Jimenez & Associates, Inc.
 Jimenez & Associates, Inc. 

News & Insights

May 30, 2019


Cryptocurrency and Taxes: A Starter Guide


See link below:


Cryptocurrency and Taxes: A Starter Guide



April 30 2019


Types of Investments

Think of the various types of investments as tools that can help you achieve your financial goals. Each broad investment type—from bank products to stocks and bonds—has its own general set of features, risk factors and ways in which they can be used by investors.

Learn more about the various types of investments below.

When you buy shares of a company’s stock, you own a piece of that company. Stocks come in a wide variety, and they often are described based the company’s size, type, performance during market cycles and potential for short- and long-term growth. Learn more about your choices—from penny-stocks to large caps and more.



A bond is a loan an investor makes to an organization in exchange for interest payments over a specified term plus repayment of principal at the bond’s maturity date. Learn how corporate, muni, agency, Treasury and other types of bonds work.



Funds—such as mutual funds, closed-end funds and exchange-traded funds—pool money from many investors and invest it according to a specific investment strategy. Funds can offer diversification, professional management and a wide variety of investment strategies and styles. But not all funds are the same. Understand how they work, and research fund fees and expenses.



Banks and credit unions can provide a safe and convenient way to accumulate savings—and some banks offer services that can help you manage your money. Checking and savings accounts offer liquidity and flexibility. Find out more about these and other bank products.



Options are contracts that give the purchaser the right, but not the obligation, to buy or sell a security, such as a stock or exchange-traded fund, at a fixed price within a specific period of time. It pays to learn about different types of options, trading strategies and the risks involved.



An annuity is a contract between you and an insurance company, in which the company promises to make periodic payments, either starting immediately—called an immediate annuity—or at some future time—a deferred annuity. Learn about the different types of annuities.



Numerous types of investments come into play when saving for retirement and managing income once you retire. For saving, tax-advantaged retirement options such as a 401(k) or an IRA can be a smart choice. Managing retirement income may require moving out of certain investments and into ones that are better suited to a retirement lifestyle.



Funding education begins with savings. Learn smart ways to save, including 529 Education Savings Plans and Education Savings Accounts. We’ll help you navigate your savings options.



These products include notes with principal protection and high-yield bonds that have lower credit ratings and higher risk of default than traditional investments, but offer more attractive rates of return. Learn about their features, risks and potential advantages.



These are speculative investments that come with significant uncertainty and many risks. Before you consider an investment in ICOs or cryptocurrencies, learn more.   



Commodity futures contracts are agreements to buy or sell a specific quantity of a commodity at a specified price on a particular date in the future. Commodities include metals, oil, grains and animal products, as well as financial instruments and currencies. With limited exceptions, trading in futures contracts must be executed on the floor of a commodity exchange.



Federal regulations permit trading in futures contracts on single stocks, also known as single stock futures, and certain security indices. Learn more about security futures, how they differ from stock options and the risks they can pose.



Life insurance products come in various forms, including term life, whole life and universal life policies. There also are variations on these—variable life insurance and variable universal life—which are considered securities. See how insurance products may fit into an overall financial plan.



April 30, 2019


Know Your Net Worth

As you prepare to invest, you'll need to assess your net worth. It's not hard: add up what you own and subtract what you owe. Creating a net worth statement, and updating it each year, will help you monitor your financial progress and meet financial goals. It will also enable you to calculate how much you have (or don't have) to invest.

The first step in this process is to determine the total amount of your assets. Assets are your possessions that have value—for example, money in bank accounts, stocks and bonds, personal property, your home or other real estate. Once you've calculated your assets, determine the total amount of your liabilities. Liabilities are financial obligations, or debts. Examples include credit card balances, personal or auto loans and mortgages.

Once you've calculated the total amount of your assets and liabilities, subtract the total amount of liabilities from the total amount of assets. Ideally, you'll want to have a greater amount in assets than liabilities. If your assets are more than your liabilities, you have a "positive" net worth. If your liabilities are greater than your assets, you have a "negative" net worth. If you have a negative net worth, it's probably not the right time to start investing. You should re-evaluate your finances and determine how you can decrease liabilities—for example, by reducing your credit card debt. If you have a positive net worth and cash flow, you're probably ready to start an investment plan.

Here's a simple net worth worksheet that can help you get started. It’s a good practice to calculate your net worth on a yearly basis.

Net Worth Sample Worksheet


Savings Account $ ________________
Checking Account $ ________________
Investments $ ________________
Life Insurance Policy $ ________________
Pension Equity $ ________________
Profit Sharing Equity $ ________________
Employer Savings Plan $ ________________
Retirement Fund $ ________________
Personal Property $ ________________
Real Estate (Including Home) $ ________________
Other $ ________________
  $ ________________


Credit Card Bills $ ________________
Unpaid Medical and Dental Bills $ ________________
Mortgage Balance $ ________________
Home Equity Loans $ ________________
Personal Loans $ ________________
Car Loans $ ________________
Unpaid Taxes $ ________________
Other $ ________________
  $ ________________

Total Assets

$ ________________


Total Liabilities

$ ________________

Net Worth

$ ________________


April 8, 2019


Step-up in Basis


A step-up in basis is the readjustment of the value of an appreciated asset for tax purposes upon inheritance. The higher market value of the asset at the time of inheritance is considered for tax purposes. When an asset is passed on to a beneficiary, its value is typically more than what it was when the original owner acquired it. The asset receives a step-up in basis so that the beneficiary's capital gains tax is minimized.
A step-up in basis reflects the changed value of an inherited asset. For example, an investor purchasing shares at $10 and leaving them to an heir when the shares are $100 means the shares receive a step-up in basis, making the cost basis for the shares the current market price of $100. Any capital gains tax paid in the future will be based on the $100 cost basis, not on the original purchase price of $10.

 If you bought a condo in 2015 for $200,000. if your son inhereted the condo after your death, the condo was worth $300,000. If your son sells the condo, his tax basis is $300,000. He paid taxes on the difference between the selling price and his stepped-up basis of $300,000. If his cost basis were $200,000, he would have paid much more in taxes when selling the loft. The step-up in basis rule changes tax liability for inherited assets in comparison to other assets.

March 14, 2019


Are you Mobile? Can you escape a high taxed state?


Mobility is a key factor today for most business professionals or individuals in every aspect of worklife, career and personal life.  


When choosing a place to live and build a life and career many people get stuck where the opportunity arose, where they grew up or where they went to college.  For a few life just takes over and we don’t even realize how we ended up where we did.


Today we face many financial decisions and difficulties our parents didn’t have to face. The cost of living is greater today than for past generations and income in many cases has not caught up with those costs.


Local, state and federal governments make decisions that affect us all and many times those decisions affect our bottom line.  Politicians look to solve governments problems by raising taxes. When they decide to raise taxes they never come and knock on your door and see if you can afford it or if it is in your budget.  They only care about the government’s budget not yours. When the cost of living in a city or state becomes unaffordable then one has to think about the possibility of moving to a more affordable location to seek greater opportunities.


The ability to move from a high taxing jurisdiction depends on many things and sometimes it may not be possible making your chances of escaping difficult if not impossible. Those with local and state government jobs for one can’t leave.  Also many professionals with state licenses in which if you moved you’d have to take additional education courses and state exams all over again in your new state. You may not have the ability or resources to pass again. These are doctors, nurses, lawyers, cpas, plumbers and electricians just to name a few.  


States pass professional regulations and licensing laws in order to keep you in that state not just to make sure you don’t defraud the public. These factors are impediments to your mobility. The ability to pick up and go and move to a more desirable and affordable location.


Selling your home and assets is another impediment. How long will it take to sell your home?  Cost to move? Cost of new home? All these are questions you must ask yourself. To see if you have a cost benefit from the move.


Where do you move is another question? There must be a benefit. Do you move to Florida or Texas? Do you move to a bordering state?  What are you giving up? Culture, diversity, nightlife, family and friends. Is it worth the cost?  How do place a value on living close to your family and friends?


What is it you are trying to escape?  Is it high sales tax, high property taxes, high state income tax, car city sticker, city and state future pension issues, high crime, bad schools, a growing population dependent on government resources, grocery bag tax, environmental issues, pollution, corruption, high cost of living, cold winters, shoveling snow, utility taxes? Okay face it you want to leave Illinois.


Can you?


Illinois loses about 100 residents per day and that number is rising.  People want to leave and they are in droves. Over 50% of millennials want to leave and many others as well.  


Who wants to stay?  Those who can’t leave.


February 13, 2019


New Car vs Used Car: What should I buy?


When purchasing a car you will find yourself in one of the most complicated and often confusing financial situations.  Cars are not like homes where you are likely to have professionals on your side like a realtor, appraiser, home inspector, banker and attorney.  When purchasing a car its you and the salesman and he does not have your best interest in mind. 


You have to determine what car is right for you, how to buy it and how to maintain it.  How to buy it has to do with purchase price and financing of the vehicle.  Maintaining has to do with repairs, storage and insurance.  We will concentrate on what car is right for you.


Some people fall in love with a car.  They have a dream car.  They want speed, luxury or an image or style they want to have or create. Others are looking to get from point A to B. They are looking for ways of getting around.  These people are most likely to take public transportation,  ride share or buy a new or used car. 


We recommend what is sensible, what makes sense depending on your circumstance.  If money is no object splurge but if you have lesser means or need temporary solutions for trasportation consider buying a new  smaller economical car. 


Most financial experts will want you to buy a used car.  They say when you buy a new car the second you drive it off the lot your car will loose 35% of its value. 


Well we recommend buying a new car. 


When buying a used car you're buying the unkown.  Used cars are for people who are savvy about cars.  When you don't know about cars and are not handy in do it yourself repairs you'll run into problems.  The dealer may help but eventually you'll loose time  and  money which will make you wish you had bought new to begin with.


Buy a new car in the 20 - 25 thousand dollar range.  It will come with a bumper to bumper warranty usually 3-5 years.  And it comes with zero miles and you'll be the only driver.  You'll only be responsible for wear and tear maintenance. For those 3-5 years.


Don't buy the car of your dreams used.  Some people do this because they think they are saving money but dealers dont sell cars at a loss. You will certainly be overpaying for the used car and even higher interest because used cars don't have dealer incentives and low interest rates. And worst of all your used car will come with pre-driven miles and you have no idea who or how many people drove the car.  It could have been a rental and you know how well most people treat their rental vehicles.


Try not to pretend a certain lifestyle by buying a used luxury or foreing car.  Everyone will still know you got a used Volvo. People with money most of the times could care less what they drive.  They spend on experiences and assets that will appreciate in value.  They are more likely to buy a collectible vehicle than a Range Rover. Plus remember cars are not assets they are liabilities.  It costs money to maintain, insure, store and drive a car.


When buying a car new or used you are in dangerous waters but be  even more careful with used cars those waters are shark infested. 


We also recommend leasing a new vehicle. If you intend on driving fewer miles and have safe storage and suburban parking a lease might be a great option for you.  If you beat up your cars and are likely to scratch or dent it due to city or tight parking skip the lease.



July 24, 2018


Property Tax Appeals




Properties in Cook County are reassessed every three years, and property taxes are based on these assessments. By appealing your assessment, you may be able to significantly reduce your property tax bill. Once assessment notices are mailed, by township, a property owner has 30 days to file an appeal.


If unsuccessful at Assessor’s office, owners can appeal once more to the Board of Review, which follows another schedule. HERE is the 2015 schedule as reference.


Township Schedule

Important Notes

  • There is no cost to a property owner to file an appeal
  • When you appeal to the Assessor or Board of Review, there is no chance an assessment will be increased as a result of appeal. In other words, there is no penalty; when an owner appeals, the assessment will either remain the same or be lowered.
  • There are many tax professionals that can assist you with the process. We recommend.


Property Tax Solutions, LLC

16 W Ontario St, Chicago, IL 60654

312-448-9992 Fax 312-448-9994




Property Tax Reducers

2140 W Fulton, Suite F, Chicago, IL 60612

312-396-4063 Fax 312-396-4064




Ideal Appeals LLC

444 N Michicagn Ave, Suite 1200, Chicago, IL 60611





June 13, 2018


While we support our clients in however manner they choose to live and don’t judge how they wish to spend their hard earned money.  We do recommend financial choices that reduce your carbon footprint.


For this reason, we support bicycle ownership.  It isn’t to save money, health or exercise although those are benefits to bicycle riding.  We hope each and every person is conscious about climate change, what we can do to slow it down, and use reliable clean sources of renewable energy.


Buy electric, small, and economical cars whenever possible or take public transportation.


Hopefully you’ll decide to bike some of the time to work, shop or leisure.  Help a friend with the purchase of a bike and help spread the word on climate change. 


Talk to a friend and share your thoughts of climate change. 


Also go to workingbikes.org or therecyclery.org if you would like to donate or volunteer to their efforts of donating bikes around the world and Chicago.


October 4, 2017


Tips for Individuals Who Need to Reconstruct Records After a Disaster


Taxpayers who are victims of a disaster might need to reconstruct records to prove their loss. Doing this may be essential for tax purposes, getting federal assistance, or insurance reimbursement.

Here are 12 things taxpayers can do to help reconstruct their records after a disaster:

  • Taxpayers can get free tax return transcripts by using the Get Transcript tool on IRS.gov, or use their smartphone with the IRS2Go mobile phone app. They can also call 800-908-9946 to order them by phone.
  • To establish the extent of the damage, taxpayers should take photographs or videos as soon after the disaster as possible.
  • Taxpayers can contact the title company, escrow company, or bank that handled the purchase of their home to get copies of appropriate documents.
  • Home owners should review their insurance policy as the policy usually lists the value of a building to establish a base figure for replacement.
  • Taxpayers who made improvements to their home should contact the contractors who did the work to see if records are available. If possible, the home owner should get statements from the contractors to verify the work and cost. They can also get written accounts from friends and relatives who saw the house before and after any improvements.
  • For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, the taxpayer can contact the attorney who handled the trust.
  • When no other records are available, taxpayers can check the county assessor’s office for old records that might address the value of the property.
  • There are several resources that can help someone determine the current fair-market value of most cars on the road. These resources are all available online and at most libraries:
    • Kelley’s Blue Book
    • National Automobile Dealers Association
    • Edmunds
  • Taxpayers can look on their mobile phone for pictures that show the damaged property before the disaster.
  • Taxpayers can support the valuation of property with photographs, videos, canceled checks, receipts, or other evidence.
  • If they bought items using a credit card or debit card, they should contact their credit card company or bank for past statements.
  • If a taxpayer doesn’t have photographs or videos of their property, a simple method to help them remember what items they lost is to sketch pictures of each room that was impacted.

More Information:

Share this tip on social media -- #IRSTaxTip: Tips for Individuals Who Need to Reconstruct Records After a Disaster. https://go.usa.gov/xnqnT



September 22, 2017


Please help the Mexican Red Cross by donating what you can to help in the efforts to rescue lives and help people affected by the Earthquake.


Click on the link below to donate now to the Mexican Red Cross.




September 11, 2017


Please help in disaster relief. 


The victims of Hurricane Harvey and Irma need your help.


Please donate by going online to the American Red Cross at the following website and give what you can. 




May 22, 2017


The Importance of Keeping a Low Financial Profile.


Today given the rise in financial fraud and identity theft it is very important to keep or manage a low financial profile.  This does not mean you can’t live the life you can afford or that you should prohibit yourself from enjoying your life.  It means you must exercise caution when portraying your image because you may be giving fraudsters and thieves a profile they may want to steal or take advantage of.


This means you want to be careful with what you are willing to post online on social media.  You must be careful not to be too showy with your possessions.  By doing so you may be raising red flags for those out to get you.


It is important that you practice financial common sense.  Don’t put yourself in a position where you can be identified as someone with wealth or financial success.  Keep a profile that keeps people guessing. In a world where you can be Googled giving all petinent informaton to whomever does the search it is important you be very careful. Don’t advertise your success because this can bring about unwanted advances from shady individuals.  The image that should concern you and you should portray is not of financial success rather an image of goodness, preparedness, qualified, helpful, satisfied and content. 


This is very hard to do because it goes against our impulses.  We naturally want to look better and portray an image of success even if we are not.  In fact, you can front or fake your image all you want because that costs nothing.  But to go about actually financing the assets you need to put up your fake image of success we do not recommend.  Remember Hollywood made Superman fly with smoke and mirrors.  If you can make it work with smoke and mirrors, then by all means do it and keep your real financial profile good or bad open to no one.


Also, when you keep a low financial profile you’re not just keeping the fraudsters at bay but also those who want to mooch of off your success.  Never show your cards and keep everyone guessing.  Your financial success depends on it.


February 8, 2017

Ways Not to Ruin Your Financial Life
Ways Not to Ruin Your Financial Life.pdf
Adobe Acrobat document [344.6 KB]

February 1, 2017

Substance vs Appearance
Substance vs Appearance.pdf
Adobe Acrobat document [358.2 KB]

January 27, 2017


While we support our clients in however manner they choose to live and don’t judge how they wish to spend their hard earned money.  We do recommend financial choices that reduce your carbon footprint.


For this reason, we support bicycle ownership.  It isn’t to save money, health or exercise although those are benefits to bicycle riding.  We hope each and every person is conscious about climate change, what we can do to slow it down, and use reliable clean sources of renewable energy.


Buy electric, small, and economical cars whenever possible or take public transportation.


Hopefully you’ll decide to bike some of the time to work, shop or leisure.  Help a friend with the purchase of a bike and help spread the word on climate change. 


Talk to a friend and share your thoughts of climate change. 


Also go to workingbikes.org or therecyclery.org if you would like to donate or volunteer to their efforts of donating bikes around the world and Chicago.


January 27, 2017

Is it a Good Idea to Invest in Apartment Buildings?
Is it a good Idea to invest in Apartment[...]
Adobe Acrobat document [370.5 KB]

January 25, 2017


In which State should I reside when I die?


While we don’t know when exactly we will die we may have a choice in where we choose to die.  Your residency is very important especially if you have assets you are leaving behind. Where you should try to not die is in a State that taxes your estate or inheritance.  If you die in 2017 your estate is exempt for paying federal estate taxes for any amount under $5,490,000 which is doubled if you are married.  Anything above the exempt amount is subject to a 40% federal estate tax.


But have you thought of your State estate tax?  You should because Illinois is a state in which you do not want to die if you have assets valued over $4,000,000.  Anything above that is taxed between .8% to 16%.  And even if you move before you die any property still owned in Illinois at the time of death can be subject to the Illinois Estate Tax.


For more info on the Illinois Estate Tax don’t ask the Illinois Department of Revenue.  Ask the Illinois Attorney General for that info and forms.


Other states with an estate or inheritance tax are CT, DC, DE, IA, KY, MA, MD, MN, NE, NJ, OR, RI, WA.  They each have a different exempt amount and tax.  Seek the advice of a tax accountant when seeking to retire or choosing a beneficial tax residency.


You may consider moving to Florida!  Florida has no State Income Tax or State Estate or Inheritance Tax.  Start the process of estate and retirement planning by educating yourself and seeking the advice of a licensed registered financial advisor and financial planner.


2016 Important Notice Regarding Illinois Estate Tax and Fact Sheet
Adobe Acrobat document [227.9 KB]

January 18, 2017


Professional Advice vs. Online Search


We highly encourage our clients to seek professional legal, medical and financial advice.  An Online Search is not a substitute for the advice of a professional. There are many gaps, omissions, interpretations and out of date information in an online search.  You could be misled and it could cost you in the long run. 


Always consider using an expert, an Attorney, CPA/EA/Registered Financial Advisor, MD or licensed professional.  You may be able to YouTube how to DIY but still use a professional.  The Search engine should not be your first and last resource. 


There is much useful and helpful information online but be very careful if you are solely relying on that advice.  Most expert advice comes with a free first time consultation.  Do not be afraid to ask for free professional advice and remember you can and should ask for a second opinion that will be free as well.  Professionals make mistakes and give erroneous or self-interest advice which is why we recommend a second opinion. Don’t be fooled by a sales pitch.


You have many options including consumer agencies that can guide you or make recommendations in order to protect you as a consumer.


January 17, 2017


Should I Splurge on a New Luxury Car?


We are constantly asked by clients if they should splurge on a new luxury car?  The answer is personal.  Not everyone has a passion or love for cars but for some it is an extension of themselves not just a way of getting around.  A car is a necessity and even better a new car that isn’t going to be in the shop frequently or at least while its under warranty. 


Life has to be enjoyed every single day not just when you retire.  When you retire you may still have health and you may have financial security but you won’t have youth, energy and freedom from responsibilities.  There is an age and time for everything unless you feel you will always be young at heart.


We recommend that sometimes you have to live for enjoyment and fun and if that means buying the car of your dreams then buy it.  Do not suffer with a car that is beneath you.  Purchase the Porsche, Mercedes or Range Rover.  Enjoy your time on earth every single day with a car you love.


You should splurge on whatever it is fulfills your desires.  If you love to cook splurge on your dream kitchen.  If you love to host parties buy your dream house with the swimming pool and patio. If you love to decorate your home splurge on your furniture.  If you love to travel splurge on your vacations.  If you love clothes splurge on your clothing.  Spend on what makes you happy that is why you work hard every day.


What we don’t recommend is having a car note larger than your mortgage or rent.  Having a large car note and you don't have time or resources for your childs education. Having a large car note and you eat hotdogs for lunch and dinner.  Having a large car note and you are a prisoner in your city and can’t ever afford to vacation.  Buying a car that prevents you from saving and investing.  And remember expensive cars have expensive repair and insurance costs.  Don’t live for the car make sure the car lives for you.



January 12, 2017


Retirement Plan Contribution Limits for 2017


There were few changes to the retirement contribution limits for 2017.


IRA and Roth IRA limits remain the same. The maximum an individual with earned income can contribute is $5,500 split any way they want between traditional and Roth IRAs. An individual age 50 or older during the year can contribute an additional $1,000 for a total contribution of $6,500.


The contribution limits for 401(k) and 403(b) plan participants also remain the same. The maximum a participant can defer to a plan and/or the Roth component or a plan remains at $18,000. Plan participants who are age 50 or older during the year can defer an additional $6,000 for a total deferral of $24,000.


The SIMPLE IRA contribution limits also remain the same. A participant can defer $12,500 for the year. If they are age 50 or older during the year, they can defer an additional $3,000 for a total deferral of $15,500.


SEP contribution limits have increased $1,000 to a maximum contribution of $54,000. The limit is 25% of compensation capped at $270,000. This limit also applies to Keogh plans and profit sharing plans. There are no catch-up contributions for participants age 50 or older.

There are some changes in the phase-out ranges for deductibility of IRA contributions and the ability to make Roth IRA contributions.


The deductibility limits for most individuals eligible to make IRA contributions have slight increases. If you are married filing jointly, the ability to deduct an eligible IRA contribution phases out between $99,000 and $119,000. For those filing as single or head of household, the phase-out range is now $62,000 - $72,000. For those who are married filing separate the phase-out range remains $0 - $10,000.


The income limits for making Roth IRA contributions have also increased slightly. For those who file married/joint, the ability to make an eligible Roth IRA contribution phases out between $186,000 - $196,000. If you file as single or head of household, the phase out range for making eligible Roth IRA contributions is now $118,000 - $133,000. For those who are married filing separate the phase-out range remains $0 - $10,000.


January 11, 2017


Consider Buying a Home in a Trust

When you buy a home, you have the option of buying the home in a trust. Why opt to purchase a home in a trust? By getting a property in a trust, you hold the property for your benefit and the benefit of whomever you decide to own it after you. You essentially become the trustee of the property, and when you die your successor then becomes the trustee. Being the trustee of a property allows you certain powers over where your home will go once you pass away, and can also enable you to shield your estate from future economic problems.


The first step in buying a home in trust is deciding who will have the legal right to sell the home. Let’s suppose you choose to have your successor be your son, who will become the new trustee upon your death. From there, you need to decide what type of trust to set up for the estate. There are two basic types — a revocable trust, and an irrevocable trust.


A revocable trust is typically outlined in the “Trust Agreement” to the “Declaration of Trust.” Think of it as the contract you are signing that establishes the rights and heirs of the estate, which you are creating. The owner of this type of trust has full control over the trust at all times and can change it whenever they please. Let’s say the son you appointed as the future trustee of the estate does not want the estate, or you would like to now give it to a daughter—this type of trust allows you to change the parameters within it. You can appoint several different trustees or beneficiaries. Depending again on how you set the documents up, all or one of the future trustees can change the document at any time as well. Revocable means “capable of being canceled” and follows as such for this type of “contact.”


In contrast, an irrevocable trust does not allow modification or terminations of the trust without the permission of the beneficiary. The trustee now acts more so like a fiduciary who is charged with the responsibility of maintaining the assets for the beneficiary. Often, this type of trust is used to avoid taxes on gifts that are above the taxable limit—in this case, real estate. Irrevocable trusts can also be useful in situations where you want to protect the estate from possible future financial problems. Let’s suppose you have built a sizable estate, but your children fall on hard financial times later in life. Irrevocable trusts can protect assets from creditors given that assets were put into them before there were credit problems. With an irrevocable trust, though it is extra important to be confident in the selection of your beneficiaries.


Both revocable and irrevocable trusts are estate planning instruments. There are some crucial steps to take though when doing this type of estate planning.

  1. Decide how much control you want over the assets
  2. Find a financial advisor AND an estate planning attorney. No proper trust, trust document or meeting should ever be conducted without BOTH of these professionals present. Each has their own specialty, and you will need both of them to direct the dispersion of your assets appropriately. The biggest mistake consumers make is meeting separately with their advisor and attorney, only to find out after the legal document is drafted that there are issues. For example, by meeting with your advisor and attorney separately, you could lose out on possible tax advantages that the attorney wasn’t aware of that the advisor is privy to, or 2. Receive advice from the advisor that doesn't make legal sense. It's crucial to make sure all three of you are communicating as each professional has their respective strengths. Financial advisors are useful in allocating money for the future expenses of the estate. Whereas an attorney is far more versed in what will keep an estate out of probate court. Trusts are serious legal documents and should be treated as such.
  3. Consider the maintenance expenses of the estate for 20 years, and factor that into the amount that will be kept in the estate. Deciding on if you want to contribute maintenance expenses into a trust can help you determine what kind of trust to select.


Buying a home in a real estate trust can give you and your beneficiaries advantages that otherwise would not be available. Preparing an estate trust in anticipation of future economic troubles or avoiding a family court fight for an estate can ease the transferring of assets seamlessly and help set your family up for the future. It is important to have the right people there to ensure it is done correctly.


January 3, 2017


Happy Life vs Meaningful Life


Psychiatrist and Holocaust survivor Viktor Frankl once wrote, “Life is never made unbearable by circumstances, but only by lack of meaning and purpose.” For most people, feeling happy and finding life meaningful are both important and related goals. But do happiness and meaning always go together? It seems unlikely, given that many of the things that we regularly choose to do – from running marathons to raising children – are unlikely to increase our day-to-day happiness. Recent research suggests that while happiness and a sense of meaning often overlap, they also diverge in important and surprising ways.


Roy Baumeister and his colleagues recently published a study in the Journal of Positive Psychology that helps explain some of the key differences between a happy life and a meaningful one. They asked almost 400 American adults to fill out three surveys over a period of weeks. The surveys asked people to answer a series of questions their happiness levels, the degree to which they saw their lives as meaningful, and their general lifestyle and circumstances.


As one might expect, people’s happiness levels were positively correlated with whether they saw their lives as meaningful. However, the two measures were not identical – suggesting that what makes us happy may not always bring more meaning, and vice versa. To probe for differences between the two, the researchers examined the survey items that asked detailed questions about people’s feelings and moods, their relationships with others, and their day-to-day activities.


Feeling happy was strongly correlated with seeing life as easy, pleasant, and free from difficult or troubling events. Happiness was also correlated with being in good health and generally feeling well most of the time. However, none of these things were correlated with a greater sense of meaning. Feeling good most of the time might help us feel happier, but it doesn’t necessarily bring a sense of purpose to our lives.


Interestingly, their findings suggest that money, contrary to popular sayings, can indeed buy happiness. Having enough money to buy what one needs in life, as well as what one desires, were also positively correlated with greater levels of happiness. However, having enough money seemed to make little difference in life’s sense of meaning. This same disconnect was recently found in a multi-national study conducted by Shigehiro Oishi and Ed Diener, who show that people from wealthy countries tend to be happier, however, they don’t see their lives as more meaningful. In fact, Oishi and Diener found that people from poorer countries tend to see their lives as more meaningful. Although the reasons are not totally clear, this might be related to greater religious belief, having more children, and stronger social ties among those living in poorer countries. Perhaps instead of saying that “money doesn’t buy happiness,” we ought to say instead that “money doesn’t buy meaning.”


Not too surprisingly, our relationships with other people are related to both how happy we are as well as how meaningful we see our lives. In Baumeister’s study, feeling more connected to others improved both happiness and meaning. However, the role we adopt in our relationships makes an important difference. Participants in the study who were more likely to agree with the statement, “I am a giver,” reported less happiness than people who were more likely to agree with, “I am a taker.” However, the “givers” reported higher levels of meaning in their lives compared to the “takers.” In addition, spending more time with friends was related to greater happiness but not more meaning. In contrast, spending more time with people one loves was correlated with greater meaning but not with more happiness. The researchers suspect that spending time with loved ones is often more difficult, but ultimately more satisfying, than spending time with friends.


When it comes to thinking about how to be happier, many of us fantasize about taking more vacations or finding ways to avoid mundane tasks. We may dream about skipping housework and instead doing something fun and pleasurable. However, tasks which don’t make us happy can, over time, add up to a meaningful life. Even routine activities — talking on the phone, cooking, cleaning, housework, meditating, emailing, praying, waiting on others, and balancing finances — appeared to bring more meaning to people’s lives, but not happiness in the moment.


More broadly, the findings suggest that pure happiness is about getting what we want in life—whether through people, money, or life circumstances. Meaningfulness, in contrast, seems to have more to do with giving, effort, and sacrifice. It is clear that a highly meaningful life may not always include a great deal of day-to-day happiness. And, the study suggests, our American obsession with happiness may be intimately related to a feeling of emptiness, or a life that lacks meaning.


December 28, 2016


Investment Banker vs the Fisherman:  A Lesson in Common Sense and Happiness


This story has been around for a long time, but I think it deserves to be revisited yearly.


It is my inspiration to slow down, reassess, and get real about how I want to live life.


An American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellowfin tuna.


The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.


The Mexican replied, “only a little while. The American then asked why didn’t he stay out longer and catch more fish? The Mexican said he had enough to support his family’s immediate needs. The American then asked, “but what do you do with the rest of your time?”


The Mexican fisherman said, “I sleep late, fish a little, play with my children, take siestas with my wife, Maria, stroll into the village each evening where I sip wine, and play guitar with my amigos. I have a full and busy life.”


The American scoffed, “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat, you could buy several boats, eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing, and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually New York City, where you will run your expanding enterprise.”


The Mexican fisherman asked, “But, how long will this all take?”


To which the American replied, “15 – 20 years.”


“But what then?” Asked the Mexican.


The American laughed and said, “That’s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions!”


“Millions – then what?”


The American said, “Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siestas with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”



December 23, 2016


Why Wealthy People are Happier People



On any given day, if you ask someone if they are happy, their response will be dictated by their current state of happiness. If they are nearing, or in the midst of a happiness event, they will say they are happy. If they are recovering from, or in the midst of an unhappiness event, they will say they are unhappy. Happiness is event-driven.


The quantity of happiness events you have during your lifetime is the only true way to accurately measure your level of overall happiness with your life. Those who have experienced more happiness events during their life will view their life as happier overall. Those with less will view their life as less happier overall. The key to overall happiness, therefore, is to accumulate happiness events.


Does the daily habits of the rich and poor indicates that the rich are happier than everyone else. The answer is yes. But while wealth cannot buy happiness, it can rent it.  The rich are happier because they are able to create more happiness events during their lives than everyone else.


To understand the importance of happiness events we must first dissect what causes happiness:

  • 50% of happiness is determined by your genes
  • 40% of happiness is determined by your activities
  • 10% of happiness is determined by your circumstances

Genes play a major role in your level of happiness. Some people are simply hardwired genetically for happiness or unhappiness. They have a happiness baseline that they were born with. But the good news is that, irrespective of your genetic makeup, you can increase your level of happiness by engaging in certain activities that will make you happy and that will also change your circumstances in life.  This is the true secret to why the rich are happier than everyone else. They engage in happiness activities more frequently than others and some of those happiness activities also altered their financial circumstances in life.


These are the specific activities that increased happiness in the lives of the wealthy and, at the same time, improved their financial and non-financial circumstances.


Happiness Activities That Improve Financial and Non-Financial Circumstances:

  • Pursuing some long-term goal, big dream or major purpose in life
  • Engaging in the daily habit of educational reading
  • Practicing gratitude
  • Practicing optimism
  • Engaging in some creative pursuit like painting, writing, building, music, manufacturing, inventing etc.
  • Engaging in new activities
  • Overcoming a fear
  • Aerobic exercise
  • Mentoring others
  • Helping others
  • Doing work that you love in which you can make money
  • Solving problems
  • Overcoming obstacles that interfere with achieving some goal or realizing some dream
  • Living in the present – enjoying happiness events without thinking about anything else
  • Receiving awards for something you’ve done
  • Losing weight
  • Saving money
  • Being productive at work
  • Building relationships with other successful people
  • Vacation homes – 52% of the wealthy own vacation homes. This allows them to engage in more frequent weekend retreats with business associates, customers, clients etc.
  • Country Clubs and Golf Clubs – Many of the wealthy are members of country clubs or golf clubs. They engage in activities at these clubs with business associates, customers, clients etc.

Happiness Activities That Have No Effect on Financial Circumstances:

  • Vacation homes – This allows them to engage in more frequent weekend retreats with family and friends
  • Country Clubs and Golf clubs – They engage in activities at these clubs with their family and friends
  • More unique social gatherings – Because the wealthy surround themselves with other successful people they are able to participate in more unique social gatherings
  • More unique vacations – The wealthy are able to go on more unique vacations with family and friends
  • More parties – Because the wealthy have more money they can have college graduation parties for their children, they can also afford to pay for weddings for their children and they can afford more parties for family and friends


Happiness is activity-driven. It is not a destination. It is the culmination of frequent happiness events. The wealthy are able to engage in more happiness activities because of the wealth they accumulate in life.


December 11, 2016


The Appearance Of Money: A Wealth Creation Trap

By: Sean Rasmussen



What Is the Appearance Of Money?

The appearance of money, as might already have been guessed, is simply the need to buy and to have so that one looks like he or she (or they) have money. It grows out of the need to keep up with the neighbors, to be accepted, to live the way and have the things that they feel society says they should.

It is easy for the middle class to have the appearance of having money. Easy credit, bank loans, mortgages, car and automobile loans, all are designed to give the middle class the appearance they need; and to indebt the middle class to the banking institutions in the meanwhile. By playing on the psychology of the middle class, the banks create an everlasting cash flow for themselves. A cash flow that, although the middle class willing subjects themselves to, is at the expense of the middle class, at the expense of the middle class's financial success.

As long as the focus of life is on appearing wealthy, the focus is not appropriately placed on making money. But the only real way to be wealthy is to make money, create wealth, and achieve lasting financial success.

Don't The Wealthy Present The Appearance Of Money, Too?

It is a fallacy myth, that the rich struggle to keep up and appear wealthy. The wealthy present the appearance of money because they actually have money. It is not an appearance, it is their reality!

The reason that the wealthy have money is because they have properly placed their priorities. The wealthy shun status and focus on the real goal, financial freedom, and work to achieve it. Once they have, the wealthy are able to buy what they want and live the life they want to because they have the financial backing to do so.

The real difference between those who succeed in wealth creation and those who fail is based in a very large part in the goals set in the beginning.

- The middle class (referring to those unable to move beyond a work-for-pay lifestyle) focus on getting and having things.

- The wealthy focus on having money so that they can have things.

As Jamie McIntyre if the 21st Century Academy says, "Many people get caught up in appearing to be wealthy, instead of becoming wealthy." It is an unfortunate truth, but not one that is without hope of changing.

Just as appearing to be wealthy is a mindset a psychology, so, too, is being wealthy. The choice can just as easily be made to really be wealthy as it can be to look wealthy. Making that choice, and re-prioritizing, is one of the first critical steps towards wealth creation and towards really financing the life of the wealthy.


November 25, 2016


To all our clients,  friends, associates, staff and community, today was a very good day for Cubans and Cuban-Americans living in exile and those still living in the tyranny of a dictatorship.   We hope you share in our success and happiness.  Viva Cuba Libre! God Bless the USA!


November 24, 2016


A Global Day of Giving


Jimenez & Associates, Inc will be participating in #Giving Tuesday. Please join us in giving back this coming global day of giving. Join the movement at www.givingtuesday.org.


#GivingTuesday is a global day of giving fueled by the power of social media and collaboration.

Celebrated on the Tuesday following Thanksgiving (in the U.S.) and the widely recognized shopping events Black Friday and Cyber Monday, #GivingTuesday kicks off the charitable season, when many focus on their holiday and end-of-year giving.


Created by the team at the Belfer Center for Innovation & Social Impact at the 92nd Street Y—a cultural center in New York City that, since 1874, has been bringing people together around the values of service and giving back—#GivingTuesday connects diverse groups of individuals, communities and organizations around the world for one common purpose: to celebrate and encourage giving. A team of influencers and founding partners joined forces, collaborating across sectors, offering expertise and working tirelessly, to launch #GivingTuesday and have continued to shape, grow and strengthen the movement.


One of the best ways to get involved is in your own community. We've created a directory to help you find organizations, charities, events and more in your own community. 


#GivingTuesday harnesses the potential of social media and the generosity of people around the world to bring about real change in their communities; it provides a platform for them to encourage the donation of time, resources and talents to address local challenges. It also brings together the collective power of a unique blend of partners— nonprofits, civic organizations, businesses and corporations, as well as families and individuals—to encourage and amplify small acts of kindness.


As a global movement, #GivingTuesday unites countries around the world by sharing our capacity to care for and empower one another.


November 18, 2016


Where to shop and Avoid Cook County and the City of Chicago Taxes?


Dupage County, Will County and Lake Counties are the closest counties in Illinois nearest Cook County without crossing the border into Indiana.  Sales tax drops from 10.25% to 8.25%, no bag tax (7 cent per bag), no soda tax (1 cent county tax per ounce plus 3% in Chicago for can or bottled drinks), no water bottle tax (5 cent per bottle), cheaper gas taxes and plenty of free parking.  If saving money is what you are looking for consider shopping in areas outside Cook County.  


The drive is worth it with current low gas prices and ability to pump cheaper gas in those counties and avoid the new taxes in Cook County and the City of Chicago.  Plan weekend getaways to do all your shopping at a time because your time is also valuable. We are not recommending a 20 mile drive to save $5.  This makes no sense instead a commulative weeks or month worth of purchasing.


Research closest markets and malls outside of Cook County. The savings could add up if you have a large family.



November 17, 2016


$1,700 a year for average family in tax hikes for Chicago


The average family will pay nearly $1,700 more a year to the city and Chicago Public Schools than they did before the mayor took office in 2011 once all of Emanuel’s tax and fee increases take full effect. There's been a series of property tax hikes. There was a water and sewer rate increase, plus a new tax on top of that. Not to mention a new garbage hauling fee, 911 phone tax hike, vehicle sticker fee increase and a tax on cable television.


Even with all of that, taxpayers may be asked for more money in the coming years. Plans for shoring up long-neglected city worker pension funds will require the city to come up with hundreds of millions of dollars more by the early to mid-2020s.


The $8.2 billion spending plan relies on one significant new tax to balance the books — a more than 30 percent charges on city sewer and water bills once fully phased in four years from now. The $239 million a year raised will go into the city's pension fund for municipal workers.

That's not the only tax increase Chicagoans will be hit with next year. The budget aldermen approved last year contained four years of property tax hikes. Next year, City Hall property taxes will go up by $109 million, following this year's $318 million increase. The money is earmarked for police and firefighter pension funds.


And Chicago Public Schools property taxes will increase by $245 million in 2017, with most of that money going into the Chicago Teachers Pension Fund.


Add it up, and the owner of a $250,000 home can expect to pay about $348 in additional property taxes next year. Throw in the $53 in estimated new water and sewer taxes for the typical homeowner, total additional taxes next year would come to about $400.


That won't be the end of the pension-related property tax increases. Total property tax increases of $106 million for the police and fire pension funds are slated for 2018 and 2019.


The city will spend about 4.8 percent more than last year's $7.8 billion.


The budget includes a new 7-cent fee for each store-provided disposable bag, designed to raise about $13 million next year. It replaces a city ban on plastic bags that was deemed largely ineffective. People can avoid paying that tax by bringing reusable bags to the store.

The mayor also plans to add 685 new parking meters, with 460 in the Loop and surrounding business district and 225 in neighborhoods. The $5.4 million raised by the new meters would partly offset the $12 million the city estimates it will pay to Chicago Parking Meters LLC for meters that are out of service.


Parking rates at O'Hare International and Midway airports would rise, with the daily fee going up by as much as $12.25 under a complex system that varies by the type of lot used. The proceeds will be plowed back into city airport improvements and operations.


Other fee increases include so-called surge pricing to $4 from $2 at 820 parking meters near Wrigley Field starting two hours before a game or event. Plans to do the same at 670 parking meters near Soldier Field were put on hold.


Drivers also would pay to use commercial loading zones with hourly parking rates set at $14 downtown and in two nearby wards. Once fully in place, the administration expects to collect $13 million to $18 million a year.


For their money, Chicagoans stand to see 545 new cops added to the Chicago Police Department's ranks next year and $36 million over three years spent on expanding teenage mentoring programs.


Five-year cost


The series of tax and fee hikes pushed by Emanuel and approved by aldermen adds up to about $1,692 a year once they take full effect. Here's a breakdown:


*About $994 in property tax hikes for City Hall and CPS. That's based on a $250,000 home.


*$50.40 for the 911 phone tax passed in 2014. That's based on a total of three phone lines, cell or land.


*$355 from water and sewer fees that were doubled in 2011.


*$134 from the water and sewer tax passed in September. That's for metered service. People without meters can expect to pay $229.


*$25 from a 2011 city vehicle sticker hike. The increase was $10 per car and $15 for SUVs.


*$19.40 from a cable tax hike approved in 2014. That's based on an $80 monthly bill.


*$114 a year for garbage pickup approved in 2015. That's based on $9.50 per unit a month for a single-family home.


Much of the money is going to the underfunded government worker pension systems, which are $18.6 billion short. The 911 tax is going to the laborers' retirement fund at about $40 million a year. The city property tax hikes are being poured into the police and firefighters' funds at $543 million a year. Another $250 million or so a year is going to the CPS retirement fund. The new water and sewer tax will result in an additional $239 million a year for the municipal workers' pension fund.


All the major tax, fee and fine increases enacted or set in motion by the city and CPS during the past five years approach $1.9 billion. That doesn't include new sales and beverage taxes approved by the County Board under board President Toni Preckwinkle, which are slated to eventually raise another $698 million.


Cost containment


During Emanuel's tenure, the city budget has increased from about $6.2 billion to about $8.2 billion. Part of that 34 percent increase is due to the city continuing to pay for programs that the federal government stopped funding and more money being spent on water and sewer construction projects. Day-to-day spending for city operations has risen to roughly $3.7 billion from about $3.3 billion, around a 14 percent increase. Much of the increase is covering city worker raises. The mayor has cut the city workforce by about 5 percent.


To be sure, Emanuel faced significant financial hurdles when he took office in the aftermath of the Great Recession. To keep the city afloat and avoid tough decisions, former Mayor was using one-time revenue, like the $1.15 billion payment to the city for leasing out its parking meters, and relying on costly, frowned-upon borrowing practices. The pension funds were losing money and headed toward insolvency.


The bulk of the tax increases enacted under Emanuel are being used to try to fix the pension funds, with much of the rest going to shore up a city water and sewer system that was deteriorating.


The mayor also is phasing out costly borrowing practices — though he's not all the way there yet — and has nearly eliminated the use of one-time revenue to keep the city afloat.


Emanuel also in the final stages of phasing out health care insurance subsidies for most retired city workers to save about $90 million a year, has moved the city to a more efficient grid-based garbage system that his administration says has freed up about $30 million for other city services, and has eliminated or started to phase out special taxing districts that drain city property taxes from day-to-day operations.


November 16, 2016


Cook County 1 cent per ounce soda tax approved


Cook County, with its 5.2 million residents, will become the largest region in the nation to put in place a pop tax. 


The board president stepped further into the glare of a spotlight because she's counting on the $224 million a year the beverage tax is expected to bring in to balance the books for a while.


Preckwinkle also pointed to 300 layoffs included in next year's $4.9 billion budget proposal.

Along with the new beverage tax, the county also passed an ordinance barring further sales tax increases, or property tax increases beyond the rate of inflation, before 2020. That has the political advantage of pushing off further major tax increases until after the 2018 elections, when Preckwinkle's office and those of all 17 commissioners are on the ballot.


The new tax on sugary and artificially sweetened beverages goes into effect July 1. Cook County, with its 5.2 million residents, will become the largest locale in the nation to put in place a pop tax.

The tax will apply to all sugar and artificially sweetened drinks, including pop, sports drinks, lemonade and iced tea, adding 72 cents to the cost of a six-pack of soda or 68 cents for a 2-liter bottle. The tax also will be imposed on fountain drinks at a penny an ounce, bringing the tax on a 7-Eleven Gulp to 32 cents and on a Double Gulp to 50 cents. It won't apply to drinks bought with a Link card issued to families in the Supplemental Nutrition Assistance Program because additional consumer taxes can't be added under the federal program.


It's the latest tax increase Preckwinkle pushed through a divided County Board. Last year, Preckwinkle won approval of a 1-percentage-point sales tax increase.


As the Cook County Board voted Thursday, Nov. 10, 2016 on a penny-an-ounce tax on sweetened beverages, the chambers were crowded with anti- and pro-tax supporters. 


She was initially elected in 2010 on a pledge to eliminate the remaining portion of the sales tax increase enacted under her one-term predecessor. Now, in the past 16 months, she's restored the Stroger tax, slapped a new tax on sweetened beverages and approved a new 1 percent tax on hotel stays.


The beverage tax would apply throughout the county, including Chicago, where there's already a 3 percent tax on retail sales of soft drinks in cans or bottles and a 9 percent tax on the wholesale price of fountain drink syrup.



October 31, 2016


Abusive Offshore Tax Avoidance Schemes - Facts (Section IV)




Following are summaries of some identified schemes:


Limited Liability Companies (LLCs)


In response to efforts by the Organization for Economic Cooperation and Development (OECD) to eliminate harmful tax competition, some nations labeled as tax havens have accused OECD members of carrying on the very practices the members seek to stop. One example put forth is the ease with which nonresident aliens may do business through limited liability companies (LLCs) domiciled in the United States, in comparative anonymity.


Offshore Deferred Compensation Arrangements


Many highly compensated professional persons and business owners in the U.S. have been solicited to participate in "offshore deferred compensation plans". The U.S. taxpayer is encouraged to sever an existing employment relationship and substitute an arrangement in which the nominal employer is a foreign "employee leasing" company. The supposed result of this abusive arrangement is the taxation of a large portion of the professional's or business owner's salary is deferred while he/she gains immediate access to the funds through loans or offshore-based credit cards. An improper deduction for employee leasing expenses is also created on the corporate tax return.


Fictitious or Overstated Invoicing


Some U.S. taxpayers have entered into schemes in which the taxpayer's U.S. business is billed by a purportedly unrelated offshore entity for goods or services (e.g., "consulting services") that are either nonexistent or overvalued.


Factoring of Accounts Receivable


A U.S. taxpayer's business may discount or "factor" its receivables to a purportedly unrelated foreign business entity. The discount or factoring fee significantly reduces U.S. tax liability, and is moved to an offshore entity where it can either be invested free of U.S. tax or repatriated for the taxpayer's use and enjoyment.


Abusive Insurance Arrangements


Some promoters have devised arrangements characterized as insurance arrangements, giving rise to a deduction for the U.S. taxpayer for "premiums" paid to a purportedly unrelated offshore insurance company. Often these arrangements are merely self-insurance, lacking in real transfer of risk.


Shifting of Income Using Offshore Private Annuities


Some promoters suggest U.S. taxpayers may avoid or substantially defer tax on income streams or capital gains by exchanging property for an unsecured private annuity.  In another abusive scheme an offshore private annuity is used in conjunction with an offshore variable life insurance policy as a devise to "decontrol" a foreign corporation or other entity used in an abusive sequence of transactions. As a result the promoter claims the foreign corporation or entity is owned by the insurance policy and is not a, controlled foreign corporation, passive foreign investment company, or any entity controlled by a U.S. person whose income could be taxed in the United States to its owner.


Offshore Internet Business


For businesses conducted primarily through the Internet, promoters offer "kits" which give the appearance that the business is foreign owned and operated. Transactions may be routed through offshore servers, and business receipts may be collected through offshore bank accounts or credit card merchant accounts. These schemes particularly target businesses offering delivery of computer software and other digital products such as music, pictures, or video. They may also provide a means of operating offshore gaming activities.


Offshore Wagering


Over the last few years, gambling websites have proliferated on the Internet. Many of these virtual casinos are organized and operated from offshore locations, where the operators feel free from State and Federal interference. The operators of these activities may suggest players in the U.S. are not subject to tax on their winnings, and may handle collections and disbursements in ways designed to facilitate avoidance of U.S. taxes.


Repatriation of Offshore Funds Using Credit Cards


Credit cards (such as MasterCard and VISA) issued by tax haven domiciled banks are a preferred method used by U.S. taxpayers to anonymously and covertly repatriate offshore funds which may or may not have been previously taxed. American Express cards are used in the same way but differ in that these cards are issued directly by American Express rather than by member banks.


October 31, 2016


Abusive Offshore Tax Avoidance Schemes - Talking Points




The Abusive Tax Scheme Program is concerned about taxpayers who exploit secrecy laws of offshore jurisdictions in an attempt to conceal assets and income subject to tax by the United States.


Some different types of entities and schemes being used in Abusive Offshore Tax Schemes include:

  • Foreign trusts
  • Foreign corporations
  • Foreign (offshore) partnerships, LLCs and LLPs
  • International Business Companies (IBCs)
  • Offshore private annuities
  • Private banking (U.S. and offshore)
  • Personal investment companies
  • Captive insurance companies
  • Offshore bank accounts and credit cards
  • Related-party loans

Abusive schemes usually create structures making it appear that a nonresident alien or foreign entity is the owner of assets and income, when in fact and substance, true ownership remains with a U.S. taxpayer.


Taxpayers may utilize a variety of devices to conceal transfers of money or other property to a foreign entity, where the income it generates may be hidden. The simplest method of diverting income is sending skimmed income to an offshore account or entity. Other methods used to transfer money or other property offshore include the use of payments disguised as deductible expenses (for example, rents or purchases) paid to entities controlled by the taxpayer and generally located in a tax haven jurisdiction.


Taxpayers may fabricate sales of property to a foreign entity that they control, perhaps in exchange for a note for which they do not expect repayment. This gets title to the property - and its future earnings - offshore. In some cases, taxpayers may purchase nonexistent equipment from a tax haven corporation controlled by a related entity. Taxpayers then often improperly claim depreciation on payments really made to themselves.


Once money or title to property is moved offshore, the taxpayer continues to manage it with ease using sophisticated means of communication and funds transfers. Some tax haven banks, trust companies, attorneys, and accountants operate virtual factories making false documents to create paper trails to confound auditors. A taxpayer or his foreign representative can easily create front corporations inside or outside the United States to carry out the taxpayer's instructions. For example, one offshore banker explained how his bank could credit checks made payable to U.S. dummy corporations to a customer's offshore account. These dummy corporations are set up for that purpose so that the checks would clear through the offshore bank's correspondent account at a U.S. bank with no evidence the funds were credited elsewhere.

Some of the most popular methods of repatriating funds include:

  • Credit cards which simply draw on the U.S. taxpayer's offshore account
  • Loans from mystery offshore lenders
  • Loans from domestic lenders in amounts beyond the taxpayer's apparent borrowing power (may be secured by offsetting deposits of offshore funds)
  • Use of property titled to offshore entities at zero or below-market rental
  • Bogus transactions designed simply to transfer funds to or from offshore entities, such as sales of property to offshore entities in jurisdictions where it is unlikely the property will actually be used or sold
  • Gifts
  • Scholarships for taxpayer's children
  • "Payable Through" accounts

Schemes fall into two general categories:

  1. Abusive schemes which exploit the way the U.S. taxes foreign persons as opposed to U.S. persons, and
  2. Taxpayers who take what they perceive to be a legally defensible position in a "gray" area.

Some schemes are designed to shelter current income from the taxpayer's existing business or investments, while others simply provide an offshore investment vehicle for income that has already been taxed. In either case, the mechanisms used allow the taxpayer to control assets transferred offshore and to hide the ultimate repatriation of the proceeds.




Promoters of such schemes may offer comprehensive management services including bookkeeping and return preparation. Or, the promoter may simply create initial documents that create a "paper shield" behind which the taxpayer/client can control everything.


Certain promoters are candid with their clients, acknowledging the scheme depends on fictitious arrangements designed to mislead the IRS. Others unscrupulously sell their clients on the idea that the arrangement legally permits avoidance of tax liability. Such promoters may point to case law and show the client how their arrangement avoids the pitfalls of previous schemes.


Keep in mind the promoter does not have to convince the IRS; just convince the client long enough to make the sale. Once a taxpayer has entered into an abusive scheme, it may be difficult to get out of it. Consequently, the taxpayer may rely heavily on the promoter for advice, and even representation, when confronted with an IRS examination.


The growth of Internet promotions has led increasing numbers of middle-income taxpayers into such arrangements. Even though the dollar amounts involved are usually smaller, the growth in numbers of taxpayers represents a serious compliance problem.


Tax Havens


Abusive offshore transactions generally involve foreign jurisdictions offering financial secrecy laws in an effort to attract investment from outside their borders. These jurisdictions are commonly referred to as "tax havens" because, in addition to the financial secrecy they provide, they impose little or no tax on income from sources outside their jurisdiction.


It is difficult to quantify the amount of assets being held offshore or the rate at which the industry is growing. It is estimated that several trillion dollars in assets worldwide are held in offshore tax havens. Presumably, transfers from the U.S. represent a large share of this wealth. One authority has estimated the annual revenue loss to the U.S. at a minimum of $100 billion.

Tax haven service providers and their clients know their actions are veiled from tax authorities by banking and commercial secrecy laws and by lack of tax treaties or tax information exchange agreements. They create paper entities to disguise the real parties to the transactions, and many are willing to create false documents to disguise the real nature of transactions.


Several countries aggressively market themselves as tax havens. Some have gone so far as to offer asylum or immunity to criminals who invest sufficient funds. They permit the formation of companies without any proof of identity of the owners, perhaps even by remote computer connection. Generally, though, such extremes are found in emerging nations where the stability and security of the financial, legal, and political systems is questionable.


The largest concentrations of assets are attracted to the stable, secure environments of the established tax havens - those that have existed for a number of years, and enjoy the diplomatic protection of former colonial powers.


Citizens and residents of the United States are taxed on their worldwide income. To help prevent the use of offshore entities for tax evasion or deferral, Congress has enacted several specific provisions in the Internal Revenue Code. Some provisions trigger recognition of gains that would otherwise be deferred. Others deny deferral of tax on income moved offshore.

Though promoters of offshore schemes often advance technical arguments, which purport to show that their scheme is legal, the intent of Congress remains clear. U.S. taxpayers are not to be allowed to evade taxes by shifting their own liability to some foreign entity.


October 27, 2016


Some Tax Benefits to Increase Slightly in 2017


Annual inflation adjustments will affect more than 50 tax provisions, including the tax rate schedules, in tax year 2017, the Internal Revenue Service announced.


Revenue Procedure 2016-55 provides details about the annual adjustments, which will generally be used on returns filed in 2018.


Some highlights of the changes:

  • The standard deduction for married filing jointly rises to $12,700 for tax year 2017, up $100 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,350 in 2017, up from $6,300 in 2016. For heads of households, the standard deduction will be $9,350 for tax year 2017, up from $9,300 for tax year 2016.
  • The personal exemption for tax year 2017 remains $4,050. The exemption is subject to a phase-out that begins with adjusted gross incomes of $261,500 ($313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly.)
  • For tax year 2017, the 39.6 percent rate affects single taxpayers whose income exceeds $418,400 ($470,700 for married taxpayers filing jointly), up from $415,050 and $466,950, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2017 are described in the revenue procedure.
  • The limitation for itemized deductions to be claimed on tax year 2017 returns of individuals begins with incomes of $287,650 or more ($313,800 for married couples filing jointly).
  • The Alternative Minimum Tax exemption amount for tax year 2017 is $54,300 and begins to phase out at $120,700 ($84,500, for married couples filing jointly for whom the exemption begins to phase out at $160,900). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly). For tax year 2017, the 28 percent rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).
  • The tax year 2017 maximum Earned Income Tax Credit is $6,318 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,269 for tax year 2016. (The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
  • For tax year 2017, the monthly limitation for the qualified transportation fringe benefit is $255, as is the monthly limitation for qualified parking.
  • For calendar 2017, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage is $695.
  • For tax year 2017, the AGI amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $112,000, up from $111,000 for tax year 2016.
  • Estates of decedents who die during 2017 have a basic exclusion amount of $5.49 million, up from a total of $5.45 million for estates of decedents who died in 2016.


October 24, 2016


What is EBITDA?


Investors analyze the financial strength of a company by digging through a mound of financial data and indicators that are not only confusing, but often conflicting. Sometimes the very same quarterly earnings report will paint two very different pictures of a company's performance based on competing calculations. As investors, which one of those calculations should we believe?


Depending on whom you ask, a revenue calculation called EBITDA is either an excellent way to compare the financial strength of two companies or nothing more than a cheap accounting trick. The truth, as usual, is somewhere in between. EBITDA stands for earnings before interest, taxes, depreciation and amortization.


The standard method for calculating a company's profit is to figure out its net income. The simple definition of net income is gross revenue (every dollar the company earns) minus expenses (every dollar the company spends). When we think of expenses, we typically think of the cost of raw materials, manufacturing costs, rent on office space, employee salaries and other tangible costs of running a business. But companies have lots of ways of spending money. When a company borrows money, it must pay interest on those loans. In addition, the vast majority of companies pay taxes, and most companies use accounting principles like depreciation and amortization to spread the expense of big-ticket items over time.


According to generally accepted accounting principles (GAAP), the standard way of calculating net income (revenue minus expenses) is the only way. But in the 1980s, a new breed of companies specializing in leveraged buyouts (an especially risky type of hostile takeover) began popularizing the use of EBITDA as a more accurate measure of long-term profitability. The argument is that EBITDA -- by ignoring expenses like interest, taxes, depreciation and amortization -- strips away all of the costs that aren't directly related to the core operations of a company. What is left, say the supporters of EBITDA, is a purer measure of a company's ability to make money.


The truth is that EBITDA, if used to make "apple-to-apple" comparisons of two traditional business (like manufacturing or retail), can be very helpful. EBITDA reduces the financial noise down to a single number that represents ongoing income from a company's core business operations. The problem is that EBITDA has a history of being used by high-risk, non-traditional businesses to take a bad investment and paint it gold.


One of the main problems with EBITDA is that some companies try to use it as a substitute for cash flow. Cash flow not only indicates how much a company earned and how much it spent, but when the cash actually changed hands. This is an important distinction because earnings and cash earnings aren't the same thing. If a company spends cash to make a product, but the product sits in a warehouse for a year before a consumer actually pays for it, then the company may not have enough cash on hand to pay its creditors and run its daily operations. This could lead to further debt and even bankruptcy.


On the surface, EBITDA looks a lot like cash flow because it focuses exclusively on money earned from the daily operation of the business. But the truth is that earnings and cash flow are calculated using two completely different accounting methods. Accrual accounting counts a sale as soon as the product ships to the retailer. Cash accounting counts a sale only when the retailer pays for the order in full. Since EBITDA is based on accrual accounting figures, it doesn't accurately represent cash that the company has collected -- just what it has earned on paper.



October 19, 2016


Higher-Income Americans to pay more Social Security Taxes


Higher-income workers will pay more in payroll taxes next year to support Social Security, while retirees and other program beneficiaries see a scant increase in their monthly benefits.


Nearly 66 million people, or roughly 1 in 5 Americans, receive Social Security and Supplemental Security Income payments from the U.S. government. Based on subdued inflation over the past two years, their benefits will see a 0.3% cost-of-living increase for 2017 following no adjustment this year, the Social Security Administration said Tuesday.


The agency also said the maximum amount of earnings subject to the Social Security tax would climb 7.3% to $127,200 in 2017 from $118,500 in 2015 and 2016, affecting an estimated 12 million workers. The worker’s share of Social Security payroll tax is 6.2% of eligible wages; someone making at least $127,200 in 2017 would pay an additional $539 over the course of next year.


Employers also pay a 6.2% tax on eligible wages and would pay more, too, though economists generally believe those costs are borne by workers in the form of lower wages. Self-employed people pay the employer’s and employee’s share of the tax.


The jump in the taxable-earnings cap, the largest one-year increase since 1983, reflects rising wages and the fact that federal law kept the taxable maximum unchanged this year due to the absence of a cost-of-living increase.


The cost-of-living figure also plays a major part in determining premiums for Medicare Part B, which covers doctor visits and other types of outpatient care for elderly and disabled Americans.

While the final figure on the premium increase won’t be announced immediately—the Centers for Medicare and Medicaid Services last year released it in November—the 0.3% bump is likely to result in higher premiums for some 30% of Medicare beneficiaries. They include those who already pay higher premiums because of their higher incomes, those who receive Medicare but have deferred or aren’t eligible for Social Security benefits and those who are new to Medicare in 2017.


The reason is a provision of the Social Security Act called the hold-harmless provision. It prevents Medicare from passing along any premium increase greater than the dollar increase in Social Security payments to the estimated 70% of beneficiaries who will qualify for hold-harmless treatment in 2017. When the cost-of-living adjustment is low, it means Medicare must spread much of the projected increase in its costs across the remaining 30%.


Last year, Congress staved off a 52% premium increase for Medicare beneficiaries not covered by the hold-harmless provision via a deal in the budget agreement that raised premiums by 16% for them instead.


Benefit increases are tied to inflation as measured by the Labor Department’s consumer-price index for urban wage earners and clerical workers. The gauge rose 0.3% in the third quarter compared with the third quarter of 2014, the last year when benefits were increased. There was no cost-of-living adjustment this year because prices fell 0.4% in the third quarter of 2015 from a year earlier.


Congress adopted the formula for automatic inflation adjustments in the 1970s. Subdued inflation since the 2007-09 recession has held down benefit increases in recent years.


Still, price pressures have been uneven. Food and energy prices declined over the past year, but shelter and medical care costs surged over the same period, according to Tuesday’s CPI report.


October 11, 2016


Business-Loss Tax Write-Offs



The details of Donald Trump’s taxes are a bit of a mystery, even with the unauthorized release of a single tax return from 1995. Still, the evidence suggests that the real-estate magnate and presidential candidate may have used a staggering loss of $916 million to avoid paying income taxes for many years afterward.


As plenty of tax authorities have pointed out, this gambit is perfectly legal. The Internal Revenue Service calls it a “net operating loss carry-forward,” which can run as long as 20 years. (That includes a “carry-backward” provision that allows deductions of losses over two previous years.)

Trump’s use of this provision is certainly worth discussing. But it’s also worth contemplating where the idea of “carrying” losses came from in the first place. It’s a tangled tale indeed.

Partner Insights


The U.S. didn’t get a modern income tax until the passage of the 16th Amendment to the Constitution gave Congress the power to tax incomes “from whatever source derived.” This paved the way for the Revenue Act of 1913, which hit select citizens and corporations with the new income tax.


Under the original Revenue Act, taxpayers who sustained a loss could use it to offset profits made in other ventures the same year. But they could not carry these losses forward or backward to offset taxes in more profitable years.


Then came World War I. The U.S. entered the conflict in 1917, and taxes went up to pay for the war effort. Congress instituted an “excess-profits tax,” which aimed to prevent profiteering from a national emergency. It remained in place when the war ended just a year later.


In the fall of 1918, Congress sought to reform the tax code to address simmering complaints about inequities inherited from the war. It was from these deliberations that the idea of time-traveling losses was born.


Here’s how a Senate Committee drafting the legislation framed the matter: “Taxes which can easily be borne amid the feverish activity and patriotic fervor of war times, are neither so welcome nor so easily sustained amid the uncertainties, the depreciating inventories, and the falling markets which are apt to mark the approach of peace.”


In testimony before Congress, business leaders echoed this assessment, claiming that the aggressive taxes on profits reported in 1917 and 1918 were unfair, given that the end of hostilities would saddle them with losses on inventories no longer needed for the war effort.


Reformers in Congress agreed. In a House of Representatives report drafted to accompany a new revenue bill, the legislation’s sponsors admitted that one of “the most important provisions inserted by the committee is quite new to our tax laws.” At that time, the committee noted, “no recognition is given to net losses.” Taxpayers who took a huge profit one year and a huge loss the next could not use the one to offset the other. This, the committee believed, “does not adequately recognize the exigencies of business, and, under our present high rates of taxation, may result in grave injustice.”


The end result was a bill that enabled individual and corporate taxpayers to carry losses backward or forward by one year. This aroused intense opposition from both Republicans and Democrats who argued that it subsidized bad business practices.


Republican Senator Irvine Lenroot of Wisconsin was especially vocal, arguing that it was unfair to “demand of a business which is properly run that it pay into the Treasury, while other businesses, mismanaged, are allowed to make up their losses and deprive the government of a just tax in doing it.” Lenroot suggested that the provision would benefit businesses built on ill-advised speculation.


In the end, these and other arguments failed and Congress instituted the first net-loss provision in the tax code. It was meant to deal with the aftermath of the war, but like many additions to the tax code, it proved difficult to dislodge.


In 1920, as the expiration of the net-loss carryover provision drew near, Congress enlarged it and made it permanent, enabling businesses to spread losses over three years. This was done against the backdrop of a painful recession. Robert Reed, president of the Investment Bankers Association of America, testified before Congress that carryover of net losses would “prevent the gross injustices that have resulted from the accidents of business and inventory profits and taxable periods.”


Congress agreed, and in 1921 a law permitting carryovers over a three-year period went into effect.

It’s worth noting that the ostensible reason for allowing the original carryovers—the excess-profits tax instituted during wartime— was repealed at this time as well. Rather imperceptibly, the rationale for carryovers had shifted. What had begun as a wartime exigency now became the basis for a new philosophy of taxation.


In 1932, Congress contemplated repealing the net-loss carryover provision, but resistance to the idea was strong. A congressional report on a revenue bill that year noted that this mechanism offered business “essential protection against excessive hardships inherent in a tax based on arbitrary annual accounting.” Nonetheless, Congress rolled back the carryover to a single year.


Then, in June 1933, Congress summoned J.P. Morgan Jr., son of U.S. history’s most famous financier, to testify before a Senate committee investigating causes of the 1929 stock market crash. While Wall Street was the focus, much of the inquiry focused on the banking scion’s taxes: Neither Morgan nor his partners had paid income taxes in 1931 and 1932, thanks to their ability to spread losses across multiple years.


The outrage was immediate, and in the fall of 1933, Congress eliminated loss carryovers as part of the New Deal’s signature legislation, the National Industrial Recovery Act. For the next five years, neither individual nor corporate taxpayers could offset profits with losses unless they were incurred in the same year.


As the New Deal lost its more radical edge, the carryover provisions crept back. Beginning in 1938 and then in subsequent revisions, individuals and businesses regained their ability to spread out losses over ever-greater lengths of time. By the time Trump took his alleged $916 million loss, he could offset his profits two years in the past and 18 years into the future.


Revelations of this entirely legal tactic has sparked the same kind of outrage that greeted Morgan back in 1933. Perhaps Congress, once the election is over, will once again revisit this little-understood bit of the tax code. Stranger things have happened.


September 20, 2016


S Corporation Reasonable Compensation

S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.

The instructions to the Form 1120S, U.S. Income Tax Return for an S Corporation, state "Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation."

Several court cases support the authority of the IRS to reclassify other forms of payments to a shareholder-employee as a wage expense which are subject to employment taxes.

Authority to Reclassify    

Joly vs. Commissioner, 211 F.3d 1269 (6th Cir., 2000)


Reinforced Employment Status of Shareholders    

Veterinary Surgical Consultants, P.C. vs. Commissioner, 117 T.C. 141 (2001)

Joseph M. Grey Public Accountant, P.C. vs. Commissioner, 119 T.C. 121 (2002)


Reasonable Reimbursement for Services Performed    

David E. Watson, PC vs. U.S., 668 F.3d 1008 (8th Cir. 2012)


The key to establishing reasonable compensation is determining what the shareholder-employee did for the S corporation. As such, we need to look to the source of the S corporation's gross receipts.

The three major sources are:  Services of shareholder, Services of non-shareholder employees, or
Capital and equipment.

If the gross receipts and profits come from items 2 and 3, then that should not be associated with the shareholder-employee's personal services and it is reasonable that the shareholder would receive distributions along with compensations.

On the other hand, if most of the gross receipts and profits are associated with the shareholder's personal services, then most of the profit distribution should be allocated as compensation.
In addition to the shareholder-employee direct generation of gross receipts, the shareholder-employee should also be compensated for administrative work performed for the other income producing employees or assets. For example, a manager may not directly produce gross receipts, but he assists the other employees or assets which are producing the day-to-day gross receipts.

Some factors in determining reasonable compensation: 


  • Training and experience
  • Duties and responsibilities
  • Time and effort devoted to the business
  • Dividend history
  • Payments to non-shareholder employees
  • Timing and manner of paying bonuses to key people
  • What comparable businesses pay for similar services
  • Compensation agreements
  • The use of a formula to determine compensation
  • Treating Medical Insurance Premiums as Wages

Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are deductible by the S corporation and reportable as wages on the shareholder-employee’s Form W-2, subject to income tax withholding.

However, these additional wages are not subject to Social Security, or Medicare (FICA), or Unemployment (FUTA) taxes if the payments of premiums are made to or on behalf of an employee under a plan or system that makes provision for all or a class of employees (or employees and their dependents). Therefore, the additional compensation is included in the shareholder-employee’s Box 1 (Wages) of Form W-2, Wage and Tax Statement, but is not included in Boxes 3 and 5 of Form W-2.

A 2-percent shareholder-employee is eligible for an above-the-line deduction in arriving at Adjusted Gross Income (AGI) for amounts paid during the year for medical care premiums if the medical care coverage was established by the S corporation and the shareholder met the other self-employed medical insurance deduction requirements. If, however, the shareholder or the shareholder’s spouse was eligible to participate in any subsidized health care plan, then the shareholder is not entitled to the above-the-line deduction.  IRC § 162(l).



August 31, 2016


What is the generation-skipping transfer (GST) tax?


Creating a legacy for your grandchildren, great-grandchildren, and beyond.

The basics.


The generation-skipping transfer tax (GST) is assessed when property moves from one generation to another, skipping intermediate generations along the way. The tax is applied to:

  • Property that moves from a grandparent or grandparent’s estate to a grandchild (or in trust for the benefit of a grandchild), provided that the grandchild’s parent (the child of the transferor) is still alive at the time the transfer is made.
  • Property transferred between unrelated people who are more than 37½ years apart in age is also subject to the generation-skipping transfer tax.

Unlike the estate tax, which is only assessed after the decedent’s death, and the gift tax, which is levied while the donor is still alive, the generation-skipping transfer tax may be assessed either during the donor’s lifetime or after his or her death.


The generation-skipping transfer tax is assessed in addition to, not instead of, the estate or gift tax. It generally equals the amount of transfer tax that would have been generated had the property made all the generational steps, not just the skipping ones.


Depending on whether this tax is being assessed for a gift made during the donor’s lifetime or for a bequest or devise made after death, the GST is calculated either on Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return or Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return.

Special considerations.


We know that the generation-skipping transfer (GST) tax is imposed on wealth transfers to individuals more than one generation below you—such as your grandchildren and great-grandchildren. It’s important to keep in mind, however, that this can include wealth transfers to grandchildren or great-grandchildren who are the primary or contingent beneficiaries to any trusts you create.


For example: Let’s say you create a trust, and name your adult daughter as the sole primary beneficiary. If she passes away before the trust fund is exhausted, the remaining money would pass on to her children—that is, your grandchildren are contingent trust beneficiaries.

Although the trust fund was created for your daughter, the GST tax would still apply. And, at a rate of 40% over and above any gift or estate taxes on the same transaction—which are also taxed at 40%—the results could have a significant impact on your money.

Possible solutions.


The good news is: The GST tax may not apply if you make direct gifts to your grandchildren or great-grandchildren and generations beyond. Direct gifts are those that go straight to your grandchild or into a trust with a single grandchild named as the sole trust beneficiary.

Why? Because you have a $5.43 million GST tax exemption for 2015 and your spouse has an exemption as well. This means that you and your spouse can make up to a combined $10.86 million in direct gifts to grandchildren and lower generations without any concerns about the GST tax. Your GST tax exemption may cover all your direct gifts until the exemption has been used up. It is important that you work with your qualified tax advisor to make sure you properly allocate your GST tax exemption to gifts made during your life or at your death.



August 24, 2016


Reasons Your Small Business Needs an Accountant


As a small-business owner, you probably thrive in a DIY environment; but the more hats you wear, the less you’ll accomplish successfully. Accounting is one of the most important areas for keeping your company profitable. As you start out and your company grows, software can only take you so far. Accountants can help your company move forward. Below are reasons why your business needs an accountant in all stages of your growth.


1. Your business is in the startup phase


There are many things to think about when you’re just starting out:

  • Business structure
  • Business plan
  • Bank accounts
  • Government regulations
  • Location
  • Financing

You might think it’s too early to hire an accountant, but the way you set up your operations can have a serious impact on your future success. An accountant can help you determine the most appropriate business structure, analyze your business plan for financial compatibility, and assist you with making sound financial decisions throughout the startup process so you don’t have to spend more money to correct mistakes later.


2. Your business has employees


In the first few years of operation, you may not feel you have enough work for an accountant. The truth, though, is that an accountant will have the specialized knowledge to make your money work for you even though you don’t have a huge workforce. The accountant can:

  • Help ensure employees and independent contractors are classified correctly
  • Oversee payroll and payment processes
  • Create appropriate timelines for sending W2s and 1099 forms


3. Your business structure requires audits


Not all small businesses are required to conduct audits, but unless you consult with an accountant you might not know until it’s too late. Publicly owned businesses are required to comply with the Sarbanes–Oxley Act (SOX), and private companies that are preparing for an initial public offering might also need to comply with certain SOX provisions. Furthermore, all businesses should comply with local generally accepted accounting principles (GAAP). Hiring an accountant can ensure your records are compliant with the appropriate regulations.


4. Your lender requests a financial statement


The Small Business Administration reports that small businesses borrowed over $6 billion last year. At some point your business will probably need additional funding, whether it’s for expansion, new equipment, purchasing property, or even establishing an emergency fund. Before you approach a lender, having an accountant prepare a financial statement can increase your chances of getting approved.


5. Your budget is falling short


According to the Bureau of Labor Statistics, about half of all businesses will fail within five years of opening. Although there are many factors related to failure, not meeting budget goals can decrease the chances of your business survival. Having an accountant on hand to analyze your budget, assist in making changes and catch errors will help you make sure your budget is on target for success.


Questions to ask yourself before hiring an accountant:

  • Does your business planning match your financial forecast?
  • Have you read the tax code?
  • Do you have enough time to take care of all of the accounting duties yourself?
  • Are you sure your employees are classified correctly?
  • Do you know what auditors look for when conducting an audit?
  • Do you know what needs to be in a financial statement?
  • Is your budget working for you?


If you answered “no” to any of these questions, you can benefit from hiring an accountant.


How to find an accountant


You could do a quick Google search, but how would you know if the accountant is qualified? There are numerous databases of accountants, but to ensure that the accountant you choose has the knowledge and experience you need, look for a certified public accountant (CPA) or enrolled agent. These professionals will have passed a rigorous exam and are licensed by the state in which they work. CPA's and Enrolled agents are authorized by the federal government to represent taxpayers before the IRS and often specialize in tax, accounting, and financial services to businesses.



July 12, 2016


Illinois agency offers underwater homeowners up to $50,000 in relief



July 9, 2016


Property Tax Appeals




Properties in Cook County are reassessed every three years, and property taxes are based on these assessments. By appealing your assessment, you may be able to significantly reduce your property tax bill. Once assessment notices are mailed, by township, a property owner has 30 days to file an appeal.


If unsuccessful at Assessor’s office, owners can appeal once more to the Board of Review, which follows another schedule. HERE is the 2015 schedule as reference.


Township Schedule

Important Notes

  • There is no cost to a property owner to file an appeal
  • When you appeal to the Assessor or Board of Review, there is no chance an assessment will be increased as a result of appeal. In other words, there is no penalty; when an owner appeals, the assessment will either remain the same or be lowered.
  • There are many tax professionals that can assist you with the process. We recommend.


Property Tax Solutions, LLC

16 W Ontario St, Chicago, IL 60654

312-448-9992 Fax 312-448-9994




Why It’s Important to File a Property Tax Appeal


As soon as you receive your property tax assessment, appeal it.


That was the message Cook County Assessor Joseph Berrios delivered to attendees at the CommercialForum Networking Breakfast on Tuesday, Feb. 10.


Berrios said Chicago’s property tax assessments are scheduled to begin arriving in mailboxes this year, starting in Rogers Park Township on Feb. 18.


Assessments in Cook County come once every three years, on a rotating basis determined by where you live in the county. Residents in the City of Chicago are facing reassessment in 2015, so owners should advantage of the opportunity.


From the time owners receive an assessment, they have just 30 days to file an appeal. In the last assessment in 2012, 397,000 parcels appealed – the highest in 12 years. Of those appeals, approximately 60 percent were reduced.


Appealing your assessment benefits property owners.


Here’s how:

• Helps bring property values in line with the local market.
• It’s better to appeal now. Your tax assessment builds on previous years so your base the next time will be higher.
• Your efforts may result in a lower assessment for your property.


It’s important to note that a lower assessment may not necessarily result in lower taxes.

If successful, an appeal will help make sure your property value is in line with similar properties in your neighborhood. In addition, a lower assessment can help better position the property for sale, especially when buyers look at property taxes in their decision making process.


Why Property Taxes are going up


Chicago aldermen approved a $589 million increase in property taxes. This record hike, which will be phased in over the next four years, will help fund public safety pensions.


Here’s what you need to know:

  1. Mayor Rahm Emanuel is seeking state legislation to help ease the burden for homeowners by increasing the homestead exemption (nearly doubling it), which means that the majority of the tax increase will affect non-residential property owners. Tax relief proposals are focused on all-residential buildings.
  2. While there isn’t a tax increase on leases or property transfers, additions to the proposal include fees on garbage collection, on-demand ride services, cabs and e-cigarettes.
  3. Rents may go up. Keyword: may. Landlords and commercial property owners won’t know exactly what they’ll have to pay until assessed valuations for properties are worked out. Just know that the easiest way to cover the additional cost of a property is to pass on the increase by raising the rent.
  4. This summer’s tax bill will reflect the increase. Because tax bills are based on property valuation, familiarize yourself with the process to appeal your assessments. And, double check your escrow fund used to pay taxes and ensure there’s enough in there to pay the new amount.
  5. This tax increase funnels $544 million to first responder pensions, as mandated by the state.



July 1, 2016


The two articles below, whether you think one or either is right or wrong, depict a great explanation of what is happening or what should happen to the global economy.

The monetary bubble to end all bubbles is coming.
The monetary bubble to end all bubbles i[...]
Adobe Acrobat document [124.6 KB]
Why the Fed should print more money, not less.
Why the Fed should print more money, not[...]
Adobe Acrobat document [174.1 KB]

June 27, 2016


House Republican plan for tax code overhaul in 2017


A House Republican plan for revamping the tax code calls for lower marginal tax rates and structural changes designed to encourage domestic investment, simplify tax filing and disrupt existing business arrangements.


The House plan would reduce the corporate tax rate to 20% from 35% and repeal longstanding features of the business tax system. Net interest expenses would no longer be deductible. Capital costs could be deducted immediately instead of over several years. The revamped corporate tax wouldn’t apply to exports but would be levied on imports, reshaping rules that determine which income the U.S. taxes and which it leaves to other countries.


The top tax rate on individuals would drop to 33% from 39.6%, not nearly as far as Republicans have long sought, though the top rate on business income reported on individuals’ returns would be 25%. The estate tax would be repealed, while capital gains and dividend taxes would be lowered. Decades-old tax breaks would vanish, including the state and local tax deduction and all other itemized deductions besides those for mortgage interest and charitable contributions.


The Republican plan, led by Ways and Means Committee Chairman Kevin Brady of Texas, embraces supply-side economic theory with a few twists. Compared with plans proposed by leading Republicans in 2012 and 2014, it leans much more toward taxing consumption instead of income and gets closer to the flat-rate taxes many Republicans prefer.


Republicans say the plan wouldn’t widen budget deficits after accounting for what they say would be economic growth. They also assume a revenue target at least $1 trillion below what current tax laws would generate over the next decade: a repeal of at least $600 billion in Affordable Care Act taxes, and excluding $400 billion in revenue the government is theoretically slated to get as regularly extended tax breaks expire.


Democrats said they didn’t think the Republicans’ math could add up and there were few signs Friday that the plan could become the core of a tax code overhaul in 2017 unless Republicans control all branches of government.


A senior House GOP leadership aide said the final version of the plan when it is converted into a bill wouldn’t raise taxes for any income group, but the plan could alter the distribution of the tax burden. The plan isn’t detailed enough for a complete nonpartisan congressional analysis to verify the effect on the budget and on households.


The House GOP plan would consolidate the standard deduction, personal exemptions and child tax credits with the aim of simpler tax filing. The plan retains the earned-income tax credit for low-income households. It leaves unresolved potentially contentious issues such as tax-advantaged retirement plans, the transition to the new system and the fate of tax-exempt municipal-bond interest.


The plan’s changes to international tax rules would depart from U.S. practice. Republicans would adapt a rule now used for other countries’ value-added taxes and create what is known as a destination-based tax dependent on customers’ locations, rather than determining where income is located. The tax would be removed from U.S. exports and imposed on imports.


It isn’t clear whether the House plan would be compatible with international trade rules that look askance at export subsidies, though Mr. Brady said he thought it would comply. The House plan could undo benefits that companies have achieved by moving their legal addresses abroad in corporate inversions, because they would pay U.S. taxes based on U.S. sales.


June 23, 2016


Social Security Board of Trustees: Long-Range Projection Unchanged for Trust Fund Reserve Depletion Disability Fund Improves in Near Term


The Social Security Board of Trustees today released its annual report on the long-term financial status of the Social Security Trust Funds. The combined asset reserves of the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds are projected to become depleted in 2034, the same as projected last year, with 79 percent of benefits payable at that time. The DI Trust Fund will become depleted in 2023, extended from last year’s estimate of 2016, with 89 percent of benefits still payable.


In the 2016 Annual Report to Congress, the Trustees announced:

  • The asset reserves of the combined OASDI Trust Funds increased by $23 billion in 2015 to a total of $2.81 trillion.
  • The combined trust fund reserves are still growing and will continue to do so through 2019. Beginning in 2020, the total cost of the program is projected to exceed income.
  • The year when the combined trust fund reserves are projected to become depleted, if Congress does not act before then, is 2034 – the same as projected last year. At that time, there will be sufficient income coming in to pay 79 percent of scheduled benefits.

“I am pleased that Congress passed legislation, signed into law by President Obama last November, to avert a projected shortfall in the Disability Insurance Trust Fund. With the small, temporary reallocation of the Social Security contribution rate, the DI fund will now be able to pay full disability benefits until 2023, and the retirement fund alone will still be adequate into 2035, the same as before the reallocation,” said Carolyn W. Colvin, Acting Commissioner of Social Security. “Now is the time for people to engage in the important national conversation about how to keep Social Security strong. The public understands the value of their earned benefits and the importance of keeping Social Security strong for the future.”


Other highlights of the Trustees Report include:

  • Total income, including interest, to the combined OASDI Trust Funds amounted to $920 billion in 2015. ($795 billion in net contributions, $32 billion from taxation of benefits, and $93 billion in interest)
  • Total expenditures from the combined OASDI Trust Funds amounted to $897 billion in 2015.
  • Social Security paid benefits of $886 billion in calendar year 2015. There were about 60 million beneficiaries at the end of the calendar year.
  • Non-interest income fell below program costs in 2010 for the first time since 1983. Program costs are projected to exceed non-interest income throughout the remainder of the 75-year period.
  • The projected actuarial deficit over the 75-year long-range period is 2.66 percent of taxable payroll – 0.02 percentage point smaller than in last year’s report.
  • During 2015, an estimated 169 million people had earnings covered by Social Security and paid payroll taxes.
  • The cost of $6.2 billion to administer the Social Security program in 2015 was a very low 0.7 percent of total expenditures.
  • The combined Trust Fund asset reserves earned interest at an effective annual rate of 3.4 percent in 2015.

The Board of Trustees usually comprises six members. Four serve by virtue of their positions with the federal government: Jacob J. Lew, Secretary of the Treasury and Managing Trustee; Carolyn W. Colvin, Acting Commissioner of Social Security; Sylvia M. Burwell, Secretary of Health and Human Services; and Thomas E. Perez, Secretary of Labor. The two public trustee positions are currently vacant.


June 17, 2016


Proposal for Paid sick leave passes City Council Committee


Chicago took a major step Thursday toward requiring nearly all employers to offer workers paid sick leave, with a measure excoriated by some business interest groups as overly complicated and inconsiderate of business owners' needs.


Workers and labor organizers cheered after the City Council's Committee on Workforce Development and Audit approved the earned sick time ordinance proposal in a unanimous voice vote. The full City Council is expected to consider the measure at Wednesday's meeting.


Under the proposed ordinance, employees would accrue one hour of paid sick time for every 40 hours worked, with a cap of five sick days in a 12-month period. Employers could offer more if they wish.


If approved, Chicago would join 26 other U.S. cities, five states and one county with paid sick time laws on the books, according to A Better Balance, a legal advocacy group on work-family policies. The Chicago measure would take effect July 1, 2017.



June 9, 2016


Complying with the Tax Code Costs Americans $409 Billion


The cost of compliance with the ever-growing Tax Code costs U.S. taxpayers a total of 8.9 billion hours and $409 billion, according to new research.


The IRS recently estimated that Americans will spend 8.9 billion hours complying with IRS tax-filing requirements in 2016, and according to a new analysis from the Tax Foundation, this translates to an annual tax compliance cost of $409 billion, or the equivalent of 4.3 million full-time jobs.


The calculations have increased substantially since 2012, when the IRS estimated the total paperwork burden at 6.1 billion hours.


“Time is the most valuable thing we have, and we should not be forced to waste it complying with IRS forms,” said Tax Foundation president Scott Hodge in a statement. “Congress needs to keep this in mind as they move forward with tax reform over the next year. In addition to fostering economic growth, we need reforms that ease the burden of time on taxpayers. I think that’s something we can all get behind.”


The Tax Foundation’s analysis provides a breakdown of the most costly IRS forms and provisions for businesses and individuals. For example, the time spent complying with business income taxes costs $147 billion annually, while preparing individual income taxes costs another $99 billion.


There are also cases where the cost of compliance for a specific tax is nearly equal to the amount of revenue that tax brings in. The estate and gift tax, for example, will collect approximately $20 billion in federal revenues this year, but has a compliance cost of $19.6 billion.



June 8, 2016


Estate Tax Basis Rules Recommended Changes Proposed by AICPA


The proposed regulations implement changes to section 1014 of the Internal Revenue Code mandated by Congress last year under the Surface Transportation and Veterans Health Care Choice Improvement Act to require consistency between the basis of property in the hands of an estate beneficiary and the value reported on the federal estate tax return.  Basis is important for such income tax purposes as determining gain or loss of property and depreciation deductions.

The 2015 law also added IRC section 6035, which requires estate executors to provide a statement identifying the value of each person’s interest in the decedent’s reported property within 30 days from the earlier of the required filing date of the return (including any extensions) or the date the return was actually filed.


AICPA Tax Executive Committee chair Troy Lewis recommended in a comment letter Wednesday that the “zero basis” rule be removed from IRC section 1014 and that a supplemental Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, be allowed to be filed at any time, even if the statute of limitations has expired because it believes “that the position in the regulations is a punitive overreach not intended in the legislation.”


The reporting requirement for subsequent transfers by beneficiaries should be removed, the AICPA stated, because it does not believe the authority granted in section 6035(b)(2) extends to requiring reporting by estate beneficiaries when they subsequently transfer the inherited property. The letter explained that taxpayers frequently transfer property in transactions where the basis of property “carries over” to the transferee, for example in the context of gifts, estate planning and the creation of business organizations.


The transfer can occur soon after the taxpayer receives the property from the decedent or many years later.  The regulations do not include an expiration period on the requirement to report. Therefore, the AICPA wrote, Treasury and IRS are adding a duty to report for estate beneficiaries as long as they own the inherited property.  And presumably Treasury and IRS are obligating the transferee taxpayer to report upon a second transfer since the obligation applies to “all or any portion of property that previously was reported.”  The reporting requirement could continue for generations.


The AICPA also made a number of other recommendations in its letter and outlined its previous correspondence with IRS and Treasury officials about the proposed regulations and draft IRS Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent, and the form’s accompanying instructions.


June 8, 2016


IRS Details Certification Process for PEOs


The Internal Revenue Service released further details Friday on how a business entity can become certified under the IRS’s new certified professional employer organization program.

Revenue Procedure 2016-33, posted on IRS.gov, along with temporary and proposed regulations published last month in the Federal Register, carries out legislation enacted in late 2014, the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014, also known as the ABLE Act,  requiring the IRS to establish a voluntary certification program for professional employer organizations.


A professional employer organization, sometimes referred to as an employee leasing company, is an organization that enters into an agreement with a client to perform some or all of the federal employment tax withholding, reporting, and payment functions related to workers performing services for the client.  PEOs handle various payroll administration and tax reporting responsibilities for their business clients and are typically paid a fee based on payroll costs. To become and remain certified under the new program, certified PEOs must meet tax status, background, experience, business location, financial reporting, bonding and other requirements (see IRS Provides Voluntary Certification Program for Professional Employer Organizations).


Being certified by the IRS as a certified professional employer organization, or CPEO, has certain federal employment tax consequences for both the CPEO and its clients.  The revenue procedure describes the process by which a person applies for certification as a CPEO and the requirements a person must satisfy in order to become a CPEO.


Under the revenue procedure, interested applicants will be able to apply electronically (paper applications will not be accepted) and submit supporting documents through a new online system. As authorized by law, a $1,000 application fee must be paid using Pay.gov. The revenue procedure also includes detailed information on bond, financial audit and other requirements.


The IRS said the new online application system will be accessible on IRS.gov in the coming weeks, and the IRS will be ready to accept application materials beginning on July 1, 2016. The effective date of certification for an applicant that submits a complete and accurate application before Sept. 1, 2016, and is certified will be Jan. 1, 2017, even in situations where the certification letter is not issued until after that date. The IRS will publish a list of CPEOs on its website, and the list will be updated quarterly.


June 7, 2016


Three simple rules practicing Accountants should follow:


  1. Do not do math in your head.  Always use spreadsheets and/or calculators to do math due to the fact that even the most experienced mathematician can make a simple mathematical mistake.


  1. Do not give business, accounting or tax advice from memory.  Although you may have mastered Generally Accepted Accounting Principles (GAAP) and the IRS Code always research any topic before giving advice.  The business, accounting and tax universe is vast and impossible to have committed to memory.  Always do your research.


  1. Do not practice law if you are not licensed to practice law.  If a client asks for legal advice outside of our realm of expertise refer the client to an attorney.  


June 6, 2016


Cash Intensive Businesses Audit Techniques Guide



Definition of the Underground Economy


The underground economy represents income earned under the table and off the books. It can include legal and illegal, or black market, goods, including drug sales, money laundering and warehouse banking schemes. The underground economy is characterized by small, single, entrepreneurial businesses that can receive payment for their goods or services in the form of cash or bartered goods. The main goal is to avoid reporting income and paying taxes to governments.


Areas for potential abuse include the house with the perpetual yard sales, eBay sellers, craft fairs, selling homemade tamales, doing car repairs in the backyard, collecting cans and bottles for recycling, selling goods at pawn shops, day laborers on street corners.


The underground economy entrepreneur is not a business owner reporting small profits while living beyond all visible means. The underground economy entrepreneur is actively working to maintain a low economic level that does not draw attention. Some may hold a daytime job and operate in the underground by having a sideline business for unreported cash.


Individuals who participate in the underground economy want to avoid government regulations and may not be licensed in their trades. For example, a woman may offer to cut and style hair in her home for $10 in cash, while a licensed stylist will charge $30 for the same haircut in a salon. Or, a tree trimmer will charge only $375 because the state requires licensing for jobs over $400. In this case, the hair stylist and the tree trimmer can get by with the smaller earnings because they do not carry the overhead costs or the tax responsibilities.


The underground worker capitalizes on the “tax wedge” which is the difference between labor costs paid by an employer (gross wages) and the net wage received by an employee. An employer will pay wages of $50 per hour, which includes payments to FICA, FUTA, Medicare, retirement benefits, workers compensation insurance, etc., but the employee will net a wage of only $30 per hour. In the underground economy the same worker will charge $30 per hour, cash, for the same work and the net result will be the same.


The underground worker can usually live on less income because no Federal or State income taxes, worker compensation taxes, payroll taxes, insurance, or social security payments are made. An undergrounder earning $40,000 can provide his family with the same lifestyle a wage earner can provide with $60,000. As a result, with very little overhead, they can provide their services at a lower cost. This will be attractive to other entrepreneurs who need to cut costs, and in a sluggish economy, to consumers hoping to stretch their buying dollars.


Whenever income is not subject to information reporting or cannot be verified by a third party there is a risk that some or all of it may not be reported. Hand in hand with unreported income is the possibility that bona fide net business income will be understated due to excess expenses, either personal or the expenses to produce the unreported income.


Traits of an Underground Worker

  • Will keep a low economic profile to avoid suspicion. Unlike the typical under reporter who uses the business to pay for a brand new F350 pickup truck with sport tires, wheels and leather interior, the undergrounder will drive an older vehicle that appears to be in disrepair and will live in an older home in a lower income neighborhood. Both will probably be paid for in full.
  • Can be found through word of mouth or will advertise in local free papers. An off the books hairstylist can be contacted through the local beauty supply store, or a cash plumber can be contacted through the local pipe supply outlet. The undergrounder relies on these sources to advertise his services.
  • Will use an answering machine to screen calls so customers must provide their own telephone number or address before receiving a call back. This is because the undergrounder only accepts work when the money is needed, and because it allows the undergrounder to learn more about the customer before accepting a job.
  • May use a postal box to protect the residence from scrutiny.
  • Will engage in a trade that has minimal investment and overheard.
  • Will not maintain a checking account or will not make significant deposits to a checking account. If a checking account is used, the underground funds will not be deposited. Is there is legitimate earned income that will be the source of any bank deposits?
  • Will cash checks paid for services at a bank (without depositing the funds), or at a check cashing service.
  • Will receive cash for services or goods. If work is performed for a large business that requires a SSN, the SSN provided will be phony or the worker will make up a corporate name so no information reporting is required.
  • Will be characterized by resourcefulness, always alert for cash earnings, and usually is not limited to just one income source. A moving business will report receipts made by check, but cash payments, and cash received from used car sales is never deposited. A restaurant will report credit card receipts, but cash payments and sales from seasonal Christmas trees are never deposited.
  • May receive government benefits, such as Welfare, EITC, Unemployment Compensation, disability or SS Income.
  • Will pay personal living expenses in cash or by money order.
  • May not have insurance. Business liability insurance can be costly and undergrounders will eliminate this cost, as well as vehicle insurance (if possible) and worker compensation. Helpers will be unreported and paid in cash.
  • Will own a safe.


Examples of Possible Underground Activities


Used car sales


Used car sales are attractive to the undergrounder. Used cars are frequently sold without financing or can be financed by the seller over a short period. No bank or lending institution will be involved. In some cases, title is never transferred to the undergrounder after purchase to avoid any paper trail.


An individual making fewer than 25 sales per year may go undetected, though in many states this exceeds the limit requiring a state license. Used cars can be purchased for cash and turned over quickly. If there is ever an inventory of vehicles, they will be stored in various places- in the undergrounder’s backyard, a friend’s vacant lot or a relative’s business parking lot.


This is a successful underground activity because new car buyers research before buying. They will use the Internet to find the best deal, and may want to inspect the invoice, but used car buyers have only the Kelly Blue Book for reference and never know what was paid by the seller to acquire the car. The seller’s profit on these sales can be significant.


Only once the deal is made, does the buyer realize the sellers name is not on the title. However, the seller will have a signed bill of sale from the titled owner, so the sale is valid and the title is not contested.


Child care/House cleaning/Pet sitting


Home businesses are attractive to the undergrounder. A stay at home mother, possibly on the welfare rolls, can earn extra, unreported, cash caring for neighborhood children. An elderly person, already earning social security benefits, can supplement their lifestyle by cleaning houses for working families. Single individuals often pet sit in the pet owner’s homes, using their electricity, water, television, etc.


In most cases, overhead will be minimal because the customer provides all necessary supplies: snacks and clothes for children, mops and dust rags, dog food and grooming tools, etc. The undergrounder’s primary purpose is to earn money, not to use time and money purchasing supplies.


Tree trimming/Hauling


Handyman businesses can be easily performed by an able bodied undergrounder. Many working people do not have the time or equipment to haul away large disposal items or to do large yard work projects.


These undergrounder’s will generally estimate a flat job rate. In some states a tree trimmer must be licensed if charges exceed a particular dollar amount, for example, in California, if the job is estimated to cost more than $400 a state license is required. In that case, the undergrounder will consistently charge $375-$395 per job.


Haulers may earn additional cash by selling the disposal goods to salvagers or thrift stores.


Construction workers

Unlicensed tradesmen can earn cash income by doing small construction jobs such as building a patio, doing electrical wiring, repair or install plumbing.


Locating Underground Economy Workers


Workers in the underground economy will take extreme care to make sure income cannot be reported on Forms 1099. They will try to always get payments in cash, but if that is impossible, they will provide a false social security number. The undergrounder knows that social security numbers cannot be immediately verified and will not accept any further work from that payor. Another tactic the undergrounder may use is to explain that he or she is the sole shareholder in a corporation with the same name, i.e. John Smith Plumbing (just make it out to John Smith.)


The best way to locate an undergrounder is through cash invoices found in related examinations. When the examiner encounters payments for goods or services made in cash and verified by questionable, possibly handwritten, invoices, it is very likely the taxpayer paid an undergrounder to do the work. Further questions should be asked to determine how the taxpayer located the underground worker, and if the worker is known to work for other local businesses, or if they worked on personal jobs for the taxpayer.


If the examiner follows up and determines the undergrounder’s home is not extravagant, do not be dissuaded. Even a small economic lifestyle will cost money to maintain, and it may be deceptive because cash expenditures and cash accumulation are not immediately evident. The undergrounder’s lifestyle will still require more income than what is reported.


Underground economy workers can be found on community bulletin boards. Theirs will be the handwritten 3x5 cards, or the business cards that do not list a license number when needed. Because they will not advertise in the typical ways, the undergrounder will make flyers to leave on doors and will rely on contacts made at donut shops and local restaurants. Remember, the underground entrepreneur will frequent local spots and rely on local contacts.

They will be known to legitimate businesses that will send work their way when a job is too small or labor intensive for the legitimate business.


Undergrounders can best be identified through acquisitions. The most lucrative time to locate underground economy workers is when they use their cash to make significant purchases. The nature of the business is that large amounts of cash are accumulated, but must be used very carefully. Vacations can be taken if expenses can be paid in cash. Gambling is a good diversion for the cash earner and any illegal activities, like drug purchases, always accept cash. But, eventually the undergrounder will want to enjoy the earnings or invest them, and this is the time for identification.

  • Real estate (usually vacant land) will be purchased from private parties, so any large cash transactions remain hidden, but the title transfer will be recorded. Real estate may also be purchased out of the home state in an effort to shield the purchase.
  • If there is a legitimate business that reports constant losses, hidden funds may be hidden in inventory. Unreported profits can be used to purchase additional inventory. The examiner should always inspect the physical inventory to see if it is consistent with the reported inventory. It is unlikely the undergrounder will provide their inventory records, so the examiner must rely on their own experience to determine if the inventory is understated.
  • Auto dealers almost always report large cash transactions, but a private party will accept cash over $10,000 without making a report. Any new, sports or luxury vehicle will be kept hidden in a closed garage or another location.


Audit Techniques

  • Comparative Analysis of assets and interest- Accumulation of cash could be identified by a multiple year analysis of an individual’s assets and interest expense. An increase in assets without additional indebtedness and with too little sources of income suggests hidden income is available from some source.
  • Barter Activity- In the underground economy goods and services are easily traded between individuals. When the undergrounder acquires assets (a used tractor, work truck, computer) or services (house gets painted, car seats reupholstered) this is income earned in the underground economy.
  • Test Checks Written- Analyze the checks written from known bank accounts. Prepare a spreadsheet with each month (Jan, Feb, Mar, etc.) across the top and normal personal expenses down the first column (Mortgage, Electricity, etc.). Simply place a check mark for each month where a check is written to pay for the personal expense. This will show the amount of expenses that must have been paid in cash, and the examiner can begin questioning where the cash originated and how else was it spent.
  • Cash Transaction Report- Check the current year, in addition to the two prior and two subsequent years. Prior and subsequent year purchases will show there was income available and how it was spent. These clues can lead the examiner to other discoveries.
  • Loan Applications- If any loans were applied for, the undergrounder may have identified a source of income and these applications should always be secured by the examiner. Even prior year information is helpful and can lead the examiner to discover the source and use of hidden income. In contrast, a lack of debt where there should be some, (i.e. mortgage, car payments, credit cards) indicates an ability to easily afford the lifestyle.
  • Civil, Criminal and Family Court- Determine if any lawsuits were filed against the individual. Creditors or wronged business associates will list known assets or pledged collateral in court filings. Divorces can disclose hidden income or assets.
  • Third Party Contacts- Possible business associates, former spouses, and creditors can all be contacted for information.


June 6, 2016


The 'Underground Economy'


The underground economy refers to illegal economic activity. Transactions in the underground economy are illegal either because the good or service being traded is itself illegal or because an otherwise licit transaction does not comply with government reporting requirements. The first category includes drugs and prostitution in most jurisdictions. The second includes untaxed labor and sales, as well as smuggling goods to avoid duties. The underground economy is also referred to as the shadow economy, black market (not gray market) and informal economy. 


Activities and Participants


A huge array of activities falls under the label "underground economy," and the list varies depending on the laws of a given jurisdiction. In some countries, alcohol is banned, while in others brewers, distillers and distributors operate openly. Drugs are illegal in most places, but some U.S. states and a few countries have made the selling cannabis legal. Tobacco is legal in New York City, but steep sin taxes mean that perhaps 60% of cigarettes in the city are sold illegally, as part of the underground economy. Forced labor, the sex trade (where illegal) and human trafficking are part of the underground economy. Black markets exist for copyrighted material, endangered animals, products subject to sanctions or tariffs, antiquities and organs. In addition, anyone who makes taxable income they do not then report to the tax authorities – even if it's $50 for babysitting – is technically participating in the underground economy. 


Participants in underground economies are a diverse bunch as well. They include unregistered, untaxed food vendors on street corners. If a police officer accepts bribes to allow those vendors to do business, the officer is then part of the underground economy. So are elephant poachers, meth dealers, undocumented workers, government ministers who hoard stolen cash in tax havens, entrepreneurs who sell subsidized fuel across borders, graphic designers or handymen who do side-gigs for cash, servers who underreport tips, and people-smugglers who ship refugees and migrants across borders.


Measuring the Underground Economy in America


It is difficult to gauge the size of underground economies, because they are by nature not subject to government oversight and do not generate tax returns or show up in official statistics. Discrepancies in these statistics can indicate the approximate size of informal economies, however. For example, national income and national expenditure would in theory be identical, if every transaction were fully visible to the people compiling the data. In practice, though, expenditures exceed income, because income from an illegal transaction will not appear in the data, but that money will show up in expenditures when it is used in a legal transaction. Along the same lines, if electricity consumption grows faster than GDP, it might suggest that the underground economy is growing at the formal economy's expense. 


One approach to determining the level of shadow activity is the very direct one of using a questionnaire. However, it may be hard to get accurate results, as people are either afraid that they will be giving themselves up, or else they are just ashamed to admit what they’re doing.

There are other indirect approaches that try to use macroeconomic indicators as proxies for shadow economy activity. One example—and the most widely used of the indirect macroeconomic approaches—of such a method would be currency demand approach. Assuming most underground transactions use cash to avoid the paper trail, this approach tries to find deviations in the demand for cash that could be isolated to underground economic activity.


Despite the inherent difficulties involved in such measurement, economists have attempted to calculate the size of shadow economies. One such economist, Friedrich Schneider, estimated that the size of the U.S. underground economy (not including criminal activity such as drug dealing etc.) relative to GDP was 7.2% in 2007, which was below the OECD average of 13.9%. (See also: Countries With The Largest Shadow Markets).


While Schneider found that since 1999 the trend in the Organization for Economic Cooperation and Development (OECD), including the U.S., was a shrinking shadow economy, recent evidence suggests that since the global financial crisis in 2008, the trend has reversed. This trend could simultaneously explain the decline in the official U.S. labor force, the increase in U.S. currency in circulation, and the suspicious increase in retail sales despite relatively high unemployment. Indeed, economist Edgar Feige estimated that underground economic activity in the U.S. totaled $2 trillion in 2012, approximately 12% of GDP at the time.


According to estimates by Friedrich Schneider, the American underground economy was about 8% of GDP, or $1 trillion, in 2009. By 2013, largely due to the financial crisis and resulting contraction of the formal economy, the amount had reached $2 trillion, according to Edgar Feige. The share of America's underground economy is relatively small. The OECD average, according to Schneider, was around 20% from 1999 to 2010. France's was closer to 15%, Mexico's to 30%. On the other hand, as with formal economies, underground economies are not hermetically sealed. Demand for narcotics in the U.S., for example, fuels much of the underground economy in Mexico and elsewhere.




The underground economy can be benign or harmful, depending on the perspective and economic context. In developing countries, the share of the informal economy is relatively large, at around 36% in 2002-2003, according to Schneider, as opposed to around 13% for developed countries. On the one hand, this is bad for developing-country governments, which forgo tax revenue on a large share of transactions. That in turn is bad for citizens, including participants in the informal economy, which do not enjoy quality government services.



May 26, 2016


Using Depreciation Capitalization Rules for Tax Planning


Over the last few years one of the most dynamic portions of the tax code has been depreciation and capitalization regulations.


Between the changes to capitalization rules, updates to bonus depreciation and limits to Section 179 expensing, many professionals have had a hard time keeping up with the current rules. Now that we are through another tax season, it is a good time to sit back and review where we stand as it relates to capitalization and depreciation and how to utilize the rules for tax planning.


Whether a 3115 was filed or not, the new tangible property regulations became law in 2015 and need to be adopted. This is not a bad thing for taxpayers or professionals as these regulations provide many opportunities for tax planning. The ability to write off partial dispositions, claim more expenditures as repairs, and take advantage of other aspects of these rules provide ample opportunities for tax planning. Expenditures need to be closely reviewed and discussed to determine the correct and most advantageous capitalization procedures. Additionally, taxpayers need to ensure they have quality capitalization policies in place to take advantage of much more liberal rules surrounding de minimis expenditures for tax purposes.


Just as taxpayers emerged from dealing with the tangible property regulations, uncertainty remained about 179 expensing limitations, bonus depreciation and the 179D tax deduction. However, late in 2015 some certainty and guidance was issued on these areas as well. Congress finally got to the point where they were willing to permanently extend increased 179 expensing, setting the new limit at $500,000 with adjustments for inflation. Additionally, bonus depreciation was extended with phasedowns beginning in 2018. These changes, along with the extension of 179D through the end of 2016, allow taxpayers and professionals to plan in ways that were unavailable in recent years.


While bonus depreciation was extended, it also became more complicated under the PATH Act. In addition to the existing categories for bonus depreciation, the PATH Act added a new category called Qualified Improvement Property, or QIP for short. To qualify as QIP, the assets must meet the following criteria:


• Placed in service after Dec. 31, 2015
• 39-year recovery period
• Improvement to the interior portion of the building, excluding:
   o Enlargement of building
   o Elevators/escalators
   o Internal structural framework
• Improvement must be placed in service after the original placed in service date of the building.

This now means owner-occupied properties may receive bonus depreciation for certain renovations. Thus, an owner could renovate a building and take bonus depreciation for many of the improvements made to the interior of the building.

Combining these new rules is where the tax planning comes into play. For example, look at a taxpayer who has an existing property they plan on completely renovating. Under the old rules they could complete a cost segregation study on the renovation and possibly the original building, accelerating some of the depreciation into the current year. Under the new regulations, they have the ability to:

• Accelerate the personal property
• Take partial dispositions on the assets removed from service
• Take bonus depreciation on QIP installed during the renovation
• Take bonus depreciation on personal property and land improvements installed during renovation
• Take 179D energy efficient building deduction on eligible property.


The new regulations can supercharge the benefits associated with the renovation. However, it is important to note that a qualified cost segregation study should be completed to identify the assets removed, the assets eligible for bonus depreciation, and the units of property eligible for future dispositions.


More than ever it is important that these studies are completed by qualified practitioners. Having a quality analysis completed will identify the assets eligible for special treatment and will provide valuable breakdowns for future tax planning.


May 25, 2016


IRS Finalizes Rules on Roth IRA Disbursements

The Internal Revenue Service has released final regulations for disbursements from Roth individual retirement accounts, removing the allocation rule for disbursements from designated Roth accounts to multiple destinations.


The final regulations eliminate a requirement that each disbursement from a designated Roth account that is directly rolled over to an eligible retirement plan be treated as a separate distribution from any amount paid directly to the employee and therefore separately subject to the rule in section 72(e)(2) of the Tax Code allocating pretax and after-tax amounts to each distribution.


As a result of this change, according to the IRS, if disbursements are made from a taxpayer’s designated Roth account to the taxpayer and also to the taxpayer’s Roth IRA or designated Roth account in a direct rollover, then pretax amounts will be allocated first to the direct rollover, rather than being allocated pro rata to each destination.


In addition, a taxpayer will be able to direct the allocation of pretax and after-tax amounts that are included in disbursements from a designated Roth account that are directly rolled over to multiple destinations, applying the same allocation rules to distributions from designated Roth accounts that apply to distributions from other types of accounts.


May 25, 2016


First-Ever Official Count of CPAs


The National Association of State Boards of Accountancy has released for the first time in history an official CPA population statistic representing the total number of individual, U.S.-licensed CPAs.


As of April 22, 2016, there are 664,532 actively licensed CPAs.


The new statistic comes from NASBA’s Accountancy Licensee Database, a national database of CPAs containing official Board of Accountancy data aggregated from 51 of the 55 CPA licensing jurisdictions. It represents the total number of individual CPAs considered to be in “Active” status by their state boards, a majority of which can be matched across state lines to assure the CPAs who are licensed in multiple states are only counted once. Before the existence of the database, the ability to eliminate the duplicate licensees across state lines when calculating the total CPA population was not possible.

Partner Insights

“NASBA has one of the most accelerated data-sharing programs among state-regulated professions because of the amount of data being contributed by the participating boards,” said NASBA chief legal officer and director of compliance services Maria Caldwell in a statement.


“Without the ongoing efforts of the state boards and their willingness to collaborate and preserve the CPA designation, there would not be the unprecedented degree of data that is currently shared between state boards.”


Approximately 98 percent of the world’s CPA licensee information is housed in the public database.


The database has a public-facing version, CPAverify.org, a free service available to the public to verify if a person or firm is licensed to practice public accounting and if there is any enforcement history on the record. License numbers, issue dates, license status, a flag of existing enforcement history, and other details are included for the records.


“CPAverify.org enables consumers of financial services to verify the licensure and disciplinary history of CPAs, which not only provides incredible protection to the public, but also promotes the CPA designation while dissuading fraudulent use,” said ALD and CPAverify manager Elizabeth Stanton. “Everyone from individual CPA clients to background check companies to

Human Resources personnel can benefit from using the site.”


The new CPA population statistic will be updated quarterly and made available on NASBA’s website.


May 24, 2016


Higher Taxes Don't Scare Millionaires into Fleeing Their Homes After All

(Bloomberg) When it comes to taxes, millionaires have short fuses. Ratchet up their rates and they'll blow you off and move to a low-tax, or no-tax, state.


Or so goes one argument against taxing the rich: States that levy a “millionaires tax” risk chasing those millionaires away to Florida, Texas and other places with no income tax. Hedge fund manager David Tepper's recent decision to move from New Jersey to Florida, possibly creating a billionaire-size hole in Jersey’s budget, raised alarms. Golf great Phil Mickelson, shortly after his infamous Dean Foods stock trade, complained about his high tax rate in California and threatened to move to Florida.


Now, a study based on 13 years of tax data finds that most millionaires don’t move cross-country just to avoid a tax bill. It turns out that the rich, while perhaps different from us, aren’t all that mobile. When they do move, it’s often for reasons that have nothing to do with taxes. For one thing, they appear to like the beach.


The study, published in the June issue of the American Sociological Review, suggests that states—and countries—may have some leeway to raise taxes on the wealthy without scaring away their tax base. It has obvious political implications, possibly serving as ammunition for those who favor taxing the rich. It could help advance the arguments of presidential candidates Hillary Clinton and Bernie Sanders, for example, who have both proposed higher taxes on upper-income Americans.


It could also influence voters who, in as many as four states—California, Colorado, Maine and Minnesota—will decide in November whether to raise taxes on residents in the top brackets. 

Rich people do move for tax reasons, but only about 2.2 percent of the time, the study estimates, with little impact on revenues in the states they leave behind. If states increase their top tax rate by 10 percent, they risk losing just 1 percent of their population of millionaires, the researchers found, using a statistical model based on millionaires' past movements from state to state.


“Millionaire tax flight is occurring, but only at the margins of significance,” write the authors, Stanford University sociology professor Cristobal Young, his Stanford colleague Charles Varner, and two U.S. Treasury Department economists, Ithai Lurie and Richard Prisinzano.


The researchers analyzed 45 million tax records, covering every filer who reported income of at least $1 million in any year from 1999 to 2011, and found that the rich are in fact less likely to move around than the poor. Typically, about half a million households report such an income and only 2.4 percent of these taxpayers move from state to state in any given year. That compares with 2.9 percent of the general population and 4.5 percent of those earning about $10,000 a year.


Why are the wealthy, with all their resources, more likely to stay in one spot? The study notes that millionaires are likelier to be married, have kids, and own businesses, all conditions that tend to make moving more difficult. Wealthy people often form deep roots in their communities, ties that helped them succeed in the first place.


“Most millionaires are the ‘working rich,’ ” the study notes, with wealth that flows from the particular places where they’ve built business relationships. For a certain kind of tech entrepreneur, low-tax New Hampshire and Tennessee are no substitute for Silicon Valley. Wall Street lawyers need to stay near Wall Street. For a famous actor or director, Hollywood, Fla., is nothing like Hollywood, Calif.


The study also looked at regions of the country where it is easy for taxpayers to commute daily across state lines from low-tax states to high-tax states. Residents of Portland, Ore., for example, must pay a top state tax rate of 9.9 percent, while across the river in Vancouver, Wash., there’s no income tax at all. You would expect people of means to live on the low-tax side. Yet in these easily commutable border areas, “the difference in millionaire population at the state border is not significant,” the study concludes.


As for the jet-setting millionaire who has breakfast in Miami, spends the day in Manhattan, and wakes the next morning in his Idaho compound, changing where you’re taxed isn’t as simple as putting a different address on your 1040 form. States such as New York often demand proof from wealthy residents that they really have uprooted their lives and are spending more than half the year out of state.


One curious finding was how much the wealthy seem to like Florida. The Sunshine State is one of seven with no income tax, yet it accounts for almost all the tax-influenced migration the authors detected. Meanwhile, Texas, Tennessee and New Hampshire didn’t appear to be drawing millionaires away from higher-tax states. In fact, when Florida is excluded from the analysis, there is “virtually no tax migration” by millionaires.


The authors can only guess why the rich prefer Florida. “It is the only state with coastal access to the Caribbean Sea,” they note, but “it is difficult to know whether the Florida effect is driven by tax avoidance, unique geography, or some especially appealing combination of the two.”



May 23, 2016


IRS’s Earned Income Tax Credit Program Improperly Paid $15.6 Billion


The IRS erroneously paid out an estimated $15.6 billion in Earned Income Tax Credit payments in fiscal year 2015, according to a Treasury Inspector General for Tax Administration.


The $15.6 billion in improper payments identified by the inspector general represented 23.8 percent of total earned income credits paid out in that fiscal year. According to the Office of Management and Budget, an improper payment is a transfer that should not have been made, was made in the incorrect amount, or was made to an ineligible recipient.


The Office of Management and Budget has classified the Earned Income Tax Credit program a “high-risk” program, making it the only IRS program with this classification.


“The [Earned Income Tax Credit] remains the only revenue program fund to be considered a high risk for improper payments despite numerous indicators that other refundable tax credits (e.g. the Additional Child Tax Credit) also potentially result in significant improper payments,” the report states.


The inspector general found that the potential improper payment rate for the child tax credit program was 24.2 percent in fiscal year 2015, with improper payments totaling $5.7 billion.

“The IRS can audit potentially erroneous [Earned Income Tax Credit] claims; however, the number of claims the IRS can audit is limited by resources,” the audit explains. “As a result, billions of dollars in potentially erroneous [Earned Income Tax Credit] claims go unaddressed every year.”


In response to the report, the IRS said they are taking steps to make reduce payment errors.


“We continue to use every tax administration tool and technique available to us as well as vigorously explore additional data sources and partners to verify claim eligibility, deter over claims, and reduce payment errors,” a spokesperson from the IRS said in response to the report.


“The IRS began taking steps in late fiscal year 2015 to improve the risk assessment process for the refundable tax credits,” the spokesperson said. “As part of that effort, we are continuing to evaluate the risk assessments and identify opportunities to make them more robust.”



May 19, 2016


Middle Class Work Deserves Middle Class Wages


New rule


Today, the Department of Labor announced a significant change to the overtime rule that simply hasn’t been working for working people. In the process, we’re making it simpler for employers to identify which white-collar workers are covered and owed time-and-a-half for work beyond 40 hours in a week.


For decades, the salary threshold under which all white-collar, salaried workers qualify for overtime has failed to keep up with the rising cost of living. In 1975, 62 percent of full-time salaried workers were eligible for overtime protection based on their pay. Today, only 7 percent are eligible under the outdated salary level. The current salary level is so low that it does not effectively identify which white-collar workers are entitled to overtime protection. That is an economy out of balance.


So we’re fixing it. We have more than doubled the salary threshold — lifting it from $23,660 to $47,476 per year. That means some 35 percent of full-time salaried workers, based on their pay, will now be eligible for overtime.


What does this mean?


Whether they’re assistant managers at a restaurant or supervisors in the human resources department, white-collar workers who earn below the new salary threshold have their overtime protections restored.


Employers have options for how they respond to the new rule, and they’re likely to do the following:


o Pay time-and-a-half for overtime work.

o Raise workers’ salaries above the new threshold.

o Limit workers’ hours to 40 per week.

o Some combination of the above.


Who benefits?


Today’s rule change, which takes effect on Dec. 1, will benefit 4.2 million workers, making them newly eligible for overtime protections. It clarifies for another 8.9 million salaried workers that they, too, remain entitled to overtime. Now, millions of these middle-class jobs are more likely to be rewarded with middle-class pay, and the millions of Americans who sacrifice family time to work extra will earn extra. If their employer chooses to send them home instead of paying for the extra hours, then it means extra time for family or other professional pursuits.


If you work full-time in America, you should be able to get by; when you work extra, you should be able to get ahead. That’s the commonsense principle we’re reaffirming today. With today’s update to the overtime rule millions will be able to punch their ticket to the middle class.


May 18, 2016


City of Chicago Minimum Wage (Repost)


Minimum Wage Ordinance


On December 2nd, 2014, the Chicago City Council passed an ordinance that will raise the minimum wage for Chicago workers to $13 per hour by 2019. This measure, sponsored by Mayor Rahm Emanuel, Alderman Will Burns, Alderman Pat O’Connor, and 31 other aldermen, will increase the earnings for approximately 410,000 Chicago workers, inject $860 million into the local economy, and lift 70,000 workers out of poverty.


In 2015, the City will begin phasing in its new minimum wage, as provided by the ordinance. This phase-in will help simplify the early years of implementation for businesses and employers. The City's ordinance raises the hourly minimum wage to $10 in 2015, $10.50 in 2016, $11 in 2017, $12 in 2018, and $13 in 2019, indexed annually to the Consumer Price Index (CPI) after 2019.


The ordinance also increases the minimum wage for tipped employees in from the current state minimum of $4.95 to $5.45 in 2015 and $5.95 in 2016, indexed annually to the CPI after 2016.

The full text of Minimum Wage ordinance is available HERE.


Implementation Timeline*

Effective Date Non-Tipped Employees Tipped Employees
Current $8.25 $4.95
July 1, 2015 $10.00 $5.45
July 1, 2016 $10.50 $5.95
July 1, 2017 $11.00 Increases with CPI*
July 1, 2018 $12.00 Increases with CPI*
July 1, 2019 $13.00 Increases with CPI*
July 1, 2020 Increases with CPI* Increases with CPI*

* The ordinance provides that the minimum wage will not increase when the unemployment rate in Chicago for the preceding year, as calculated by the Illinois Department of Employment Security, was equal to or greater than 8.5 percent. The ordinance also provides that if the CPI increases by more than 2.5 percent in any year, the minimum wage increase shall be capped at 2.5 percent.


To Whom Does the Minimum Wage Ordinance Apply?

  • Employers: Employers that maintain a business facility within the City of Chicago and/or are required to obtain a business license to operate in the City are subject to the minimum wage ordinance.
  • Employees: Employees who work two hours in the City within the period of two weeks qualify for the minimum wage required by the ordinance. This includes domestic employees and home health care workers. A union may waive its members' rights to collect the minimum wage as part of a collective bargaining agreement.

Time spent traveling in the City that is compensated time, including, but not limited to, deliveries, sales calls, and travel related to other business activity taking place within the City, counts toward hours worked; time spent traveling in the City that is uncompensated commuting time does not.


To Whom Does the Minimum Wage Ordinance NOT Apply?

  • Employees taking part in government-subsidized temporary youth employment programs.
  • Employees taking part in government-subsidized transitional employment programs.
  • Employees of any governmental entity other than the City.
  • Certain employees exempted under state law, including:
    1. Employees under 18 years of age. Employers are authorized to pay these employees a wage 50 cents below the state minimum hourly wage.
    2. Adult employees (i.e. those 18 years of age or older) in the first 90 days of employment. Employers are authorized to pay these employees a wage 50 cents below the state minimum hourly wage.
    3. Disabled employees, pending state approval.Trainees taking part in a program for no more than six months, pending state approval.
    4. Employees working at a business with four or fewer employees, not counting the employer’s parents, spouse, children or other members of the employer’s immediate family.

Other Employer Requirements

  • Employers that pay a covered tipped employee must make available at the request of the Commissioner of Business Affairs and Consumer Protection substantial evidence that establishes: (i) the amount the employee received in gratuities during the relevant pay period and (ii) that no part of that amount was returned to the employer. If an employer is required by the state minimum wage law to provide substantially similar data to the Illinois Department of Labor, the Commissioner may allow the employer to comply with this requirement by filing a copy of the state documentation.
  • Employers with a business facility in the City at which a covered employee works must post notice at the facility of: (i) the City minimum wage and (ii) the employee’s rights under the ordinance. The Commissioner of Business Affairs and Consumer Protection will prepare a form notice and make it available online to employers. Employers that do not maintain a business facility within the geographic boundaries of the City and households that serve as the worksite for domestic workers and home healthcare workers are exempt from this requirement.
  • Employers must provide with the first paycheck issued to any covered employee a form notice advising the employee of: (i) the City minimum wage and (ii) the employee’s rights under the ordinance. The Commissioner of Business Affairs and Consumer Protection will prepare a form notice and make it available online to employers.
  • Employers may not discriminate or take any adverse action against any covered employee in retaliation for exercising any right covered under the ordinance.
  • Employers that violate the Minimum Wage ordinance will be fined $500 to $1,000 for each offense. Each day that a violation continues constitutes a separate and distinct offense to which a separate fine shall apply.


May 17, 2016


LLC vs Corporation


Among the many decisions you need to make when launching a business is selecting a business structure. If you do nothing, your business, by default, is structured as either a general partnership (multiple owners) or sole proprietorship (solo owner). These may be the simplest entities to form, but they offer one major drawback: There’s no separation between the business and business owner. 


If your partnership or sole proprietorship business is sued or can’t pay its bills, your personal assets can be on the hook. That is why both the Limited Liability Company (LLC) and C corporation, or just corporation, are popular business structures, as they minimize the owner’s personal liability. Yet, they have vastly different approaches to taxation. 


1. Pass-through business structure vs. non pass-through entity


By default, an LLC is considered a pass-through entity, similar to a sole proprietorship or partnership. This means that the business itself doesn’t pay income taxes on its profits; rather any profits or loss are passed through to the owners (called members) and reported on their personal tax returns. 


By contrast, a corporation is considered a separate legal entity and must submit a tax return and pay income taxes on its profits. In some cases, this can lead to “double taxation," where the corporation is taxed on its profits, then when the owners take those profits out, they will need to report the dividend on their personal tax returns. For some small-business owners who are accustomed to taking profits out of the business, double taxation can be costly. 

Keep in mind that a corporation can elect a “S corporation tax treatment” to be treated as a pass-through tax entity like an LLC. Additionally, an LLC can even choose to be taxed like a corporation or an S corporation. 


2. Ability to leave money in the company


While C corporations are subject to double taxation, they offer more flexibility in terms of income shifting compared with pass-through entities like LLCs and S corporations. When an LLC is taxed as a pass-through entity, its members must pay taxes on their share of the profits, whether or not that money stays in the business or is distributed to their personal account.

By contrast, C corporation owners are taxed only on the actual amount they receive as dividends. By working with a tax advisor, you can allocate your business’s profits in such a way to take advantage of lower income tax brackets. For example, if your business made $90,000 in profits for the year, you could choose to leave $50,000 in the corporation as corporate profit and take $40,000 in salary.  


3. Social security and Medicare taxes


LLC members are not considered employees, so their share of the profit is not subject to social security or Medicare tax. However, LLC members who actively work in the business need to pay self-employment taxes on their income (including salary and their share of any profits). However, with a corporation, only the salaries are subject to social security and Medicare taxes. Any profit distribution isn’t subject to these taxes.  

Keep in mind that an LLC can opt to be taxed as a corporation. In this case, only the member’s salary is subject to social security and Medicare and not the profit distribution. 


4. Ability to deduct a loss


LLC members who actively work in the business are able to deduct the business’s operating losses on their personal tax return to offset other income. C corporation shareholders are not able to deduct these losses but S corporation shareholders can. 


5. Employee benefits


In terms of perks and benefits, there are some key differences between an LLC and a corporation. First, certain retirement plans, stock option and employee stock purchase plans are only available for C corporations. In addition, LLC members (as well as S corporation shareholders who own more than 2 percent of the business) need to pay taxes on certain employee benefits like health benefits, employer contributions to HSAs or FSAs, and life insurance benefits. Shareholders of a C corporation do not have to pay taxes on these benefits. 


When it comes to choosing a business structure, there’s no single right answer that works for every business. You need to think about your financial situation and future plans to determine the optimal structure for your needs. 


Remember the LLC is also the most costly to setup and maintain yearly but affords every tax entity treatment to choose from.  Choosing the tax treatment and expense of organization should also depend on the size of the venture and length of business life expected.  Many businesses fail due to the inability to pay yearly state and professional fees not to mention payroll and corporate taxes.  Making the correct choice can save dollars the business could use in other areas.



May 15, 2016


Who has the largest World Economy?


China became the world's largest economy for the first time in modern history in 2015. It produced $19.5 trillion in economic output. Followed by the European Union (EU) producing $19.1 trillion. Together, China and the EU generate 33.9% of the world's economic output of $113.7 trillion.


The US fell to third place, producing $17.9 trillion. The world's three largest economies combined produced $56.5 trillion. That's nearly half of the world's total economy. No other economy is even close to any of these three. The fourth largest economy was India, producing $8 trillion. Japan was fifth, at $4.6 trillion. Germany, the strongest country in the EU, produced $3.8 trillion. (Source: CIA World Factbook, Rank Order GDP)


How are Economies Measured?


Don't start swapping U.S. dollars for Chinese yuan and learning Mandarin yet. These three figures are very close. The estimates change throughout the year. China's economy is slowing as its leaders attempt to head off an asset bubble through reform.


Second, it's important to understand how a country's economy is measured by its Gross Domestic Product (GDP). That has four components: output by households, government, and business investment, as well as net exports (exports minus imports). 


The output measured by GDP equals spending, so it takes into account the cost of living. That means it doesn't cost as much to buy, say, a Hamburger in China as in the United States. Analysts use purchasing power parity to take into account each country's standard of living. You can't compare countries or economies without it.


Did the Recession Affect the Global Ranking?


The EU achieved its top status in 2007. That year, its Gross Domestic Product (GDP) was $14.4 trillion, while U.S. GDP was only $13.86 trillion. The EU held onto its premier position through the 2008 financial crisis and the euro zone debt crisis until 2013, when the United States briefly regained the top spot. (Source: CIA World Factbook, Rank Order GDP)


While the EU and U.S. economies maintained their share of the global economic output, China was the big winner. It now produces twice as much as in 2007, when its GDP was $7 trillion. India is also a big winner. Its GDP also nearly tripled from its 2007 output of $2.965 trillion. Japan barely gained any ground -- its GDP was $4 trillion in 2007. Germany's GDP only rose 16% from its $2.8 trillion output in 2007. 


Is the EU the World's Largest Economy?


Even when the EU produced more, some experts said the United States was still the world's largest economy. They argued that America is a country while the EU is just a trading area that includes 27 separate countries. However, the EU confers many rights that make it more than just a free trade zone (such as NAFTA). In addition to tariff relief, the EU allows free movement between the countries for employment and trade. Furthermore, 13 of these countries share a common currency, the euro. Despite the euro zone debt crisis, the EU is lurching toward greater fiscal integration as well as a monetary one. The EU is acting more and more like a unified economy all the time.


The U.S. economy had been growing more slowly than the EU. The euro zone crisis changed all that. Many analysts initially said that the EU "experiment" was doomed to failure since these vastly different countries could never work together as a unified economy. The ongoing euro zone crisis may yet prove them right. However, until then, the EU experience was so successful that areas such as Southeast Asia and Latin America were considering unifying their economies and considering a unified currency. They are waiting to see how the euro zone crisis resolves before following that model.


Nevertheless, the EU has achieved an economy of scale that eats into the comparative advantage the U.S. has traditionally enjoyed. Furthermore, the EU's currency, the euro, has successfully competed with the dollar as a global currency. Thanks to these competitive pressures, and those from China, the U.S. has once again lost its #1 spot as the world's largest economy. 



May 11, 2016


Who exactly owns the $19 trillion-plus of U.S. debt?


There's been a lot of attention in recent years over China rising to become one of the largest holders of U.S. debt. China's share of the debt is sizable -- about 7% -- but it's hardly the largest holder of U.S. government bonds.


The top holder by far is U.S. citizens and American entities, such as state and local governments, pension funds, mutual funds, and the Federal Reserve. Together they own the vast majority 67.5% of the debt. Foreign nations only hold 32.5% of the total.


The U.S. government is the world's safety net. Lenders expect the U.S. Treasury to always make good on its payments. The global financial system is built on the notion that U.S. Treasuries are absolutely safe assets. Renegotiating debt terms is a common practice among companies in financial trouble. Creditors are willing to accept lower payments because that's preferable to getting nothing. However, the U.S. government isn't a "junk bond" company.


What's important to remember is that any debt negotiation is really a deal with U.S. citizens.


For years, grandmas and grandpas gave their children and grandchildren U.S. bonds to encourage them to save and grow their money. Retirees buy bonds because they are safer than stocks and provide more stable monthly income. Investors of all ages hold U.S. bonds to make their retirement and investment portfolios less risky.


Of the $12.9 trillion chunk of debt owned by Americans, $5.3 trillion is held by government trust funds such as Social Security, $5.1 trillion is held by individuals, pension funds and state and local governments and the remaining $2.5 trillion is held by the Federal Reserve. Outside the U.S., China is the largest foreign holder of the debt, with $1.25 trillion. It is followed closely by Japan, which holds $1.13 trillion.


April 29, 2016


Your 2015 income tax dollars paid for


The National Priorities Project broke down how much of the $4.2 trillion federal budget last year was allocated to areas like defense, housing, education, science, and interest on the debt. Then it applied those percentages to the average American's federal tax bill.


The average household paid $13,000 in income taxes to Uncle Sam for 2015. Of that, the federal government spent:


  • $3,728.92 (or 28.7%) on health programs
  • $3,299.13 (or 25.4%) on the Pentagon and the military
  • $1,776.06 (or 13.7%) on interest on the debt
  • $1,040.93 (or 8%) on unemployment and labor programs
  • $771.26 (or 5%) on veterans benefits
  • $598.74 (or 4.6%) on food and agriculture programs
  • $461.59 (or 3.6%) on education programs
  • $377.50 (or 2.9%) on government expenses
  • $250.03 (or 1.9%) on housing and community programs
  • $207.68 (or 1.6%) on energy and environmental programs
  • $194.29 (or 1.5%) on international affairs programs
  • $150.68 (or 1.2%) on transportation funding
  • $143.20 (or 1.1%) on science funding


Now that you've filed your federal income taxes, your total tax bill for 2015 should be fresh in your mind. If you want to know exactly how much of it went to each of these areas down to the penny, just plug the number into NPP's federal tax receipt calculator to find out


April 28, 2016


Taxes unpaid every year total $458 billion

The United States routinely lives above its means by spending more than it takes in. But that's not entirely intentional. Part of the problem is that every year there's an estimated $458 billion 'tax gap' -- taxes that are owed but not paid. That's according to the latest estimate from the IRS. It's based on data from 2008 through 2010. To put that amount of money in perspective, it represents about three-quarters of this year's projected budget deficit.


The IRS said it manages to recapture about $52 billion of that money through tax enforcement efforts like audits, which brings the net annual tax gap to $406 billion. So, why the loss of so much revenue? After all, Americans are famously good about paying their taxes. The United States has a voluntary compliance rate of 82%.


The IRS cites three reasons for the persistent yawning gap: Underreporting, underpayment and failure to file, in that order.Tax filers who underreport what they owe account for $387 billion of the gross tax gap. That's not all due to nefarious deception. People make mistakes or get confused by what are objectively confusing tax rules.


The biggest culprit in this regard is a lack of third-party reporting and tax withholding on some types of income -- such as that made by small businesses or made through rents and royalties.

The IRS noted that only about 1% of income reported by third parties and from which tax is withheld -- such as workers' pay -- is misreported.


But 63% of income for which there is little or no information reporting and withholding is misreported.


Another way to break down the tax gap is to look at the different components of federal tax revenue. Individual income taxes account for the biggest slice of the tax gap -- $319 billion. That includes income taxes from small businesses and partnerships. Another $91 billion results from nonpayment of employment taxes, such as payroll taxes from the self-employed.

And $44 billion is the result of corporations' taxes owed but not paid.


April 25, 2016


U.S. Onshore Tax Haven: Delaware


For more than a century, Delaware has lured companies to file incorporation papers there by offering a specialized court system, laws that allow for avoiding other states’ taxes and a registration system that requires little public disclosure. Today, two-thirds of the Fortune 500 companies and 60 percent of U.S. hedge funds are registered there. That success has become a template for tax havens from Singapore to the Cayman Islands to Panama—where a recent leak of millions of documents has revealed the questionable uses of many shell companies and put financial secrecy in headlines globally.


Delaware still stands out for its emphasis on privacy, which garnered for it the label of world’s most secretive jurisdiction twice over the past decade—once by the Tax Justice Network and another by National Geographic magazine. While most businesses registered there are legitimate, critics say the secrecy provides cover for some shell companies owned by miscreants, from corrupt dictators to money launderers, drug dealers, tax cheats and arms merchants. Yet the business of registering businesses is important to Delaware’s economy and state revenue, and residents and leaders are quick to defend it.


The leak of the so-called Panama Papers, which exposed secretive companies’ roles in evading taxes, hiding corruption and financing organized crime, “brings into vivid focus the need to address money laundering and other criminal activities by people misusing U.S. legal entities,” said Delaware Secretary of State Jeffrey Bullock, in a statement. But Bullock suggested that the most effective way to instill more transparency is through federal legislation.


While stories about the documents’ contents have brought calls for more regulation and transparency in Europe, the Caribbean and Central America, the U.S. response has been muted. The federal government has for years refused to sign on to international standards for disclosing income, and Delaware officials are thus far resisting calls to amend state law to require more transparency.


“Who’s going to pressure them—some Swedish journalist?” said Sheldon D. Pollack, a University of Delaware law professor. “It is a huge source of income for the state, and a major part of its economy, so if anything, it might go the other way, and offer companies more privacy, to compete with other states like Wyoming and Nevada.”


Other tax havens have tried to mimic its success—Oregon has been called “Delaware of the West” and Luxembourg dubbed “the Delaware of Europe”—but no place else has come close to matching Delaware.


The state now has more business entities (about 1.1 million) than residents (about 935,000). One well-documented icon in this Mecca of corporate anonymity is a squat brick office building at Wilmington’s 1209 Orange Street. It’s the corporate home of more than 285,000 companies, including Alphabet Inc., Ford Motor Co. and Wal-Mart Stores Inc.—even if their operations are headquartered in Mountain View, California; Dearborn, Michigan; and Bentonville, Arkansas.

New York-headquartered Bloomberg LP, the parent of Bloomberg News, is a limited partnership organized under Delaware law.


Delaware offers legitimate companies benefits that include an easy and inexpensive registration process and laws that are more favorable to corporate mergers than other states, said Douglas Cumming, a business professor at York University in Toronto. “The state has made it clear that it is very pro-business,” said Cumming, who has studied the business advantages that Delaware offers hedge funds.


In 2015, Delaware registered more than 480 companies a day, providing steady business for in-state lawyers, accountants, and registration companies. Two firms, Corporation Trust Company and Corporation Service Company, act as the registered agent for two-thirds of the businesses. Both said through spokesmen that they comply with all state and federal laws.

Companies’ registration fees provide more than $1 billion in annual state revenue. Would-be reformers in Delaware tread carefully—despite the state having registered shell companies controlled by such notorious figures as Viktor Bout, the Russian “Merchant of Death” who authorities believe provided arms to the Taliban, and Luka Bojovic, whom officials linked to the assassination of Serbia’s prime minister.


It’s also home to a shell company controlled by a tequila distillery that the Mexican government is investigating for possible ties to cartel leader “El Chapo.”


“We can reform our laws to provide sufficient privacy for businesses without continuing to have secrecy that puts the national security at risk,” said Christine Whitehead, a member of Delaware Citizens for Open Government, which has pushed the state to require more transparency.

In neighboring Pennsylvania, governors and lawmakers rail against losing an estimated $500 million a year in revenue to Delaware’s system, but they’ve had little success stemming that tide. Companies can cut their home-state taxes with the “Delaware Loophole”—forming a passive investment corporation in the state and transferring their intellectual property there, where payments of royalties or interest incur no state tax.


When the U.S. government pushes other countries toward stricter disclosure requirements, foreign leaders frequently cite Delaware as an example of American hypocrisy and an obstacle to improvements. Austrian finance minister Maria Fekter, for instance, rebuffed calls to end bank secrecy in 2013, saying nothing had been done to stop “money laundering in all the islands … or the U.S. in Delaware.”


Delaware surfaced last year in an Australian tax case that revealed Chevron had used one of its 200 Delaware subsidiaries to take out a $2.5 billion loan at an initial interest rate of 1.2 percent and then lent the proceeds to Chevron Australia Holdings Pty Ltd. at 9 percent. The intracompany transactions transformed Chevron’s $1.7 billion Australian profit into interest payments and cut its potential Australian tax bill from $258 million to zero.

Chevron officials said the loans were legal and the company has paid all required taxes. In testimony to the Australian Senate last year, senior Chevron officials also pointed out that the profit was still subject to federal tax in the U.S. Company filings show that Chevron frequently reduces its U.S. tax bill by using hundreds of millions of dollars’ worth of write-offs, business credits and prior losses—which are legal and widely used tax strategies. During most of the years at issue in the Australian case, the company’s effective U.S. federal tax rate was lower than Australia’s 30 percent rate, according to calculations compiled by the advocacy group Citizens for Tax Justice.


An Australian court has ordered Chevron to pay back taxes, interest and penalties of more than $300 million. Chevron spokesman Bradley Haynes said the company cannot discuss the case in detail because it’s appealing that decision.


Congressional hearings about the perils of shell companies over the past decade have spurred Delaware officials to make a few changes—most notably a requirement that every business registered there list the name and telephone number of at least one contact person, usually a lawyer.


“It’s pointless,” said Heather Lowe, legal counsel and director of government affairs at Global Financial Integrity, a non-profit that advocates for greater transparency. “The bottom line is the state still has no idea who owns or controls the company. There’s not an officer, director or shareholder. Just a lawyer and they protect the identity because of lawyer-client confidentiality.”


No state requires companies to list beneficial ownership. Delaware has shown little inclination to be the first—a move that would almost certainly drive businesses to seek more private filings in Wyoming, Nevada or other states. Instead, Governor Jack Markell and other leaders have expressed support for a proposal from President Barack Obama’s administration that would apply to all states: Require every U.S. business entity to obtain a tax ID number that the Treasury Department could share with law enforcement agencies.


Such proposals have been blocked in Congress, where they’re opposed by the Chamber of Commerce and other business groups as well as the National Association of Secretaries of State. There’s little indication that’ll change, said J. Richard Harvey, a former top tax official at the IRS and Treasury Department who now teaches law at Villanova University.


“I would not hold my breath waiting unless the Panama Papers and U.S. corporations can be directly linked to terrorist financing,” Harvey said. If a strong link to terrorism were established, he said, “U.S. policy could change and change quickly.”



April 7, 2016


Myths About IRS Audits


Fear of being audited by the IRS is a deep-seated one for many Americans.


Like many things that provoke fear, IRS audits (which the IRS actually calls “examinations”) are associated in the popular imagination with a web of rumor, legend, and speculation—a web that the IRS reinforces by traditionally being a little cagey about its audit processes.


Some of these notions are clearly false, having been disproved by experts or even contradicted by the IRS itself. Other audit legends are all but impossible to rule out—or, for that matter, to verify—and thus not a factor on which you should base your tax-paying decisions.

Here are 10 common myths not to believe.


1) E-Filing is more likely to trigger audits

E-Filing is far and away the norm now, accounting for around 90% of all returns. But does it make you more likely to be audited? The IRS doesn’t release statistics that can definitively answer this question, but we can draw some conclusions from what we do know. The IRS has said that handwritten returns are 20 times more likely to have mistakes on them than e-filed returns—and that mistakes beget a second look by a human. That argues for e-filing.


2) Amending your return triggers an audit

The IRS flatly dismisses this myth. Of course, your second return does get screened, just like the first. And according to TurboTax, filling out your 1040X with a thorough explanation of about why you’re amending can stave off a human audit, even if your return does get flagged by the computers.


3) IRS agents will knock on your door

This one is partly myth. Yes, sometimes the IRS will schedule an examination at your home or workplace. But 70% of audits take place entirely by mail. It’s also worth noting that the IRS does not contact taxpayers by email, so any email purporting to be from the IRS auditor is spam or a scam.


4) IRS doesn’t use the phone

There’s been an uptick in phone and email-based IRS scams. But you can’t hang up immediately because the IRS does in fact contact taxpayers by phone regarding potential audits—sometimes even for the first interaction. If you are suspicious of a caller—and you should be—take a name and extension number and call the main IRS toll-free number: 800-829-1040. And know that a real IRS agent will never ask you to give out a bank account, credit card, or Social Security number over the phone.


5) Fewer audits is a good for everybody

Nobody likes to be audited, so fewer audits is a good thing, right? Well, according to the IRS, the 12% reduction in audits between 2013 and 2014 (due to the agency’s shrinking budget) cost the federal government about $2 billion in revenue. Having less revenue makes it harder to reduce taxes, which is not a good thing.


6) Filing late raises audit risk

Some people are under the impression that using an extension to file late increases your chance of getting audited. The IRS doesn’t enumerate the factors that can trigger an audit, and opinion is divided on this one. But tax lawyer Robert Wood, writing for Forbes, reckons that filing late actually decreases​ your chances of getting audited because the extra time means a less rushed and more thoroughly prepared tax return.


7) Audits are a horrifying experience

Personal finance expert Liz Weston, writing for NerdWallet last month, noted that Congress restructured the IRS in 1998 in response to complaints about over-the-top enforcement actions, ordering it to focus more on taxpayer rights and customer service. “Back in the day, the IRS was this big scary agency that came in and took over your house and went all through your records,” Melanie Lauridsen, senior technical manager for the American Institute of Certified Public Accountants, told Weston. “Now they try to work with the taxpayer.” And remember, 70% of examinations are done by mail.


8) Only the rich get audited

It’s true that wealthier people stand a significantly higher chance of being audited. “People who make less than $200,000 in a year get audited 1% of the time, and this percent goes up with income. If you make over $500,000, you face a 3.62% chance. If you make over $1 million, it almost doubles. At the highest level, those lucky enough to earn $10 million in a year face unlucky 16.22% odds of an audit.” But even at an audit rate of 1% per year, you stand a 26% chance of being audited over a 30-year period. Meanwhile, if anything, the data suggest that the middle class is gaining on the rich in audit rates: A 2015 Forbes article noted that “families earning less than $100,000 a year have seen their tax audit risk increase by 17% since 2010” while “Americans earning more than $100,000 per year has seen their risk of a tax audit decrease by 8%.”


9) Lots of deductions means more audits

Taking a ton of deductions does not automatically trigger an audit. The scanning system does compare your return to similar ones that share many characteristics, and yours could stick out if you take some unlikely deductions—say, charitable deductions that amount to more than your income. But a long list of legit deductions won’t by itself raise a red flag.


10) The audit risk is over when you get your refund check

You got the refund check in the mail, so you’re in the clear, right? Wrong! Since the IRS has to pay you interest if it doesn’t issue you a refund within 45 days of Tax Day—if you’re due one—it sometimes sends a check and initiates an audit later. Normally, the IRS is allowed to go back up to three years to audit someone, or up to six years if there’s been a big error.


April 6, 2016


Panama: A Tax Haven

Panama is considered one of the most well-established pure tax havens in the Caribbean due to extensive legislation that strictly regulates the country's offshore jurisdiction and financial services.


Panama's Offshore Financial Sector

Panama's offshore jurisdiction offers a wide array of excellent financial services, including offshore banking, the incorporation of offshore companies, registration of ships and the formation of Panama trusts and foundations. There are no taxes imposed on offshore companies that only engage in business outside of the jurisdiction. Offshore companies incorporated in Panama, and the owners of the companies, are exempt from any corporate taxes, withholding taxes, income tax, capital gains tax, local taxes, and estate or inheritance taxes, including gift taxes. Panama offers an additional benefit not available in many offshore tax havens: being able to conduct business within the offshore jurisdiction. However, any business conducted within the jurisdiction is subject to local taxes.


Financial Privacy

There are extensive laws in Panama to protect corporate and individual financial privacy. Strict confidentiality laws and regulations apply to documentation of offshore corporations, trusts and foundations, with severe civil and criminal penalties for violations of confidentiality. The names of corporate shareholders are not required to be publicly registered. Panama also has very strict banking secrecy laws. Panamanian banks are prohibited from sharing any information about offshore bank accounts or account holders. The only exception is a specific Panamanian court order in conjunction with a criminal investigation.


Panama has no tax treaties with other countries, further protecting the financial privacy of offshore banking clients who are citizens of other nations. Panama also offers the benefit of having no exchange controls. This means that for individual clients of Panama's offshore banking, as well as for offshore business entities incorporated in Panama, there are no limits or reporting requirements on money transfers into or out of the country.


April 6, 2016


The Panama Papers: Money Laundering


Prime Minister of Iceland Sigmundur David Gunnlaugsson resigned Tuesday amidst public furor over allegations that he had used a Panamanian law firm on the sly to create a shell company. His request to dissolve the country's parliament and hold snap elections had been denied. This was just the first of what are surely to be many resignations among public officials and captains of industry following Sunday's Panama Papers leak.


A sensational release of leaked documents by the German newspaper Süddeutsche Zeitung on Sunday, in what it’s calling the "Panama Papers: The Secrets of Dirty Money", exposes the network of corruption and abuse of tax havens by the mega-rich and powerful to hide their wealth. The leak involves about 2.6 terabytes of data regarding some of the darkest “wealth” secrets of politicians, ministers, officials, celebrities, criminals and associates of mafia groups.



The story goes back over a year, when Süddeutsche Zeitung (SZ) was contacted by an anonymous source who submitted 11.5 million encrypted confidential documents “safeguarded” by Mossack Fonseca. The Republic of Panama head-quartered Mossack Fonseca is a firm, “that sells anonymous offshore companies around the world. These shell firms enable their owners to cover up their business dealings, no matter how shady”, according to Süddeutsche Zeitung.

The source did not demand any financial compensation in return as revealed by SZ. But the number of secret documents kept pouring in, even a few months after the first submission was done. The total volume of leaks was nearly 2.76 terabytes, the biggest ever in history. According to SZ, “The Panama Papers include approximately 11.5 million documents – more than the combined total of the WikiLeaks Cablegate, Offshore Leaks, Lux Leaks, and Swiss Leaks. The data primarily comprises e-mails, pdf files, photo files, and excerpts of an internal Mossack Fonseca database. It covers a period spanning from the 1970s to the spring of 2016.”


Team Effort

The analysis of the encrypted files wasn’t done by Süddeutsche Zeitung alone. SZ decided to work in cooperation with the International Consortium of Investigative Journalists (ICIJ). The research done over 12 months, involved around 400 journalists representing about 100 media organizations from over 80 countries. The team included prominent names like the BBC, the Guardian, the Le Monde in France, the Austrian weekly Falter, the Swiss Sonntagszeitung, and La Nación in Argentina among others.


Who’s On The List

“The data provides rare insights into a world that can only exist in the shadows. It proves how a global industry led by major banks, legal firms, and asset management companies secretly manages the estates of the world’s rich and famous: from politicians, FIFA officials, fraudsters and drug smugglers, to celebrities and professional athletes,” according to Süddeutsche Zeitung.

The cache of 11.5 million files includes names of very popular and prominent figures. Some of the names on the list are: Alaa Mubarak (Son of Former Egyptian President), Kojo Annan (Son of former United Nations Secretary General), Ayad Allawi (Ex-Prime minister of Iraq), King Salman bin Abdulaziz bin Abdulrahman Al Saud (King of Saudi Arabia), Li Xiaolin (daughter of former Chinese Premier Li Peng),


Arkady and Boris Rotenberg, childhood friends of Russian President Vladimir Putin, Sergey Roldugin, one of Putin current associates, also made the list. It isn't a surprise to many, after years of official corruption and cronyism in Russia, that Putin's friends have enriched themselves at the public expense, or that they have hidden much of that wealth in off-shore corporate shell organizations. But the depth and breadth of the current leak should give even the most cynical observers of international oligarchy pause.


A press release on April 3, 2016, by Global Witness, read, “The recent exposé by the International Consortium of Investigative Journalists and their media partners have once again shown the insidious role that tax havens, corporate secrecy and shell companies play in aiding widespread crime, corruption and violence. These threaten the safety, security and well-being of people around the world.”


The Bottom Line


The year-long investigation has lifted the layers of secrecy underneath which Mossack Fonseca has been “covertly” helping the rich and powerful to legalize dark and unaccounted money as well as evade taxes. The report, which unveils more than 140 politicians and public officials across 55 countries, shows that foul play, tax evasion, corruption and existence of huge unaccounted wealth isn’t one country or regional phenomenon but is happening for decades across the globe.


April 6, 2016


Tax Haven


What is a 'Tax Haven'


A tax haven is a country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Tax havens also provide little or no financial information to foreign tax authorities. Individuals and businesses that do not reside a tax haven can take advantage of these countries' tax regimes to avoid paying taxes in their home countries. Tax havens do not require that an individual reside in or a business operate out of that country in order to benefit from its tax policies.


Andorra, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Cook Islands, Hong Kong, the Isle of Man, Mauritius, Lichtenstein, Monaco, Panama, Switzerland and St. Kitts and Nevis are all considered tax havens.


However, pressure from foreign governments that want to collect all the tax revenue they believe they are entitled to has caused some tax haven countries to sign tax information exchange agreements (TIEAs) and mutual legal assistance treaties (MLAT) that provide foreign governments with formerly secret information about investors' offshore accounts.


April 6, 2016


Money Laundering




What is 'Money Laundering'

Money laundering is the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.


BREAKING DOWN 'Money Laundering'

There are three steps involved in the process of laundering money: placement, layering, and integration. Placement refers to the act of introducing "dirty money" (money obtained through illegitimate, criminal means) into the financial system in some way; "layering" is the act of concealing the source of that money by way of a series of complex transactions and bookkeeping gymnastics; and integration refers to the act of acquiring that money in purportedly legitimate means.


One of the more common ways that laundering takes place is when a criminal organization funnels their illegally obtained cash through a cash-based business, slightly inflating the daily take. These organizations are often referred to as "fronts." In the popular television series "Breaking Bad," the methamphetamine dealer funnels his earnings from selling illicit drugs through a series of car-wash businesses.


Other common forms of money laundering include smurfing, where a person breaks up large chunks of cash and deposits them over an extended period of time in a financial institution, or simply smuggles large amounts of cash across boarders to deposit them in offshore accounts where money laundering enforcement is less strict.



Some estimate the size of the problem of money laundering as being over $500 billion annually. Although the act of money laundering itself is a victimless white-collar crime it is often connected to serious and sometimes violent crime. Being able to stop money laundering is in effect, being able to stop the cash flows of international organized crime. 


In 1989, the Global 7 formed an international committee called the Financial Action Task Force in an attempt to fight money laundering on an international scale. In the beginning of the 2000's its purview was expanded to combating the financing of terrorism. 


The United States passed the Banking Security Act in the 1970's requiring financial institutions to report types of transactions to the Department of the Treasury, like cash transactions above a $10,000, or any transactions they deem suspicious on a report called an SAR (suspicious activity report).


The information that these banks provide to the Department of the Treasury is then used by the Financial Crimes Enforcement Network (FinCEN) ​, where it can then be sent to domestic criminal investigators, international bodies, or foreign financial intelligence units. While these laws were helpful in tracking criminal activity through financial transactions, money laundering itself wasn’t made illegal in the U.S. until 1986 with the passage of the Money Laundering Control Act. The new law removed limits on the amount of money involved, and it also removed individual intent to give the federal government more room to prosecute money laundering. 


In many ways, the new frontier of money laundering and criminal activity lays in crypto-currencies. While not totally anonymous, these forms of currencies are increasingly being used as currency blackmailing schemes, drug trade, and other criminal activities due to their anonymity compared to other forms of currency. 


March 29, 2016


Nanny Taxes and Home Employment


If you pay your nanny or any household employee the IRS says you have tax and payroll responsibilities as a household employer.


If you:

  • paid any one household employee cash wages of $1,800 or more during the calendar year,
  • withheld federal income tax during the calendar year for any household employee, or
  • paid total cash wages of $1,000 or more in any calendar quarter of the year or previous year to all household employees.

To help you out, here are the answers to some common nanny tax questions and concerns:

Is Your Nanny an Employee?
Yes, according to the IRS, a person is an employee if you're telling them what they will do and how they will do it, as opposed to an independent contractor that you tell only what results you're looking for. Families that misclassify their household employee as an independent contractor (by providing a Form 1099 for filing taxes) can be charged with tax evasion.

What Are Nanny Taxes?
The "nanny tax" is comprised of the combination of taxes you withhold from your employee and the taxes you pay as the employer. Typically, you'll withhold Social Security and Medicare (collectively known as FICA) and federal and state income taxes from your employee each pay period. You'll also pay a matching portion of FICA, as well as federal and state unemployment insurance taxes.

Note: Not all states operate this way. Some don't have income taxes, while others require additional taxes to be either withheld from your employee, paid by the employer or both. To see the specific requirements in your state, visit the nanny tax page from your state.

What Will Families Need in Order to Pay Nanny Taxes?
Here are four things to collect:

  1. ID numbers: You need both the federal and state tax identification number in order to report your nanny taxes. You can get your federal employer identification number (FEIN) from the IRS and use this number to obtain your state identification number from the appropriate tax agency in your state.
  2. Payroll info: You need to accurately calculate your employee's gross pay, calculate the taxes withheld and track the corresponding employer taxes each pay period.
  3. Forms:
    • You must provide your nanny with a Form W-2 by the end of January each year
    • You need to file any required year-end forms with the state, as well as Form W-3 and Form W-2 Copy A with the Social Security Administration
    • You need to prepare a Schedule H and file it with your federal income tax return
  4. Quarterly filings:
    • You should file state tax returns, typically on a quarterly basis
    • You should send 1040 estimated payments to the IRS four times per year

What Will Caregivers Need to Provide to Their Family?
Here's are three things nannies need to get in order:

  1. A Social Security number or an ITIN
  2. A completed Form I-9 with proper identification
  3. A completed federal W-4 form and corresponding state income tax withholding form (if you live in a state with income taxes)

What Are the Benefits of Paying Employees or Your Nanny Legally?
Both families and their nannies actually benefit from proper tax reporting. Employers may be eligible for tax breaks to offset the cost of taxes and have less to worry about if they're audited by the IRS or the state. Caregivers also gain this peace of mind, and it's easier to qualify for short and long-term benefits like:

  • Social Security income and Medicare coverage upon retirement
  • Unemployment benefits if they lose their job due to no fault of their own
  • A verifiable employment history necessary for obtaining auto and home mortgage loans
  • Reduced health care costs via subsidies provided through the Affordable Care Act

What Can Happen if You Pay Your Nanny "Under the Table"?
Here's a simple example of what can happen: your nanny works for you for several years without having taxes withheld or you paying taxes on her wages. When the kids are in school full-time, you decide to part ways, since her services are no longer needed. She files for unemployment benefits and is required to list her past employers, which includes your family. The unemployment office reviews the case and finds that your family didn't file any tax returns or pay into the state unemployment insurance fund. Your ex-nanny is refused benefits and you're now facing an audit from the state.

What’s the punishment? Here's the list of possibilities: tax evasion charges, back taxes with penalties and interest, liability for the employee and employer portions of FICA and, in some cases, loss of professional license.

As of April 2006, the IRS has started to crack down on employers who pay under the table or misclassify their employees as independent contractors. Now more than ever, it's important to be cautious.


March 17, 2016


Time Running Out to Claim $950 Million in Refunds for 2012 Tax Returns


If you did not file a tax return for 2012, you may be one of nearly one million taxpayers who may be due a refund from that year. If you are, you must claim your share of almost $950 million by April 18. To claim your refund, you must file a 2012 federal income tax return. Here are the facts you need to know about unclaimed refunds:

  • The unclaimed refunds apply to people who did not file a federal income tax return for 2012. The IRS estimates that half the potential refunds are more than $718.
  • Some people, such as students and part-time workers, may not have filed because they had too little income to require filing a tax return. They may have a refund waiting if they had taxes withheld from their wages or made quarterly estimated payments. A refund could also apply if they qualify for certain tax credits, such as the Earned Income Tax Credit.
  • If you didn’t file a 2012 return, the law generally provides a three-year window to claim a refund from that year. For 2012 returns, the window closes on April 18, 2016 (or April 19 for taxpayers in Maine and Massachusetts).
  • The law requires that you properly address, mail and postmark your tax return by that date to claim your refund.
  • If you don’t file a claim for a refund within three years, the money becomes the property of the U.S. Treasury. There is no penalty for filing a late return if you are due a refund.
  • The IRS may hold your 2012 refund if you have not filed tax returns for 2013 and 2014. The U.S. Treasury will apply the refund to any federal or state tax you owe. It also may use your refund to offset unpaid child support or past due federal debts, such as student loans.
  • If you’re missing Forms W-2, 1098, 1099 or 5498 for prior years, you should ask for copies from your employer, bank or other payer. If you can’t get copies, get a free transcript by mail that provides the information you need by going to IRS.gov. You can also file Form 4506-T to get a transcript. Order your transcript early. Transcripts arrive in five to 10 calendar days at the address we have on file for you.


March 16, 2016


ETFs Popular with Wealthy Investors


The higher their net worth, the more likely wealthy investors are to invest in exchange-traded funds (ETFs), according to research by Spectrem Group. This is particularly the case with younger investors, the study, Asset Allocation, Portfolios and Primary Providers, found.


The study breaks down just how much ETFs account for in the portfolios of affluent, millionaire and ultra-high net worth investors. Spectrem’s research also reveals which demographic is most likely to give their financial advisor the responsibility of managing their ETF investments.


Here are the salient points from the study that can help advisors zero in on how better to serve these demographics.


Allocation Among Investors


Domestic ETFs make up 14%—with an average value of $26,000—of the portfolios of mass affluent investors. This is up slightly from 2014 when ETFs with an average value of $25,000 made up 13% of their portfolios. These investors are defined as those with a net worth between $100,000 and $1 million (not including primary residence).


One-fourth of millionaires with a net worth up to $5 million invest in domestic ETFs. The mean value of these investments is $88,000. This is down from last year when 28% invested in domestic ETFs, which had an average value of $92,000.


Ultra-high net worth investors, or those with a net worth between $5 million and $25 million, are the most likely to be invested in domestic ETFs, Spectrem’s study found. Forty-three percent, up from 40% in 2014, are invested in ETFs. ETFs in their portfolios have an average value of $438,000. This is down from $469,000 in 2014.


The likelihood of the mass affluent, millionaires and the ultra high net worth investing in ETFs in the next 12 months also increases with their net worth. Thirteen percent of mass affluent investors indicated that they would invest in ETFs over the course of the next year. This compares with 21% of millionaires and 31% of ultra high net worth investors. Each percentage is basically unchanged from 2014, Spectrem points out.


Significance of Age


When it comes to ETF ownership, age is only a significant factor among millionaire and ultra high net worth investors. Of the 25% who are invested in ETFs, 63% are Millennials. Only 37% are Gen Xers and 23% are Baby Boomers. Among the 43% of ultra high net worth investors who invest in domestic ETFs, almost half are 47 years old and under or 48-54.


Young millionaire and ultra high net worth investors are much more likely than their older counterparts to give their financial advisor the primary responsibility of managing these investments. Almost seven out of 10 millionaire Millennials and 44% of ultra high net worth investors ages 47 years old and under indicated that their financial advisor is primarily responsible for managing their ETFs.


Diversification and Other Drivers


Diversification is one of the primary factors affluent investors consider when selecting an investment. ETFs are finding increasing favor with wealthy investors for their diversification benefits, the research found. They are lower cost and there is a wide variety of ETFs to choose from. These funds can also be traded at any time of the trading day—like stocks—and not just at market close, like mutual funds.


Spectrem points out that young investors who tend to be more tech-savvy and environmentally conscious than older generations may find ETFs increasingly attractive. That's likely because there's a large pool of specific ETFs that track markets appealing to investors interested in niche markets, such as technology and socially-conscious companies.


The Bottom Line


ETFs are very popular with high net worth investors. Young millionaire and ultra-high net worth investors are also much more likely than their elders to give their financial advisor the responsibility of managing their ETF investments. Having a good background in ETFs and being prepared to offer a wide selection of them can only help advisors looking to broaden their cadre of wealthy investors.


March 16, 2016


IRS Big Business Audits Plummet


The Internal Revenue Service’s audits of business tax returns have declined steeply in recent years, thanks to successive rounds of budget cuts, according to a new analysis.


Syracuse University’s Transactional Records Access Clearinghouse, or TRAC, analyzed the IRS’s records from fiscal year 2010 through fiscal year 2015 and found revenue agent hours aimed at corporations with $250 million or more in assets have declined 34 percent, while unreported taxes uncovered by IRS that would otherwise have been lost to the government dropped 64 percent.


The declines were even steeper for the largest corporations, those with $20 billion or more in assets.  Even more recent data through February of 2016 indicate that business audits of large companies are running 22 percent lower this year than for the same period last year.


As a result, the potential loss in government revenue amounts to $15 billion or more a year.

Congress agreed last December to add $11.23 billion to the IRS’s budget for fiscal year 2016 after five years of budget cuts, but the budget increases were earmarked toward improving taxpayer service, combatting identity theft, and improving cybersecurity, but not for auditing taxpayers.


February 26, 2016


What Buffet Would Do


For anyone wondering, “What would Warren Buffett do?” the 85-year-old billionaire has given plenty of advice in his public remarks and in annual letters to Berkshire Hathaway Inc. shareholders. It doesn’t matter whether you’re a home buyer considering a mortgage, or an executive weighing a takeover; he’s got something for just about anyone looking to live a more rational, financially successful life.


There’s also a growing catalog of no-nos that Buffett has handed down to help investors, corporate managers and his own employees avoid mistakes. With his next annual letter due on Saturday, it’s time for a review of “What Buffett wouldn’t do” -- and you probably shouldn’t, either.




Don’t be too fixated on daily moves in the stock market: "Games are won by players who focus on the playing field -- not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays." (from letter published in 2014)


Don’t get excited about your investment gains when the market is climbing: “There’s no reason to do handsprings over 1995’s gains. This was a year in which any fool could make a bundle in the stock market.  And we did.” (1996)


Don’t be distracted by macroeconomic forecasts: “The cemetery for seers has a huge section set aside for macro forecasters. We have in fact made few macro forecasts at Berkshire, and we have seldom seen others make them with sustained success.” (2004)


Don’t limit yourself to just one industry: “There’s no rule that you have to invest money where you’ve earned it. Indeed, it’s often a mistake to do so: Truly great businesses, earning huge returns on tangible assets, can’t for any extended period reinvest a large portion of their earnings internally at high rates of return.” (2008)


Don’t get taken by formulas: “Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols. Our advice: Beware of geeks bearing formulas.” (2009)


Don’t be short on cash when you need it most: "We will never become dependent on the kindness of strangers… We will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity." (2010)


Don’t wager against the U.S. and its economic potential: “Who has ever benefited during the past 238 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder… We will regularly grumble about our government. But, most assuredly, America’s best days lie ahead.” (2015)




Don’t beat yourself up over wrong decisions; take responsibility for them: "Agonizing over errors is a mistake. But acknowledging and analyzing them can be useful, though that practice is rare in corporate boardrooms. ... When it comes to corporate blunders, CEOs invoke the concept of the Virgin Birth.” (2001)


Don’t have mandatory retirement ages: “At the Harvard Business School last year, a student asked me when I planned to retire and I replied, ‘About five to ten years after I die.’” (1992)

“Don’t ask the barber whether you need a haircut” because the answer will be what’s best for the man with the scissors. A CEO is no more likely to get an impartial opinion if he asks outside advisers whether to proceed with a deal, as “friendly investment bankers will reassure him as to the soundness of his actions.” (1983)


Don’t dawdle: “When a problem exists, whether in personnel or in business operations, the time to act is now. … The time to have considered -- and improved -- the reliability of New Orleans’ levees was before Katrina.” (2006)

Don’t interfere with great managers: “At Berkshire, we do not tell .400 hitters how to swing.” (1994)


Don’t succumb to the attitudes that undermine businesses: “My successor will need one other particular strength: the ability to fight off the ABCs of business decay, which are arrogance, bureaucracy and complacency. When these corporate cancers metastasize, even the strongest of companies can falter.” (2015)


Don’t be greedy about compensation, if you’re my successor: “It’s important that neither ego nor avarice motivate him to reach for pay matching his most lavishly-compensated peers, even if his achievements far exceed theirs.” (2015)


“Don’t worry about my health,” because so much of the company’s success is tied to reinsurance lieutenant Ajit Jain. “Worry about his.” (2001)



February 24, 2016


Making Money with Money vs Making Money with a Job.


Warren Buffett’s secret to paying a lower tax rate than you

Buffett’s success is an exceptionally low effective tax rate. As noted by the Oracle of Omaha himself in an op-ed column in The New York Times in 2011, Buffett claimed to be paying only a 17.4% effective tax rate (that year) compared to 20 workers in his office who were paying an average tax rate of 36%.


In Buffett’s own words,


“If you make money with money, as some of my super-rich friends do, your [tax] percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine – most likely by a lot.”


Although our progressive income tax brackets have changed a bit since Buffett wrote this piece in 2011, this basic tenet still holds true: Buffett, one of the richest people in the world, is probably paying a lower tax rate on his income than you are.


How is this possible? Simple. Buffet takes advantage of capital gains taxes and lengthy stock holding periods.


How capital gains taxes give Buffett an edge

Buffett has often emphasized the importance of long-term investing in his shareholder letters and annual meetings. Putting into practice what he preaches has made a big difference when it comes to him paying a far lower tax rate than many Americans.


Buffett himself only takes home a $100,000 salary each year as the CEO of Berkshire Hathaway, although there are other areas where the Oracle of Omaha is compensated. The remainder of Buffett’s taxation comes from capital gains taxes.


Capital gains tax rates are pretty cut-and-dried. If you own a stock or bond for one year or less, it’s considered a short-term investment. As such, the individual claiming the gain will pay an ordinary income tax rate commensurate with their peak marginal tax rate. For the super-rich today that could work out to a 39.6% tax.


The magic happens when you hold onto an investment for a year and a day or longer. Selling a stock beyond this point and claiming a capital gain allows an investor to substantially reduce their tax liability on the gain. Taxpayers in today’s 10% or 15% ordinary income tax bracket would owe zero, zilch, nada, on their long-term capital gains based on the 2016 federal tax tables. Taxpayers in the 25%, 28%, 33%, or 35% ordinary tax brackets owe just 15% on their long-term capital gains. Finally, the super-rich, which would encompass anyone bringing in more than $415,050 as an individual or $466,950 as married filers in 2016, would owe just 20%.


Imagine this for a moment. Let’s assume Buffett were to sell stock and claim $1 billion in long-term capital gains. His tax on this amount? Based on 2016’s tax schedule, he would be responsible for paying a 20% tax (plus a potential 3.8% net investment income surtax which is tied to the Affordable Care Act). By contrast, a worker with no investment income who earns $37,651 in 2016 finds themselves stuck in a peak ordinary income tax bracket of 25%.


Understandably effective tax rates for both individuals would be lower than their peak marginal taxes rates, but this difference clearly shows how long-term capital gains significantly favor the rich. It’s a tool that Buffett has used to keep a good chunk of his money.


A holding period of forever helps too


But, on top of just paying a lower tax rate via capital gains taxes, Buffett’s wealth is also a factor of the 0% in taxes he pays by holding stock in companies for very long periods of time (if not forever). If Buffett never sells, he never has to pay any tax, and all the while he gets to benefit from the rising value of the stocks he and his company Berkshire Hathaway owns. Historically, the stock market has risen at a pace equivalent to 7% to 8% per year, meaning a long-term investor could see their money double about once every decade under “average” circumstances.


The good news is Buffett’s tax secret really doesn’t have to be a secret at all. Anyone can benefit from long-term capital gains as long as they remain disciplined. This means seeking out and investing in businesses not because of some great earnings report or new hot gadget, but because they have a long-term business model/plan that, after careful research, you believe can succeed over the long run. Finding companies with competitive advantages, and that pay regular dividends, is a formula Buffett’s used for a long time. You, too, can use it to grow your investment portfolio while also possibly lowering your effective tax rate.



February 1, 2016


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January 28, 2016


City of Chicago Minimum Wage (Repost)


Minimum Wage Ordinance

On December 2nd, 2014, the Chicago City Council passed an ordinance that will raise the minimum wage for Chicago workers to $13 per hour by 2019. This measure, sponsored by Mayor Rahm Emanuel, Alderman Will Burns, Alderman Pat O’Connor, and 31 other aldermen, will increase the earnings for approximately 410,000 Chicago workers, inject $860 million into the local economy, and lift 70,000 workers out of poverty.


In 2015, the City will begin phasing in its new minimum wage, as provided by the ordinance. This phase-in will help simplify the early years of implementation for businesses and employers. The City's ordinance raises the hourly minimum wage to $10 in 2015, $10.50 in 2016, $11 in 2017, $12 in 2018, and $13 in 2019, indexed annually to the Consumer Price Index (CPI) after 2019.


The ordinance also increases the minimum wage for tipped employees in from the current state minimum of $4.95 to $5.45 in 2015 and $5.95 in 2016, indexed annually to the CPI after 2016.

The full text of Minimum Wage ordinance is available HERE.


Implementation Timeline*

Effective Date Non-Tipped Employees Tipped Employees
Current $8.25 $4.95
July 1, 2015 $10.00 $5.45
July 1, 2016 $10.50 $5.95
July 1, 2017 $11.00 Increases with CPI*
July 1, 2018 $12.00 Increases with CPI*
July 1, 2019 $13.00 Increases with CPI*
July 1, 2020 Increases with CPI* Increases with CPI*

* The ordinance provides that the minimum wage will not increase when the unemployment rate in Chicago for the preceding year, as calculated by the Illinois Department of Employment Security, was equal to or greater than 8.5 percent. The ordinance also provides that if the CPI increases by more than 2.5 percent in any year, the minimum wage increase shall be capped at 2.5 percent.


To Whom Does the Minimum Wage Ordinance Apply?

  • Employers: Employers that maintain a business facility within the City of Chicago and/or are required to obtain a business license to operate in the City are subject to the minimum wage ordinance.
  • Employees: Employees who work two hours in the City within the period of two weeks qualify for the minimum wage required by the ordinance. This includes domestic employees and home health care workers. A union may waive its members' rights to collect the minimum wage as part of a collective bargaining agreement.

Time spent traveling in the City that is compensated time, including, but not limited to, deliveries, sales calls, and travel related to other business activity taking place within the City, counts toward hours worked; time spent traveling in the City that is uncompensated commuting time does not.


To Whom Does the Minimum Wage Ordinance NOT Apply?

  • Employees taking part in government-subsidized temporary youth employment programs.
  • Employees taking part in government-subsidized transitional employment programs.
  • Employees of any governmental entity other than the City.
  • Certain employees exempted under state law, including:
    1. Employees under 18 years of age. Employers are authorized to pay these employees a wage 50 cents below the state minimum hourly wage.
    2. Adult employees (i.e. those 18 years of age or older) in the first 90 days of employment. Employers are authorized to pay these employees a wage 50 cents below the state minimum hourly wage.
    3. Disabled employees, pending state approval.Trainees taking part in a program for no more than six months, pending state approval.
    4. Employees working at a business with four or fewer employees, not counting the employer’s parents, spouse, children or other members of the employer’s immediate family.

Other Employer Requirements

  • Employers that pay a covered tipped employee must make available at the request of the Commissioner of Business Affairs and Consumer Protection substantial evidence that establishes: (i) the amount the employee received in gratuities during the relevant pay period and (ii) that no part of that amount was returned to the employer. If an employer is required by the state minimum wage law to provide substantially similar data to the Illinois Department of Labor, the Commissioner may allow the employer to comply with this requirement by filing a copy of the state documentation.
  • Employers with a business facility in the City at which a covered employee works must post notice at the facility of: (i) the City minimum wage and (ii) the employee’s rights under the ordinance. The Commissioner of Business Affairs and Consumer Protection will prepare a form notice and make it available online to employers. Employers that do not maintain a business facility within the geographic boundaries of the City and households that serve as the worksite for domestic workers and home healthcare workers are exempt from this requirement.
  • Employers must provide with the first paycheck issued to any covered employee a form notice advising the employee of: (i) the City minimum wage and (ii) the employee’s rights under the ordinance. The Commissioner of Business Affairs and Consumer Protection will prepare a form notice and make it available online to employers.
  • Employers may not discriminate or take any adverse action against any covered employee in retaliation for exercising any right covered under the ordinance.
  • Employers that violate the Minimum Wage ordinance will be fined $500 to $1,000 for each offense. Each day that a violation continues constitutes a separate and distinct offense to which a separate fine shall apply.


January 28, 2016


Illinois Minimum Wage/Overtime FAQ

(Note:  City of Chicago minimum wage requirements are higher effective July 1, 2015.)


What is minimum wage in Illinois?


Minimum wage in Illinois is $8.25 per hour for those individuals who are 18 years and older. Employees who do NOT receive tips may be paid $7.75 for the first 90 days with employer. Those under 18 years of age may be paid at the rate of $7.75 per hour.

What is minimum wage for tipped employees?

Tipped employees must be paid minimum wage, but an employer may take credit for the employee's tips in an amount not to exceed 40% of the wages. An employer may pay a training wage for tipped employees 18 and over in the amount of $4.65 for the first 90 days if applying the tip credit of 40% or $7.75 if utilizing the tip credit. After 90 days, the rate must be increased to $4.95 if not utilizing the tip credit.

When is overtime pay legally due?

You are entitled to pay at time and one half your regular rate of pay if you worked over 40 hours in a workweek. You will need to ask your employer for their definition of a workweek.

Does my employer have to pay me time and one half or double time for working a legal holiday or a Sunday?

No. If working the legal holiday or Sunday puts you over 40 hours in a workweek, then your employer must pay you at time and one half of your regular rate of pay for those hours over 40. However, if your employer's policy allows for payment of time and one half or double time, then the employer must honor the agreement.

Who is exempt from being paid overtime?

The following employees are exempt from overtime pay:
  • Salesmen and mechanics involved in selling or servicing cars, trucks or farm implements at dealerships,
  • agricultural labor,
  • executive, administrative or professional employees as defined by the Fair Labor Standards Act,
  • certain employees involved in radio/television in a city with a population under 100,000,
  • commissioned employees defined by Section 7(i) of the Fair Labor Standards Act,
  • employees who exchange hours pursuant to a workplace exchange agreement,
  • employees of certain educational or residential child care institutions.

How do I know if I qualify as an executive, administrative or professional employee?

The law provides that two tests must be fully met to determine if you are an executive, administrative or professional employee. First, as a general rule, you must be a salaried employee. For definition of salary, see question below. Second, the primary duties you perform must also be exempt.

If I am paid on salary do I still qualify for overtime pay?

Possibly. You are paid a salary if you regularly receive each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of your compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. However, an employee being paid on a salary basis is not automatically exempt from receiving overtime pay. The primary duties you perform must also be exempt to disqualify you from overtime pay.

Can I be required to work overtime?

Yes, unless such work would violate the One Day Rest in Seven Act.

Is "comp time" legal?

No. Compensatory time off in place of payment for overtime is not legal in the private sector.​


January 19, 2016


2016 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates


Earned Income and AGI Limits

Earned income and adjusted gross income (AGI) must each be less than:

If filing... Qualifying Children Claimed
Zero One Two Three or more
Single, Head of Household or Widowed $14,880 $39,296 $44,648 $47,955
Married Filing Jointly $20,430 $44,846 $50,198 $53,505


Investment Income Limit


Investment income must be $3,400 or less for the year.


Maximum Credit Amounts


The maximum amount of credit for Tax Year 2016 is:

  • $6,269 with three or more qualifying children
  • $5,572 with two qualifying children
  • $3,373 with one qualifying child
  • $506 with no qualifying children

For more information on whether a child qualifies you for EITC, see:


The American Tax Relief Act of 2012


The American Tax Relief act extended the relief for married taxpayers, the expanded credit for taxpayers with three or more qualifying children and other provisions to December 31, 2017. 



January 4, 2016


Key Social Security Benefit To Disappear


In October Congress eliminated two major Social Security claiming strategies that allowed married couples to maximize their benefits. First off, the option to file and suspend will indeed end as of next April 29—the effective date of Social Security changes contained in the Bipartisan Budget Act of 2015. Some people are still eligible to use the strategy before the cut-off date. To qualify for this window of opportunity, you must be at least Full Retirement Age (FRA), currently 66 years old, before April 29. (People younger than 66 couldn’t do this before the Budget Act was signed, and they can’t do it afterwards.)


File and suspend is not the only strategy being eliminated. The option for a married person to file a restricted application just for spousal benefits is also going away. That move allowed you to defer your individual benefit up till age 70, which enabled the amount to grow through delayed retirement credits.


Previously, two-earner married couples could max out their benefits by combining a restricted application with file-and-suspend. One spouse, usually the higher earner, would first file and suspend at full retirement age (to avoid early claiming reductions), while the second would file a restricted application, also at or after reaching FRA. This strategy allowed the couple’s individual retirement benefits to increase by 8% a year until age 70, when they would claim. No longer.


For some couples, the new rules still permit an attractive claiming strategy. Anyone who is, or will be, at least age 62 by the end of 2015 can still file a restricted application for spousal benefits, which can help you boost your payout. To see how this strategy works, here’s an example from a reader, Julia in Massachusetts:


Julia will turn 66 next January and plans to file for her retirement benefits at that time. Her husband, who is 62, planned to file for his spousal benefit at 66, and let his retirement benefit grow till age 70.


Julia wondered if this strategy would still be allowed under the new rules. Yes, it will. Her husband turned 62 before the end of 2015, which means he retains the right to file a restricted application for spousal benefits, if he waits till age 66 or later.


If Julia files and suspends, and her husband files a restricted application, the couple can defer receiving their own retirement benefit until age 70, when their payout will reach the maximum level. Meanwhile, her husband can collect a full spousal benefit for up to four years, from ages 66 to 70.


For those younger than age 62 at the end of 2015, your options will be much less attractive. You cannot file and suspend. You also cannot file for a spousal benefit without also triggering your own retirement benefit. In this situation, you will receive what is, in effect, the higher of the two benefits.


If you have already begun receiving your benefits, you’re grandfathered into the old rules—you can still suspend your payout and receive delayed retirement credits. But if you opt to suspend after April 29, no one else will be able to collect a benefit based on your Social Security earnings record. Under the new rules, suspending benefits will make the most sense for single people without children.



December 28. 2015


Here’s How Tax Rates and Brackets Will Change in 2016


TheInternal Revenue Service announced new inflation-adjusted income brackets for the 2016 tax year.


The top tax rate of 39.6% now applies to single taxpayers earning more than $415,050 ($466,950 for married taxpayers filing jointly)—up from the 2015 thresholds of $413,200 and $464,850, respectively.


Here are the other major adjustments:


If you’re single…


If your taxable income is… You owe…
$0-$9,275 10% of your taxable income
$9,275-$37,650 $927.50 + 15% of anything over $9,275
$37,650-$91,150 $5,183.75 + 25% of anything over $37,650
$91,150-$190,150 $18,558.75 + 28% of anything over $91,150
$190,150-$413,350 $46,278.75 + 33% of anything over $190,150
$413,350-$415,050 $119,934.75 + 35% of anything over $413,350
$415,050 and higher $120,529.75 + 39.6% of anything over $415,050


If you’re married filing jointly or are a surviving spouse…


If your taxable income is… You owe…
$0-$18,550 10% of your taxable income
$18,550-$75,300 $1,855 + 15% of anything over $18,550
$75,300-$151,900 $10,367.50 + 25% of anything over $75,300
$151,900-$231,450 $29,517.50 + 28% of anything over $151,900
$231,450-$413,350 $51,791.50 + 33% of anything over $231,450
$413,350-$466,950 $111,818.50 + 35% of anything over $413,350
$466,950 and higher $130,578.50 + 39.6% of anything over $466,950


If you’re a head of household…


If your taxable income is… You owe…
$0-$13,250 10% of your taxable income
$13,250-$50,400 $1,325 + 15% of anything over $13,250
$50,400-$130,150 $6,897.50 + 25% of anything over $50,400
$130,150-$210,800 $26,835 + 28% of anything over $130,150
$210,800-$413,350 $49,417 + 33% of anything over $210,800
$413,350-$441,000 $116,258.50 + 35% of anything over $413,350
$441,000 and higher $125,936 + 39.6% of anything over $441,000


For 2016 the standard deduction for heads of household will also rise to $9,300 (up from $9,250 in 2015) but the other standard deduction amounts will remain the same: $6,300 for singles and $12,600 for married couples filing jointly.


Personal exemptions will be $4,050 in 2016, up from $4,000 in 2015. The Alternative Minimum Tax exemption amount in 2016 is $53,900 for singles and $83,800 for married couples filing jointly (up by $300 and $400, respectively, compared to 2015 exemptions).

Other key changes include:

  • The maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have 3 or more qualifying children in 2016, up from $6,242 for 2015.
  • The monthly limit for the transportation benefits remains $130 for transportation, but rises to $255 for qualified parking in 2016, up from $250 for tax year 2015.
  • The foreign earned income exclusion is $101,300 for 2016, up from $100,800 in 2015.


December 26


Effective Jan 1, New Chicago taxes, tax hikes and fee hikes will cost every Chicagoan $1,000 more.


1) Chicago property-tax hike: The largest property-tax hike in Chicago history will cause the annual bill on a $250,000 home to rise by $600, assuming no other local government raises its taxes. When fully phased in over four years, the hike will generate $588 million in annual revenue. In 2016 it will be $427 million with an additional $45 million to pay for capital projects at Chicago Public Schools.


2) Garbage-collection fee: A new $9.50-a-month garbage-collection fee is expected to generate $62.7 million annually.


3) New ‘Uber’ taxes and taxi fee hikes: A new 52-cents-per-ride tax on rideshare services such as Uber and Lyft, a new 50-cents-per-ride tax on traditional taxi rides, and a $5 tax on rideshare services for every pickup and drop-off at O’Hare and Midway airports, McCormick Place and Navy Pier are expected to generate $48.6 million. The board of the Metropolitan Pier and Exposition Authority – commonly known as McPier – also quietly slapped an extra $4 tax on rideshare services for each airport pick up on Nov. 16. It is unknown how much the city expects to generate from this new tax, as WBEZ reports McPier has declined to comment on the matter.


4) ‘Netflix’ and ‘cloud’ tax: A new 9 percent tax on cloud computing as well as a new 9 percent tax on streaming services such as Netflix and Spotify are expected to generate $40 million annually, according to the Chicago Tribune. Users of subscription services have sued the city over the ‘Netflix’ tax, which was adopted without a City Council vote.


5) Building-permit fee hike: A hike in building-permit fees will generate an estimated $13 million.


6) E-cigarette tax: A new $1.25 tax on the sale of e-cigarettes and a 25-cent-per-milliliter tax on the accompanying fluid will raise an estimated $1 million a year

New Cook County taxes, tax hikes and fee hikes


7) Sales-tax hike: A sales-tax hike will bring Chicago’s combined sales-tax rate to 10.25 percent from 9.25 percent – the highest combined rate among large U.S. cities. Cook County budget documents estimate the tax will bring in $474 million in its first full year.


8) Hotel-tax hike: A new 1 percent tax on hotels and motels will push the overall hotel tax in Chicago to 17.4 percent and generate an estimated $15.4 million in tax revenue.


9) Lawsuit-fee hike: A $20 increase in additional fees for every lawsuit filed is expected to bring in $4.9 million.


10) E-cigarette liquid tax: A new 20-cents-per-milliliter tax on liquids used in e-cigarettes will generate an estimated $1.5 million.


11) Ticket-reseller tax: By expanding the county’s existing amusement tax, the county will levy a new 3 percent tax on ticket resellers such as Wrigleyville-based SitClose Tickets. Originally, Cook County Board President Toni Preckwinkle suggested expanding this tax to cable TV and recreational activities such as bowling and golf, which, along with the ticket-reseller tax, was a change expected to generate $20.25 million. That expansion was dropped in favor of a hotel-tax hike, but the new ticket-reselling tax remains, which will generate a meager $750,000.


12) Ammo tax: A new tax on ammunition, ranging from 1 cent to 5 cents per round is estimated to generate $320,000


And that’s not all.


The list above doesn’t include hikes in fines for vehicle-boot removal (to $100 from $60), maximum fines for businesses that don’t shovel sidewalks (to $500 from $50), and fines for individuals driving without insurance (to $1,000 from $500). Revenue estimates aren’t available for the latter two changes, but the city thinks the boot removal hike will bring in $2.2 million a year.


With this massive new cost dropped on Chicago families – who already pay a far higher tax and fee burden than residents of any other Illinois city – one might expect city and county governments to tighten their purse strings as well. This is far from the case.


Cook County spending is set to increase by $500 million next year, and city spending will increase by $84 million.


The two largest hits to families’ bottom lines, the Chicago property-tax hike and the Cook County sales-tax hike, will both go primarily to fund government-worker pensions.

Perhaps worst of all, more tax hikes are just around the corner.


Cook County Board President Toni Preckwinkle won’t rule out further tax increases, and Chicago aldermen know their junk-rated city will need to keep scrounging for new revenues for years to come.


More than a billion dollars in new money taken from hardworking residents, and no reform to show for it – this is the Chicago way. A decadeslong failure in leadership now jeopardizes the future of a once-great city, from which residents are fleeing for brighter futures every day.



December 21, 2015


2016 Tax Season Opens Jan. 19 for Nation’s Taxpayers

IR-2015-139, Dec. 21, 2015


WASHINGTON ― Following a review of the tax extenders legislation signed into law last week, the Internal Revenue Service announced today that the nation’s tax season will begin as scheduled on Tuesday, Jan. 19, 2016.


The IRS will begin accepting individual electronic returns that day. The IRS expects to receive more than 150 million individual returns in 2016, with more than four out of five being prepared using tax return preparation software and e-filed. The IRS will begin processing paper tax returns at the same time. There is no advantage to people filing tax returns on paper in early January instead of waiting for e-file to begin.


“We look forward to opening the 2016 tax season on time,” IRS Commissioner John Koskinen said. “Our employees have been working hard throughout this year to make this happen. We also appreciate the help from the nation’s tax professionals and the software community, who are critical to helping taxpayers during the filing season.”


As part of the Security Summit initiative, the IRS has been working closely with the tax industry and state revenue departments to provide stronger protections against identity theft for taxpayers during the coming filing season.


The filing deadline to submit 2015 tax returns is Monday, April 18, 2016, rather than the traditional April 15 date. Washington, D.C., will celebrate Emancipation Day on that Friday, which pushes the deadline to the following Monday for most of the nation. (Due to Patriots Day, the deadline will be Tuesday, April 19, in Maine and Massachusetts.)


Koskinen noted the new legislation makes permanent many provisions and extends many others for several years. "This provides certainty for planning purposes, which will help taxpayers and the tax community as well as the IRS," he said.


The IRS urges all taxpayers to make sure they have all their year-end statements in hand before filing, including Forms W-2 from employers, Forms 1099 from banks and other payers, and Form 1095-A from the Marketplace for those claiming the premium tax credit.

“We encourage taxpayers to take full advantage of the expanding array of tools and information on IRS.gov to make their tax preparation easier,” Koskinen said.


Although the IRS begins accepting returns on Jan. 19, many tax software companies will begin accepting tax returns earlier in January and submitting them to the IRS when processing systems open.


Choosing e-file and direct deposit for refunds remains the fastest and safest way to file an accurate income tax return and receive a refund. The IRS anticipates issuing more than nine out of 10 refunds in less than 21 days. Find free options to get tax help, and to prepare and file your return on IRS.gov or in your community if you qualify. Go to IRS.gov and click on the Filing tab to see your options.

  • Seventy percent of the nation’s taxpayers are eligible for IRS Free File. Commercial partners of the IRS offer free brand-name software to about 100 million individuals and families with incomes of $62,000 or less;
  • Online fillable forms provides electronic versions of IRS paper forms to all taxpayers regardless of income that can be prepared and filed by people comfortable with completing their own returns.
  • The Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) offer free tax help to people who qualify. Go to irs.gov and enter “free tax prep” in the search box to learn more and find a VITA or TCE site near you, or download the IRS2Go app on your smart phone and find a free tax prep provider. 

The IRS also reminds taxpayers that a trusted tax professional can provide helpful information and advice about the ever-changing tax code. Tips for choosing a return preparer and details about national tax professional groups are available on IRS.gov.


December 21, 2015


The Tax Extenders in Detail


The Protecting Americans from Tax Hikes Act of 2015, which was passed by the House and the Senate at the end of last week and signed into law by President Obama on Friday, extends a number of important tax breaks, and makes many of them permanent.

The law makes the following deductions, credits and other tax provisions permanent:

  • The Research & Development credit;
  • Increased expensing limitations and treatment of certain real property as Section 179 property;
  • The exclusion of 100% of gain on certain small business stock;
  • Reduction in S corporation recognition period for built-in gains tax;
  • The enhanced Child Tax Credit;
  • The enhanced American Opportunity Tax Credit;
  • The enhanced Earned Income Tax Credit;
  • The deduction for certain expenses of elementary and secondary school teachers;
  • Parity for exclusion from income for employer-provided mass transit and parking benefits;
  • The deduction of state and local general sales taxes;
  • The special rule for contributions of capital gain real property made for conservation purposes;
  • Tax-free distributions from individual retirement plans for charitable purposes;
  • The charitable deduction for contributions of food inventory;
  • The tax treatment of certain payments to controlling exempt organizations;
  • Basis adjustment to stock of S corporations making charitable contributions of property;
  • The employer wage credit for employees who are active duty members of the uniformed services; 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;
  • The treatment of certain dividends of regulated investment companies;
  • The Subpart F exception for active financing income;
  • The minimum low-income housing tax credit rates for non-federally subsidized buildings;
  • The military housing allowance exclusion for determining whether a tenant in certain counties is low-income; and,
  • Regulated investment company qualified investment entity treatment under the Foreign Investment in Real Property Tax Act.

The following provisions were extended and modified through 2019:

  • Bonus depreciation, at 50 percent for 2015-2017 and phased down to 40 percent in 2018 and 30 percent in 2019;
  • The Work Opportunity Tax Credit, modified and enhanced for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) to 40 percent of the first $6,000 of wages;
  • The New Markets Tax Credit, providing $3.5-billion allocation each year through 2019, the carryover period for the credit has also been extended to 2024.

And the following are revived and extended through 2016:

  • Modification of the exclusion of mortgage debt discharge; 
  • Mortgage insurance premiums treated as qualified residence interest;
  • The above-the-line deduction for qualified tuition and related expenses; and,
  • Over a dozen incentives for energy production and conservation.


December 17, 2015


2016 Standard Mileage Rates for Business, Medical and Moving Announced

IR-2015-137, Dec.17, 2015


WASHINGTON — The Internal Revenue Service today issued the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.


Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:


  • 54 cents per mile for business miles driven, down from 57.5 cents for 2015
  • 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
  • 14 cents per mile driven in service of charitable organizations


The business mileage rate decreased 3.5 cents per mile and the medical, and moving expense rates decrease 4 cents per mile from the 2015 rates. The charitable rate is based on statute.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.


Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.


A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.


These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51.  Notice 2016-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.


December 15, 2015


The Changing Face of Talent


Diversity is no longer defined solely by a mix of race, gender, sexual orientation or age. The new frontier also encompasses diversity of thought.


By Kristine Blenkhorn Rodriguez


In a growing number of select boardrooms across America, you can hear an “amen” from sage C-suite execs. Not necessarily because they believe in diversity and inclusion (D&I) personally, or even because business magazines like Forbes trumpet diversity’s merits. Rather, it’s because D&I has become good business.


Companies on the cutting edge are now slicing and dicing diversity into two categories: Inherent and acquired—collectively called “2D diversity.” Inherent diversity involves inborn traits such as gender, ethnicity and sexual orientation. Acquired diversity involves traits gained from experience—working in another country can help a person appreciate cultural differences, for example.


Research from the Center for Talent Innovation, published in the Dec. 2013 issue of Harvard Business Review, found that organizations with at least three traits in each category out-innovate and outperform others. Employees at these companies are 45 percent more likely to report that their firm’s market share grew over the previous year, and are 70 percent more likely to report that the firm captured a new market.


And yet, 78 percent of study respondents said they worked at companies that lack 2D diversity in leadership. Without this diversity, women are 20 percent less likely than heterosexual white men to win endorsement for their ideas, people of color are 24 percent less likely, and LGBTs are 21 percent less likely.


The more Machiavellian among us may ask why this matters to the bottom line. Here’s your answer.


When ideas from minority members of a firm lack key sponsorship (meaning they’re not heard or considered on an equal playing field with ideas from “mainstream” peers), crucial market opportunities are squandered. Why? Because inherently diverse contributors better understand the unmet needs of underleveraged markets. The Center for Talent Innovation study found that when at least one member of a team shares traits with the end user, the entire team better understands that user. A team with a member who shares a client’s ethnicity is 152 percent more likely to understand that client—which translates into millions of dollars when applied to tailoring products and services.


Basic training


Deloitte’s report Global Human Capital Trends 2014 lists diversity/inclusion as one of the least important issues facing leaders in the area of human resources. And yet, 2015 analysis conducted by Grant Thornton shows that the few S&P500 companies that have male-only executive directors missed out on $567B of investment returns, compared to companies with more diverse boards and women executives.


This analysis reiterates our earlier point: D&I is no longer a human resources matter, but rather a business matter.


There are bright spots, however. Intel’s CEO Brian Krzanich used his time on the platform at the 2015 International Consumer Electronics Show to announce his company’s Diversity in Technology initiative. It includes new hiring and retention goals, as well as a $300M allotment for building a pipeline of female and other underrepresented engineers and computer scientists.

Also in 2015, California State Treasurer John Chiang called on the two largest pension funds in the United States to redouble their efforts to increase diversity in corporate boardrooms. In a further challenge to the status quo, Chiang called for a broadening of the definition of diversity to include sexual orientation and gender identity.


A diverse workforce is not in and of itself a panacea, however. “You can have a diverse workforce but an intimidating environment,” warns Dr. Sondra Thiederman, a workplace diversity consultant. “In that case your diversity does you no good because everyone is afraid to speak up and be heard. Diversity means getting your biases out of the way and really listening, taking in new ideas and approaches.”


Scott Steffens, chair of the ICPAS Diversity Advisory Council and partner at Grant Thornton, sees this happen all too often. “When we looked at the numbers through a diversity lens several years ago, they suggested underperformance in big accounting firms by professionals of color. Assuming we hire equally qualified professionals regardless of color, this suggests these individuals didn’t have the appropriate sponsorship to succeed. Either they’re not being heard and recognized for their contributions, or they’re not being properly indoctrinated into firm culture. Either way, we have an issue.”


Dr. Rohini Anand, Sodexo’s chief diversity officer, suggests that while buy-in is underplayed in some circles, it does in fact remain the lynchpin. “The CEO has to buy-in, as well as the executive team. And then we tend to forget about middle management. Your rank-and-file middle managers have to be brought in because they are the ones hiring individuals and making things happen.”


Anand’s lens broadens beyond race, gender and sexual orientation to generational diversity, too. In an era where talent shortages are fast fading as a concept and gaining ground as a reality, she has her eye on sustaining Sodexo’s attractiveness to Gen Y and beyond. “How do we create a culture where they want to come to us, work and stay? How do we keep them engaged?” she asks. “They’ll vote with their feet. They won’t hesitate to leave, unlike Baby Boomers who stuck it out.”


Goodbye attendance


In the salad days of diversity and inclusion, a check-the-box mentality prevailed. Many employees were required to attend diversity training, either in person or online, records were kept and the letter of the law was followed. As inclusion becomes an issue with dollar signs attached to it, however, this approach has changed, says Thiederman. “One-on-one mentoring is changing the face of business.”


Anand cites the example of a global CEO in Europe, assigned to mentor a female professional responsible for several high-security facilities within his organization. “He told me that if he would have been presented with two candidates, one male and one female, a couple of years prior, he would have chosen the man for this role without a second thought. But after spending time with his mentee, he realized that this soft-spoken woman was incredibly effective at her job. He admitted to having to see beyond style, appearance and stereotypes.”


A similar program at Chase Bank of Texas “instituted two-way mentoring between mainly female Filipino tellers and white male executives,” Thiederman explains. “The results were amazing, as the experiences began to give rise to awareness of commonalities, from worries about paying the bills to caring for aging family members. The scope and scale may have varied, but the two groups started to see each other less as group members and more as individuals. That’s where bias starts to break down and you yield real results.”


Sometimes mentoring isn’t the cure-all, though. Rather, you may need to mix things up with a new diversity ratio. Sodexo recently completed a gender-balance study for this purpose. In order to help quantify the impact of women in management, the company analyzed key performance indicators (KPIs) from 100 global entities and 52,000 managers. The intent was to isolate whether gender-balanced teams, defined as having 40-60 percent women in management, had higher KPI results than those without gender balance. For this initial work, the performance measures were focused on employee engagement, brand awareness, client retention and financial performance.


The preliminary results were powerful, indicating that entities with gender-balanced management teams performed better in the KPIs identified. Specifically, in FY14, 65 percent of subsidiaries with gender-balanced management saw an increase in gross profit over the last three consecutive years, compared to 42 percent among other management subsidiaries. Also in FY14, 71 percent of subsidiaries with gender-balanced management teams saw positive operating profit over the last three consecutive years, versus 60 percent for other management subsidiaries. And teams with gender-balanced management groups were 12 percent more likely to see an increase in client retention.


What’s more, 45 percent of entities saw positive organic growth over three consecutive years, versus 32 percent among other management teams. When it came to indicators such as employee engagement and brand image, gender-balanced teams again outperformed other management teams by 3 percent and 5 percent, respectively, over a two-year period.

“It’s clear that on both financial and non-financial indicators, gender- balanced teams outperformed those that weren’t,” says Anand. “At the end of the day, the conclusion for us is that genderbalanced teams consistently perform more sustainably and predictably.”


Diversity leaders


According to DiversityInc's annual ranking, the 10 most diverse companies across the globe range from pharmaceutical and credit card companies to insurance agencies and consumer product giants—and of course, accounting firms. You’ll see Anand’s work recognized, as Sodexo ranks number five on the list, just behind Novartis, Kaiser Permanente, PwC and Ernst & Young in the top four spots. MasterCard, AT&T, Prudential, Johnson & Johnson and Procter & Gamble round out the list.


Challenges remain, however. “Achieving real diversity is complicated,” says Julie Goodridge, CEO of NorthStar Asset Management, a socially responsible investing firm. “But I’ve been doing this for decades, since the early ‘80s, and we’re getting there. Just yesterday I was on a telephone call with a staffer who had been on a call discussing how financial companies vote on various proxy resolutions. There were some very heavy hitters on this call. According to my colleague, most of the people participating understood the importance of diversity and were inclined to vote in favor of any resolutions talking about diversity. It's taken decades to get to that point. But we’re seeing it—finally. We’ve reached a point where there is a lot of shareholder attention focused on diversity as a key driver of corporate success.”


Scrutiny of board diversity won’t go away any time soon, largely because investors want to know a company has all its bases covered. “When I see too many common work histories or common expertise among board members, most of whom have decadeslong service, then I'm not seeing the kind of diversity I want to see as an investor,” says Goodridge. “It starts at the top and can’t just be lip service.”


In that vein, “The Illinois CPA Society has made diversity one of its priorities,” Steffens explains. “It definitely will be part of our conversation over the next several years. We have this really unique opportunity to capitalize on the success of programs like the Mary T. Washington Wylie Internship Preparation Program, which was established in collaboration with the CPA Endowment Fund of Illinois.”


This award-winning program is a three-day, all expenses paid initiative held annually in Chicago. It’s available to up to 25 African American and other underrepresented minority college sophomores, juniors or seniors interested in accounting as a career. The program’s goal is to prepare students at community and junior colleges and other non-core schools for the CPA profession through practical training, resources and mentorship. At the end of the program, participating firms interview the students for a variety of paid internships specifically held for program participants.


Launched in January 2013, 75 students, representing 32 schools, have participated to date, with more than 40 students receiving an internship or other offer. In addition, all students walk away with a $500 scholarship to help with educational expenses. And just this past summer, the program was awarded an American Society of Association Executives (ASAE) 2015 Power of A Gold Award, which recognizes the extraordinary contributions associations make to society by enriching lives, creating a competitive workforce, preparing for the future, driving innovation and making a better world.


Magic bullets


Diversity has evolved from a one-dimensional corporate training program into a force potentially capable of changing long-held biases and the face of the executive office. While no single action or item will provide the magic bullet necessary to change human nature and corporate culture, balanced teams, one-on-one relationship building, diverse boards and innovative feeder programs together can prove formidable.


“When confronted with the numbers,” says Steffens, “I don’t know leaders from any firm who don’t understand the country’s demographics are changing and our firms’ composition needs to change also. It’s an ongoing competition for talent—and the face of that talent will continue to change over the next several decades.”


December 8, 2015


New Early Interaction Initiative Will Help Employers Stay Current with Their Payroll Taxes

IR-2015-136, Dec. 8, 2015


WASHINGTON — The Internal Revenue Service has launched a new initiative designed to more quickly identify employers who are falling behind on their payroll or employment taxes and then help them get caught up on their payment and reporting responsibilities. The effort is called the Early Interaction Initiative.


The initiative is designed to help employers stay in compliance and avoid needless interest and penalty charges. The initiative will seek to identify employers who appear to be falling behind on their tax payments even before an employment tax return is filed. The IRS will offer helpful information and guidance through letters, automated phone messages, other communications and in some instances, a visit from an IRS revenue officer.


In the past, the first attempt by the IRS to contact an employer having payment difficulties often did not occur until much later in the process, after the employment return was filed and the employer’s unpaid tax obligation had already begun to spiral out of control.


“Employers play a key role in our tax system, and we want to offer them the information and assistance they need to carry out their responsibilities,” said IRS Commissioner John Koskinen. “With early interaction, we will be able to offer help weeks or even months sooner, when it can often do the most good.”


Two-thirds of federal taxes are collected through the payroll tax system. By law, employers must withhold federal income, Social Security and Medicare taxes from employees’ wages.

Shortly after employees are paid, employers typically must turn over withheld amounts, along with employer-matching contributions, to the federal government. Though payment schedules vary, these payments, known as federal tax deposits (FTDs), are made electronically through the Electronic Federal Tax Payment System (EFTPS). These FTDs are later reported on a return, usually filed quarterly, with the IRS.


Employers, especially those facing liquidity difficulties, sometimes inappropriately divert funds withheld from employees’ pay for working capital or other purposes. Even when well-intentioned, such diversions can quickly result in mounting tax liabilities for the employer, along with interest and penalties, potentially threatening the employer’s financial viability.

Also, employers may have a payroll processor or others handling their payroll, withholding, matching, remittance, and/or reporting responsibilities, which sometimes leads to miscommunication between the parties and may result in tax deposits and reporting not being made as required. Such miscommunication may also quickly result in mounting tax liabilities, interest and penalties that are costly and risky to the business.


To help employers avoid these problems, the new IRS initiative will monitor deposit patterns and identify employers whose payments decline or are late. Employers identified under this initiative may receive a letter reminding them of their payroll tax responsibilities and asking that they contact the IRS to discuss the situation. In addition, some employers may receive automated phone messages from the IRS providing information and assistance. Where appropriate, an IRS revenue officer will also contact some of these employers at their place of business.



December 6, 2015


Year-End Tax Tips for Businesses


The end of the year gives you and your business a great chance to maximize tax savings for 2015 and beyond. There are several general strategies to consider, such as use of traditional timing techniques for income and deductions and the role of the tax extenders, as well as strategies targeted to your particular business. As in past years, planning is uncertain because of the Affordable Care Act and the expiration of many popular but temporary tax breaks.


Filing changes


Recent legislation changed filing deadlines for some entity tax returns for 2016: Partnership tax returns will be due on March 15, not April 15 (for calendar year partnerships), and c-corporation returns will be due on April 15, not March 15 (for calendar year C Corporations). Returns for s-corporation will continue to be due on March 15.


Expensing and bonus depreciation


Many businesses use enhanced Code Sec. 179 expensing as a key component of year-end tax planning. Sec. 179 property is generally defined as new or used depreciable tangible property purchased for use in a trade or business. Software was also recently included, as was qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.


(Congress has not renewed the enhancements to Sec. 179 expensing for 2015, but they likely will be renewed. Year-end planning should reflect both the likely extension and the possibility of no extension.)


Similarly, bonus depreciation has been a valuable incentive for many businesses. Fifty percent bonus depreciation generally expired after 2014 (with limited exceptions for certain types of property). Qualified property for bonus depreciation must be depreciable under the Modified Accelerated Cost Recovery System (MACRS) and have a recovery period of 20 years or less – a wide variety of assets. Year-end placed-in-service strategies can provide an almost immediate cash discount for qualifying purchases.


Although you should factor a bonus-depreciation election into year-end strategy, you don’t have to make a final decision on the matter until you file a tax return. Also, bonus depreciation isn’t mandatory: you might want to elect out of bonus depreciation to spread depreciation deductions more evenly across future years.


Another potentially useful strategy involves maximizing benefits under Sec. 179 by expensing property that doesn’t qualify for bonus depreciation, such as used property, and property with a long MACRS depreciation period.


Code Sec. 199 Deduction


Year-end planning benefits from the release of guidance on the Code Sec. 199 domestic production activities deduction is an often under-utilized potential break. The guidance provides many examples of what business activities qualify; recent Internal Revenue Service guidance highlights manufacturing, construction, oil-related work, film production, agriculture, and many other pursuits.


Work Opportunity Tax Credit


If your business is considering expanding payrolls before 2015 ends, take a look at the Work Opportunity Tax Credit (WOTC).  (Although the WOTC, under current law, expired after 2014, Congress is expected to renew the WOTC for 2015 and possibly for 2016).

Generally, the WOTC rewards employers that hire individuals from certain groups, including veterans, families receiving certain government benefits, and individuals who receive supplemental Social Security Income or long-term family assistance. The credit is generally equal to 40 percent of the qualified worker's first-year wages up to $6,000 ($3,000 for summer youths and $12,000, $14,000, or $24,000 for certain qualified veterans). For long-term family-aid recipients, the credit is equal to 40 percent of the first $10,000 in qualified first-year wages and half of the first $10,000 of qualified second-year wages.


Repair-capitalization rules


Currently, a de minimis safe harbor under the so-called “repair regs” allows you to deduct certain items costing $5,000 or less that are deductible in accordance with your company’s accounting policy reflected on your applicable financial statement (AFS). IRS regulations also now provide a $2,500 de minimis safe harbor threshold if you don’t have an AFS.


Routine service contracts


If you’re an accrual-basis taxpayer (meaning you have a right to receive income as soon as you earn it), you have a new tool for planning. The IRS has provided a safe harbor under which accrual-basis taxpayers may treat economic performance as occurring on a ratable basis for ratable service contracts – perhaps particularly useful in connection with your regular services that extend into 2016. If your business meets the safe harbor for ratable service contracts, you may be able take a full deduction in the current tax year for certain 2015 payments even though you may not perform the services until next year.


Affordable Care Act (ACA)


For large businesses, the ACA imposes many new requirements, including the employer shared responsibility provision (also known as the employer mandate). Small businesses, although generally exempt from this mandate, need to review how they deliver employee health insurance.


Many small businesses have provided a health benefit to employees through a health reimbursement arrangement (HRA). Following passage of the ACA, the IRS described certain types of HRAs as employer payment plans – therefore subject to the ACA’s market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Failure to comply with these reforms triggers excise taxes under Code Sec. 4980D.


Pending legislation in Congress would allow small employers (that is, those with fewer than 50 full-time and full-time equivalent employees) to have stand-alone HRAs and reimburse expenses without violating the ACA’s market reforms.


Small employers also should review the Code Sec. 45R credit. If your business has no more than 25 full-time equivalent employees, you may qualify for a special tax credit to help offset your costs of employee health insurance. You must pay average annual wages of no more than $50,000 per employee (indexed for inflation) and maintain a qualifying health care insurance arrangement. (Generally, health insurance for employees must be obtained through the Small Business Health Options Program, part of the Health Insurance Marketplace.)


These are just some considerations of year-end planning for businesses, and tax professionals to be aware of as the 2016 tax season approaches. 


December 6, 2015


Top Year-End IRA Reminders from IRS

Individual Retirement Accounts, or IRAs, are important vehicles for you to save for retirement. If you have an IRA or plan to start one soon, there are a few key year-end rules that you should know. Here are the top year-end IRA reminders from the IRS:

  • Know the contribution and deduction limits.  You can contribute up to a maximum of $5,500 ($6,500 if you are age 50 or older) to a traditional or Roth IRA. If you file a joint return, you and your spouse can each contribute to an IRA even if only one of you has taxable compensation. You have until April 18, 2016, to make an IRA contribution for 2015. In some cases, you may need to reduce your deduction for your traditional IRA contributions. This rule applies if you or your spouse has a retirement plan at work and your income is above a certain level.
  • Avoid excess contributions.  If you contribute more than the IRA limits for 2015, you are subject to a six percent tax on the excess amount. The tax applies each year that the excess amounts remain in your account. You can avoid the tax if you withdraw the excess amounts from your account by the due date of your 2015 tax return (including extensions).
  • Take required distributions.  If you’re at least age 70½, you must take a required minimum distribution, or RMD, from your traditional IRA. You are not required to take a RMD from your Roth IRA. You normally must take your RMD by Dec. 31, 2015. That deadline is April 1, 2016, if you turned 70½ in 2015. If you have more than one traditional IRA, you figure the RMD separately for each IRA. However, you can withdraw the total amount from one or more of them. If you don’t take your RMD on time you face a 50 percent excise tax on the RMD amount you failed to take out.
  • IRA distributions may affect your premium tax credit. If you take a distribution from your IRA at the end of the year and expect to claim the PTC, you should exercise caution regarding the amount of the distribution.  Taxable distributions increase your household income, which can make you ineligible for the PTC.  You will become ineligible if the increase causes your household income for the year to be above 400 percent of the Federal poverty line for your family size. In this circumstance, you must repay the entire amount of any advance payments of the premium tax credit that were made to your health insurance provider on your behalf. 

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Additional IRS Resources:


October 30, 2015


Are You About to Lose $50,000 in Future Social Security Benefits?


The U.S. budget deal would kill the 'file and suspend' strategy for married couples.

The U.S. budget deal comes with a Social Security surprise—a provision that could take a $50,000 bite of out some Americans' lifetime benefits.


The U.S. House of Representatives on Wednesday voted 266-to-167 to approve the two-year deal, reached earlier between President Barack Obama and congressional leaders. It now goes to the Senate.


Among the bill's 141 pages is a section that would end a strategy, called file and suspend, that retirees are using to get more money out of the Social Security system.


Here's what will happen if the provision becomes law and how it could affect you.


What is file and suspend?


The rules for claiming Social Security are enormously complicated, and a law passed in 2000 made them even more complicated by creating the opportunity to file and suspend. 

Generally, the longer you wait to start receiving your checks, the higher your monthly benefit will be. File early and you lock in a lower benefit. Wait until 70 and you lock in your maximum benefit. The monthly check for a single person who files at age 70 can be 76 percent higher than if she had filed early at 62. 


Under file and suspend, married workers can file for Social Security and immediately suspend their benefits. Their benefit checks won't start arriving in the mail, and the value of their eventual benefits will keep rising as if they hadn't filed. In the meantime, their husbands or wives can apply for a portion of the spousal benefit they are entitled to once their spouse has filed.


Why is it controversial?


Arguably, couples who file and suspend are double-dipping. They're getting the extra benefits that come from waiting until age 70 to file, while also accessing benefits early. Boston University Professor Laurence Kotlikoff estimates that file and suspend can boost lifetime Social Security benefits for many couples by $50,000. 


The budget legislation calls file and suspend an "unintended loophole," and there is evidence that Congress never meant to create the strategy. The 2000 law that allowed it was the Senior Citizens' Freedom to Work Act, aimed at encouraging older Americans to work if they wanted to. The Obama administration proposed closing the loophole last year, saying it was an "aggressive" claiming strategy that mostly benefits wealthier retirees.


Kotlikoff criticized lawmakers for singling out file and suspend, which he said is one of many so-called loopholes in the "insanely complicated" Social Security system. He said many older Americans have made plans to use the strategy and added, "I don't think it's particularly fair to yank people around like this," he said.


AARP, the big nonprofit group that advocates for older Americans, supports the change. "The claiming strategies impacted would apply entirely to future beneficiaries who have at least some time to adjust their claiming strategy," AARP said in a statement. It's also part of a broader budget deal that protects Social Security disability benefits and prevents spikes in Medicare premiums, the group said.


What does the budget deal do to file and suspend?


If passed in its present form, the bill would end file and suspend for future retirees. It would make it impossible for people to access their spousal benefits while their spouses are still waiting to access theirs. It also affects children of Social Security beneficiaries, who have their own version of file and suspend. Social Security sends a monthly check to children of beneficiaries when the children either are under 18 or are adults who were disabled when they were young. These children wouldn't get their checks until their parents start getting theirs.


When would the change go into effect?


An original version of the budget deal ended file and suspend in six months for everyone using the strategy. That would have abruptly cut off checks to thousands of retirees, or many more. Today the deal was amended so it affects only retirees who file for benefits in the future, and the change wouldn't go into effect for six months. That means older workers who want to use the strategy could still do so until early next year.  


Why are strategies for claiming Social Security benefits so complicated in the first place?


Good question. Most people don't know how to take full advantage of Social Security. Boston University's Kotlikoff wrote a 336-page book on the topic, Get What's Yours: The Secrets to Maxing Out Your Social Security, which has become an unexpected bestseller. Advocates for retirees wish it were simpler.


"The notion that you ought to have a financial adviser to benefit from all the provisions in the Social Security program is offensive to us," said Web Phillips, the senior legislative representative of the National Committee to Preserve Social Security & Medicare. He said the Social Security Agency Administration should be doing more to help retirees find legal ways to maximize their benefits.



October 15, 2015

Leaving your IRA to charity?


As part of your estate plan, you may be considering leaving some of your assets to a charity. This is a fairly common part of many estate plans, and is often shaped by one’s experiences during life. For example, those who have suffered from cancer – or who have watched a loved one suffer from the disease – are more inclined to support cancer-related charities. Those who have been impacted by Alzheimer’s disease are more likely to support that cause as part of their final wishes. And so on...


Certainly, leaving money to a charitable organization as part of your last request is commendable no matter how you decide to go about doing so. That said, if you’re going to do it, you should do it wisely.


In that regard, and although there are always differences from person to person, as a general rule of thumb, you should not leave your Roth IRA to a charity if you have other sources available. Remember, if you have money in a Roth IRA, it means that you have already paid the income tax on most of those funds.


In some situations, it’s very clear which assets you should leave to charity and which assets should be left to other beneficiaries. For instance, if you have $100,000 in a traditional IRA and $100,000 in a Roth IRA, and you want to leave $100,000 to charity and $100,000 to other heirs, the choice is simple. Leave the $100,000 traditional IRA to charity, which would get it income tax-free thanks to its tax-exempt status, and leave the Roth IRA to the other heirs.


In other situations, however, it’s not quite as clear. For instance, suppose you have $100,000 in a brokerage account and $100,000 in a Roth IRA account. In general, both of these accounts could be inherited by a beneficiary income tax-free but, even in this case, the Roth IRA would make the better account to leave to your non-charity beneficiaries. Remember, in general, it’s not only what’s in the Roth IRA on the day you die that will be income tax-free to your heirs, but the future growth on those amounts as well. In contrast, while the value of your brokerage account on the date you die may be received by a non-charity beneficiary income tax-free (thanks to a step-up in basis), any future interest, dividends, capital gains, etc. would generally be taxable.



October 13, 2015


What Happens to Your Debts After You Die?

By Aubrey Cohen / Nerd Wallet


Your debts become the responsibility of your estate.


When you die, any debts you leave behind could eat up assets that you had hoped to leave to heirs. In some cases, family members could even be on the hook for your debt. Many people buy life insurance not only to leave something behind for their loved ones but also to help deal with any debt and final expenses.


Will your debts die with you?


After you die, your debts become the responsibility of your estate — which is everything you owned at the time of your death. The process of paying your bills and distributing what’s left is called probate.


Your executor (the person responsible for dealing with your will and estate after your death) will use your assets to pay off your debts. This could mean writing checks from a bank account or selling off property to get the money. If there isn’t enough to cover your debts, creditors generally are out of luck.


But specific kinds of debts have their own wrinkles.


Mortgages and home-equity loans


If a property has a mortgage, the lender has some protection, at least up to the value of the property.


But federal law bars lenders from forcing a joint owner to pay off the mortgage immediately after the death of another co-owner. This also applies to any relative who inherits the home and lives in it. Practically, this means the family member or co-owner can simply take over the mortgage payments.


An outstanding home-equity loan against the property is different. A lender can force someone who inherits a home to repay the loan immediately, which could require selling the house. That said, lenders might work with new owners to allow them to simply take over the payments on the home-equity loan as well.


Auto loans


In the case of an auto that is not fully paid off, the lender has the right to repossess the car. But typically whoever inherits the vehicle can simply continue making payments, and the lender is unlikely to take action.


Credit cards


Once the estate runs out of assets, credit card companies are out of luck, because this debt is not secured by assets the way mortgages and car loans are. Any joint account holder would be responsible for the bill, but people who are simply authorized users of a card would not.

In community property states, listed below, spouses are responsible for any debts incurred during the marriage, including credit card debt.


Student loans


Lenders have no recourse if the estate does not have assets to repay other unsecured obligations, such as student loans. 


If your relatives are not responsible for your debts, collection agencies may still legally call to discuss debts and to try to find someone authorized to pay them, according to the Federal Trade Commission. But collectors cannot mislead family members into thinking they’re responsible for the debts.




There are circumstances in which spouses or other people would be personally responsible for your debts. These include if they:

  • Co-signed for a loan.
  • Are joint account holders.
  • Are spouses in community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Spouses are not responsible for debts that predate the marriage, although half of any community property from a marriage could be put toward such obligations.

About 30 states have “filial responsibility” laws that could make adult children responsible for debts related to caring for parents or parents responsible for debts related to care of their children. These laws once were rarely enforced, but there have been recent cases in which creditors have used the statutes to pursue family members.


What’s protected?


Creditors typically cannot go after your retirement accounts or life insurance proceeds. Those will go to the named beneficiaries and are not part of the probate process. But if the life insurance beneficiaries you named are no longer living, your death benefit may go into your estate and can be subject to creditors. That’s one reason why it’s important to make sure your policy names the proper beneficiaries.


Life insurance can help with debt payments


To decide whether you need life insurance to cover debts after your death, consider these questions:

  • Do you have family members who would be responsible for your debts?
  • Do you have debts that would eat up assets you want to pass on to family members?
  • Do you want to pass on money that couldn’t be diverted to pay your debts, even if you owe those debts?

Life insurance can help in any of these scenarios. Term life insurance policies, which provide a death benefit for a set number of years, are suitable for most people’s life insurance needs. NerdWallet’s life insurance tool is a good place to compare prices. If you want to consider a permanent policy, such as whole life insurance, consult a financial advisor.




October 6, 2015


IRAs: 10 things you should know about the 10% Penalty.


IRAs are designed to be used for retirement savings. Ideally, to maximize the benefits of these accounts, you should not touch these funds before reaching retirement age. However, in the real world, you may need money and consider tapping your IRA earlier. If you do, you should be aware of the 10% early distribution penalty. This penalty is assessed on early distributions from IRAs, in addition to any taxes you may owe. Here are ten things you should know about the 10% early distribution penalty and IRAs.

  1. The 10% penalty applies to IRA distributions taken prior to age 59 ½. If you will be age 59 ½ later in 2015 but you take an IRA distribution today, prior to six months past your 59th birthday, your distribution will be subject to the penalty. This is true even though you will attain age 59 ½ later in the year.
  2. The 10% penalty applies only to the taxable portion of your traditional distribution. Any distribution of after-tax dollars (basis) from a traditional IRA would not be subject to the penalty.
  3. The 10% penalty usually applies only to the taxable portion of your Roth IRA distribution. However, it also applies to a distribution of converted funds taken within five years from the year of a conversion, unless the funds converted were basis. This is true even though your distribution from the Roth IRA would not be taxable because the taxes would have already been paid on those funds in the year of your Roth IRA conversion.
  4. The 10% penalty applies in addition to any income tax you owe on the IRA distribution.
  5. Distributions you take from an inherited IRA are never subject to the 10% penalty. This is the case even if both the IRA owner and beneficiary are under age 59 ½.
  6. There is an exception to the 10% penalty if you take distributions from your IRA or company plan as part of a series of substantially equal periodic payments over your life expectancy or the joint life expectancy of you and your beneficiary. These are sometime referred to as 72(t) payments.
  7. Your distribution from your IRA or company plan may not be subject to the 10% penalty if it is taken due to disability, medical expenses, an IRS levy, or taken while you are an active military reservist. Due to the complexity of these rules, always check with your tax advisor before taking a distribution from your IRA.
  8. Your distribution from your IRA, but not your company plan, may not be subject to the 10% penalty if is taken to pay for a first home (lifetime cap of $10,000), qualified higher education expenses, or health insurance if you are unemployed. Again, these rules are complicated. Check with your tax advisor before taking a distribution.
  9. There is no exception to the 10% penalty if you take a distribution from your IRA due to economic hardship. There are many court cases where taxpayers have tried making this argument but none have been successful.
  10. You will use IRS Form 5329 to calculate and pay the 10% penalty when filing your federal income taxes.



September 21, 2015


Emanuel to propose $588 milllion property tax hike, phased in over 4 years

Written By Fran Spielman Posted: 09/21/2015, 02:46pm Chicago Sun Times


Mayor Rahm Emanuel will lower the boom on Chicago taxpayers Tuesday—and the multi-year hit will be even harder than anticipated.  To eliminate the city’s structural deficit and confront a $30 billion pension crisis that has saddled Chicago with a junk bond rating, Emanuel will ask the City Council to raise property taxes by $588 million by 2018 for police and fire pensions and school construction and impose a first-ever monthly garbage collection fee of $9.50-per-household.


The $588 million increase will cost the owner of a $250,000 home roughly $588 more-a-year. It will be phased in over a four-year period, under the 2016 budget that Emanuel will unveil to the City Council on Tuesday.  A $318 million increase for police and fire pensions would apply to the 2015 property tax levy payable in 2016, coupled with a $45 million increase for school construction, for a total increase of $363 million.  That will be followed by a $109 million property tax increase for police and fire pensions in the 2016 levy; a $53 million increase in 2017 and $63 million in 2018.


The $9.50-a-month garbage collection fee amounts to a back-door property tax increase that would add $114 to the costs heaped on 613,000 Chicago owners of single-family homes, two-, three- and four-flats that still get city pick-ups. Senior citizens would pay half that amount, just as they do now on city stickers, in a break demanded by the City Council’s Black Caucus.

As expected, the new fee would be tacked on to water bills that arrive in mailboxes every other month. If homeowners refuse to pay the garbage fee, city crews would still pick up the trash to avoid exacerbating Chicago’s already serious rodent problem.


The mayor’s budget also includes: a new tax on e-cigarettes; a 50-cents–a-ride surcharge on taxis and ride-hailing services; a 15 percent increase in cab fares and authorization for Uber to make pick-ups at McCormick Place, O’Hare and Midway Airports in exchange for a $5 surcharge on every pick-up and drop-off.  To raise an additional $13 million, Emanuel plans to “modernize” fees the city charges for building permits. The restructuring was proposed by the Chicago Federation of Labor.


The garbage fee has emerged as the biggest point of contention in Emanuel’s 2016 budget — even moreso than the 72 percent property tax increase that will be the largest in modern Chicago history.  But, the mayor’s budget team argues that suburbanites have been paying a separate and much higher fee for garbage collection for years and so has much of the city. It’s a matter of fairness, they contend.  Berwyn residents pay $25-a-month for garbage collection. In the recycling haven of Seattle, the garbage fee is $100-a-month.

“Only half the city receives garbage collection from the city. The other half of the city receives garbage collection and they pay for it from private vendors,” said a member of the mayor’s finance team, who asked to remain anonymous.


“Some aldermen have suggested that the entire amount should just simply go on the property tax levy. We’re looking for a way to have everybody participate….Putting the $9.50 fee on makes sure that we still have the resources we need—not only to collect garbage, but also to pay for police and pay for fire. If you were to put that full amount onto the levy, you then push that expense onto people who live in buildings that are already paying for garbage collection.”

In a press release distributed to reporters on the eve of the mayor’s budget address, Emanuel claimed to have authorized  $170 million in additional “savings and reforms” before hitting a brick wall.


City Hall argued that it is “not possible” to meet the state mandated payment to shore up police and fire pensions without drastic cuts in the “most critical city services” like police, fire and sanitation that would render the city “unlivable” for residents and businesses alike.


“On so many fronts, Chicago has made great progress by challenging the status quo. But, as we continue to grow our economy, create jobs and attract families and business to Chicago, our fiscal challenges are blocking our path to ever greater success,” the mayor was quoted as saying.

“With this budget, we will build on our progress by charting a new course for Chicago’s future and ensure that we are securing the retirements of our police and firefighters in a way that does not hurt those who can least afford it.”


The scary part is the fact that, even with a 72 percent increase in the city’s property tax levy, Emanuel is making a rosy and risky assumption that, if he’s wrong, would make the financial hit absorbed by Chicago taxpayers infinitely worse.


The mayor’s 2016 budget assumes that Gov. Bruce Rauner will sign legislation–approved by the Il. House and Senate, but not yet on the governor’s desk—giving Chicago fifteen more years to ramp up to 90 percent funding levels for the police and fire pension funds.


Chicago taxpayers would still be on the hook for $619 million in payments to the two funds next year—more than double the current payment. But that’s still $220 million less than the city would have been forced to pay and an $843 million break over the next five years.

Although a Circuit Court judge has overturned Emanuel’s  plan to save the Municipal Employees and Laborers pension funds, Emanuel is also counting on the Il. Supreme Court to reverse that decision.


Never mind that the high court has already overturned state pension reforms. Never mind that Circuit Court Judge Rita Novak cited the “crystal-clear direction” provided by the Illinois Supreme Court’s reading of the Illinois Constitution: Membership in a government employee pension system “shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”


If, as expected, the Supreme Court overturns those reforms, the city’s budget picture would get $130 million better in the short-run and hundreds of millions of dollars worse over time.

But, a city finance source, who asked to remain anonymous, argued that, if the mayor’s plan is overturned, “We don’t actually have to pay…We don’t have that obligation.”

The mayor still hopes to soften the blow of the massive property tax increase by convincing the Il. General Assembly to raise the homeowner exemption and hold harmless owner-occupied homes worth less than $250,000.


Il. House Speaker Michael Madigan (D-Chicago) has scheduled a hearing on that tax break for later this week over Rauner’s objections.


Convinced that Emanuel’s plan is going nowhere in Springfield, the City Council’s Progressive Caucus on Monday proposed a “back-stop” plan to soften the blow of a $500 million property tax increase for low-income homeowners.


The fall back is similar to the widely-ignored, 2010 plan offered by then-Mayor Richard M. Daley. Daley set aside $35 million for rebate checks, but distributed only $2.1 million because most homeowners didn’t bother to apply.


This time, rebate checks of up to $2,000 would be open to homeowners, no matter how much their homes are worth, provided the owners have an adjusted gross income of less than 400 percent of the federal poverty level.


That’s roughly $47,000-a-year for a single homeowner, $63,000 for a couple and $97,000 for a family of four. For the owner of a home of $250,000, the rebate check is likely to be $400.

Why ignore the value of the home?


“We may have people who live in a community that is changing rapidly. They may be a senior citizen who bought their home 30, 40 years ago. Now, they’re living off their Social Security check. They’ve living on a fixed income. And suddenly, they find they own a $700,000 home. They can’t face a $1,000-plus property tax increase. That’s going to put a major burden [on them]. That’s why it’s tied to the income,” said rookie Ald. Carlos Ramirez-Rosa (35th).

Homeowners would still have to apply for the checks—and that means homeowners would have to be educated about the rebate program. That kind of marketing is something the Daley administration failed to do, which is why so many homeowners left money on the table.

“When the last one went through in 2010, hardly anybody knew about it. It wasn’t very well publicized. It wasn’t marketed out there. And if you remember, that rebate was actually in the form of a small cash card. It was very difficult to go through the process. And that cash card was also taxed,” said Ald. Scott Waguespack (32nd).


Waguespack said assuming help that will never come from Springfield is not only foolish. It’s disingenuous. It holds out false hope to homeowners who really need the help.

Ramirez-Rosa (35th) couldn’t agree more.


“This is what the working people of the city of Chicago deserve. They deserve to be protected. They’re being nickel-and-dimed every single day,” Ramirez-Rosa said.

At a City Hall news conference on the eve of Emanuel’s budget address, the Progressive Caucus also declared it’s strong opposition to Emanuel’s plan to give Chicago cabdrivers a 15 percent fare increase, but give ride hailing companies the keys to the kingdom—the right to make pick-ups at McCormick Place, O’Hare and Midway Airports.


“It would do real harm to the thousands of Chicagoans who drive cabs, creating negative ripple effects” all across the city, Sawyer said.


The package of tax increases Emanuel is proposing is enough to choke a horse. But, Emanuel aides argue that it’s the only way to shore up police and fire pensions, eliminate the structural deficit the mayor inherited over the next four years and end, what the mayor calls the “gimmicks and shenanigans” that former Mayor Richard M. Daley used to “mask the real cost” of government.


That’s even though the $500 million general obligation bond issue approved Monday by the City Council’s Finance Committee includes $225 million more in so-called “scoop-and-toss” borrowing that will saddle another generation with debt that should be paid off today.


The mayor’s team is under no illusions about the junk bond rating that has already cost Chicago taxpayers tens of millions of dollars in penalties and higher interest rates will take years to shed.

“Look, it’s a lot easier and a lot quicker to be downgraded than it is to be upgraded. But, we think this budget will set us on a path to improve the credit rating of the city” over time, said a member of the mayor’s finance team, who asked to remain anonymous.


August 26, 2015


What is an 'Accredited Investor'


A term used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by certain government filings. Accredited investors include individuals, banks, insurance companies, employee benefit plans, and trusts.


An Individual Accredited Investor


In order for an individual to qualify as an accredited investor, he or she must accomplish at least one of the following:


1) earn an individual income of more than $200,000 per year, or a joint income of $300,000, in each of the last two years and expect to reasonably maintain the same level of income.


2) have a net worth exceeding $1 million, either individually or jointly with his or her spouse.


3) be a general partner, executive officer, director or a related combination thereof for the issuer of a security being offered.


These investors are considered to be fully functional without all the restrictions of the SEC.

An employee benefit plan or a trust can be qualified as accredited investors if total assets are in excess of $5 million.

August 20, 2015


6 Ways to Protect Your Money Without a Prenup


When a prenuptial agreement is not in the cards, you can still keep your cash secure.


July 15, 2015


Cook County Sales Tax Increase


Sales tax rates in many Cook County suburbs will rise January 1, 2016 after the county board raised the rate by a penny on the dollar to shore up pension funds.


The move pushes the sales tax in unincorporated areas to 9 percent, including state and Regional Transportation Authority charges. But many suburbs have their own 1 percent sales tax, raising the total sales tax to 10 percent, or $10 on a $100 purchase.


Chicago's rate -- and a few suburbs' -- will climb to 10.25 percent, the highest among big cities in the nation.


County President Toni Preckwinkle pushed the increase and won support from nine commissioners over the objection of seven others, mostly from the suburbs, who said businesses will lose out when buyers head for neighboring counties where sales taxes are in most cases 2 cents per dollar lower.


Along with Elk Grove Village, some towns that will hit an overall 10 percent sales tax rate are Arlington Heights, the Cook County portion of Buffalo Grove, Des Plaines, the Cook County portion of Hoffman Estates, Mount Prospect, Palatine, Rolling Meadows, the Cook County portion of Schaumburg, South Barrington, Streamwood and the Cook County portion of Wheeling, according to the Illinois Department of Revenue.


Sales taxes will climb to 10.25 percent in Rosemont and in the Cook County portions of Bensenville, Elgin and Hinsdale, as well as in the business district of Mount Prospect.


The increase will push the sales tax to 9 percent in unincorporated Cook County. The county will get 1.75 percent, the RTA gets 1 percent and Illinois gets 6.25 percent.


The sales tax is 7.25 percent in DuPage County, and Kane, Lake, McHenry and Will counties each have a 7 percent sales tax, plus municipal sales taxes.


The new tax will become effective next January, meaning the county will lose out on added tax revenue from holiday sales this year. The county is required to inform the state by Oct. 1 what the sales tax will be starting in January.



June 25, 2015


Strategies to Raise Your Credit Score


1. Erase the Old Bad History.


One technique is to dispute old, negative information on your credit history in hopes that the original creditor won’t respond and the mark will be removed. A more legitimate approach is to contest any entries that are incorrect or a result of identity confusion.


2. Request a credit line increase.


Increasing your credit line will improve your credit utilization ratio, which is the percentage of your credit limit you’ve used, and help your credit score. Many credit card issuers give you the option to request a credit line increase without a credit inquiry. Take it. If they want additional information and plan to pull your credit, cancel the application, because a hard credit check will hurt your score.


3. Pay off debt.


If you’ve already tried to make the denominator of your credit utilization ratio bigger, it’s time to focus on making the numerator smaller. Paying off debt is the best way to do that. By lowering your total balance owed, you lower the total amount of interest you pay, and improve your credit score at the same time. 


4. Charge less.


The credit bureaus don’t take into account whether you carry a balance when they calculate your credit utilization ratio. They take your statement’s closing balance, even if you pay it in full that same period. If you want to give your score a boost, use your credit cards less and lower your statement balances. 


5. Consolidate.


If you have multiple cards from one issuer, consider consolidating the newer cards into the older cards. You can do this by calling customer service and asking if they offer this, but only do it if they keep the total credit limit the same. The goal of this move is to increase the average age of your revolving lines of credit without reducing your total credit limit, which will affect your credit utilization ratio.


6. Check your credit report.


Review your credit report for any errors and omissions. If you have a negative mark that isn’t rightfully yours, dispute it and get it removed. If you have an account that’s not listed on your report, make sure it’s added. You can check your credit report for free once a year through AnnualCreditReport.com.


7. Don’t be late. 


Making on-time payments each month is key to staying on top of your debt and maintaining your score. It might sound boring, but it’s a tried-and-true method.


8. Be patient.


If you have a major black mark on your credit history – if you’ve filed for bankruptcy, for example – it will take time to put some space between that event and your score. In most cases, it takes about seven to 10 years to erase the negative effects of a bankruptcy filing from a credit report.


9. Don’t become a victim. 


Credit scores can be ruined quickly if a thief steals your identity and starts creating new accounts and building up debt in your name. To reduce the chances of becoming a victim, review your account statements carefully each month to spot any errors and alert your card issuer if you see any problems. Avoid sharing personal details on social media that would make it easier for someone to hack into your accounts, too, and use hard-to-guess passwords on financial accounts.  


10. Maintain accounts in your own name. 


If you’re a college student still spending mom and dad’s money, or you’re an unemployed spouse with accounts in your partner’s name, it’s time to set up some accounts in your own name. That will give you the chance to build your own credit history. Most accounts with monthly bills, including for utilities or credit, can help fill out your credit history.



June 12, 2015


Investment Banker vs the Fisherman:  A Lesson in Common Sense and Happiness


This story has been around for a long time, but I think it deserves to be revisited yearly.


It is my inspiration to slow down, reassess, and get real about how I want to live life.


An American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellowfin tuna.


The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.


The Mexican replied, “only a little while. The American then asked why didn’t he stay out longer and catch more fish? The Mexican said he had enough to support his family’s immediate needs. The American then asked, “but what do you do with the rest of your time?”


The Mexican fisherman said, “I sleep late, fish a little, play with my children, take siestas with my wife, Maria, stroll into the village each evening where I sip wine, and play guitar with my amigos. I have a full and busy life.”


The American scoffed, “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat, you could buy several boats, eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing, and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually New York City, where you will run your expanding enterprise.”


The Mexican fisherman asked, “But, how long will this all take?”


To which the American replied, “15 – 20 years.”


“But what then?” Asked the Mexican.


The American laughed and said, “That’s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions!”


“Millions – then what?”


The American said, “Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siestas with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”



June 2, 2015


Small Business Owner Report Spring 2015


Despite challenges, small business owners are still optimistic about the future, embracing self-sacrifice while prioritizing employees and customer relationships.


Seven years after the Great Recession began, two-thirds (64%) of small business owners report their businesses are still in the process of recovering, according to Bank of America’s spring 2015 Small Business Owner Report. The report, based on a semiannual survey of 1,000 small business owners across the country, says that only one in five (21%) small businesses state they have completely recovered from the recession.


However, despite these lingering impacts from the Great Recession, small business owners are still confident about the future growth of their businesses.


“Small business owners are optimistic about the future and are working extremely hard to achieve success,” said Robb Hilson, Small Business executive. “As they have focused on recovery, many business owners have embraced a mindset of self-sacrifice. They are prioritizing their employees and customers above all else and it is often at the expense of their own personal or financial well-being.”


The report also found that small business owners have been working long hours, forgoing raises and delaying their own compensation as they focus on investing in employees, and attracting and rewarding repeat customers.


Investing in employees


When it comes to their employees, small business owners overwhelmingly find the need to reward them and show their appreciation in a variety of ways. Almost all small business owners (94%) surveyed say their companies have employee appreciation programs.


In addition to appreciation programs, small business owners are investing in helping their employees perform better and grow in their careers. “Small business owners are seeking more support through lending than they did a year ago. Citing difficulty in locating qualified candidates, small business owners’ number one priority for using loan capital is training and developing existing staff,” Robb said.


Strengthening customer relationships


Establishing relationships with customers is a primary driver of repeat business, and small business owners are showing their appreciation to their customers in a variety of ways. More than half (57%) of the survey respondents feel they receive repeat business because of the relationships they have developed with their customer base. This sentiment is even stronger among Baby Boomer owners (71%) compared with 47% of Millennials and 53% of Gen Xers.


June 1, 2015


Can it be illegal to withdraw your own money from your own account?  Why former Speaker of the House Dennis Hastert was indicted.


It's your money, in your account, but that doesn't mean you can take it out any way you please.  Failure to report large cash transactions can often trigger federal investigations, leading to fines or even lengthy prison sentences.


It all stems from U.S. law that requires forms to be submitted—both by financial institutions, as well as bank customers—each time a cash transaction in excess of $10,000 occurs. Customers hoping to avoid having to disclose such transactions often seek ways around the law in a process known as "structuring," which can lead to serious money laundering charges.


Federal prosecutors charged former GOP House Speaker Dennis Hastert with structuring on Thursday after he allegedly withdrew over $3 million from 2010 to 2014, according to the indictment. The former Illinois Republican claims he was keeping the cash he withdrew, but the indictment shows the FBI believes Hastert lied about making cash payments to an individual he committed "prior misconduct" against.


"You can't lie in those situations," says Jeffery Robinson, author of "The Laundrymen," a book about money laundering. "If he had come clean in the beginning, they would have slapped him on the wrist. Now he could be guilty for money laundering and could face twenty years."

Hastert is accused of withdrawing nearly $1 million in small transactions over the course of nearly five years.


Why is structuring illegal?


Customers can avoid banks automatically filing currency transaction reports, or CTRs, by deliberately withdrawing cash amounts close to but below the $10,000 mark. But the process of structuring these transactions that are just below $10,000 can appear suspicious to both banks and federal authorities, like the Treasury's Financial Crimes Enforcement Network. The process becomes a crime in and of itself once a customer either lies about his or her reasons for the transactions or federal authorities uncover the intent behind them.


"Structuring is one of the key components of money laundering," says Robinson. "It often has to do with disguising cash so it cannot be associated with the underlying crime."


Banks, which are often forced to over-report to protect themselves, can also choose to report transactions that they deem suspicious, or any cases of transactions totaling $10,000 annually.


Convictions on structuring charges can carry five years of prison time or fines up to triple the amount withdrawn, under the Racketeer Influence and Corrupt Organizations Act.


May 28, 2015


ACA (Affordable Care Act) Information for Employers Counting Full-time and Full-time Equivalent Employees


For the purposes of the Affordable Care Act, employers average their number of employees across the months in the year to see whether they will be an applicable large employer.

To determine if your organization is an applicable large employer for a year, count your organization’s full-time employees and full-time equivalent employees for each month of the prior year. If you are a member of an aggregated group, count the full-time employees and full-time equivalent employees of all members of the group for each month of the prior year. Then average the numbers for the year. Employers with 50 or more full-time equivalent employees are applicable large employers and will need to file an annual information return reporting whether and what health insurance they offered employees. In addition, they are subject to the Employer Shared Responsibility provisions.

In general:

  • A full-time employee is an employee who is employed on average, per month, at least 30 hours of service per week, or at least 130 hours of service in a calendar month.
  • A full-time equivalent employee is a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee.
  • An aggregated group is commonly owned or otherwise related or affiliated employers, which must combine their employees to determine their workforce size.

There are many additional rules on determining who is a full-time employee, including what counts as hours of service. For more information on these rules, see the employer shared responsibility final regulations and related questions and answers on IRS.gov.


May 27, 2015


City of Chicago Minimum Wage


Minimum Wage Ordinance


On December 2nd, 2014, the Chicago City Council passed an ordinance that will raise the minimum wage for Chicago workers to $13 per hour by 2019. This measure, sponsored by Mayor Rahm Emanuel, Alderman Will Burns, Alderman Pat O’Connor, and 31 other aldermen, will increase the earnings for approximately 410,000 Chicago workers, inject $860 million into the local economy, and lift 70,000 workers out of poverty.


In 2015, the City will begin phasing in its new minimum wage, as provided by the ordinance. This phase-in will help simplify the early years of implementation for businesses and employers. The City's ordinance raises the hourly minimum wage to $10 in 2015, $10.50 in 2016, $11 in 2017, $12 in 2018, and $13 in 2019, indexed annually to the Consumer Price Index (CPI) after 2019.


The ordinance also increases the minimum wage for tipped employees in from the current state minimum of $4.95 to $5.45 in 2015 and $5.95 in 2016, indexed annually to the CPI after 2016.

The full text of Minimum Wage ordinance is available HERE.


Implementation Timeline*

Effective Date Non-Tipped Employees Tipped Employees
Current $8.25 $4.95
July 1, 2015 $10.00 $5.45
July 1, 2016 $10.50 $5.95
July 1, 2017 $11.00 Increases with CPI*
July 1, 2018 $12.00 Increases with CPI*
July 1, 2019 $13.00 Increases with CPI*
July 1, 2020 Increases with CPI* Increases with CPI*

* The ordinance provides that the minimum wage will not increase when the unemployment rate in Chicago for the preceding year, as calculated by the Illinois Department of Employment Security, was equal to or greater than 8.5 percent. The ordinance also provides that if the CPI increases by more than 2.5 percent in any year, the minimum wage increase shall be capped at 2.5 percent.


To Whom Does the Minimum Wage Ordinance Apply?

  • Employers: Employers that maintain a business facility within the City of Chicago and/or are required to obtain a business license to operate in the City are subject to the minimum wage ordinance.
  • Employees: Employees who work two hours in the City within the period of two weeks qualify for the minimum wage required by the ordinance. This includes domestic employees and home health care workers. A union may waive its members' rights to collect the minimum wage as part of a collective bargaining agreement.

Time spent traveling in the City that is compensated time, including, but not limited to, deliveries, sales calls, and travel related to other business activity taking place within the City, counts toward hours worked; time spent traveling in the City that is uncompensated commuting time does not.


To Whom Does the Minimum Wage Ordinance NOT Apply?

  • Employees taking part in government-subsidized temporary youth employment programs.
  • Employees taking part in government-subsidized transitional employment programs.
  • Employees of any governmental entity other than the City.
  • Certain employees exempted under state law, including:
    1. Employees under 18 years of age. Employers are authorized to pay these employees a wage 50 cents below the state minimum hourly wage.
    2. Adult employees (i.e. those 18 years of age or older) in the first 90 days of employment. Employers are authorized to pay these employees a wage 50 cents below the state minimum hourly wage.
    3. Disabled employees, pending state approval.Trainees taking part in a program for no more than six months, pending state approval.
    4. Employees working at a business with four or fewer employees, not counting the employer’s parents, spouse, children or other members of the employer’s immediate family.


Other Employer Requirements

  • Employers that pay a covered tipped employee must make available at the request of the Commissioner of Business Affairs and Consumer Protection substantial evidence that establishes: (i) the amount the employee received in gratuities during the relevant pay period and (ii) that no part of that amount was returned to the employer. If an employer is required by the state minimum wage law to provide substantially similar data to the Illinois Department of Labor, the Commissioner may allow the employer to comply with this requirement by filing a copy of the state documentation.
  • Employers with a business facility in the City at which a covered employee works must post notice at the facility of: (i) the City minimum wage and (ii) the employee’s rights under the ordinance. The Commissioner of Business Affairs and Consumer Protection will prepare a form notice and make it available online to employers. Employers that do not maintain a business facility within the geographic boundaries of the City and households that serve as the worksite for domestic workers and home healthcare workers are exempt from this requirement.
  • Employers must provide with the first paycheck issued to any covered employee a form notice advising the employee of: (i) the City minimum wage and (ii) the employee’s rights under the ordinance. The Commissioner of Business Affairs and Consumer Protection will prepare a form notice and make it available online to employers.
  • Employers may not discriminate or take any adverse action against any covered employee in retaliation for exercising any right covered under the ordinance.
  • Employers that violate the Minimum Wage ordinance will be fined $500 to $1,000 for each offense. Each day that a violation continues constitutes a separate and distinct offense to which a separate fine shall apply.


May 22, 2015


Are we overdue for a Stock Market Crash?


With stocks at near or at all-time highs.  Are you scared? Why are current all-time highs so scary?


The carnage of 2008 feels like a lifetime ago. In fact, the S&P 500 is up 214% since it bottomed out in March 2009!  Stocks have been up for six straight years. We're nearly midway through 2015, and they're slightly up this year as well.


Do those numbers make you nervous?


After all, by almost any metric, the stock market is expensive.  With interest rates at historic lows, people don't have many alternatives - so they're piling money into stocks.  But what if interest rates rise? What if that money pulls out of stocks? History says we're overdue for some pain.  Generally the market sees a contraction of about 10% once a year. The last time it happened? November of 2011... Nearly four years ago!


If investing in the market were always as easy as it's been across the past few years, we'd all be rich and living on a beach somewhere!


First of all, it's never a perfect time to buy stocks.  It’s a fact... There is never a "perfect time" to buy stocks.  Today, the market looks expensive. But it's easy to forget the courage it took to step in and buy stocks when they were "cheap."  In 2008, you couldn't open a newspaper without seeing headlines about our entire financial system collapsing. Even the summer of 2011 was pretty scary. Between July 22 of that year and August 19 (less than a month) the market crashed 16%.


Why you can’t be in Cash.


But is the answer getting out of the market?


Pulling your money out and leaving it in cash might help quell anxiety today. But it can cause huge damage in the long run.  Stocks have been up for six straight years? Well, that's not the record run of positive returns.  Between 1991 and 1999, the market was up nine straight years. A decade earlier - between 1982 and 1989 - it was up eight straight years.  So, imagine you pulled your money out of the market at the end of 1987, at the end of a sixth straight positive year. You figured the good times couldn't last. At that point, the S&P 500 was at 247.08.  At the end of 1999, it was at 1,469.  You would've missed a 594% market return. And that's not even including the dividends you would have collected across that time.


What do you do!


Knowing that exiting the market to cash can lead to lost profits.  Perhaps leaving it in can lead to a lost fortune.  Even after studying the data the market today is still very scary.  So, what do you do!  Stay tuned!!





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