Sitcom star Charlie Sheen's public meltdown has grabbed more headlines than any story since pop star Michael Jackson's death. Public consensus is that Sheen is a man in desperate need of help. So naturally, we were wondering, is there any help waiting for him from the IRS?
We're not here to "pile on" like so many commentators. (That's what Saturday Night Live is for!) But if you're following the story like so many of us, consider how the tax code helps Charlie in these areas:
• Drug Rehab. Charlie's rehab bills are a deductible medical expense. And unlike some deductions that are specifically limited (like mortgage interest on your primary residence and just one additional home), there's no limit to how many times you can write off rehab.
The downside here is that medical expenses are deductible only to the extent they exceed 7.5% of "adjusted gross income." Sheen reportedly makes $1.8 million for each of 22 episodes, which suggests he can only deduct medical expenses topping $3 million/year. Even for Charlie, that might be a stretch! However, he might establish a Medical Expense Reimbursement Plan through a business entity to avoid that 7.5% floor. If you own your own business, even a startup or sideline, call us to see if you can benefit from that same strategy.
• "Goddesses." Sheen lives with two young blondes whom he calls "goddesses," and whom he says help take care of his twin toddler sons. If he actually pays those women for child care, payments up to $6,000 per child may qualify for the Dependent Care Credit. The rules say you can't pay a member of your own family to care for younger children — but they don't say anything about paying goddesses!
• Job-Hunting Expenses. "Two and a Half Men" producers have officially canned Sheen, arguing he's violated a morals clause in his contract. Job hunting expenses to help Sheen find new and artistically challenging roles are deductible as a miscellaneous itemized deductions, subject to a 2% floor on adjusted gross income.
• Legal Fees. Odds are good that anyone with a mouth like Charlie needs a lawyer who bills by the hour. Sheen can deduct legal fees relating to the $300 million lawsuit he just announced against CBS, along with any additional fees related to tax-deductible alimony paid to his three ex-wives.
Sheen has tiger blood and Adonis DNA to help him through his current troubles. But even Hollywood train wrecks can't hide from taxes without a plan. So call us if you're looking for savings without the headlines!
Saturday, March 12, 2011
Thursday, March 10, 2011
HOW TO MAKE SURE THAT AN IRS LIEN HAS BEEN RELEASED
Q. The IRS has released a lien that they had because I was behind on paying some tax. Even though they said they released the lien I don't trust them. Is there any way I can make sure that the lien has been released?
A. You don't trust the IRS? They are "from the government and here to help."
Here is what you should do. If you have questions regarding basic lien inquiries such as routine lien releases and lien payoff amounts, contact the Centralized Lien Unit by calling the toll free telephone number (1-800-913-6050).
In addition you can request a Certificate of Discharge from the IRS to prove that you paid the tax debt, should any problems arise in the future.
There is a problem is that the lien may impact your credit score even if it is timely paid. If this is a concern, you should dispute the public record notation of the tax lien that appears in your credit report with the credit bureaus. You should do this after you have paid off the debt and the lien has been released. The credit bureaus will then investigate the tax debt. The IRS, however, has little to no incentive to validate the fact that you once owed a tax debt if the debt has already been paid. Paying the lien and having it subsequently removed from your credit report will erase the last traces of the lien for good.
Larry Kopsa CPA
A. You don't trust the IRS? They are "from the government and here to help."
Here is what you should do. If you have questions regarding basic lien inquiries such as routine lien releases and lien payoff amounts, contact the Centralized Lien Unit by calling the toll free telephone number (1-800-913-6050).
In addition you can request a Certificate of Discharge from the IRS to prove that you paid the tax debt, should any problems arise in the future.
There is a problem is that the lien may impact your credit score even if it is timely paid. If this is a concern, you should dispute the public record notation of the tax lien that appears in your credit report with the credit bureaus. You should do this after you have paid off the debt and the lien has been released. The credit bureaus will then investigate the tax debt. The IRS, however, has little to no incentive to validate the fact that you once owed a tax debt if the debt has already been paid. Paying the lien and having it subsequently removed from your credit report will erase the last traces of the lien for good.
Larry Kopsa CPA
Tuesday, March 8, 2011
TAXES AND BREAST PUMPS
The IRS has changed their minds on the cost of breast pumps and other lactation supplies and now have classified as a medical expense that can be reimbursed by flexible spending accounts.
Late last year the IRS privately ruled that those costs weren’t deductible medical expenses and could not be reimbursed. I wonder why they changed their mind?
Late last year the IRS privately ruled that those costs weren’t deductible medical expenses and could not be reimbursed. I wonder why they changed their mind?
Thursday, March 3, 2011
DO YOU BARTER?
Occasionally I get questions about bartering. There are even companies out there that organize bartering opportunities. These companies claim that you increase sales because potential clients have "barter points," and they look for companies that will accept their barter points. You get barter points and then need to look for someone that you can spend the points on. The normal bartering is someone saying that they will repair my car if I do their tax return.
There are income tax consequences and the IRS is concerned that people are avoiding paying tax by trading taxable services for personal items. There is even a question on the tax return asking if you barter. The IRS auditor always asks about bartering.
The IRS released the following information about bartering. It thought you might be interested.
Larry Kopsa CPA
Four Facts About Bartering
There are income tax consequences and the IRS is concerned that people are avoiding paying tax by trading taxable services for personal items. There is even a question on the tax return asking if you barter. The IRS auditor always asks about bartering.
The IRS released the following information about bartering. It thought you might be interested.
Larry Kopsa CPA
Four Facts About Bartering
In today’s economy, small business owners sometimes look to the oldest form of commerce – the exchange of goods and services, or bartering. The IRS wants to remind small business owners that the fair market value of property or services received through barter is taxable income.
Bartering is the trading of one product or service for another. Usually there is no exchange of cash. However, the fair market value of the goods and services exchanged must be reported as income by both parties.
Here are four facts about bartering that the IRS wants small business owners to be aware of:
1. Barter Exchange A barter exchange functions primarily as the organizer of a marketplace where members buy and sell products and services among themselves. Whether this activity operates out of a physical office or is Internet based, a barter exchange is generally required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, annually to their clients or members and to the IRS.
2. Barter Income Barter dollars or trade dollars are identical to real dollars for tax reporting. If you conduct any direct barter - barter for another’s products or services - you will have to report the fair market value of the products or services you received on your tax return.
3. Taxes Income from bartering is taxable in the year it is performed. Bartering may result in liabilities for income tax, self-employment tax, employment tax, or excise tax. Your barter activities may result in ordinary business income, capital gains or capital losses, or you may have a nondeductible personal loss.
4. Reporting The rules for reporting barter transactions may vary depending on which form of bartering takes place. Generally, you report this type of business income on Form 1040, Schedule C Profit or Loss from Business, or other business returns such as Form 1065 for Partnerships, Form 1120 for Corporations, or Form 1120-S for Small Business Corporations.
3. Taxes Income from bartering is taxable in the year it is performed. Bartering may result in liabilities for income tax, self-employment tax, employment tax, or excise tax. Your barter activities may result in ordinary business income, capital gains or capital losses, or you may have a nondeductible personal loss.
4. Reporting The rules for reporting barter transactions may vary depending on which form of bartering takes place. Generally, you report this type of business income on Form 1040, Schedule C Profit or Loss from Business, or other business returns such as Form 1065 for Partnerships, Form 1120 for Corporations, or Form 1120-S for Small Business Corporations.
For more information see the Bartering Tax Center in the Business section at http://www.irs.gov.
Wednesday, March 2, 2011
COMMENT ON WHY NO COMMENT ON OBAMA'S BUDGET
Q. I have been following your blog and I have been waiting for you to chime in on the tax consequences of President Obama’s budget proposal. Did I miss your take?
A. Actually I have not commented much on the tax proposals for a couple of reasons. First of all it’s probably all talk. The chances of his proposal getting through Congress are slim. Secondly, it can get confusing. When people read about a proposed change then next thing you know is that someone get’s it wrong and think that it is the real deal. You know what happens next. It hits the social network and people even get more confused. Finally, there has been a lot written about the proposal so I thought that people that were interested probably already had read the articles.
If you want a summary here is a piece from the Journal of Accountancy.
http://r.smartbrief.com/resp/BeiYvscgyzgKoOqkajaoyAalPcWE?format=standard
A. Actually I have not commented much on the tax proposals for a couple of reasons. First of all it’s probably all talk. The chances of his proposal getting through Congress are slim. Secondly, it can get confusing. When people read about a proposed change then next thing you know is that someone get’s it wrong and think that it is the real deal. You know what happens next. It hits the social network and people even get more confused. Finally, there has been a lot written about the proposal so I thought that people that were interested probably already had read the articles.
If you want a summary here is a piece from the Journal of Accountancy.
http://r.smartbrief.com/resp/BeiYvscgyzgKoOqkajaoyAalPcWE?format=standard
Tuesday, March 1, 2011
HOW TO FIX AN OVERPAYMENT TO AN IRA
Q. I accidentally contributed more than $6,000 to my Roth IRS for 2010. I am 61. Am I going to jail?
A. No jail time for this. As a matter of fact you can most likely solve this problem with a call or two. Call your IRA custodian and he or she should be able to walk you through the steps that you need to take.
Generally, the amount that must be withdrawn is computed on Form 5329 Additional Taxes on Qualified Plans (including IRS’s) and Other Tax Favored Accounts. This is a large form not because of the information that goes on it but rather to just fit the title.
If you fail to withdraw the excess contribution you will be liable for a 6% penalty for every year you have over contributed.
Larry Kopsa CPA
A. No jail time for this. As a matter of fact you can most likely solve this problem with a call or two. Call your IRA custodian and he or she should be able to walk you through the steps that you need to take.
Generally, the amount that must be withdrawn is computed on Form 5329 Additional Taxes on Qualified Plans (including IRS’s) and Other Tax Favored Accounts. This is a large form not because of the information that goes on it but rather to just fit the title.
If you fail to withdraw the excess contribution you will be liable for a 6% penalty for every year you have over contributed.
Larry Kopsa CPA
BERKSHIRE HATHAWAY ANNUAL LETTER
Here is Warren Buffett's annual letter. Even if you are not an investor it is interesting to learn how he thinks about business and business climate.
http://www.berkshirehathaway.com/letters/2010ltr.pdf
http://www.berkshirehathaway.com/letters/2010ltr.pdf
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