there's yet another snooty television "programme" invading American hearts and minds -- Downton Abbey, a period drama centered on the aristocratic Crawley family and their servants, during the reign of King George V.

Yes, it's a soap opera. But oh, what a soap opera it is. You have your standard-issue improbable plot complications and ill-advised romances, naturally. But it's set against a backdrop of class, manners, and humanity that seem long lost a century later. And where else will you find a soap with Oscar- and Tony-winning actors, much less a pheasant hunt? Add in Edwardian sensibilities, amusing antique technology, and impossibly dry British wit, and you have an irresistibly compelling package.

Programs like Downton Abbey showcase British culture to the world and boost the nation's economy, too. So Her Majesty's Treasury began offering film tax credits for movies roughly 10 years ago. For 2010, they gave about £100 million in credits to support more than 200 productions -- including, of course, both Harry Potter sequels. But now, as part of their 2013 budget, officials are extending the incentives to high-end television, too. To qualify, dramas must cost more than £1 million (roughly $1.58 million), and must pass a "cultural test."

We have tax credits for movies and television here in the United States, of course. There's nothing at the federal level, but state and local governments eagerly compete for filmmakers' dollars with a vast variety of tax incentives. While Hollywood is the obvious center of the film universe, you might be surprised to learn that the next most attractive location for film production, based in part on generous tax incentives, is Louisiana. In fact, Louisiana was the first state to adopt tax incentives for filmmakers, and sparked a trend across the country. Producers get a 30% transferable tax credit on total in-state expenditures, plus a 5% labor-tax credit on payroll of employed residents.

Here in the US, you wouldn't think we'd worry too much about the quality of the productions we encourage. That, after all, is part of our uniquely American charm. But at least one state official has imposed his own informal "cultural test" in an apparent attempt to class up the joint. Last year, the New Jersey legislature approved $420,000 in credits for the producers responsible for MTV's raucous Jersey Shore -- then watched in dismay as Governor Chris Christie vetoed the bill, declaring "as chief executive I am duty-bound to ensure that taxpayers are not footing a $420,000 bill for a project which does nothing more than perpetuate misconceptions about the state and its citizens." His Lordship the Earl of Grantham would heartily approve.

If you run your own business -- or even if you're just thinking about starting a business -- you may not qualify for film credits. But you will qualify for more tax breaks than you realize. So make sure you take some time to sit down with us to plan how best to take advantage of those breaks. And let your friends, family, and colleagues know we're here to help them, too!

Il-eagle Assets?

Il-eagle Assets?

Our estate tax system is quite different from our income tax system. The income tax, as its name implies, focuses on how much money individuals, trusts, and business entities make. The estate tax system, in contrast, focuses on how much assets are worth. Most assets aren't hard to value. Stocks, bonds, mutual funds, and similar assets are valued at their publicly-traded fair market value (FMV) as of the date of death (or the executor can choose an "alternate valuation date" six months later). But some assets are a little harder. Real estate, for example, is also valued at its FMV -- but who's to say what a unique or expensive property is really "worth," especially in today's volatile market? Closely-held businesses can be even harder to appraise. And high-end collectibles, like the kind of art and antiques that usually sell at auction, can be hardest of all.

These issues make estate-tax enforcement a different challenge from income-tax enforcement. For fiscal year 2010, the IRS received 42,366 estate tax returns, and audited 4,288, or 10.1%. But just as income tax audits go up as your income rises, estate-tax audits go up as your assets go up. For that same year, the IRS received 3,013 estate tax returns reporting assets of $10 million or more -- and audited 928 of them, or 30.8%!

Occasionally, the IRS finds assets that are especially tricky to value. For instance, how do you value an asset that would be illegal to sell? That was the challenge the IRS faced with the estate of art dealer Ileana Sonnabend. Sonnenbend died at age 92 after amassing one of the country's most important collections of contemporary art, including works by Jeff Koons, Roy Lichtenstein, Andy Warhol, and Cy Twombly. Her heirs valued her estate at $875 million, and sold several works to pay taxes of $331 million to Uncle Sam and $140 million to New York state.

But Sonnabend's collection also included a 1959 work called "Canyon" by Robert Rauschenberg, best-known for his "combine-paintings" incorporating nontraditional materials and objects. And there's a problem with that piece -- it includes a stuffed bald eagle. Bald eagles aren't just a symbol of America, they're an endangered species. Selling any part of an eagle, even a single feather, is, well, il-eagle -- punishable by a fine of up to $100,000 and a year in prison. (Yes, they will make a federal case out of it.) In fact, back in 1981, the Department of Fish and Wildlife notified Sonnabend that ownership of the piece was restricted by federal law. Sonnabend got permission to retain the piece and lend it to museums, but understood that she could never sell it or export it for sale.

Sonnabend's executors obviously took that constraint into consideration, and valued the piece for estate tax purposes at zero. The IRS, not surprisingly, cried fowl. They valued "Canyon" at $65 million -- assessed $29 million in tax -- and threw in an $11.7 "gross valuation misstatement" penalty for good measure! (The technical term for that is "holy smokes"!) The executors have filed suit, of course, but the IRS has a history of valuing illicit assets, like native American artifacts and stolen art and antiquities, at their "black market" value.

Smart planning could have avoided this whole mess. Sonnabend could have donated "Canyon" to a U.S. museum before her death. That would have avoided the absurd result of owing tax on an asset, but facing jail time for selling it to pay the tax! The good news in all this is that, at least from now through the end of the year, there's no tax due unless your taxable estate tops $10 million. The bad news is that if you do leave enough to owe tax, you can almost count on being audited. So if your house is stuffed with contraband, the time to get rid of it is now! Other tax planning questions? Call us!

2012 Tax Outlook: "Campaign Heats Up"

2012 Tax Outlook: "Campaign Heats Up"

The 2012 presidential election already seems like it's been on for years.  President Obama has proposed to raise taxes on those earning above $200,000 ($250,000 for joint filers), including a new surtax on incomes over a million.  Republicans have pledged to cut taxes in hopes of stimulating the economy.  And regardless of who wins in November, the Bush tax cuts are scheduled to automatically expire at the end of this year.

Since taking office, Obama has offered a variety of cuts for lower- and middle-income Americans.  These include new credits for working individuals, expanded breaks for higher education, extended breaks for homebuyers, and even a temporary sales-tax deduction for new car purchases.  While these changes have made taxes more complicated, they've done nothing to stall future tax hikes for higher incomes. 

The new healthcare reform law actually makes it harder to deduct healthcare costs, and imposes significant new taxes on investment income.  With the federal budget deficit topping $1 trillion per year, many observers see the new healthcare taxes as the tip of a looming iceberg. 

This report summarizes some of the future tax hikes we can expect and offers suggestions for avoiding them where possible.  We look forward to discussing these threats and helping craft the appropriate response!  Email me at Larry@ColoradoTaxCoach.com.

Tax Brackets Stable - For Now!

Washington has extended the Bush tax cuts, effective for two years through 2012, and Congress shows little appetite for raising rates on middle-income earners. This means that tax on ordinary income is currently capped at 33% and 35% for taxpayers in the highest brackets, and taxes on capital gains and qualified corporate dividends remain capped at 15%.  However, budget deficits continue to balloon out of control, and if Congress can't agree to extend cuts, rates will rise automatically in 2013.

If you expect your 2013 income to be significantly more or less than in 2012 (as may be the case if you retire, buy or sell a business, or sell significant investments), consider timing income and deductions for maximum tax advantage.

If you expect your income to go DOWN in 2013, consider delaying income (to subject it to tax at next year's lower rate) and paying deductible expenses this year, to the extent possible.

If you expect your income to go UP in 2013, consider accelerating income from commissions, bonuses, and qualified plan withdrawals (to subject it to tax at this year's lower rate), and delaying deductible expenses until next year.

Itemized Deductions Going Down?

President Obama has proposed limiting the value of itemized deductions to just 28%, even for taxpayers in higher brackets.  This would amount to a "stealth" tax increase and cut the value of deductions for medical expenses, state and local taxes, mortgage interest, and even charitable gifts.

Tax Strategies for Healthcare Costs

Paying for medical care becomes harder every year.  The recent healthcare reform act improves coverage and extends it to more Americans, but actually makes it harder to deduct unreimbursed expenses.  (Under current law, you can deduct medical expenses exceeding 7.5% of your Adjusted Gross Income.  Under the new law, starting in 2013, that floor rises to 10%.)  It also limits contributions to employer-sponsored flexible spending plans to $2,500/year.  

If you're free to select your own coverage, consider choosing a "high-deductible health plan"  and opening a Health Savings Account.  These arrangements bring down premium costs and use pre-tax dollars for out-of-pocket costs, bypassing the floor on AGI.  

If you're self-employed, consider establishing a Medical Expense Reimbursement Plan, or MERP.  These plans let you pay family medical expenses with pre-tax business dollars.  They may even help you avoid self-employment tax.

Audit Odds Still Low

IRS audit odds are increasing, from 1 in 200 returns for 2000 to 1 in 100 for 2009. But your chance of getting audited is still minimal. Don't take low audit rates as an invitation to cheat! But don't let fear of an audit stop you from taking every legitimate deduction you're entitled to.

New Roth IRA Conversion Opportunity

New rules now let you convert your traditional IRA to a Roth IRA, regardless of your current income.  This is actually one of the bright spots of the of the current tax picture. 

Traditional tax planning holds that it makes sense to defer income into retirement accounts now, when you're in your peak earning years (and highest tax bracket) - then withdraw it later during retirement, when your income and tax bracket will presumably be lower.  However, tax rates are currently at historic lows, and it's entirely possible they will be higher when you're retired.  This suggests the smarter strategy may be to pay tax on retirement funds now in order to withdraw them tax-free when rates are higher.

New Tax on Interest Income

The healthcare reform act imposes a new "Unearned Income Medicare Contribution" of 3.8%, beginning on January 1, 2013, on interest income, for taxpayers reporting more than $200,000 ($250,000 for joint filers).  This tax may make municipal bonds and money market funds more attractive relative to fully taxable vehicles.  However, the recession has jeopardized state and local tax revenues, so there may be credit quality issues to consider.  You might also consider deferred annuities and permanent life insurance for fixed-income portions of your portfolio.

New Tax on Dividend Income

Tax on "qualified corporate dividends" is currently capped at 15%, even for taxpayers in the highest brackets.  However, beginning in 2013, the healthcare reform act imposes a new "unearned income Medicare contribution" of 3.8% on dividend income for individuals earning over $200,000 ($250,000 for joint filers).  Consider favoring stocks that pay little or no dividend in taxable accounts and holding stocks paying higher dividends in tax-deferred accounts.

Permanent Life Insurance for Tax-Free Income

As mentioned earlier, the healthcare reform act imposes a new "Unearned Income Medicare Contribution" of 3.8%, beginning on January 1, 2013, on "investment income" (broadly defined to include interest, dividends, capital gains, rents, royalties, and annuity distributions) for individuals making over $200,000 ($250,000 for joint filers).  Permanent life insurance offers a variety of investment options for accumulating cash values, along with tax-free withdrawals and loans so long as you keep the policy in force.

New Tax on Real Estate Income

The healthcare reform act imposes an "unearned income Medicare contribution" of 3.8%, effective starting in 2013, on income from real estate investments and taxable gains from the sale of your primary residence, for individuals making over $200,000 ($250,000 for joint filers).  There are several strategies you can use to minimize taxable real estate income, including favoring tax-deductible "repairs" over depreciable "improvements" and cost segregation strategies to maximize depreciation deductions.

Higher Tax on Capital Gains

Tax on long-term capital gains (from property you hold more than 12 months) is currently capped at 15%, even if your regular tax rate is higher.  However, the recent healthcare reform act also imposes a new "unearned income medicare contribution", beginning in 2013, of 3.8% on capital gains for individuals earning over $200,000 ($250,000 for joint filers).  If you have appreciated assets such as securities, real estate, or a business you'd like to sell, consider doing so before new rates become effective.  Check with us first, to discuss if you can use tax-free exchanges, installment sales, charitable trusts, or similar strategies to minimize or even eliminate tax on those sales.

Uncertainty on Estate Tax

The estate tax actually "died" for 2010.  Washington brought it back to life, with a 35% tax applying on estates over $5.12 million per person.  However, the new system applies only for 2011-2012.  If Washington doesn't act to extend it, the tax reverts to 55% on estates over $1.0 million, beginning January 1, 2013.  This means that smart, flexible estate planning will still be part of most affluent families' plans.

Next Steps

We're sure you appreciate this brief outline of upcoming tax threats.  While smart intelligence is crucial, intelligence alone is useless without the right action.  If the threats we've discussed so far have you worried about your financial future, you owe it to yourself to take a more comprehensive look at your taxes and finances, so that we can determine exactly which concepts and strategies will work from here. Should you have any questions, please email me at Larry@ColoradoTaxCoach.com.

Any tax advice contained in the body of this presentation was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

March Madness and the IRS

The NCAA's college basketball tournament -- "March Madness" -- has become an unofficial national holiday. Fan-in-Chief Barack Obama kicked off this year's action by flying to Dayton (with British Prime Minister David Cameron!) for this year's "First Four" tipoff games. And even people who don't like basketball enjoy watching the tournament. This year's top seeds -- Kentucky, Syracuse, UNC, and Michigan State -- will probably dominate coverage. But every year features at least one Cinderella team, waltzing up through the brackets with little more than heart. Who will it be this year? Creighton? Virginia Commonwealth? Or maybe #6 seed Cincinnati?

We all know college hoopsters don't actually get "paid" (wink, wink). So the players don't run up the score for the IRS -- at least, not until they hit the NBA, where the average salary tops $5.15 million. (That suggests an average tax bill of a million and a half!)

But there's one area where the IRS cashes in, and that's the gambling. Vegas sports books report taking in $100 million during the tournament. But that's just the tip of the iceberg. Recent figures show that more Americans participate in March Madness office pools than actually work in offices. Americans bet about $3 billion on pools sponsored by offices, bars, and clubs. And at least part of those winnings wind up in the IRS net.

Gambling winnings are taxable just like any other income. (The IRS doesn't care how you make your money -- they just want their "vig.") Gambling losses are deductible as an itemized deduction not subject to the usual 2% floor. But -- and this is a pretty important but -- gambling losses are deductible only to the extent of gambling winnings. Win $1,000, lose $500, and you owe tax on the remaining $500. Win $500, lose $1,000, and your excess loss is worth about as much as a last-second brick when you're down three points.

So, winners pay tax on their gains (wink, wink), losers cry in their beer over their losses, and March Madness is a bucket hit for the IRS, right? Well, maybe not so fast . . . .

Economists estimate that employees will spend 8.4 million workday hours watching the games. And those office pools, water-cooler conversations, and occasional hangovers will gobble countless million more hours. One research firm estimates the tournament costs the overall economy a whopping $1.8 billion in lost productivity (based on an $18 average hourly wage and 20 minutes lost per employee, per day). And much of that loss drops directly to the IRS's bottom line. How many killer marketing campaigns are delayed because managers are busy checking each other's brackets? How many millions of taxable commissions are lost as glad-handing salesmen sit around televisions instead of selling their stuff?

There's not a lot of planning we can do for March Madness windfalls, simply because we can't actually plan on winning. But what we can plan on is playing hard to help you keep what you win. So call us with your tax-planning questions. And good luck with your picks!

7 Common Small Business Tax Misperceptions

One of the biggest hurdles you'll face in running your own business is staying on top of your numerous obligations to federal, state, and local tax agencies. Tax codes seem to be in a constant state of flux making the Internal Revenue Code barely understandable to most people.

The old legal saying that "ignorance of the law is no excuse" is perhaps most often applied in tax settings and it is safe to assume that a tax auditor presenting an assessment of additional taxes, penalties, and interest will not look kindly on an "I didn't know I was required to do that" claim. On the flip side, it is surprising how many small businesses actually overpay their taxes, neglecting to take deductions they're legally entitled to that can help them lower their tax bill.

Preparing your taxes and strategizing as to how to keep more of your hard-earned dollars in your pocket becomes increasingly difficult with each passing year. Your best course of action to save time, frustration, money, and an auditor knocking on your door, is to have a professional accountant handle your taxes.

Tax professionals have years of experience with tax preparation, religiously attend tax seminars, read scores of journals, magazines, and monthly tax tips, among other things, to correctly interpret the changing tax code.

When it comes to tax planning for small businesses, the complexity of tax law generates a lot of folklore and misinformation that also leads to costly mistakes. With that in mind, here is a look at some of the more common small business tax misperceptions.

1. All Start-Up Costs Are Immediately Deductible

Business start-up costs refer to expenses incurred before you actually begin operating your business. Business start-up costs include both start up and organizational costs and vary depending on the type of business. Examples of these types of costs include advertising, travel, surveys, and training. These start up and organizational costs are generally called capital expenditures.

Costs for a particular asset (such as machinery or office equipment) are recovered through depreciation or Section 179 expensing. When you start a business, you can elect to deduct or amortize certain business start-up costs.

For tax years beginning in 2010, you can elect to deduct up to $10,000 of business start-up costs paid or incurred after 2009. The $10,000 deduction is reduced (but not below zero) by the amount such start-up costs exceed $60,000. Any remaining costs must be amortized.

2. Overpaying The IRS Makes You "Audit Proof"

The IRS doesn't care if you pay the right amount of taxes or overpay your taxes. They do care if you pay less than you owe and you can't substantiate your deductions. Even if you overpay in one area, the IRS will still hit you with interest and penalties if you underpay in another. It is never a good idea to knowingly or unknowingly overpay the IRS. The best way to "Audit Proof" yourself is to properly document your expenses and make sure you are getting good advice from your tax accountant.

3. Being incorporated enables you to take more deductions.

Self-employed individuals (sole proprietors and S Corps) qualify for many of the same deductions that incorporated businesses do, and for many small businesses, being incorporated is an unnecessary expense and burden. Start-ups can spend thousands of dollars in legal and accounting fees to set up a corporation, only to discover soon thereafter that they need to change their name or move the company in a different direction. In addition, plenty of small business owners who incorporate don't make money for the first few years and find themselves saddled with minimum corporate tax payments and no income.

4. The home office deduction is a red flag for an audit.

While it used to be a red flag, this is no longer true--as long as you keep excellent records that satisfy IRS requirements. Because of the proliferation of home offices, tax officials cannot possibly audit all tax returns containing the home office deduction. In other words, there is no need to fear an audit just because you take the home office deduction. A high deduction-to-income ratio however, may raise a red flag and lead to an audit.

5. If you don't take the home office deduction, business expenses are not deductible.

You are still eligible to take deductions for business supplies, business-related phone bills, travel expenses, printing, wages paid to employees or contract workers, depreciation of equipment used for your business, and other expenses related to running a home-based business, whether or not you take the home office deduction.

6. Requesting an extension on your taxes is an extension to pay taxes.

Extensions enable you to extend your filing date only. Penalties and interest begin accruing from the date your taxes are due.

7. Part-time business owners cannot set up self-employed pensions.

If you start up a company while you have a salaried position complete with a 401K plan, you can still set up a SEP-IRA for your business and take the deduction.

A tax headache is only one mistake away, be it a missed payment or filing deadline, an improperly claimed deduction, or incomplete records and understanding how the tax system works is beneficial to any business owner, whether you run a small to medium sized business or are a sole proprietor.

And, even if you delegate the tax preparation to someone else, you are still liable for the accuracy of your tax returns. If you have any questions, don't hesitate to give us a call today. We're here to assist you.

"Like" This

America's economy continues to sputter. But stocks are picking up steam and flirting with four-year highs. We're even seeing new "dot-coms" hitting the market. Last May, the social networking site LinkedIn went public at $45 per share, then leaped to $94.25 in its first day of trading. Internet coupon vendor Groupon opened in November at $20 per share, then jumped 31% on its first day of trading. And earlier this month, Facebook filed registration papers with the Securities and Exchange Commission for what may be the hottest IPO since Google.

Companies typically go public to raise money to expand. But Facebook doesn't really need cash from an IPO. The company made nearly $4 billion in advertising revenue in 2011. So why go public?

Well, companies also go public to let founders and early investors cash out. Mark Zuckerberg, Facebook's 27-year-old founder, is already a "paper" billionaire, ranked #14 on the Forbes 400 list of richest Americans. (Not many entreprenuers find themselves richer than Scrooge McDuck while still at an age that they watch Scrooge McDuck.) But Facebook's IPO will give Zuckerberg and fellow early investors liquidity, converting paper wealth into cash for the houses, charitable gifts, and other spending that new dot-com millionaires historically indulge in.

The IPO will also stick Zuckerberg with a historically large tax bill. (You knew that was coming, right?) In fact, one of the big reasons the company is going public in the first place is give Zuckerberg a way to pay taxes when he exercises options to buy even more stock.

Here's how it works. For tax purposes, the value of most stock options is treated as compensation and fixed the day you exercise them — whether you actually sell them or not. Let's say you pay $5 to exercise a share of your employer's stock, on a day when that stock is worth $25. Your company gets a deduction for that $20 per share, even though there's no cash outlay. That's great for the company. But at the same time, you'll owe immediate tax on $20 of income, even if you hold the stock in hope of future appreciation. (If the stock tanks before you actually sell, you still owe tax on that gain.) That may not be so great for you!

Zuckerberg currently owns 414 million shares of Facebook. He also has options to buy another 120 million shares for — get this — just six cents each. Zuckerberg has announced plans to exercise those options and sell enough shares to cover his taxes. We don't know yet what Facebook shares will trade for. However, private-market trades have valued shares at $40 each. If Zuckerberg exercises all 120 million options when shares are valued at that price, his taxable gain will be nearly $5 billion. He'll owe 35% to the IRS, plus 10.3% to the state of California, for a total tax bill of over $2 billion. That's right, billion with a "b." Can you imagine signing a return with a billion-dollar tax bill? How about signing a check for that much — payable to the IRS!

The important thing to realize here is that Zuckerberg's tax bill came as no surprise. It's actually the result of careful planning. Remember, Zuckerberg's pain is Facebook's gain. The strategy will probably give Facebook enough deductions to wipe out the entire tax on its 2011 profit, plus refunds from 2009 and 2010, plus even more to carry forward.

Think about that the next time you click the "Like" button on your computer. And remember, we're here to bring the same sort of smart tax planning to your business.

And the Oscar Goes To . . .

Last Sunday night, the Academy of Motion Picture Arts and Sciences put "Oscar" on a diet, cutting out live performances for "Best Original Song" nominees and trimming the traditionally bloated and self-indulgent awards program to just over three hours. Movies about movies were the big winners. "Hugo," Martin Scorsese's homage to French director Georges Melies, took five awards early in the evening. And "The Actor," a black-and-white silent film celebrating Hollywood history, took home five more, including the coveted "Best Picture."

Host Billy Crystal managed to sneak in a joke about about taxes during the broadcast — he remarked that the "Harry Potter" movies had grossed over seven billion dollars in worldwide receipts but paid just 14% in taxes! (Apparently that "taxium minimoso" spell is a real winner! It also helps if you can keep your bank records in disappearing ink.) But while the tax man rarely gets a star turn on stage, he still manages to clean up at awards time.

For starters, you know how nominees walk away with fat "swag bags" filled with goodies and bling? Those bags are taxable, of course. This year's bag is valued at $62,023.26 (down a bit from last year's $75,000). It includes little "party favors" like a $135 bottle of Purell hand sanitizer (bagged in a gold and crystal studded carrying case), $120 worth of "earthpawz" environmentally-friendly pet accessories (Dirty Dog Floor Cleaner & Mud Remover, Doggie Slobber Window & Glass Cleaner, Doggie Grime All Purpose Cleaner, Smelly Dog Odor Eliminator and Eco-Tabs Stain & Odor Remover), and a $178.99 "thermarobe" wireless heated robe.

The swag bag also includes bigger-ticket gifts like a $15,580 four-night safari — on elephant back, no less — in Botswana, a $15,000 cocktail party for up to 100 guests sponsored by liqueur maker DiSaronno, and a $3,350 stay in an oceanview suite in Punta de Mita on the Mexican Riviera. Some nominees actually refuse the bags to avoid the tax hit, while others — including A-lister George Clooney — have donated the contents to be auctioned for charity.

Oscar nominations and Oscar victories give films a famed "Oscar bounce" — and that means taxable income for everyone involved. "Best Picture" nominees earn an average of $17.7 million after their nomination and another $4 million after the show. Best Picture winners earn $27.5 million after their nomination and $15.4 million after the show. (In fact, some Hollywood insiders watch box-office receipts between the nomination and the show, to divine who will take home the statuette.) Those millions ripple throughout the film economy: theatres pay tax on ticket sales and concessions; studios pay tax on their own receipts; writers, directors, actors and others with "points" pay tax on back-end profits; and even the kids who serve popcorn and soda pay tax on their meager paychecks.

Oscar nods also boost performers' future paychecks. That means serious tax planning if the lucky winners don't want 35% of the difference winding up in Uncle Sam's pocket. Of course, you don't have to be a movie star to cut your taxes. It just means you need a plan of your own — one that takes advantage of every legal deduction, credit, loophole, and strategy. We're here to help you star in that plan!

You Are Invited - Book Launch Party - February 29th

Please join us as we celebrate the book launch of “The Secrets of a Tax Free Life” on Leap Day.  Larry’s book was introduced February 17 through Amazon and made the best sellers list on its first day of sales.

 Join the Celebration at our Book Launch Party

“The Secrets of a Tax Free Life”

Wednesday, February 29th 4:pm – 8:pm (Leap Day)

Stone CPA; 699 Summit Blvd, Suite F, Frisco

970-668-0772 larry@ColoradoTaxCoach.com

“The Secrets of a Tax Free Life” list price is $19.95.  If you purchase your book at the launch party, Larry will pay the tax for you, (remember it’s a tax free life).  And, he’ll donate $5.00 per book sold to one of your favorite local organizations; Rotary, Optimist, SCBA, SIBA, SAR, NSP and others.  

Thank you for the best selling book.

Thank you for making my new book, "The Secrets of a Tax Free Life" a best seller on Amazon.com.  The early results show that this new book made 4 best seller's lists through Amazon on launch day:

• Small Business and Taxation at Number 2

• Personal Finance at Number 9

• Business and Economics at Number 31

• Overall Amazon book sales at Number 64

This means that we were the 64th best-selling book (for a book on tax) more than any other book! 

That is not all.  We also made the "Hot New Releases" list and the "Movers and Shakers" list.

I appreciate your support in making my first book effort a best-selling book.

Larry

Gimme Shelter

Sunday night's Grammy Awards ceremony illuminated two sides of today's music industry. On stage, British soul singer Adele cleaned up big time, winning Album of the Year, Record of the Year, and Song of the Year. On the darker side, the night was filled with tributes to fallen angel Whitney Houston, who died Saturday after years of backstage struggles with drugs and alcohol.

When you think of your favorite musician, you probably don't think about a third side — taxes. But you might be surprised to learn just how much influence tax laws have over the music we listen to every day.

Rock-and-roll fans know "Gimme Shelter" as one of the Rolling Stones' all-time classics — the opening cut on their 1969 album Let it Bleed, and a dark, brooding meditation on the war and violence that seemed to characterize that era. Surprisingly, it turns out that "Gimme Shelter" describes the band's philosophy on taxes, too.

The Stones' troubles with the tax man go back nearly as far as their troubles with the police. Back in 1968, with bandmates Mick Jagger, Keith Richards, and Brian Jones facing drug charges, reports surfaced that they had also failed to observe tax laws. As Jagger reported at the time, "So after working for eight years I discovered at the end that nobody had ever paid my taxes and I owed a fortune. So then you have to leave the country. So I said &@#& it, and left the country." The "World's Greatest Rock and Roll Band" literally skipped town, with guitarist Richards renting the Villa Nellcote in Villefranche-sur-Mer on the French Cote D'Azur, where they wound up recording their critically-acclaimed double album, Exile on Main Street.

That lesson scarred them, and the Stones vowed not to repeat that mistake. Jagger put his London School of Economics studies to work, and hooked up with some top-notch financial advisors. They eventually set up a series of Dutch corporations and trusts which helped the band pay just 1.6% in tax over the last 20 years. More recently, they established a pair of private Dutch foundations to avoid estate taxes at their deaths.

"The whole business thing is predicated a lot on the tax laws," guitarist Keith Richards told Fortune Magazine (with a Marlboro in one hand and a vodka and juice in the other). "It's why we rehearse in Canada and not in the U.S. A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it. Whether to sit on it or not. We left England because we'd be paying 98 cents on the dollar. We left, and they lost out. No taxes at all." It's worth mentioning at this point that Richards makes his primary residence in unglamorous but relatively low-taxed Weston, Connecticut.

The Rolling Stones were just the first of many artists to flee the United Kingdom to avoid taxes. Folk singer Cat Stevens left around the same time, moving first to Brazil, where his album Foreigner refers to his move. In 1978, rockers Pink Floyd spent three years outside the country to avoid tax. Glam-rocker David Bowie moved to Switzerland in 1976 (before becoming the first musician to securitize future royalties in the form of a bond offering). British singers Rod Stewart and Tom Jones both moved to Los Angeles to avoid British Prime Minister Harold Wilson's 83% top tax rate. Even fictional musicians have taken extraordinary steps to avoid tax — in The Restaurant at the End of the Universe, British author Douglas Adams created the galactically-famous rocker Hotblack Desiato, who was "spending a year dead for tax purposes."

Our job, of course, is to help you pay the minimum legal tax. And we think proactive planning beats fleeing the country. So call us when you're ready to pay less. We're here for you, and your bandmates too!

Today Only! Help us make the Amazon Bestseller List Discount Inside

Today Only!                              Help us make the Amazon Bestseller List                         Discount Inside

Launch day is here! Today is the day to purchase, "Secrets of a Tax-Free Life - Surprising Write-Off Strategies Most Business Owners Miss" - help us make the bestseller list, do good for other small businesses & receive our exclusive bonuses!

First, I just want to say thanks for supporting us as we launch this book and go live. For all of you who have forwarded this email and shared it with friends who might find "Secrets of a Tax-Free Life, Surprising Write-Off Strategies Most Business Owners Miss" useful, THANK YOU!

Today is the day to buy the book!

If you can afford to help us (and with tax secrets like these, really, who can afford not to?) the link to buy the book is below:

"Secrets of a Tax-Free Life" on Amazon.com

PLUS: The first 500 people to purchase the book today can receive an exclusive bonus!

Email a copy of your receipt showing today's date to admin@certifiedtaxcoach.com, and receive:

Video access to the top secrets that didn't make it into the book! Watch tax expert Dominique Molina take you through the latest deductions and loopholes that came out since we sent the book to print!

AND don't forget, purchases made today also receive a 10% discount on our discount book bundle with Rory Vaden's latest book, "Take the Stairs: 7 Steps of Achieving True Success." You'll also qualify for Amazon's Free Super Saver Shipping.

You won't want to miss this one-time discount on two great books PLUS the today--only bonus!

Thank you! Larry Stone P.S. - Almost forgot to mention - we're donating 20% of the proceeds from the book sales to the SCORE Foundation. SCORE is a nonprofit dedicated to helping entrepreneurs succeed nationwide. Thanks for your help!

Available for purchase tomorrow is "Secrets of a Tax-Free Life".

My email last week announced my upcoming book, "Secrets of a Tax-Free Life - Surprising Write-Off Strategies Most Business Owners Miss" - and told you that there was an exciting bonus for those of you who help me try to hit the bestseller list.

I'm thrilled to announce that in addition to making a donation of 20% of the book proceeds to the SCORE Foundation, we're also offering a book bundle for everyone who purchases on February 17th.

We've partnered with Rory Vaden, author of "Take the Stairs: 7 Steps of Achieving True Success," Purchase both books together on Feb 17th and receive a 10% discount AND qualify for Amazon's Free Super Saver Shipping.

Rory has been featured in Success Magazine, Businessweek and on Oprah Radio - his book is one you don't want to miss, and I'm excited to be partnering with him to bring you this offer!

We really couldn't do what we do without the support of all our fantastic clients. Thanks for your help hitting the bestseller list! 3 days and counting...

Best Regards,

Larry Stone

P.S. - Watch for an email this Friday with the links to the discount offer!

The Super Bowl and Tax Planning

A decade or more ago, the Super Bowl had become a bit of a joke. Fans looked forward to watching the commercials, sure. But the actual game itself had become a dreary series of lopsided blowouts. Super Bowl XXIV was perhaps the worst offender, with the San Francisco 49ers pounding the Denver Broncos, 55-10, in a game that wasn't nearly as close as that score suggested!

More recently, the game has been more competitive and more entertaining. The NFC champion New York Giants reached this year's "big dance" by defeating the 49ers, 20-17, in a game that came down to the final play — in a Cinderella playoff run that followed a middling regular season. The AFC champion New England Patriots made it by beating the Baltimore Ravens, 23-20, in a game that came down to the final play. That set up Sunday's contest, when the Giants defeated the Patriots, 21-17, in yet another game that came down to the final play.

Sunday's game proved the truth of the old cliche that "offense sells tickets, but defense wins games." Patriots coach Bill Belichick gambled by actually letting Giants running back Ahmad Bradshaw score in the final minute in hopes of keeping precious time on the clock. That gamble succeeded in giving quarterback Tom Brady 57 seconds to engineer a last-minute drive — but ultimately failed when Brady's desperate final heave to tight end Rob Gronkowski fell harmlessly to the ground.

That same cliche about defense winning games applies to your finances as well — especially when it comes to tax planning. If you want to put real money in your pocket, you've got two choices:

• Financial offense means making more money. (As Charlie Sheen would say, "duh.") But that's not always easy, especially in a tough economy like today's. You can invest all sorts of time efforts into growing your business or your income, only to see them sail wide right like a missed field goal.

• Financial defense means spending less money. That's often easier than making more. And when it comes to spending less, it makes sense to focus on the big expenses. For most affluent Americans, that means taxes, rushing you like the Giants' backfield. Maybe you can save 15% or more on car insurance by switching to GEICO. But in the long run, how much can that really do for you?

Financial defense is important enough that some financial moves which look like offense are actually defense in disguise. Wall Street is buzzing about Facebook's upcoming initial public offering, wondering if the company can really be worth $100 billion. But the company is raising "only" $10 billion in cash. And Facebook doesn't need the money. They're "engineering a liquidity event," in large part so founder Mark Zuckerberg can pay his own taxes! (We'll talk more about this as we get closer to the actual offering.)

It's easy to think of us as just "tax people" and focus on the forms we file for that April 15 deadline (April 17 this year, for you procrastinators). But focusing on just compliance misses the value you get from proactive tax planning, and misses the total value we offer as your financial "defensive coordinator." So call us when you're ready to "call an audible" and play real financial defense. We promise not to let the IRS just walk the ball across the goal line!

Romney Hot Seat

Romney Hot Seat

Last fall, billionaire Warren Buffett ignited a firestorm in the tax world when he revealed that he paid just 17.4% in tax -- a lower rate than his own secretary -- on his $39.8 million taxable income. The revelation sparked conversation across the country, and even inspired President Obama to propose a "Warren Buffett" rule imposing a special tax on income above $1 million per year.

Last week, Presidential candidate Mitt Romney made similar headlines when he released his taxes. The returns weighed in at 547 pages, and included some items, like "Form 8261: Return By a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund," that most tax professionals never encounter in a lifetime. (Trust us when we tell you this stuff is every bit as exciting as it sounds.) Romney's not quite in Buffett's financial league -- his 2010 taxable income was a "mere" $17.1 million. But Romney's actual tax rate was a similarly low 17.6%.

We're not here to take sides on Romney himself, his campaign, or the tax system that makes his 17% rate possible. But Romney's return illustrates a crucial lesson about your taxes, too -- namely, that when it comes to paying less, how you make your money is even more important than how much money you make.

Romney's income is more than high enough to put him in the top 35% bracket. That 35% applies only to "ordinary" income like wages and salaries, business income, and "passive" income from certain investments. But Mitt made "only" $6.3 million in ordinary income. Most of his income derives from other sources, taxed at lower rates:

• Long-Term Capital Gains: Tax on long-term capital gains is capped at 15%, no matter how much gain you report. For 2010, Romney drew over half his income from such gains. This included $7.4 million in "carried interest," related to his work at Bain Capital, and taxed as long-term capital gain. If that income had been taxed at ordinary rates, he would have paid an extra $1.5 million. If it had been subject to employment tax, like salary, the government would have collected another $214,600.

• Qualified Dividends: Tax on qualified dividends is also capped at 15%, regardless of how much income you report. Romney reported $3.3 million in qualified dividends for 2010. It's worth pointing out that the only dividends "qualifying" for this rate are those that have already been taxed at corporate rates ranging from 15-35%.

• Tax-Free Municipal Bonds: Muni bonds are a traditional tax shelter for taxpayers in Romney's "1%" category. But Romney's home state of Massachusetts imposes a flat 5.3% tax, which makes munis less attractive compared to taxable bonds, for those with stratospheric income. So Romney reported just $557 in muni bond income for 2010.

If Romney winds up carrying the GOP flag in 2012, his taxes will be a campaign issue. But it's important to remember that, while some are criticizing him as the face of a system gone wrong, no one is actually accusing him of doing anything wrong under the law. In fact, Romney appears to have foregone some legitimate opportunities (like potential home office deductions for his speaking and director's fee income) to pay even less.

Judge Learned Hand famously wrote that "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury." (And with a name like Learned Hand, well, you just have to believe him.) We're here to help you arrange your affairs so that your taxes are as low as possible -- and do so in a way to survive scrutiny even if you decide to run for office. And remember, we're here for your friends, family, and running mates, too!

Can't Buy Me Love

Heiress Huguette Clark, who was born in 1906 and died last May at 104, was America's last living link to the 1890s "Gilded Age." Her father, William A. Clark, was Montana's "Copper King" and, according to her New York Times obituary, "once bought himself a United States Senate seat as casually as another man might buy a pair of shoes." Huguette grew up in a 121-room mansion, at the corner of New York's Fifth Avenue and 77th Street, that cost three times as much as Yankee Stadium. But her life soon took an odd turn. She married, for just a year at age 22, then got a quickie Reno divorce. (Her husband claimed they never even consummated the marriage.) Then she and her mother withdrew almost completely from view. The last known photograph of her was taken in 1930, and she rarely appeared in public after her mother's death in 1963.

Clark may have been shy, but she was no miser. She spent most of her life in a 42-room coop at Fifth Avenue and 72nd Street, said to be the largest parkview apartment in the city, and worth an estimated $100 million. (She left in an ambulance in 1988 and never came back.) She owned a 21,666-square-foot mansion called "Bellosguardo," or "lovely view," on 23 acres overlooking the Pacific in Santa Barbara, CA. (She stopped visiting sometime in the 1950s, and reportedly turned down a $100 million offer to sell it to Beanie Baby founder Ty Warner.) And in 1952, she bought a 22-room mansion on 52 acres in New Canaan, CT. (She added a new wing to the house and hired caretakers to live on the grounds -- but never spent a single night there herself.)

Huguette had so little contact with the world that some people wondered if she was actually still alive. It turns out she spent her last 22 years in a series of ordinary rooms at New York hospitals. She had few visitors during this time, and little contact with anyone outside these facilities. But her few contacts included her attorney, Wally Bock, and her accountant, Irving Kamsler. And that's where Clark's Gilded Age story begins to tarnish.

Clark was worth half a billion dollars at her death. She left the bulk of her fortune to charity, with smaller bequests to her longtime nurse ($30 million), her goddaughter ($12 million), and her attorney and accountant ($500,000 each). You would think she'd be able to pay her taxes, right? But property records show the IRS filed four liens for unpaid taxes -- $1 million in 2006, $1.1 million and $41,000 in 2007, and $7,400 in 2008. Even worse, according to a Probate Court filing, the pair had let unpaid federal gift taxes and penalties accrue -- to the tune of $90 million!

It turns out both the attorney Bock and accountant Kamsler have a history of questionable conduct. When Bock's former law parter Donald Wallace died, after revising his will six times in the last few years of his life, Bock and Kamsler wound up inheriting $100,000 in cash each -- plus Wallace's Mercedes and his Upper East Side apartment. They even collected $368,000 in fees on the $4 million estate! And, just by the way, Kamsler is also a convicted felon and registered sex offender, who pled guilty in 2007 to attempting to disseminate indecent material to minors in an online "chat room."

As Huguette Clark's bizarre story reminds us, money really can't buy happiness. Our job, of course, is to help you pay the minimum tax allowed by law. But before you ask us what we can do to help you pay less, ask yourself how those savings will improve your life. Are you working to put your children through college? Build security for your retirement? Or are you looking for life's little "extras," like traveling in style? Those are the real benefits we work to give you -- not just numbers on your annual IRS "scorecard"!

IRS Goes Where The Money Is

IRS Goes Where The Money Is

The outlaw Willie Sutton stole an estimated $2 million over a 40-year career robbing banks -- and scored the ultimate "success" in his business, living long enough to die of natural causes. Sutton always carried a pistol or Tommy gun with him on jobs, declaring "you can't rob a bank on charm and personality." But the gun was never loaded, because, as he said, someone might have gotten hurt! And he became legendary, ironically, for something he never actually said. According to the story, Sutton was asked why he robbed banks -- and replied "because that's where the money is." But in his 1976 autobiography, Where the Money Was: The Memoirs of a Bank Robber, he confessed that credit for the line belongs to "some enterprising reporter who apparently felt a need to fill out his copy."

What does a depression-era bank robber have to do with taxes? Well, the IRS estimates that outlaw taxpayers cost the Treasury $385 billion per year in uncollected taxes -- roughly 15% of the amount they believe is due under current law. So they work hard to close that gap. In FY 2011, the IRS employed over 22,000 revenue officers, revenue agents, and special agents. They conducted 391,621 "field" audits and 1,173,069 less-intensive "correspondence" audits. They filed levies on 3.7 million taxpayers and filed over a million liens. But they can't turn over every rock. So how do they case their targets?

Earlier this month, the IRS released their FY 2011 Enforcement and Service Results revealing how likely you are to be audited. And even Willie Sutton would have appreciated the IRS's "M.O.":

• If you make less than $200,000, your overall audit risk is only about one in a hundred. (Of course, that average encompasses a range of possibilities. If you run a sole proprietorship in a cash-heavy business like takeout pizza, your risk may be far higher.)

• If you make over $200,000, your overall audit risk rises to about one in twenty-five. Obviously, the IRS sees more opportunity in chasing higher income earners.

• If you pull down over $1 million, your audit risk rises again to one in eight. Welcome to the 1%!

The IRS likes targeting entertainers, athletes, and other celebrities, too. Sure, it sets a high-profile example for the rest of us. But it's also (spoiler alert) where the money is. Take Hollywood trainwreck Lindsay Lohan, for example. Google her name, and you'll usually find it followed by "failed another breathalyzer test" or "missed her court-appointed community service." But last week, Lohan made a different kind of headline. That's right, the IRS filed a lien against her home seeking $93,701.57 in upaid taxes from 2009.

Where does that all leave us as we move into this year's tax season? Our job is to help you pay the minimum tax allowed by law. But we know the IRS is out to challenge us. So we don't cut corners. We give you good, solid planning. That way, even if you do lose the "audit lottery," you'll feel safe knowing your savings are court-tested and IRS-approved.