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.

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.

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.

The NFL’s 100th season began last week, and with it, over 38 million hopefuls kicked off their fantasy leagues and betting predictions. With several states legalizing sports betting this year, these player’s potential winnings may be taxed differently come championship time. Whether you’re playing in an official NFL channel or an unregulated one, the IRS expects to be informed of any related earnings since the money is technically classified as taxable income.

Since the Supreme Court overturned existing laws in Spring 2018, thirteen states have legalized the activity, and more are expected to create betting markets in the next few months. Over 7 million individuals are expected to bet in casino sportsbooks this year, while another 31 million people will play in less official forms.

For amateur regulated channels, the IRS places the responsibility of reporting winning on both casinos and players. Successful bets 300x the wager resulting in a win of over $5,000 would face about 24% withheld for taxes. Some betting situations under this amount may also face withholdings depending on the circumstance. After a withholding, the casino may also give you a Form W-2G, particularly with wins over $600 that are 300x your bet. For fantasy sports players the form would be the 1099-MISC which will also eventually be turned into the IRS. To help mitigate some of your gambling related tax bills, players can deduct losses up to the amount of their winnings.

For professional gamblers deductions are different due to their activity being work related. Pro players’ travel expenses can be added to their gambling loss deductions rather than being stated as a separate expense. In most cases, the final tax bill on sports betting can be higher or lower, so it is wise not to spend your winnings right away. The best option overall is to consult a tax expert to make sure you are accounting for taxes on any win big or small.

With over 30 years’ experience consulting with industry-leading companies, we understand the challenges facing individuals with generating and protecting income. Whether you’re looking to improve your profitability, build your brand through a business transaction or capital raise, Talley is the consulting and financial services firm dedicated to strategic business solutions that deliver meaningful results.

Millionaire real estate mogul Todd Chrisley caught the public eye with the start of his reality T.V. show “Chrisley Knows Best” in 2014 on USA Network. The show follows Todd, his wife Julie, and their children through family drama, problems, and their over the top lifestyle in Georgia. After wrapping season seven last month, Chrisley and his wife Julie may be encountering their biggest scandal yet as they have been indicted for 12 counts of tax evasion, bank fraud, and wire conspiracy and fraud.

The IRS and FBI found that the couple had defrauded numerous banks between 2007-2012. The Chrisleys were loaned millions of dollars and used fabricated documents, including bank statements and credit reports. They used the money for lavish purchases and even rented a new home in California using cut and glued documents. For the years 2014-2016, the Chrisleys failed to submit their tax returns on time and once filed did not make payments promptly. They continued making luxury purchases during this period ignoring their tax bill.

Todd Chrisley posted an Instagram response alleging the situation was caused by a disgruntled former employee who was fired. He stated the employee created the falsified documents, and the couple’s attorney believes the Chrisleys will be exonerated entirely when the truth comes to light.

Todd and Julie turned themselves in last week to Georgia authorities and were released after posting bail. Their passports were taken, and they are mandated to stay in Georgia and Tennessee unless an exception is granted. The Chrisley’s accountant was also indicted for playing a part in the illegal activity and will have to report to court for tax offenses and lying to investigators. The couple’s son was hit with a tax lien shortly after for a reported $16,886.

If convicted, Todd and Julie could each face 30-year sentences. The U.S. Attorney Byung J. “BJay” Pak has commented that celebrities face the same consequences as any other criminal. The case can find similarities to the mail, wire and bankruptcy fraud committed by “The Real House Wives of New Jersey” reality stars Teresa and Joe Giudice who were sentenced to 15 and 41 months respectively in 2015. Both cases seem to be a part of the crackdown on tax evasion and show the seriousness with which the courts take tax and bank fraud.

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.

Since Bitcoin’s emergence in 2009, the cryptocurrency market has grown to over 4,000 variations of the virtual currency. With the government erring on the side of caution regarding the medium of exchange, different agencies have had to figure out how to regulate it as well. In recent news, the IRS has made efforts to improve compliance by sending letters to over 10,000 individuals who failed to file or filed incorrectly tax returns related to their use of virtual currency.

After receiving a letter, tax payers will have a chance to assess their errors and submit or amend their returns. The three types of letters are Letter 6173, 6174, and 6174 -A with the message included determined by information and research collected by the IRS through multiple channels.

Letter 6173 states you “may not have met your U.S tax filing and reporting requirements for transactions involving virtual currency” meaning the IRS has evidence you failed to report or didn’t file a return. Recipients must amend or submit returns, or they must respond with an explanation of their actions signed and “declared under penalty of perjury.”

Letter 6174 says the IRS believes “you may not know the requirements for reporting transactions involving virtual currency” meaning they don’t have definitive proof but think that a mistake may have been made. The letter is intended to be educational so recipients should examine their returns for violations, but a response is technically not required.

Letter 6174-A states you have an account that “may not have properly reported your transactions involving virtual currency” meaning you may have reported related transactions, but they were filed incorrectly. Individuals could have used the wrong schedule or form to classify the related business, so the IRS believes their tax filings need to be reviewed for accuracy.

Even if you’re not one of the thousands to receive one of these letters, the IRS still suggests reviewing your returns if you have used virtual currency in the past. Fixing reporting mistakes is seen positively in the eyes of the IRS and will help you avoid worse penalties or investigations in the long run. Considering the agency launched a campaign regarding Virtual Currency Compliance last year, their investigators won’t be passive in handling these tax matters.

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.

NFL teams across the country have commenced their annual training camps in preparation for the upcoming football season. While most organizations keep things local holding their camps near their regular headquarters, the Dallas Cowboys take a thousand-mile trip west to breezy Oxnard, California. Although the cooler weather and isolated location bring advantages, one thing players may not enjoy are the additional state taxes.

California has the highest state tax rate, which has become a significant consideration for many sports-related decisions from trades to travel. Since training camp is an unpaid part of the job, individuals will essentially end up paying to practice in California in the form of the state’s 13.3% income tax. For players that get cut from camp early, the situation seems even worse as they will still be liable for state taxes based on the days they did complete.

The total amount players will owe to California is calculated by using a duty day ratio based on days spent in the state compared to total working days in a season. When considering summer training, potential games, and a minicamp back in June, the Cowboys will spend 20 days of their 172 duty days (160 for new players) working in California this year. Training camp represents 16 of those days making about 10% of player’s income taxed in California just for those two weeks of practice.

Looking at what the Cowboy’s multimillion-dollar players will pay for camp, Amari Cooper and Tyron Smith will pay roughly $158,000 and $177,000 respectively. Their total California tax bill for the year will include an additional estimated $40,000 considering pre-season and playoff games.

All this considered, Jerry Jones may want to think about looking into a different location for their training camp. Using their home state of Texas or an alternate lower tax state could save the organization a lot in travel bills  and taxes. Ultimately, the end game is that the choice of location was probably made after looking at the cost/benefit scenario from multiple angles. In any case, having an expert tax advisor on your team can help you and your organization avoid unnecessary fumbles.

With over 30 years’ experience consulting with industry-leading companies, we understand the challenges facing individuals with generating and protecting income. Whether you’re looking to improve your profitability, build your brand through a business transaction or capital raise, Talley is the consulting and financial services firm dedicated to strategic business solutions that deliver meaningful results.

Now that the dust is settling on the latest NBA draft, the sole focus of basketball fans around the world is on this off season’s latest crop of free agents. While there are a variety of decision-influencing factors for both teams and players, the state or country of a team determines more than just where the players’ home games will be. In the cases of some of the most wanted players such as Kawhi Leonard, the tax implications of playing for different teams will play a role in the final verdict.

Players for teams located in Texas, Florida, and Tennessee enjoy having no state income taxes, whereas state income taxes are highest for professional athletes residing in California (13.3%), Oregon (9.9%), and Minnesota (9.85%). For out of country players like Kawhi of the Toronto Raptors, being a U.S. resident and Canadian player can make things even more complicated. To start, these American player’s pay taxes on their Canadian income in Canada with provincial and federal taxes not to exceed 53.53%. They are also liable for U.S. income tax requirements not to exceed 37%, potential state taxes based on residency, and jock taxes. Even with a tax credit from Canada, the overall cost can equate to over 10% of a players earnings.

American professional athletes are subject to “jock taxes” in other states where they play, practice and earn income. It is calculated by dividing the number of work days spent in a state by the player’s total number of work days. When tax time comes up, the player will pay the rate that’s the highest between their resident and non-resident state, while getting a credit for the state with the lower rate.

Although Kawhi has enjoyed being a Texas resident (no state income tax) since his time as a San Antonio Spur, he recently purchased a $13.3 million California mansion. Considering that Kawhi is currently spending his offseason there, California’s Franchise Tax Board will likely put on a full court press in an attempt to rule him to be domiciled in the Golden State and subject to state income taxes. This residency change would increase Kawhi’s state income taxes significantly, which may make a big difference in if he wants to stay with Toronto or pursue a U.S. based team.

In any case, all players should consider the potential changes a move can have on their overall tax situations. With the help of an expert tax counsel, they’ll be able to better prepare for basketball and tax season.

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.

With some of the most expensive real estate in the country, New York has no shortage of high-priced homes on the market. Although the average New Yorker will settle for a decent sized apartment in a nice neighborhood, many of the city’s upper-class millionaires will spare no expense when purchasing a home in the Big Apple. With the city set to roll out a higher tax rate on these multimillion-dollar mansions July 1st, it’s no surprise that home buyers and real estate agents alike are rushing to close their transactions.

This “mansion tax” will become staggered as opposed to a blanket rate of 1% on sales over $1 million. The updated law will keep the 1% rate for the $1-2 million range but will now mandate 1.25% on deals over $2 million and 3.9% on deals over $25 million. This increase marks a significant impact on home buyers in the market, considering the price tag on many desirable homes in the area are worth well over $2 million. New York officials have attempted to appease those affected by ensuring that the funds collected from the increase will go towards helping the community. The proposed plan will use the estimated additional $365 million a year to repair and revive the city’s subway systems.

In response to the news, the New York real estate community has seen a rise in deal closures as the deadline looms. Experts have said that the tax change hasn’t drawn in a massive number of new buyers but has changed the attitudes of those who were in the market to buy. In the past year, many believed potential residents were leaning towards renting over buying in such a tight market illustrated in the 6% decrease in deal closures. June is expected to be a good sales month as buyers rush to avoid the new tax, and it will be interesting to see how the overall sales data will be affected the rest of the year. In several cases, contracts are even being structured to include repercussions for the seller if the sale is delayed past the June 28th deadline.

In any major transaction, consulting with tax experts is one way individuals can educate themselves on policy changes and learn how their life decisions may impact their tax situation.

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.


1 2 3 4 7
Archives