September 12, 2014

Pacquiao Scores Tax Knock-Out in First Round Vs. Philippines

World-champion boxer Manny Pacquiao is definitely no stranger to pummeling opponents in the ring, but the famous boxer is going for the knockout in a long-running tax dispute with the Philippine government. The fighter is in a battle with the Philippine tax authorities over 2.2 billion pesos ($50.3 million) they claim the national icon owes for his 2008 and 2009 earnings from bouts held in the U.S.

Pacquiao and his managers say he paid the taxes he owed to the U.S., and that because of a treaty agreement between the two countries, he isn’t subject to double taxation. The boxer is neither a U.S. resident or citizen, but the U.S. has special regulations requiring foreign athletes who work in the U.S. to file taxes. That U.S.-based work can entail anything from participating in a tournament to taking part in endorsement deals.

According to the Philippine tax office, Pacquiao has not provided them the official, certified paperwork it requires to demonstrate proof of his U.S. tax payments. Meanwhile, the fighter’s promoters, Las-Vegas-based Top Rank, say the documents have been requested but just haven’t come through yet.

Prior to the recent Supreme Court ruling, the Philippines Bureau of Internal Revenue issued a warrant to 36 banks to seize Pacquiao’s assets, some of which included his wife’s accounts. Based on the news report on the latest Supreme Court ruling, the Philippine government also threatened to take the money owed by selling off the assets it seized. Later the tax court agreed to lift the asset freeze on the condition Pacquiao posted the cash bond equivalent to their claim to back taxes and interest.

There’s still a long way to go before Pacquiao, who also happens to be a congressman representing the Sarangani province, takes home the championship belt on this one. But with the new Supreme Court ruling on his side, he said in a statement, “For now, I am just glad I will be able to concentrate on training for my upcoming bout.”

Pacquiao’s relief is expected. Having to resolve a tax dispute with the authorities, Philippine or U.S., can divert precious attention from athletes trying to stay on top of their game and business owners who have daily operations to manage. The paperwork and back-and-forth communications can take weeks, months or years to clear, all of which requires time, patience and specialized expertise even the most knowledgeable business leaders are unlikely to have. Having an experienced tax advisory team in the ring with you should you be subject to a tax inquiry can be a life saver to this otherwise brutal experience. Just don’t wait for a letter from the IRS before you put your team together.

September 4, 2014

Kids Cost More Than Ever to Raise—Here’s How Much

If you ever had the distinct impression that your kids were costing you a fortune, you can feel good knowing that you were right. According to the USDA’s annual Expenditures on Children by Families report, a child born in 2013 will cost the average middle-income, two-parent family more than $245,000 to raise until the age of 18, representing a 1.8 percent increase from 2012. Adjusted for projected inflation, that number is more like $304,000.

If you make more, you’re also probably spending more. The report estimates that high-income households, or those earning over $106,540 in before-tax income, spend about $408,000 per child. For a two-child household, that’s between $21,330 and $25,700 per kid every year, depending on the age of the child. (You may have already have guessed this, but annual expenditures generally increase as the age of the child does.)

The more kids a family has, the less they spend on each one. Families with three or more kids spend 22 percent less per child than those with two kids, and families with one child spend an average of 25 percent more on the only child than those with two kids.

Where does all that money go? The largest share of total child-rearing expenses across all income levels in the USDA’s calculations is housing. For high-income earners, housing represented 33 percent of total child-rearing expenses. Where you live matters, too, since housing costs vary across the U.S. Those in the urban Northeast spend the most to raise a child ($282,480), and those in the urban South the least ($230,610). The urban West, which includes California, runs somewhat down the middle ($261,330). The second-largest expense for high-income households was child care and education, coming in at 23 percent. Generally, the higher the income, the greater the expenditure was in this category.

The USDA’s report also accounts for food, healthcare and transportation, among other things. What it doesn’t include are expenses incurred during pregnancy or those incurred after the age of 18, such as college. Add those into the mix and sure enough, there’s plenty of proof that raising kids isn’t cheap.

Thankfully, the joys that accompany parenthood far exceed their costs in mere dollars and cents. These numbers simply remind us that the arrival of a new child or grandchild into our lives can mark a pivot point to how we manage our finances. From the moment they’re born, new considerations and opportunities arise that should involve your tax and legal advisory team. For example, you may decide to re-strategize your tax position, initiate or make changes to life insurance and estate plans, or open up a college savings plan.

To be certain you’re taking advantage of as many savings opportunities as possible, meet regularly with experienced tax and financial professionals as your children grow and your family’s needs do, too.

August 29, 2014

More People Than Ever May Relinquish Their U.S. Passports This Year

The Treasury Department just published its latest quarterly report revealing the names of people who have given up their U.S. citizenship or long-term residency. On the list were 577 individuals, bringing the 2014 total so far to 1,577. This mid-year total puts us on pace to exceed last year’s numbers, which hit a record-breaking 2,999 individuals, already a 221% jump from 2012.

Short of asking them outright, we can’t know why those on the list chose to leave, but we might infer that taxes could have been at least one of the factors calculated into their decision-making process. That’s because the U.S. requires citizens and green-card holders to file tax returns no matter where they live. So depending on where expats reside, they may be required to pay taxes in the country in which they live and work while also paying the U.S. government.

The Foreign Account Tax Compliance Act could also be influencing some taxpayers to leave their passports behind. The law took effect this year and requires foreign financial institutions to report account information to the U.S., both for U.S. citizens and green-card holders living in the U.S. and abroad.

In 2012, Facebook co-founder Edward Sevarin was one of the recognizable names who renounced his U.S. citizenship. He headed for Singapore before the Facebook IPO, a move that undoubtedly reduced his tax bill since Singapore doesn’t impose a capital gains tax and has a low 18% tax rate. In 2013, American music icon Tina Turner was also on the list, though she has already been living in Switzerland for the last two decades with her boyfriend and now-husband Erwin Bach, a German music producer.

Individuals aren’t the only ones looking to expatriate. Walgreens, the largest pharmacy retailer in the U.S., considered an inversion from U.S. to Swiss corporate citizenship to cut down on tax obligations. But in this month’s announcement of the company’s decision against it, Walgreens’ chief executive Gregory Wasson told analysts the change “included potentially putting the company in a significantly worse position than if we had not inverted at all, such as a protracted controversy with the IRS.” He also acknowledged the risk of “consumer backlash and political ramifications,” referring to boycotting threats by consumers and the potential loss of almost a quarter of the company’s sales derived from Medicare and Medicaid.

The decision to expatriate should never be taken lightly, and taxes should never be the sole factor in consideration. There are not only indirect costs to giving up residency in one of the world’s greatest nations but direct ones as well, including the exit tax. Fortunately, there are many, many strategies for reducing personal and corporate tax liabilities. By planning well ahead of tax day and working strategically with experienced professionals, we can all save money on our taxes without having to give up our citizenship or green cards. 

August 22, 2014

Late Actor Robin Williams Took Measures to Help His Children Inherit Responsibly

Robin Williams was a beloved comedian, actor and entertainer who won over legions of fans by bringing some of the most eccentric characters to life, including Mork from Ork, Mrs. Doubtfire, and Peter Pan. Media outlets describe Williams as a deeply compassionate person, always helping to make his fellow actors feel at home on the set and lifting the spirits of friends through humor, including his former college roommate Christopher Reeve after his debilitating accident.

His fans will miss him dearly, but like most famous talents, those closest to him, including his three children Cody (22), Zelda (25) and Zachary (31), will likely feel the most profound loss from his passing. Williams expressed his love for his children and their positive impact on his life in many interviews. According to documents obtained by TMZ, he also took care to ensure his children came into their inheritance responsibly.

The documents obtained show that, at one point, Williams established a trust in which each of his children received one-third of their share of the principal at the age of 21, half at 25, and their full share at 30. Though Williams’ publicist has since stated that these documents are outdated, they still serve us in bringing to mind important questions many affluent families contend with: how and when to distribute assets to their beneficiaries.

Williams chose to provide his children with their inheritance during his life. Families that decide to follow this path can help provide financial guidance and impart wisdom to their children to encourage thoughtful decision-making with the money gifted to them. Doing so also allows benefactors to enjoy the rewards of seeing what opportunities these gifts make possible. And, not to be forgotten, there can be significant tax advantages to making gifts in your lifetime. Even so, creating a trust that distributes money to beneficiaries before one’s death isn’t always preferred or feasible, especially if the assets are needed in your lifetime. Every family is different.

Like Williams, you may decide that the best option for your family is to set up staggered payments based on a beneficiary’s age. This approach has its upsides, including the chance to help protect children from making one poor decision with financially permanent consequences. No matter what distribution scenario you choose to define in a trust, leaving money without providing the proper education for its conscientious use is never a good idea.

If you are interested in knowing more about different ways to set up a trust or if you have established one for your heirs but haven’t reviewed it recently, make time to attend to this important task. Divorces, the arrival of children and grandchildren, a beneficiary’s readiness for financial responsibility, and shifts in your own financial position all signal important times to review your plan and ensure it best meets your family’s needs. Talley and Company can help.

August 1, 2014
Former Microsoft CEO Steve Ballmer’s $2 billion bid for the Clippers looks to be a gross over-valuation, at least according to the bid book of sale put together by Bank of America. Reporters from ESPN.com got hold of the valuation numbers through documents introduced in the trial determining whether Shelly Sterling has the right to sell the team without Donald.
The bid book showed Ballmer’s $2 billion offer for the Clippers is 12.1 times the expected 2014 revenues of the team. Purportedly, Bank of America also showed the average of teams sold over a five-year period was 3.4 times total revenue, and that no team has been purchased for more than five times its total revenues.
In the case of the Clippers, revenue alone might present an under-valuation if the team’s alleged years of mismanagement were to be taken into account. The Clippers also have a pending national TV deal that could be a slam dunk to raising the franchise’s popularity and profits.  
Of course, Ballmer’s serious bid is probably about a lot more than him just wanting to make another profitable business deal. Among the billionaire set who have most of what money can buy, we expect there’s immeasurable enjoyment and prestige to owning one of 30 teams that besides their exclusivity, hardly ever go up for sale. For this alone, any team on the NBA is a statistical anomaly in the world of business dealings. Like any near-priceless objet d’art up for auction, the emotional value of ownership can be equal to, if not greater than, the investment value.  
Outside of these outliers, most buyers looking to acquire a business, whether as a singular investment or a complement to an existing company, are more likely to focus on the financial returns they can expect to get for their purchase price. B2B valuation and legal advisory professionals, including those at Talley and Company, can provide comprehensive data and due diligence in these situations to enable decision-makers to make the most profitable investment choices. 
Before entering into any buy/sell agreement, Talley & Company can help you determine both optimal deal pricing and structure to achieve your goals from an ROI and tax perspective, accounting for factors that include revenues, future opportunities and contracts, industry trends, and market share. Of course, if you just plan to make a must-have power bid like Ballmer, at least you’ll know what you’re getting into and how far from the baseline to overshoot.
July 25, 2014
Crowdfunding is helping thousands of businesses acquire much-needed capital and build a core fan base. Businesses of all kinds and for many funding purposes are using crowdfunding platforms, from yoga studios looking to grow into larger spaces to tech innovators wanting to bring new gadgets to market.
If you’re considering a campaign to launch your business, expand a product line, or fund a special project, scheduling a few minutes with Talley and Company’s advisory team can ensure your campaign is set up properly from the start to avoid obstacles from a tax and legal perspective. (There’s nothing worse than obtaining hard-earned funding only to discover that federal and state tax obligations may keep you from fulfilling your vision.)
For businesses, there are two main avenues for crowdfunding, and depending on which you choose, the tax and legal implications will differ greatly. In the rewards-based approach, supporters are typically offered a chance to earn tiered rewards for different contribution levels. These can be anything from a branded T-shirt to pre-ordering a product still in development. Kickstarter and Indiegogo are two popular platforms.
With this option, the income you derive from your campaign will most likely fall under one or more of four categories: revenue, sales, investment or gift. In most cases, the money you earn from a campaign will have to be included as gross income for your business. If you’re offering a product or service in exchange for donations, you may also need to pay sales tax from customers in the state that you’re registered. The expenses you incur for fulfillment of rewards, products or services may be deductible against the income you earn. In some cases, funders will request nothing in return other than the joy of knowing they helped bring an ingenious idea to life. With meticulous records, these may be claimed as gifts. Just keep in mind that the IRS has stricter definitions for what falls under this category than you or I might.
In the equity-based approach, investors get a financial return or an ownership stake in the company for their support. Crowdfunder is one of the platforms in this newly developing category. If you’re using this option, the tax and legal obligations are a different animal entirely, since now we’re talking about investment money and not revenue. In fact, the laws in this area are still undergoing changes, so keeping in close contact with your legal team right from the beginning is essential.
No matter which option you choose, a successful campaign involves a lot of forethought, time and planning to reach funding goals and generate priceless media attention for your big idea. If you’d like to see the creative strategies and executions used by the most highly funded companies, check out the Top 100 Crowdfunded Companies
May 16, 2014
Big data has become as much of a game changer in the NFL as it has in business. Thanks to field sensors, multi-view cameras, statistical analysis and game planning software, performances can be measured and quantified in more ways than ever before. That means general managers of NFL franchises have a myriad of new information helping them make more informed draft picks.
Although the information may come from different sources (e.g., balance sheets, sales invoices, CRM software and operational insights), the same goes for business owners when it comes to making decisions that affect company profitability.
Still, all that data means little without the ability to match needs with the resources available and effectively distinguish between what’s important and what’s just white noise. This may have been part of the reason predictions for draft picks made by football analysts were so far off the mark from the actual first round of selections made by the NFL. ESPN’s Mike Maycock got just three of 32 names right, and Mel Kiper faired the same. (Of course, their fumbles also demonstrate the infinite permutations that can occur in a short period of time as teams sequentially select and react to choices made during the complex drafting process.)
For companies, the draft experience equates to top leaders evaluating both positive and negative trends, forecasting business performance based on forward-leaning indicators and nimbly making adjustments whenever and wherever necessary. Decisions may not be demanded as the second hand ticks like in the NFL, but timeliness is still incredibly important to avoid potential misses and take advantage of unexpected opportunities.
Translating a business’s infinite streams of data into decision-making tools that help increase growth and profitability is no easy task. To get it right, analysts need to sift through and consider a company’s operations from the inside, knowing what to look for in detail. Working closely with the data particular to your business, you and/or your advisors can pinpoint the right key performing indicators and accurately interpret information to ensure your company is on track to meet goals.
Talley & Company and its affiliate, Group 11 Advisors, offer a uniquely combined platform of services that give business leaders the ability to both analyze and decipher leading as well as lagging indicators. Talley & Company not only provides timely, accurate historical financial data, (where you’ve been) but also reporting metrics that can anticipate where your business is going. To determine whether your business is taking advantage of all metrics available to make the most informed picks for future success, schedule a time to talk with us today.
May 9, 2014
Last week’s sanctions by the NBA against Donald Sterling-prompted by a recording of him running afoul with a string of racist remarks-were both definitive and sweeping. NBA Commissioner Adam Silver banned Sterling for life, and almost in the same breath pressed for the league’s owners to force him to sell the team. At least three-quarters of the league’s owners (22 of the total 29, not counting Sterling himself) would have to agree to be able to drive him out.
Should this minimum vote be reached, Sterling will pay more than just the maximum $2.5 million fine imposed by the NBA for violating its rules. Next to the capital gains taxes Sterling might owe from a sale, the $2.5 million will shrink in comparison. Of course, how big his check to the IRS might be will depend on the team’s ultimate selling price.
Sports analysts and mainstream media are estimating the Clippers could go for anywhere from $575 million to $1 billion or even more. Not only is ownership a profitable investment with growth expected to shoot upward still, but the prestige that comes with being part of the elite owners club could set off an all-out bidding war among the billionaire set. Already, Floyd Mayweather Jr. and Oprah Winfrey (with partners Larry Ellison and David Geffen) have reportedly voiced interest, among others.
If the Clippers sell at the $1 billion mark, federal capital gains would come in at 20 percent and state at 13.3 percent. Since Sterling purchased the team for $12.5 million back in 1981, capital gains would take $329 million right from the top of his $987.5 million profit. That would leave Sterling and his heirs with $671 million.
There’s no arguing that this would be a mega-return on Sterling’s investment but if he were able to keep the ball in his court by passing ownership on to heirs after his death, he could avoid the $329 million in capital gains entirely. That’s because his heirs would benefit from a step-up basis, requiring them to pay capital gains only on any increase in value from the time they received ownership to the time they sold.
There are other factors at play here, too. Because Sterling is no stranger to litigation, we can reasonably assume that he will fight the NBA to try and stop a forced sale. Should he lose that battle, he may take the IRS to court and argue that under IRS Code 1033 he doesn’t have to pay capital gains because the sale is an “involuntary conversion.”
Even with the many variables and complexities of this situation, it’s easy to see the massive impact capital gains taxes can make on an investment. To learn more about how capital gains taxes can affect your personal or business assets, contact Talley and Company today.
April 25, 2014
On April 3rd, Letterman broadcast his plans to retire from the show he created. CBS announced just one week later that Colbert, host of the Comedy Central show “The Colbert Report,” would be Letterman’s replacement. While Letterman won’t actually be leaving until next year, the speed and decisiveness of the transition to the public eye was no funny business. With Colbert quickly given the nod, the network has avoided a prolonged period of speculation for fans, endless scrutiny from Hollywood news outlets, and possible in-fighting among internal candidates and stakeholders.
Was it a surprise to executives that Letterman would retire one day? It shouldn’t have been. Yet networks and other businesses are often ill-prepared for similar contingency plans-whether an exit arises from retirement, illness, burnout, or simply the desire to move on to other projects.
Microsoft would have benefited from CBS’s approach when its former CEO Steve Ballmer stepped down. Instead, the corporate giant took months to announce Satya Nadella as successor, jeopardizing shareholder confidence, employee productivity and company profits.
Particularly for entrepreneurs, it’s all too easy to buy into the myth of being irreplaceable. While no one would suggest Letterman’s comedic style could be duplicated, the show is still preparing to go on, albeit in different form. If you don’t believe it can work, consider that “The Tonight Show”is enjoying a 60-year legacy despite former one-of-a-kind hosts Johnny Carson and Jay Leno.
Best known for playing a satirical political character, Colbert acknowledged his takeover of “The Late Show” by jesting, “I do not envy who they try to put in that chair,” because “Those are some really big shoes to fill-and some really big pants.”
We bet your shoes are just as big. Still, it’s important to consider how in your absence they might be filled, used or bought. The same goes for active partners and key employees. Starting the planning process years ahead will ensure you get the most from all you’ve invested into your company and that it continues to have a profitable future.
For a top 10 list of the best succession-planning steps to take, send us a message here. 
April 4, 2014
With only days left to file before the April 15th deadline, a lot of taxpayers are wondering whether they’ll be audited. The 2013 Data Book issued by the IRS is just the place to find the odds, which not surprisingly, go up as your income or business’s balance sheets do. This year’s report shows 1.0% of all individual returns were audited, but for those with income between $200k and $1 million that number grew to 1.4% and then jumped to 10.8% for income of $1 million or more. Approximately 1.4% of corporate returns were audited overall, but the rate ticked upward fast according to balance sheets, hitting up to 91.2% for corporations with $20 billion or more.
The IRS acknowledged in the report that ongoing budget constraints contributed to a 5% decline in audits between FY 2013 and 2012. Approximately 1.4 million individuals were audited, the lowest number since FY 2008. That’s good news for filers, right? Not necessarily. Here are three trends we’re seeing based on our experience representing hundreds of taxpayers and businesses:
Auditors’ Ability to Understand Complicated Tax Issues is Compromised –   Taxpayers aren’t the only ones challenged with navigating the 4,838 changes in tax code since 2001; its enforcers are, too. Do more with less, a mantra entrepreneurs of growing companies understand well, is one IRS auditors are also coming to terms with as a result of budget constraints.
Quality of Documentation Matters More Than Ever – Whether this is the IRS’ attempt to improve audit efficiency or reduce errors, we can’t know for sure. But the impression we’re getting is that auditors are adhering closely to a checklist of requirements, whether that list includes items actually required by regulations or not.
Auditors Don’t Always Understand How a Business Operates – We’ve seen auditors object to businesses with more than one landline and even deny deductions for businesses that reimburse salespeople for taking clients to lunch. What seems universal to us still needs to be defended to the IRS.
If you do get a notice of an examination, you don’t have to go it alone. Talley and Company’s tax and legal professionals can guide you through the process. We can submit requested documentation per an auditor’s preferred format, advocate for legitimate deductions taken by businesses in your specific industry, and go toe to toe with auditors through every inch of the tax code. Just remember that if the IRS comes calling you, you can call us.

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