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"10 Most Expensive Tax Mistakes That Cost You Thousands"
Some of the greatest stories in America reach their dramatic finale in a courtroom. Who doesn't admire Gregory Peck as Atticus Finch standing up to racism in Jim Crow-era Alabama in To Kill A Mockingbird? Who can forget Tom Cruise baiting Jack Nicholson into bellowing out that yes, he did order the Code Red at the end of A Few Good Men? And who can't imagine the smile of relief on O.J. Simpson's face when the jury announced they had found him not guilty? (Good thing he's finally out of jail so he can pick up his search for the real killers!)
Funny thing about those stirring courtroom dramas, though . . . they never involve tax cases. Don't novelists see the conflict inherent in a "battle of the appraisers" debating golf course valuations in a conservation easement case? Can't Hollywood producers tease out the complex dramas underlying a typical multinational transfer pricing dispute? What playwright wouldn't dream of meditating on the cross-salient tankgrenuities raised by "Section 393 transfers" between counter-impactful entities after a Section 754 election? (Relax, we made that last one up. Those aren't even real words.)
But tax questions do occasionally sneak into an actual court. So join us now for this week's story, which begins on the banks of the Ohio River.
Back in 1850, Cincinnati was the sixth-largest city in America, nicknamed "Porkopolis" for the area's meatpacking industry. (Can you imagine the smell?) Today, Cincinnati, along with rivertown rivals like Pittsburgh, St. Louis, and Kansas City, is navigating the transition to a 21st-century economy. But only Cincinnati is the home of professional baseball. And while today's Cincinnati Reds may be a pale shadow of the 1970s "Big Red Machine," fans still flock to the riverfront Great American Ballpark on game day — especially when the team gives away player bobblehead dolls.
That, in turn, brings us to the Titanic struggle that just reached its ninth inning in Ohio Supreme Court: do the Reds have to pay use tax on the value of those bobbleheads? The state tax commissioner argued the team had bought them to give away to fans, in which case the team owed the tax. The Reds responded that they had bought them to resell as part of the overall ticket, in which case they would qualify for the "sale-for-resale" exemption under ORC §5739.01(E). The Board of Tax Appeals called the Reds "out," and demanded $80,000 in back tax.
Naturally, the team challenged the ruling on the field. That's when the replay reviewers at the Court stepped in. Last month, they issued their call. By a 5-2 count, the Justices yanked the commissioner from the mound. Instead, as Chief Justice Fisher wrote, "the unique promotional items were an explicit part of the bargain, along with the right to attend the game, that the fans obtained in exchange for paying the ticket fee." That promise qualified the play as a resale. In the words of longtime radio announcer Marty Brennaman, "This one belongs to the Reds!"
We've said before that every financial choice you make has some tax consequence. This week's story proves that can be true even when you're not making a choice! And while nobody is getting rich by eliminating bobblehead taxes from their life, the lesson remains that proactive planning is the key to paying less. So enjoy the rest of 2018 and have a Happy New Year. And count on us to help you make the most of all your planning opportunities in 2019 and beyond!
These days it seems like every day brings new controversy to further divide Americans: red states squaring off against blue states and partisanship crossing the line into tribalism. And that's just as true with the holidays as with anything else. Is fruitcake really an abomination? Is Die Hard really a Christmas movie? Is Baby It's Cold Outside really a musical #MeToo violation in two-part harmony?
Fortunately, there are still some headlines that can bring us all back together. So this holiday season, we're especially delighted to remind you that A Visit From Saint Nick is a tax-free celebration. Santa won't be leaving a 1099 under your Christmas tree, and there won't be any Form 1040-GIFT to file after the tree comes down.
Taxable income generally includes all income, from whatever sources received. However, the tax code carves out several exceptions to that rule, much like Grandpa carves the drumsticks out of the holiday turkey. A "gift" is something of value, given without expecting anything in return. IRS Publication 525 states that "in most cases, property you receive as a gift, bequest, or inheritance isn't included in your income."
"But what about the milk and cookies?" you might ask. "That's the deal, right? Santa shows up with a bag of presents in exchange for cookies and milk (or maybe bourbon and eggnog). Doesn't that transform the whole occasion into a taxable exchange for value?" To which we might respond, "How did you get to be such a Grinch, anyway?"
"Ok, then, what about the gift tax?" you might challenge us next. Well, for starters, that's a levy on your right to give, not receive. So there's never any tax due to the recipient. You can give up to $15,000 each to as many people in a year as you like. If you're married, you and your spouse can join together to give up to $30,000 to every lucky winner. If you give more than $15,000 to a single recipient in a single year, you'll have to report the excess on Form 709. But even then, you won't owe actual tax until your lifetime taxable gifts exceed $11.18 million.
With those rules in mind, Santa's gotta be awfully generous before Christmas morning turns into a taxable event, even for him. (Granted, a trip to Tiffany's might do the trick.) But there's one last scenario to address — and one last loophole to highlight — before we finish our discussion. That's the Christmas Morning Car, an advertising staple since Lexus launched their "December to Remember" campaign back in 1998. What happens when Santa leaves a shiny new car wrapped in a big red bow in the driveway?
This is the part where we're going to have to shatter some precious childhood illusions. Sorry, boys and girls, but that's not really Santa leaving that Lexus in the driveway. It's just Mom buying the car for Dad, or Dad buying it for Mom. And transfers between spouses are tax-free up to any amount. Which means, once again, that the IRS won't be taking a bite out of your Christmas cheer.
Like everyone else, we wish you the best this holiday time, whether you celebrate Christmas, Hannukah, Kwanzaa, or even Festivus. But we want to offer something a little more tangible. Help us give you the gift of proactive planning. Call us when you're ready to save, and together we'll make the season even brighter!
If you pay attention to financial news, you can't escape hearing about Bitcoin and other cryptocurrencies. Bitcoin is just like country music, Justin Bieber, and pineapple on pizza — people either love it, or hate it, but there's no middle ground. The billionaire Warren Buffet dismisses it as a "mirage," a "Buck Rogers" phenomenon, and "rat poison squared." But legions of fans see it someday replacing government-backed currencies. Odds are good that one of the millennials at your holiday table believes in Bitcoin as hopefully as they used to believe in Santa Claus.
Just as Pinocchio always wanted to be a real boy, Bitcoin wants to be real money. That means accomplishing two goals. First, it has to serve as a store of value. You have to be confident that if you put something in, you'll be able to get the same value out. And second, it has to serve as a medium of exchange. That means you have to be able to use it to pay for things just like you would use cash.
So far, Bitcoin's record in both areas is spotty. If you were one of the unfortunates who jumped into the market a year ago at $17,900, you're probably not feeling the love now that it's collapsed to $4,000. Similarly, if you've tried to use it to pay for gas or groceries, you've probably gotten blank stares from the cashier.
And so, at least until now, Bitcoin and its blockchain-based peers like Ethereum have made news mainly for their wild price fluctuations. But last month, Ohio Treasurer Josh Mandel announced the Buckeye State would become the first to accept Bitcoin for tax payments. For now, the program is limited to business filers, although they can use Bitcoin to pay for any type of tax. However, the state plans to expand the program to individuals down the road. (We're not sure if that will happen before or after Ohio finally gets a decent professional football team.)
Treasurer Mandel, who at age 41 is young enough to consider himself an honorary millennial, is a longtime fan of the currency. But last month's move is part of a broader effort to attract software engineers and tech startups to the state. "We're doing this to plant the flag in Ohio as a national and international leader in blockchain technology," said Mandel.
Ohio has set up a website (of course) at OhioCrypto.com to accept payments. They've engaged a company called Bitpay to process the transactions and convert the coins into cash. The fee for that service is just 1%, which is cheaper than using a credit card.
Will virtual currencies someday break through into the mainstream? At this point, who knows? (We're still waiting for the flying cars we saw on The Jetsons — although Rosie the robot housekeeper is almost here, and you can buy a watch to make video calls with Mr. Spacely for $279). And while Bitcoin itself is grabbing most of the cryptocurrency headlines, it may not be the ultimate winner. (Google wasn't the first online search engine, either.) If recent trends are any guide, Bitcoin will remain a punchline until suddenly, one day, it's not.
Here's the real bottom line of last month's news. The world is changing — and, like it or not, we have to change with it. That's true for tax professionals, too. The Flintstones may have been perfectly happy with someone telling them how much they owe. But the Jetsons want to know how to pay less. That's where we come in — and we're looking forward to helping you through 2019 and beyond!
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.