November 7, 2014

Tax Breaks Could Cut Ballmer’s $2 Billion Payment for Clippers in Half

There’s been a lot of debate on both sides as to whether Steve Ballmer’s purchase price of $2 billion for the Los Angeles Clippers exceeded the team’s worth and revenue potential. On one hand, it’s hard to ignore the fact that no one has paid remotely as much to buy any one of the 30 NBA teams in the franchise’s entire history. Then again, the NBA just inked a deal with ABC/ESPN and Turner for broadcast and Internet rights earning the franchise nearly $2.7 million each season between 2016-2017 and 2024-25. That’s almost three times what the NBA gets with its current contract.

Maybe Ballmer believed that with this new deal in the works, along with a turnaround of the team’s reported mismanagement under previous ownership, he would have a real shot at making money on his investment despite his sky-high purchase price. And, maybe he just wanted the shiny new toy badly enough to pay whatever price it took to ensure it was his.

Still, there might have been at least one other factor that impacted his decision. Because as it turns out, Ballmer could claim about half of his purchase price of $2 billion over the next 15 years against his taxable income in a niche section of the tax code applicable only to sports franchise owners. To take advantage of it, an accounting treatment using goodwill, which refers to the difference between the purchase price and the cash and fixed assets of the team, would be used to structure the deal.

The Financial Times has reported, “Using a conservative model that assumes Mr. Ballmer could account for $1.5 billion in goodwill and a re-investment rate of 7 percent, the potential tax credits equate to about $1 billion in current terms.”

In the words of Washington Wizards owner Ted Leonsis, “There’s never been a better time to be an owner of an NBA franchise or frankly any professional sports team.” And, well…it pays to have an astute group of professionals keep their eye on the ball no matter what move a billionaire makes.

But perhaps buying a sports franchise isn’t your game, and this small corner of the tax code doesn’t apply to you. That still leaves thousands pages of rules and opportunities that could. The tax code is full of small but powerful regulations that can easily escape taxpayer notice. Ballmer has a powerful tax advisory team mining it to better inform his decisions for work and play. You can, too.

October 24, 2014

Why Being the “Chief Everything Officer” is Bad for Your Business

How many job titles do you really have, honestly? Do people often refer to you as the “Chief Everything Officer”? You may think single-handedly managing your books, administering your tax burden, and being your own IT professional is saving you money, but is it? If you’re spending more time tackling everyday tasks than you are growing your business, you’re probably spreading yourself too thin and not focusing on growing your company and meeting the needs of your customers.

 

Are your talents best used bringing in new business, serving and growing your top clientele and improving the quality of the product or service you provide? -Most likely so. Here are some key outsourcing opportunities you may want to consider outsourcing to save you time, money and opportunity cost.

 

Accounting. Here’s the bad news first: When it comes to ranking the best and worst states to be a tax payer, California ranks second to dead last, trailing only New York. Outsourcing your accounting not only saves you time, it can bring in valuable insights from specialists who’re dialed in to the latest practices, strategies and technologies in their fields.

 

Banking. Most small business owners are no stranger to the bank. In fact, more than 80% of small business owners use some sort of financing to help grow their business. Finding the right bank and obtaining all the financial reports necessary could prove challenging to a time-strapped entrepreneur. Partnering with the right CPA firm can increase your chances of successfully obtaining loans, grants, lines of credit and more by presenting your financial data in the most favorable way.

 

Social Media. Not every entrepreneur dreams of becoming the next big social media star to go viral, but the latest numbers don’t lie: 81% of small businesses employ a social media strategy to grow their business.  Keeping up with the latest and greatest social media strategies as well as posting, responding and article linking is a time consuming process probably best suited for someone who has the time and savvy to tackle this emerging marketing tool.

 

Leading-edge businesses are partnering with Talley & Company and its affiliates to take advantage of our wide range of services, such as bookkeeping, financial reporting, technology advising, tax planning, auditing and estate planning, all under one roof. Letting go can be hard at first, especially with our hearts and minds deeply invested in our businesses, but it can allow you to focus on what you do best and take back control of your business’ productivity and profitability.

 

For more information on how Talley & Company can help grow your business, give us a call today.

 

 

http://www.entrepreneur.com/article/238185

October 17, 2014

Family Businesses Lead Success Rate

Here’s a not-so-surprising fact: Less than 30 percent of family businesses are able to carry on to the second generation. A mere 10 percent remain through the third.  Interestingly enough, in spite of these gloomy figures, family businesses still lead the success rate well beyond those of sole proprietorships, partnerships or other arrangements. However, when family businesses do fail (for non-economical reasons), the cause generally comes down to poor planning and a lack of on-going maintenance thereof.

Want to know how family-owned businesses can improve their success rate?  Here are several things to consider:

Plan to Succeed From the Get-Go. Emphasize the importance of first developing a business agreement between key stakeholders that focuses on clear expectations by assigning specific roles and duties to your team. Inspiration, aspirations and goals should be the topic of thorough-going conversations.  Following through with a well-defined agreement emerges to reflect the discussion and, of course a business plan that clearly supports the agreement.

Perform Routine Maintenance on Your Long Term Plan. Important to the success of the family business preparations is the way in which agreements are reached and the context in which they are discussed. Within the framework of long-term planning, subject to regular review, each member can track, maintain or adjust as conditions change.  Knowing who each other is, recognizing traits, tendencies and preferences with honesty and openness allows the agreement to be written in a way to take advantage of and accommodate individual contributions. This sets up an organizational process that continues to focus on leveraging the strengths of individuals and addresses any challenges or shortcomings posed by members.  Thus everyone is on the same page and realistic expectations are set and met.

Proper business planning is a complex and on-going effort, requiring expert counsel—a professional knowledge and experience, familiar with the challenges that characterize an entrepreneur’s business ventures. Talley & Company shares the same entrepreneurial spirit that has helped propel our clients to their current level of success. With over 25 years experience in management consulting, Talley & Company has the expertise required to assist entrepreneurs throughout their entire journey, from formation through succession.

October 10, 2014

Is an S-Corp Structure Right for Your Business?

Choosing the right legal structure for your business involves careful consideration to find the best balance between liability protection, tax savings and the level of paperwork required by the IRS. This decision can be one of the most important ones made for a startup and may change as a business grows to accommodate different needs. The best way to evaluate all options, whether that includes a sole proprietorship, partnership, LLC or Corporation, is to get comprehensive advisement from knowledgeable legal advisors. For a quick look at the S-Corporation popular with entrepreneurs, here are some of the basic up-sides and down-sides.

Tax-Saving Benefits
The S-Corp allows owners to pass corporate profits, losses, deductions and credits to shareholders’ personal tax returns. This makes it possible to avoid double taxation (at the corporate and personal level), one of the major differentiators from a C-Corp.

While members of an LLC are subject to employment tax on the entire net income of the business, only the wages of S-Corp shareholders who are employees are subject to employment tax. The remainder is provided to the owner as a “distribution,” which is either taxed at a lower rate or not at all. But before lowering your salary to zero and classifying all earnings as a distribution to slash your tax bill, know that this comes with a caveat. Shareholders who work for the company must receive “reasonable compensation,” or the IRS may reclassify additional corporate earnings as wages. In some cases, the tax benefits of an S-Corp can also be combined with the legal advantages of an LLC.

At the state level, S-Corps are taxed in a variety of ways. Some states follow the federal government’s lead by taxing shareholders accordingly, some tax on profits over a certain threshold, and still others refuse to recognize the S-Corp structure altogether, taxing it like they would a C-Corp. instead.

Opportunity for Liability Protection
S-Corporations are “considered by law to be a unique entity, separate and apart from those who own it.” This separation limits the financial liabilities of owners and shareholders. It also makes it easy for the S-Corp to continue doing business without much disruption if a shareholder decides to leave the company or sell their shares.

A Longer Paper Trail
One of the significant downsides to the S-Corp is more rigid processes and paperwork. The IRS’ requirements include scheduled shareholder meetings, documentation from those meetings, and heavier records maintenance.

To see if your business qualifies as an S-Corp and whether it would benefit from this or another more favorable legal structure, consult with us today. Talley & Company has over 25 years of experience helping entrepreneurs successfully start and grow their businesses. From start-up to succession we maintain a proactive, tax efficient approach to our client’s business planning needs.

October 3, 2014

Goodbye Gifts Wrap Up Jeter’s Career (and Tax Obligations) on a High Point

Jeter gave his final farewell on the field last Thursday to millions of cheering fans and admirers watching, wrapping up an illustrious 20-year career in baseball and his reign as the captain of the New York Yankees. His sportsmanship and performance record has earned him not only accolades from the entire league, but also some pretty eccentric gifts as a token of their appreciation and respect. So what did they give a man who made $12 million last season alone? Jeter has collected everything from wine to cuff links and a kayak from other teams since he announced his retirement in February.

From the Astros, he took home pinstriped cowboy boots. From the Angels came a custom-painted paddleboard and the Brewers a bronzed replica of his bat. Let’s not forget the pair of Stan Musial cuff links he received from the Cardinals and a Hublot watch from the Mariners. Then there are the seats he’ll be able to rest on comfortably in retirement, including a bench made of bats from the White Sox and a seat from the Kingdome from the Mariners. If you want to see these gifts in all their audacious glory for yourself, check out the slide show from the New York Daily News.

While they may have been bestowed with much esteem and personal appreciation, the IRS treats these items from the business context in which they’ve given. That means one of the jobs Jeter’s tax advisory team is probably working on now is accounting for the taxes the five-time World Series champion will need to pay on all these “gifts” he’s received.

With career earnings totaling over a quarter of a billion dollars, Jeter may not be too shocked by the bill. But since Bloomberg News approximated the check to the IRS at $16,000 based on the gifts’ estimated total value, we certainly hope he liked what he got. If not, he can take comfort in that at least one of his gifts won’t be taxed: the donations made by several teams to Jeter’s charity, the Turn 2 Foundation.

The IRS’ definitions apply to gifts whether your job is on the baseball field or in boardroom. For example, employers that reward top-performing employees with a gift, say season tickets, may need to withhold taxes from the recipient’s cash pay for the tickets’ value since they can be considered income. If the recipient isn’t on payroll, the company may need to report it on Form 1099 instead.

With the holidays coming up fast, you may have questions about what constitutes a gift in the IRS’ eyes and how to properly report it, whether you’re on the giving or receiving end. Get the clarification you need by consulting with a Talley & Company advisor for whatever scenario that comes up.

 

 

September 26, 2014

Deciding Whether to Leave a Roth IRA to Heirs

Leaving a Roth IRA to children can be a great way to pass on money that’s allowed to grow tax-free over your lifetime and for some of theirs. To determine whether a conversion from a traditional IRA is an effective vehicle for moving money into the hands of your heirs, here are a few points to consider.

Your Tax Rates Compared to Theirs
If your tax rate is expected to be the same as that of your heirs’ when they take distributions, the Roth IRA does offer a small advantage. In this scenario, you’d be paying taxes on the conversion with your current tax rate and letting future growth compound over time in a more tax-efficient account.

On the other hand, if a beneficiary is going to have a much lower tax rate than yourself, either as a result of living in a lower-tax state or pulling in a lower net income, converting to a Roth would cut into their potential inheritance. Essentially, you’d be paying a larger tax bill up front than might have been paid later by your heirs. It also matters how much you convert and how fast, since converting the whole of an account at once could subject you to a higher tax load than doing so in increments over time.

Not everyone will have a clear picture of their heirs’ tax rates long after they’re gone. Still, you might have a good idea based on some career choices. For example, if your daughter is completing med school, chances are she’ll be subject to a higher tax rate than most. If your son is a K-12 teacher, he may not.

Potential Changes to Roth IRA Rules


Of course, all this may be null and void if proposed legislation goes through. If approved, President Obama’s 2015 budget would require Roth owners to take distributions starting at the age of 70.5 (whereas none are required right now), possibly eliminating the asset entirely before it’s inherited. A second change would require heirs to withdraw the entire sum of money from the Roth within five years of the account owner’s death. (Right now while distributions by heirs are required, they can be made over a lifetime, allowing the assets to compound in growth.) These revisions could diminish much of the benefit to using a Roth as an inheritance vehicle.

Whether or not these laws are approved, it’s a good idea to know where you stand now so that you can plan accordingly. If you’d like a closer analysis of whether converting part of your retirement savings into a Roth IRA would benefit your heirs, set aside time to discuss the idea with the Talley & Company tax advisory team.  

September 19, 2014

The Three Stages of a Financial Windfall

Imagine having the winning ticket to a $640M Powerball lottery. Not a chance in this world–but $640 million???? It’s nice to daydream about! You’ve won the lottery and are retreating into a corner to keep your own council for a while. So what happens now?

First, that numb feeling is your brain in shock.  You’re not alone. With a windfall like this coming at them, many people also feel like their life is no longer under their control. Some experts say that the greatest predictor for success in handling a financial windfall is how well we can deal with the intense emotions—the “wind” part resembling a hurricane. Second, delight shows up at last when you realize for the first time in your life, your finances have never looked better.  Then the roller coaster hits a trough when you realize the tax man will demand their fair share. The third and final stage: the shock is back, followed by frustration and anger.

So what do a surprising number of lucky winners do after this emotional rollercoaster? Jump on the computer. A simple Google search and—Bingo! There are many sites promoting brokers who will buy winning lottery tickets at a discount and “take care” of the taxes so that winners keep more of the original amount.  They’re called “Ten Percenters” and seem to be thriving, customer-wise.  Other sites sell losing tickets at a discounted rate to offset taxes from winning tickets.  We won’t be diving into the legal issues ofthese unscrupulous practices, but we’ll leave it at they are questionable at best and dealing with Ten Percenters is most likely not in your best interest.

 

Talley & Company has been serving a loyal tax clientele for over 25 years and has a wealth of experience helping our clients mitigate their tax burden when experiencing a financial windfall event.  Whether your windfall is from a tax return, an inheritance, a bonus, a sale of a home, or a prize, Talley & Company is here to help.

 

Sources: http://www.smartaboutmoney.org/Portals/0/ResourceCenter/FinancialWindfall.pdf

http://www.forbes.com/sites/robertwood/2014/08/08/money-for-losing-lottery-tickets-how-winners-losers-underground-brokers-beat-taxes/

September 12, 2014

Pacquiao Scores Tax Knock-Out in First Round Vs. Philippines

World-champion boxer Manny Pacquiao is definitely no stranger to pummeling opponents in the ring, but the famous boxer is going for the knockout in a long-running tax dispute with the Philippine government. The fighter is in a battle with the Philippine tax authorities over 2.2 billion pesos ($50.3 million) they claim the national icon owes for his 2008 and 2009 earnings from bouts held in the U.S.

Pacquiao and his managers say he paid the taxes he owed to the U.S., and that because of a treaty agreement between the two countries, he isn’t subject to double taxation. The boxer is neither a U.S. resident or citizen, but the U.S. has special regulations requiring foreign athletes who work in the U.S. to file taxes. That U.S.-based work can entail anything from participating in a tournament to taking part in endorsement deals.

According to the Philippine tax office, Pacquiao has not provided them the official, certified paperwork it requires to demonstrate proof of his U.S. tax payments. Meanwhile, the fighter’s promoters, Las-Vegas-based Top Rank, say the documents have been requested but just haven’t come through yet.

Prior to the recent Supreme Court ruling, the Philippines Bureau of Internal Revenue issued a warrant to 36 banks to seize Pacquiao’s assets, some of which included his wife’s accounts. Based on the news report on the latest Supreme Court ruling, the Philippine government also threatened to take the money owed by selling off the assets it seized. Later the tax court agreed to lift the asset freeze on the condition Pacquiao posted the cash bond equivalent to their claim to back taxes and interest.

There’s still a long way to go before Pacquiao, who also happens to be a congressman representing the Sarangani province, takes home the championship belt on this one. But with the new Supreme Court ruling on his side, he said in a statement, “For now, I am just glad I will be able to concentrate on training for my upcoming bout.”

Pacquiao’s relief is expected. Having to resolve a tax dispute with the authorities, Philippine or U.S., can divert precious attention from athletes trying to stay on top of their game and business owners who have daily operations to manage. The paperwork and back-and-forth communications can take weeks, months or years to clear, all of which requires time, patience and specialized expertise even the most knowledgeable business leaders are unlikely to have. Having an experienced tax advisory team in the ring with you should you be subject to a tax inquiry can be a life saver to this otherwise brutal experience. Just don’t wait for a letter from the IRS before you put your team together.

September 5, 2014

Kids Cost More Than Ever to Raise—Here’s How Much

If you ever had the distinct impression that your kids were costing you a fortune, you can feel good knowing that you were right. According to the USDA’s annual Expenditures on Children by Families report, a child born in 2013 will cost the average middle-income, two-parent family more than $245,000 to raise until the age of 18, representing a 1.8 percent increase from 2012. Adjusted for projected inflation, that number is more like $304,000.

If you make more, you’re also probably spending more. The report estimates that high-income households, or those earning over $106,540 in before-tax income, spend about $408,000 per child. For a two-child household, that’s between $21,330 and $25,700 per kid every year, depending on the age of the child. (You may have already have guessed this, but annual expenditures generally increase as the age of the child does.)

The more kids a family has, the less they spend on each one. Families with three or more kids spend 22 percent less per child than those with two kids, and families with one child spend an average of 25 percent more on the only child than those with two kids.

Where does all that money go? The largest share of total child-rearing expenses across all income levels in the USDA’s calculations is housing. For high-income earners, housing represented 33 percent of total child-rearing expenses. Where you live matters, too, since housing costs vary across the U.S. Those in the urban Northeast spend the most to raise a child ($282,480), and those in the urban South the least ($230,610). The urban West, which includes California, runs somewhat down the middle ($261,330). The second-largest expense for high-income households was child care and education, coming in at 23 percent. Generally, the higher the income, the greater the expenditure was in this category.

The USDA’s report also accounts for food, healthcare and transportation, among other things. What it doesn’t include are expenses incurred during pregnancy or those incurred after the age of 18, such as college. Add those into the mix and sure enough, there’s plenty of proof that raising kids isn’t cheap.

Thankfully, the joys that accompany parenthood far exceed their costs in mere dollars and cents. These numbers simply remind us that the arrival of a new child or grandchild into our lives can mark a pivot point to how we manage our finances. From the moment they’re born, new considerations and opportunities arise that should involve your tax and legal advisory team. For example, you may decide to re-strategize your tax position, initiate or make changes to life insurance and estate plans, or open up a college savings plan.

To be certain you’re taking advantage of as many savings opportunities as possible, meet regularly with experienced tax and financial professionals as your children grow and your family’s needs do, too.

August 29, 2014

More People Than Ever May Relinquish Their U.S. Passports This Year

The Treasury Department just published its latest quarterly report revealing the names of people who have given up their U.S. citizenship or long-term residency. On the list were 577 individuals, bringing the 2014 total so far to 1,577. This mid-year total puts us on pace to exceed last year’s numbers, which hit a record-breaking 2,999 individuals, already a 221% jump from 2012.

Short of asking them outright, we can’t know why those on the list chose to leave, but we might infer that taxes could have been at least one of the factors calculated into their decision-making process. That’s because the U.S. requires citizens and green-card holders to file tax returns no matter where they live. So depending on where expats reside, they may be required to pay taxes in the country in which they live and work while also paying the U.S. government.

The Foreign Account Tax Compliance Act could also be influencing some taxpayers to leave their passports behind. The law took effect this year and requires foreign financial institutions to report account information to the U.S., both for U.S. citizens and green-card holders living in the U.S. and abroad.

In 2012, Facebook co-founder Edward Sevarin was one of the recognizable names who renounced his U.S. citizenship. He headed for Singapore before the Facebook IPO, a move that undoubtedly reduced his tax bill since Singapore doesn’t impose a capital gains tax and has a low 18% tax rate. In 2013, American music icon Tina Turner was also on the list, though she has already been living in Switzerland for the last two decades with her boyfriend and now-husband Erwin Bach, a German music producer.

Individuals aren’t the only ones looking to expatriate. Walgreens, the largest pharmacy retailer in the U.S., considered an inversion from U.S. to Swiss corporate citizenship to cut down on tax obligations. But in this month’s announcement of the company’s decision against it, Walgreens’ chief executive Gregory Wasson told analysts the change “included potentially putting the company in a significantly worse position than if we had not inverted at all, such as a protracted controversy with the IRS.” He also acknowledged the risk of “consumer backlash and political ramifications,” referring to boycotting threats by consumers and the potential loss of almost a quarter of the company’s sales derived from Medicare and Medicaid.

The decision to expatriate should never be taken lightly, and taxes should never be the sole factor in consideration. There are not only indirect costs to giving up residency in one of the world’s greatest nations but direct ones as well, including the exit tax. Fortunately, there are many, many strategies for reducing personal and corporate tax liabilities. By planning well ahead of tax day and working strategically with experienced professionals, we can all save money on our taxes without having to give up our citizenship or green cards. 


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