MAKE MY DAY
In all the years that we have been doing this work, and all the cases we’ve handled, we’ve never experienced a physical threat, or anything worse than an occasional raised voice. On the other hand, we were investigating a wife’s white collar office type business, in which her 85-year old father still worked (kind of in a consulting capacity). We were provided with various records and access to a copier. We copied certain items that we wanted, and came the end of the day, we started to pack up to get ready to leave. It was at that point that the wife’s father – keep in mind he is 85-years old, 5’4” and maybe 130 lbs. – had a change of heart as to our copying records, and demanded that we not leave with those records but rather return them to his possession. We of course refused. He got up, drew himself up to his full height, and blocked our way out the door. Were the matter not as serious as it was, one would have to actually laugh. However, the wisest thing to do was to cool our heels, use our cell phones (he wouldn’t allow us to use their phones) and call the police. They had to then escort us past the raging bull
Monday, October 25, 2010
Wednesday, October 20, 2010
Kal's Kweries**
KWERY:
My wife has a retail clothing store and I don’t think she is reporting all of the income. How might I get a sense for whether my suspicions are valid?
RESPONSE:
While there are several different ways to attempt to test whether or not there is unreported income, one quick visual is to compare the reported gross profit margin of the business as per its tax returns to that of the industry in general. By way of example, if the benchmarking information for the industry indicates that the typical gross profit margin is 45%, and if your wife is reporting say a 35% gross profit margin, that’s an indication there may be unreported income. There are potentially a number of good and valid answers as to why the gross profit margin is that low, but one possible answer is unreported income.
My wife has a retail clothing store and I don’t think she is reporting all of the income. How might I get a sense for whether my suspicions are valid?
RESPONSE:
While there are several different ways to attempt to test whether or not there is unreported income, one quick visual is to compare the reported gross profit margin of the business as per its tax returns to that of the industry in general. By way of example, if the benchmarking information for the industry indicates that the typical gross profit margin is 45%, and if your wife is reporting say a 35% gross profit margin, that’s an indication there may be unreported income. There are potentially a number of good and valid answers as to why the gross profit margin is that low, but one possible answer is unreported income.
Tuesday, October 19, 2010
Tax Tip of the Week*
TAXES AND PROPERTY DISTRIBUTIONS
When assets (and liabilities) are whacked up between husband and wife going through a divorce, with rare exception, all such movement of assets are non-taxable and non reportable events. From a tax point of view, you can do whatever you want with assets and liabilities between husband and wife. However, that does not mean there are no tax consequences to the dividing up of the assets. It is important to keep in mind that different assets come with potentially different tax costs or burdens – and even though those tax costs or burdens may not rear their ugly heads immediately, down the road, whether it be a year or 20 years later, there very well may be a tax issue. A simple illustration is $100,000 of cash has no tax issues; $100,000 of stock that cost $30,000, and therefore has a $70,000 gain, has significant tax issues.
When assets (and liabilities) are whacked up between husband and wife going through a divorce, with rare exception, all such movement of assets are non-taxable and non reportable events. From a tax point of view, you can do whatever you want with assets and liabilities between husband and wife. However, that does not mean there are no tax consequences to the dividing up of the assets. It is important to keep in mind that different assets come with potentially different tax costs or burdens – and even though those tax costs or burdens may not rear their ugly heads immediately, down the road, whether it be a year or 20 years later, there very well may be a tax issue. A simple illustration is $100,000 of cash has no tax issues; $100,000 of stock that cost $30,000, and therefore has a $70,000 gain, has significant tax issues.
Monday, October 11, 2010
Anecdote of the Week
THERE ARE WHEELS AND THERE ARE WHEELS
It is hardly unusual to see a business where the owner is writing off one or more cars – commonplace of course is the car for the business owner, often done at 100% even though it’s only maybe 30% business. There are other times when we also see a write-off (whether it is depreciation or car leases) for family members. One of our cases in particular stands out – it involved a manufacturing operation, and the owner (presumably with some help from his accountant) had on his books his personal and his wife’s vehicles. He wrote them off entirely in the year of acquisition, posting them as machinery and equipment for the business. While that was of course clearly incorrect, what made this particularly notable was that one of the cars was a Rolls Royce, and the other a Maserati – each one of them costing in excess of $200,000, and both of them acquired in the same year
It is hardly unusual to see a business where the owner is writing off one or more cars – commonplace of course is the car for the business owner, often done at 100% even though it’s only maybe 30% business. There are other times when we also see a write-off (whether it is depreciation or car leases) for family members. One of our cases in particular stands out – it involved a manufacturing operation, and the owner (presumably with some help from his accountant) had on his books his personal and his wife’s vehicles. He wrote them off entirely in the year of acquisition, posting them as machinery and equipment for the business. While that was of course clearly incorrect, what made this particularly notable was that one of the cars was a Rolls Royce, and the other a Maserati – each one of them costing in excess of $200,000, and both of them acquired in the same year
Monday, October 4, 2010
Tax Tip of the Week*
INTERPLAY OF ALIMONY AND CHILD SUPPORT
The general rule for alimony is that it is deductible by the one paying it and taxable to the one receiving it. The absolute rule for child support is that it is not taxable to the one receiving and not deductible by the one paying it. A problem that occurs once in a while is when child support is disguised as alimony – whether intentionally or unintentionally. This can come about – at least in the minds of the tax people – if alimony is established to be at a certain level, but then is reduced (increases are not a problem) at a time or event that is related to, or deemed to be related to, a child. Simple example – the alimony is reduced by some amount when a dependent child reaches the age of 18. Wording like that makes the amount of the reduction non-deductible/not taxable child support from the very beginning.
The general rule for alimony is that it is deductible by the one paying it and taxable to the one receiving it. The absolute rule for child support is that it is not taxable to the one receiving and not deductible by the one paying it. A problem that occurs once in a while is when child support is disguised as alimony – whether intentionally or unintentionally. This can come about – at least in the minds of the tax people – if alimony is established to be at a certain level, but then is reduced (increases are not a problem) at a time or event that is related to, or deemed to be related to, a child. Simple example – the alimony is reduced by some amount when a dependent child reaches the age of 18. Wording like that makes the amount of the reduction non-deductible/not taxable child support from the very beginning.
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