It is one thing to test fate with excessive deductions or claiming unverifiable items, but it is an entirely different thing to not even file a tax return. Yet, that is precisely what Harvard law professor, Ronald S. Sullivan, Jr. did, and the consequences were all too real. Sullivan’s neglect to file his 2005-2013 tax returns resulted in a $1.2 million tax bill from IRS assessments of his records, a sum he claims is much higher than his income warrants.

The IRS can and will file returns for you, known as “substitutes for returns.” As a result of this policy and Sullivan’s irresponsibility, the IRS filed his taxes and assessed that he owed over $1.2 million for 2012 and 2013 alone. When the IRS tried to collect, Sullivan ignored procedure until they filed a Notice of Intent to Levy, which he objected to. Although he argued his income was not indicative of taxes that large, Sullivan again neglected his due diligence when it came time to respond with proof. He was prompted at least seven times for information, including three letters requesting that he file taxes for the years of 2012-2015 and a telephone hearing with an assigned IRS settlement officer.

Throughout 2017, Sullivan continued to ignore these requests, communications, and his responsibility in the matter. As a result, when the case was brought to the United States Tax Court, they upheld the IRS’ assessment of taxes owed and agreed that Sullivan was responsible for paying the total amount. It’s very much possible that Sullivan was telling the truth and that his income did not command taxes owed to that amount, but he lost the opportunity to correct the assessment when he neglected to file tax returns for eight years and failed to respond to the IRS’ inquiries.

It’s disheartening to hear that you have to pay over $1.2 million in taxes (especially if it is just for two years of income), but the reality is that the consequences can be so much worse: an actual levying of your assets and accounts, garnishing of your wages, and jail time. It is unclear how the situation was resolved, but if Sullivan had at the very least filed taxes, the situation would have been much easier to fix.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on to the next generation the assets and wealth that you’ve worked hard to build. We welcome the opportunity to discuss with you the current opportunities available to you. For more information, contact us today.

As the holidays approach, Americans prepare to spend time with their families and reflect on the past year. The holiday season also brings out the spirit of charitable giving, which offers the opportunity for tax deductions. Unfortunately, looking at last year’s data, changes to the standard deduction threshold from the Tax Cuts and Jobs Act may have been a factor in the 1.7% overall drop in Americans’ charitable donations. While tax considerations should not drive generosity, if individuals effectively structure their gifts, they can realize the maximum tax benefit while still impacting others.

Many traditionally give to charity by writing a check or giving cash but do not realize other types of assets can be donated. Individuals that hold a portfolio with appreciated securities or real estate can increase their tax deduction by donating these assets instead. If they were to sell their appreciated assets and then give the money to charity, they would be subject to a capital gains tax. If they donate the non-cash assets directly, they can avoid the capital gains tax and deduct the fair market value. The giver saves on taxes, and the receiving charities get a more substantial donation. 

Taxpayers who are close to the standard deduction ($24,400 for married couples and $12,200 for single taxpayers) may want to accelerate their planned giving to maximize the impact of their charitable contributions. As an example, if someone regularly gives $10,000 every year, they may want to consider bundling a few years’ worth of donations together. This allows them to break through the deduction cap and can help mitigate the tax impact of a higher than usual income from bonuses or other short-term gains. 

Individuals that want to receive the tax deduction in one year but distribute the large gift over a few years can establish a Donor Advised Fund (DAF). A DAF is a special fund run by a sponsoring organization that can be used to contribute cash, securities, or other assets to qualified charities. The fund will build value over time, but these earnings are tax-free since contributions are irrevocable. As the fund increases in value, so does the impact of the charitable contribution. While these are just a few ways to make donations more impactful, tax planning experts can offer even more options to make sure holiday cheer goes the furthest.

No matter the amount, your generosity in gifting time and money to worthwhile causes can have a significant impact on your tax liability. While tax considerations should never drive your charitable giving, it makes sense to structure your gifting to maximize the tax benefits. If you have questions regarding your gifting or estate plan, please contact Talley LLP today.

Almost 65 years after his death in a car crash, actor James Dean will appear back on the big screen through the magic of CGI. Magic City Films announced that Dean’s image will be digitally recreated in their Vietnam War drama “Finding Jack”, causing mixed reactions from the star’s friends and fans. Many have speculated whether the actor would have wanted this, but Dean passed away without a will, leaving his family with the ultimate decision-making power.

Dean’s situation is not uncommon, as the last thing on any 24-year-old’s mind is their mortality. His entire estate ended up being left to his father, the default heir determined by interstate law. Considering he barely spoke to his dad, Dean most likely would have wanted the majority of his fortune to go to the aunt and uncle who raised him. As a famous actor, it is also important to realize that his assets included much more than money and physical possessions.

The actor’s image and likeness became the property of his heirs, leaving them to decide its usage in any future films, ads, and other media. Magic City Films did get consent from Dean’s estate, but people question whether he really would have wanted to be digitally recreated or if he would have wanted to play this specific role. Although some believe this would be against Dean’s wishes, without them in writing, there is no way to determine this for sure.

Dean is not alone, as Aretha Franklin, Prince, and Kurt Cobain also passed away without a will in place. It’s hard to believe that with all of the attorneys, accountants, and managers in a celebrity’s inner circle, no one thought about estate planning until it was too late. In total, an estimated 55% of American adults have not planned for their estate. While most people do not have multi-million-dollar empires, they do have loved ones that they want to provide for. Having a will can protect families and give loved ones a roadmap to carry out any last wishes. While we’d like to think we’ll always be around, there is no amount of CGI that can make us live forever.

Though your options are virtually limitless, proper estate planning, deciding on the “who, what, when, and how”, and executing this with the least amount paid in taxes, legal fees and court costs possible can be a challenging and emotional affair to wrestle with alone. For more information, contact Talley LLP today.  

HBO recently wrapped season two of the hit show Succession, which follows the declining health of billion-dollar media mogul Logan Roy. With four children in the running to become the next CEO of the family business, the Roy patriarch has some tough decisions to make. Finding a candidate that satisfies the needs of the business is a crucial goal, yet many factors make that choice complicated. Although the show amps up the drama and deceit, the Succession family struggle is a relatable problem for any business owner preparing for a change in leadership.

Roy’s children possess different qualifications and personalities that are put to the test as the family business faces ongoing challenges. Kendall is power hungry, Roman is the family slacker, Shiv is a political strategist, and Connor, the only half-sibling, is a philanthropist but spends the least amount of time with the family. Each potential successor experiences failures and successes throughout the show, which ultimately leaves viewers to question whether any of the Roys are the right choice for the job.

As seen in Succession, the biggest problem for many businesses is not having a clearly articulated plan in place. Failing to prepare for an exit can create problems and cause damaging uncertainty with investors. This is a problem Roy faces when the initial news of his sickness becomes public knowledge, and an attempted coup and hostile takeover are staged. Months without clear leadership for any company can produce political minefields, with key personnel jockeying for positions in the senior ranks (or family turmoil in the Roys’ case).

Family businesses in particular already experience tension over money, so avoiding surprises will help keep personal and professional relationships intact. Ultimately, a business owner will have to assess all their options, blood related or not, to make the best decision for the legacy they worked so hard to build. Although choosing a successor is hard, individuals should start thinking about a plan from the moment they step into a role. Being as upfront and honest as possible will help avoid unnecessary drama and create a smooth transition for all stakeholders.

Proper business planning is a complex and ongoing effort, requiring expert counsel—a professional with knowledge and experience, familiar with the challenges that characterize an entrepreneur’s business ventures. Talley LLP shares the same entrepreneurial spirit that has helped propel our clients to their current level of success. With over 25 years’ experience in helping high net worth individuals and business owners, Talley has the expertise necessary to assist entrepreneurs throughout their entire journey, from formation through succession.

From Olympic medals to national championships, the world of elite sports is full of inspiring stories of hard work and determination. Similar to the career of an entrepreneur, success in this profession doesn’t come easy. Being a star player often requires long hours, creative thinking, and commitment to the team. Although physical talent is key to an athlete’s success, their mindset is even more critical and can teach entrepreneurs a few lessons on how to be equally victorious in the board room.

Continue to set goals and improve. Plateauing is both an athlete’s and an entrepreneur’s worst enemy. An athlete must set performance goals and create a plan to achieve new career milestones. Consistent practice and self-evaluation allow them to perform their best as a competitor. Likewise, entrepreneurs should set overall goals to keep their businesses moving in the right direction. They should focus on making a game plan that will help them improve as they continue to grow. Breaking their overall goals down into micro-goals is one way they can make tracking their progress more manageable.

Don’t be afraid to take risks. Most successful athletes did not get where they are by playing it safe. Risk and reward often go hand in hand, so pushing that extra mile or taking that final shot are what differentiate elite athletes from the average player. Finding a balance between risk and recklessness is also critical for entrepreneurs. Being too scared of change will inhibit growth, and changing too much at once will cause failure. Calculated risks are the solution to keeping a business ahead of competitors while taking potential concerns into account.

Keep your head in the game. The greatest athletes in the world are also recognized as leaders. Their hard work, ambition, and drive are qualities any director, CEO, or business influencer can aspire to possess. If an athlete makes a mistake, being able to separate their failures from their present performance allows them to continue reaching for success. Entrepreneurship may be one of the most challenging business environments, but business owners must maintain a level head throughout the ups and downs. Entrepreneurs need to stay confident in themselves even when the odds are stacked against them.

Talley shares the same entrepreneurial spirit that has helped propel our clients to their current levels of success. With over 25 years of experience assisting high net worth individuals and business owners, Talley has the expertise necessary to help entrepreneurs throughout their entire journey, from formation to succession.

Fifteen years ago, The Oprah Winfrey Show made TV history with the iconic “You get a car!” giveaway episode. Oprah surprised her studio audience with 276 brand new Pontiac G6 sedans worth over $7 million. While the surprise went down as one of the show’s most memorable moments, the aftermath of the giveaway left recipients faced with a hefty tax bill.

The segment began with Oprah calling eleven random audience members on stage and announcing that they had each won a car. After their excitement had died down, she told the entire audience to retrieve gift boxes from under their seats and announced that one of the boxes also contained car keys. Upon opening the boxes, every audience member found a set of keys causing pandemonium throughout the studio.

The giveaway was sponsored by Pontiac, a General Motors brand, as a promotional marketing campaign. While General Motors covered the price tag of $28,500 and the sales tax of $1,800, the gift tax was left for the prize winners to handle. The cars were not classified as gifts and instead were considered promotional prizes, similar to the way game show giveaways and lottery wins are treated. The value of the cars was going to be taxed accordingly, at a total of about $6,000 to $7,000. This is in accordance with the tax code which states that “Except as otherwise provided in this section or in section 117 (relating to qualified scholarships), gross income includes amounts received as prizes and awards.”

Although receiving a car at a $6,000 price tag is a significant discount, audience members had been chosen by the Oprah staff based on their need for a car. Most individuals had to scramble to come up with the funds to be able to receive any benefit from the prize. The alternate options were selling the car and paying the taxes or turning the prize down altogether.

While unfortunate, the experience of Oprah’s audience members  provides a valuable lesson about dealing with windfall events you may experience in your own life. Winning the lottery, receiving an unexpected inheritance, and cashing out a retirement plan are all financial events that can be a welcome occurrence, but can raise serious financial questions that you must deal with quickly.

Talley offers a broad spectrum of services to fulfill the needs of high net worth individuals, entrepreneurially driven companies, and their owners. Whether you are considering an M&A transaction or experiencing a financial windfall event, the professionals at Talley can help you to make the most of both your earnings and winnings.

After working hard to create a legacy, most people want to make sure their loved ones will be able to enjoy the benefits. Estate plans and trusts allow individuals to decide how and in what increments they wish to leave gifts, and can help prepare their beneficiaries for the future. Although including stipulations with trust funds is nothing new in the realm of estate planning, incentive trusts are a way to mandate specific conditions recipients must meet before accessing any funds.

While most trusts include an age requirement so that recipients will be old enough to handle their money wisely, incentive trusts take things a step further. Benefactors can stipulate educational, marital, career, philanthropic, and health conditions that an heir must meet before receiving a part of their trust. This form of estate planning may make a beneficiary more inclined to achieve desired life and career goals.

A common condition is that heirs should graduate college. Some are satisfied with an undergraduate education, but others may offer heirs an additional bonus if they pursue advanced degrees such as a master’s degree or a a PhD. Additional payments can be set to occur when an heir gets married or if they have children. Some interesting ways people have used incentive trusts are by making heirs write essays detailing the way they will use funds or by requiring them to pass a drug test.

The main challenge with incentive trusts is that they can be complicated and expensive to create and enforce. Many trust fund recipients have found loopholes around requirements, so consulting a professional estate planner is necessary to ensure the benefactor’s wishes will be carried out. While estate planning experts do not advise anyone to go overboard with their conditions, incentive trusts are just one example of the amount of control individuals have when deciding what to do with their assets.

Though your options are virtually limitless when it comes to estate planning, deciding on the “who, what, when, and how” and executing this with the least amount paid in taxes, legal fees and court costs possible can be a challenging and emotional affair to wrestle with alone. For more information, contact Talley LLP today.

McDonald’s made several acquisitions this year to improve the customer experience at their brick and mortar stores. To start with, the fast-food giant acquired Dynamic Yield and implemented its personalization and decision technology in over 8,000 of its menu boards. This past month, McDonald’s announced a second deal with a voice recognition leader, Apprente, to improve drive-thru voice ordering systems. Considering the size and success of McDonald’s, the company’s willingness to pursue new technology shows there is always room for system improvements.

Although McDonald’s approach to upgrading their restaurants doesn’t come at a low price, the investment can improve both workflow and customer satisfaction. The Dynamic Yield acquisition is valued at over $300 million, and an additional billion dollars is expected to be spent on other upgrades and renovations. The addition of self-service kiosks, digital menu boards, a new mobile app, and the upgraded voice ordering systems is just the beginning of their Velocity Growth Plan according to McDonald’s CEO, Steve Eastbrook.

Looking at Apprente, the Silicon Valley-based startup provides McDonald’s with a way to automate their drive-thrus and eventually their kiosks. The voice recognition software was specifically created to speed up food ordering lines and can understand different accents and languages using neuroscience-based AI technology. Since drive-thru orders make up 70% of McDonald’s sales, moving cars through lines faster will benefit the majority of their customer base. The Apprente system has already been tested in some Chicago locations with employees overseeing the accuracy of voice generated orders. For now, workers fix any errors, but McDonald’s hopes one day to leave the whole ordering process to the machines.

Fast-food fanatics should only expect more changes to their dining experience going forward. It seems McDonald’s and other restaurant chains hope to drive sales through an increased reliance on technology and AI. The success of these efforts is sure to be tested as their newest acquisitions are implemented.

Talley LLP understands the challenges facing entrepreneurs with generating and protecting income. Whether you’re looking to improve your profitability or build your brand through a business transaction or capital raise, Talley is the premier consulting and financial services firm dedicated to strategic business solutions that deliver meaningful results.

Airbnb has become a great way for property owners to make some extra money while providing travelers with unique accommodation options. As this sector of the hospitality industry has grown, new tax regulations have been implemented to account for the additional income generated. One example is Section 199A of the Tax Cuts and Jobs Act (TCJA), which allows owners to gain tax savings through a qualified business income (QBI) deduction. Unfortunately for many individuals hoping to utilize the deduction, qualifying will take a significant amount of work.

Prior to the TCJA, Airbnb owners preferred not to be classified as a formal business to avoid a self-employment tax of 15.3 percent. The QBI deduction allows owners to claim half of that self-employment tax as a deduction and save up to 20 percent on their business income taxes. Many owners have since decided to change their status but have not kept the necessary records to prove it.

The requirements specify that owners must spend at least 250 hours each year performing rental-related activities. Most individuals do not come close to reaching this threshold and will have to spend additional hours working on their Airbnb rentals. Owners will need to create personal time cards to track their hours and keep detailed records of services performed for property maintenance. Additionally, they will need to file a Form 1099 for payments to service vendors over $600 to comply with other business status protocols.

Airbnb tax regulations may have been lenient in the past, but with many owners expected to take the deduction, the IRS is likely to verify the accuracy of business-related income. There are currently no tax court cases related to the QBI deduction to serve as a precedent, so the penalty for violators is unknown. Having an accurate record-keeping system is essential for business owners in any industry. It is better to be safe than sorry by consulting an expert tax advisor to learn more about reporting regulations.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. We welcome the opportunity to discuss the current opportunities available to you. For more information, contact us today.

In 1999, Jack Ma and seventeen partners founded the small e-commerce business Alibaba, which would eventually grow to be worth over $460 billion. In celebration of his 55th birthday this year, Ma made the long-anticipated move to enact his succession plan and step down from his core role as executive chairman. With CEO Daniel Zhang set to take over Ma’s position, Alibaba provides a great example of how to effectively transition your business for future success.

Although Ma is known for his flamboyance and extravagant gatherings, he takes Alibaba’s business decisions very seriously. The official succession announcement was made over a year ago, but Ma had been thinking about his next move for over ten years. In 2010, he created Lakeside Partners, a 36-member governing committee that has nominating power over the company’s board of directors, with consent from shareholders. Ma will continue to be involved as a member of this committee going forward, and will hold a minority position with 6.2% of Alibaba’s shares.

Zhang may be considered a more reserved individual when compared to his predecessor, but his resume is just as impressive. Zhang’s accomplishments include being promoted from COO to CEO in 2010 and inventing Single’s Day, a $25 billion shopping event bigger than Amazon’s Prime Day. Ma has spoken highly of Zhang’s abilities and believes his youth and talent will drive the company forward towards globalization.

By allocating more time to planning than to Alibaba’s current achievements, Ma helped his company avoid speculation, scrutiny, and possible in-fighting among internal candidates and stakeholders. Although business succession planning (both emergency and long-term) can be a complicated process, it positions your company to operate successfully without you as its leader.

Proper business planning is a complex and on-going effort, requiring expert counsel—a professional with knowledge and experience, familiar with the challenges that characterize an entrepreneur’s business ventures. Talley LLP shares the same entrepreneurial spirit that has helped propel our clients to their current level of success. With over 25 years’ experience in helping high net worth individuals and business owners, Talley has the expertise necessary to assist entrepreneurs throughout their entire journey, from formation through succession.


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