Big-league baseball players like the ones who just wrapped up the World Series enjoy careers that last 5.9 years on average, and with 162 games per year, they enjoy lots of chances to be heroes. But eventually, even the best of them hang up their cleats and join the rest of us in the real world. The lucky ones find high-profile gigs running car dealerships or calling games from the broadcast booth. But every once in a while, a former player manages to makes headlines where you'd least expect them — like working as an accountant!
Ben Hendrickson started out looking like he'd become one of the greats. In 2004, the promising right-hander went 11-3 for the International League Indianapolis Indians and won league MVP honors. Then he got his start in the big leagues. Wearing #40, he pitched 11 games for the Milwaukee Brewers, finishing 1-10 with a 7.41 ERA. (If you're not familiar with baseball stats, those numbers are no bueno.) Milwaukee sent him down to their Nashville farm team and eventually traded him away. But Hendrickson never made it back to "the show," and his bright light faded away.
Fast forward to 2018. Hendrickson is working as an accountant for Floors Northwest in Fridley, Minnesota, just north of Minneapolis. Like all too many Americans, he's working paycheck to paycheck and not getting ahead. How can he throw some heat and escape the grind? Hey, here's an idea! Baseball runners who want to advance to the next base don't have to wait for the batter to hit the ball . . . they can just take off running and steal it! So, if Hendrickson wants more money so badly, why not just steal it from the company?
Last week, Anoka County District Court charged Hendrickson with four counts of "theft by swindle," totaling about $250,000. That's a refreshingly blunt description for the charges against Hendrickson, which can mean trading him away for up to 20 years in a place with no organized baseball whatsoever.
Here's how the Minneapolis Star-Tribune described the criminal mastermind's evil plan:
"While working for Floors Northwest in Fridley, where Hendrickson worked for several years until he left his job last year, he would alter the amount of cash received to make it look like less was collected from sales staff. Hendrickson deposited the lower amount and kept the rest. Nearly $160,000 of the money he stole was taken in the final two years of his employment. He also allegedly shifted $10,000 of the company's money to a personal health care account that paid his medical bills."
Hendrickson admits he stole the money . . . but says he thought he took between $50,000 and $75,000. Which begs the question, just how bad an accountant do you have to be to not count how much you stole? After failing at baseball and bookkeeping, Hendrickson may find that a few years in the metalworking field (specifically, stamping license plates for 11 cents/hour) may be just the vocational training he needs!
We all understand wanting to get ahead. Fortunately, there's an easy way to do it, without risking a trip to the pokey. Call us for a tax plan, and see how many dollars we can advance into your pocket. We think of your average tax rate as your financial "earned run average," and we do everything legal to keep it as low as possible. So call us to take a swing, and watch us bring the heat!
Legend holds that in 1494, an Italian friar named Luca Pacioli was sitting under an apple tree when an apple bounced off his head. In a flash of insight, he invented the "double-entry bookkeeping" system where each entry has a corresponding and opposite entry to a different account. Those entries, called debits and credits, help accountants avoid headaches — if the debits and credits don't balance, there's a mistake somewhere. (Some of you may be thinking that was Sir Isaac Newton with the apple inventing gravity, but this is our story and we're sticking to it.)
Double-entry bookkeeping has ruled accounting for over 500 years. We see it everywhere today, including in our tax code. Revenue flows in, balanced by expenses flowing out. Anything left over eventually winds up in the "taxable income" account.
Sometimes, with taxes, that balance breaks down, and many of those disconnects spell opportunity. Real estate investors, for example, can depreciate the price of their properties over time. (We can help you with "cost segregation" strategies to do it even faster.) In the IRS's ideal world, you'll repay those breaks by "recapturing" them as income when you sell. But with tax-free exchanges, stepped-up basis, and other strategies to avoid that reckoning, most of those depreciation deductions never get recaptured at all.
Now it's Halloween: America's second-favorite, and second-priciest, holiday. The National Retail Federation reports we dropped $9.1 billion on the spooky season last year, including $2.7 billion on candy. (Fun fact: Halloween candy is cheapest exactly four days before the 31st.) How does all that fit into Luca Pacioli's neat little boxes? Well, it gets scary the minute the greedy little trick-or-treater on the other side of your door goes running down your sidewalk with their loot!
Here's the disconnect. The candy company sells sweets to a retailer. That's a taxable transaction. The retailer sells them to you. That's another taxable transaction. But then you just give it to the little goblins, pirates, and princesses on your porch. No deduction for you, no income for them, no 1099s for the IRS. (Ugh. Can you imagine the 1099s?) That removes everything from the IRS's world of debits and credits. Seriously, if the IRS taxed kids on their Halloween candy, they could collect millions of dollars to cover free dental care for everyone.
It's all very ironic because, as any parent knows, Halloween is an exercise in managing the waste of assets. Your kids come home with bulging bags of candy and dreams of sugar highs lasting until Thanksgiving. But pretty soon the good stuff is gone. No more Kit-Kats or Snickers! They're left with a couple of "fun-size" Milky Ways, some of those Jolly Ranchers nobody really likes, and a few stale candy corns. At that point, you "charge off the goodwill" by throwing out the dregs while they're at school and hoping the kids don't even notice.
Today, your average accountant or tax professional focuses their effort on making sure the debits match the credits. But we don't just stop there. We take the time to look for those tax "disconnects" that can rescue thousands in taxes. There's nothing scary about it at all. So call us when you're ready to pay less. You'll think the savings are pretty sweet!
Life is full of ups and downs, and sometimes the downs can be so low that it doesn't feel like there's ever going to be an up again. How many people have dreamed of faking their own death and disappearing under a new identity, never to return to their problems again? It's called "pseudocide," and it's popular enough that novelists have a field day writing thrillers about it. John Grisham pulls some variation of that stunt in half a dozen books, and J.K Rowling, Tom Clancy, and Gillian Flynn (Gone Girl) have all joined him in that theme.
Faking your death doesn't always work. In sixteenth-century Verona, a young nobleman named Romeo tried it with a deathlike potion, and we all know what happened to him. But that doesn't keep the occasional scammer from trying. Most famously, rock-and-roll legend Elvis Presley faked his death, and supported himself by entering Elvis impersonator contests. (He always laughed when he didn't win.) And if you have really valuable information on a really bad guy, the witness protection program will even establish your new identity for you!
There's no law that says you can't fake your death to go ride off into the sunset. But we got to wondering . . . what would our friends at the IRS think about that plan?
Let's start with your life insurance benefits. Code Section 101 says gross income doesn't include amounts your beneficiaries receive "if such amounts are paid by reason of the death of the insured." We're splitting hairs here, but wouldn't they still owe the tax if you aren't really dead? Or would they be safe because the insurance company paid them by reason of your death, even if you're not? (You can be sure that somewhere in America, there's an underemployed lawyer ready to bill by the hour to answer that question!)
Next, let's look at estate tax. Assuming your gross estate is over $11.18 million, and the rest of the world really believes you're dead, at some point your executor will file a return and pay 40% of the taxable amount above that threshold. What's for the IRS to complain about? But come on, folks. While it's true that money can't buy happiness, it can solve a lot of the problems that cause unhappiness. So how many people with $11.18 million are really going to fake their own death in the first place?
(While we're on the topic of estate taxes, it's worth mentioning that the current threshold means that the IRS gets only a couple thousand returns per year now anyway. As recently as 1997, when the threshold was just $600,000, they got 90,000 of them. That's one perk of working in the trusts and estates field: just because the client dies doesn't mean you have to stop billing them.)
Finally, let's talk about anything you make after you pull your David Copperfield act. You'll earn it under a new name and social security number . . . but as long as you've set up your new identity properly, the IRS should be happy getting their usual share. Of course, there's that whole "identity fraud" problem. But hey, nobody said this would be easy!
Look, if life throws you a beanball, we understand the temptation to start fresh. But you will wind up crossing the line into fraud at some point. So if you're having a really bad day, can we suggest an easier (and perfectly legal) alternative? Come to us for a plan to pay less tax, and see if we can give you more reasons to enjoy the life you already have.
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John Leidy, EA
DIY Books Coach
It was the third day of the very first income tax course when I realized that it will become my mission to help people understand their taxes better to be able to make better decisions and STOP wasting money on taxes they should not have to pay.