As part of the Tax Cuts and Jobs Act (TCJA), there have been changes to the treatment of certain business-related expenses, including travel, business meals, and entertainment. On Wednesday, the IRS released guidance on the business expense deduction for meals and entertainment in the wake of the TCJA, which was supposed to eliminate deductions for expenses pertaining to activities generally considered entertainment, amusement or recreation.

The TCJA did not change the definition of entertainment. Where things get murky, though, is whether providing food and beverages might be considered entertainment, especially if food and beverages are tied to an activity considered to be entertainment.

Under prior law, the rule was that you could deduct up to 50% of entertainment expenses directly related to the active conduct of a trade or business or, amusement, or recreation expenses directly related to your trade or business. That changed, however, with the passage of the tax code overhaul last December.

The IRS said taxpayers can still deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the business) is present at the meal, and the food or beverages aren’t considered to be “lavish or extravagant.” The meals can involve a current or potential business customer, client, consultant or a similar business contact. Food and beverages provided during entertainment events won’t be considered entertainment if they’re bought separately from the event.

The Treasury Department and the IRS plan to publish proposed regulations that will make clear when business meal expenses are deductible and what constitutes entertainment. Until those proposed regulations take effect, taxpayers can rely on guidance in Notice 2018-76, which the IRS issued Wednesday in conjunction with the announcement.

Whether you are considering the new tax treatment of M&E expenses for 2018 or evaluating how tax reform will affect your overall tax situation, consult with the tax experts at Talley LLP today.

There is nothing quite like winning a prize, so one can imagine the amount of excitement contestants on the popular show “The Price is Right” are subjected to after winning such rewards as brand name appliances, trips to exotic locations, and brand new cars. But what happens to the contestants after their glorious fifteen seconds of fame? Here’s a hint: You don’t drive off the back lot with the brand new car you won, and you might find yourself unprepared for the hefty taxes coming your way before you can even get your fingers around your new set of car keys.

One particular contestant, Andrea Schwartz, found out the hard way when she amassed $33,000 worth of prizes. including a brand new Mazda 2 compact car, a shuffleboard table, and a pool table. Before she could claim her prizes, she first had to pay the California state income taxes in the amount of $2,500. If she had not arranged the paperwork, paid the taxes and picked up her car all within 10 days she would have forfeited her prizes.  When all was said and done, Schwartz had to scramble to come up with the funds or risk forfeiting the prizes she won.  

While it is nothing new that people pay taxes on winnings (in most cases), Schwartz’ experience on “The Price is Right” provides a valuable lesson when dealing with any windfall event you may experience in your own life. Winning the lottery, receiving an unexpected inheritance, cashing out a retirement plan. These financial events can be a welcome occurrence in your financial life, but the fact of the matter is, each of them raises serious financial questions that you have to deal with -and quickly. 

As in the case of any sudden windfall event in life,  the tax professionals at Talley LLP can make the most of both your earnings and winnings.

Under the new tax law, small and medium-sized companies may need to consider cutting back on entertainment expenses.

Under the prior law, so long as an expense was directly related to the active conduct of a trade or business, you were allowed a deduction for an activity generally considered to be entertainment, amusement, or recreation. The limit was up to 50% of the expense. Starting in 2018, the cost of many types of entertainment expenses will no longer be deductible.

Additional IRS guidance on this subject is expected, however, below are a few examples of how the Act may impact businesses and their employees:

  • Cost of taking a client to dinner before a baseball game would not be deductible. Prior to the Act, the expense would be partially deductible.
  • Cost of employee lunch on premises will be partially deductible, subject to the fifty percent threshold. Prior to the Act, the expense was fully deductible.
  • Cost of providing parking passes to employees at garages near their office would not be deductible. Prior to the Act, the parking cost would have been fully deductible.

Write-offs for business-related meals with clients haven’t changed; they’re still 50% deductible. Which may mean more dinners, and fewer experiences, for business developers wooing prospective clients. Yet businesses still need to be careful: Going to an expensive restaurant or venue with live music could, for instance, fall under entertainment.

While many businesses will continue to attend events with their clients even if these types of expenses are no longer 50% deductible, the cost of doing business just went up.

Whether you are considering the new tax treatment of M&E expenses for 2018 or evaluating how tax reform will affect your overall tax situation, consult with the tax experts at Talley LLP today.

Tax Freedom Day, the day where Americans as a whole have earned enough money in order to pay the nation’s tax burden fell on April 19 this year. The nation’s total tax bill for 2018, taking into account all federal, state, and local taxes stands at nearly $5.2 trillion, representing 30 percent of national income. This figure represents 30 percent of income. It took 109 days to pay off this year’s bill.

Of course, our personal tax freedom days vary depending on where we live, as well as our income, investments, and other holdings. For example, Californians will celebrate tax freedom day several days later, on April 23. And based on individual factors, the day may come even later (or earlier) in the year for each individual.

Most people are interested in reducing the number of days it takes to reach their own personal tax freedom day. For individuals with straightforward tax profiles, this might be accomplished in the weeks leading up to April 15 by looking for ways to maximize deductions and help score the biggest refund check. For high-income earners, business or property owners, estate beneficiaries or holders, and anyone with multiple tax positions that are intricately connected, this short-term, narrowly targeted approach can actually do more harm than good.

In these cases, personal wealth, business portfolios, and long-term investments are all complicated moving parts to take into consideration months and years before tax day. Otherwise, someone may be minimizing their taxes for any given year, but by doing so expose themselves to greater taxes over the long term. Therefore, a holistic approach may help you lessen your tax burden a substantial amount over the long term.

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, your family and business. For more information, contact us today.

The Internal Revenue Service announced last week it will begin to ramp down the 2014 Offshore Voluntary Disclosure Program (OVDP), closing the program on Sept. 28, 2018. By alerting taxpayers now, the IRS is encouraging any U.S. taxpayers with undisclosed foreign financial assets use the OVDP before the program closes. 

Everyone knows the scrutiny given to Cayman Island banks, as well as the hidden accounts revealed by the Panama Papers. But “offshore” in the Internal Revenue Service’s eyes means any location outside United States boundaries. The IRS certainly knows about all these places where U.S. taxpayers stash their cash. And they do all they can to find the money and get the taxes due.

US tax and Report of Foreign Bank Accounts (FBAR) filing requirements for Expats

In addition to employing traditional enforcement actions against offshore accounts, the IRS has used a voluntary program since 2009 to encourage foreign account owners to report their offshore holdings to Uncle Sam at a reduced penalty rate as well as avoid criminal charges.

That option, however, will end in September.

Since the OVDP’s initial launch in 2009, more than 56,000 taxpayers have used one of the programs to comply voluntarily. All told, those taxpayers paid a total of $11.1 billion in back taxes, interest, and penalties. The number of taxpayer disclosures under the OVDP peaked in 2011 when about 18,000 people came forward. The number steadily declined through the years, falling to only 600 disclosures in 2017.

Tax Enforcement

The IRS notes that it will continue to use tools besides voluntary disclosure to combat offshore tax avoidance, including taxpayer education, Whistleblower leads, civil examination and criminal prosecution. Since 2009, IRS Criminal Investigation has indicted 1,545 taxpayers on criminal violations related to international activities, of which 671 taxpayers were indicted on international criminal tax violations.

Streamlined Procedures and Other Options

A separate program, the Streamlined Filing Compliance Procedures, for taxpayers who might not have been aware of their filing obligations, has helped about 65,000 additional taxpayers come into compliance. The Streamlined Filing Compliance Procedures will remain in place and available to eligible taxpayers. As with OVDP, the IRS has said it may end the Streamlined Filing Compliance Procedures at some point.

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 and your family. For more information, contact us today.

Changes in the rules for like-kind exchanges under the Tax Cuts and Jobs Act may lead professional sports teams to trade fewer players, according to tax experts.

It has been long established in the past that player contracts are treated as business assets. Assuming there was no cash involved in the trade, teams would recognize no gain or loss when they traded players. They were just trading the business asset that was their contract. The Tax Cuts and Jobs Act that was passed in December amends 1031 to only certain real estate deals now. Since professional athletes’ contracts aren’t considered real property, some tax experts believe that 1031 exchange treatment will no longer apply to professional sports teams trading players after 2017. Starting this year, sports teams might need to begin recognizing a taxable gain when they trade players, though so far that hasn’t slowed the pace.

While taxes are probably never going to drive sports teams’ trade decisions, they may become a factor in their decisions, considering every time a team traded a player it would be treated as a taxable event, affecting the economics of the trade.

The change in 1031 exchange treatment could prompt several reactions from pro sports teams. Team owners might do fewer overall trades, fewer player-for-player trades, more cash-for-player or player-for-draft picks deals, or the development of an alternative trading procedure that allows trades without triggering adverse tax consequences.

Our assessment of the Tax Cuts and Jobs Act is that it is the most impactful tax law enacted in the last 30 years. Talley welcomes the opportunity to discuss with you the current opportunities available to you and your family. For more information, contact us here.

Apple, which had long deferred paying taxes on its foreign earnings, unveiled plans on Wednesday that would bring back the vast majority of the $252 billion in cash that it held abroad and said it would make a sizable investment in the United States.

With the moves, Apple will take advantage of the new tax code signed into law last month. A provision allows for a one-time repatriation of corporate cash held abroad at a lower tax rate than what would have been paid under the previous tax plan. Apple, which has 94 percent of its total cash of $269 billion outside the U.S., said it would make a one-time tax payment of $38 billion on the repatriated cash.

Apple is one of several multinational giants that have kept a total of roughly $3 trillion in global profits off their domestic books to sidestep the previous 35 percent federal corporate tax rate. Under the new tax law, companies that make a one-time repatriation of cash will be taxed at a rate of 15.5 percent on cash holdings and 8 percent on nonliquid assets. That is lower than the new 21 percent corporate rate. Under the new tax code, Apple would also have been taxed whether it brought the money back or not.

By shifting the money under the new terms, Apple will save approximately $43 billion in taxes, more than any other American company, according to the Institute on Taxation and Economic Policy, a research group in Washington.

Our assessment of the Tax Cuts and Jobs Act is that it is the most impactful tax law enacted in the last 30 years. Talley welcomes the opportunity to discuss with you the current opportunities available to you and your family. For more information, contact us here.

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. 1,376 individuals renounced their citizenship in the third quarter of 2017, putting the annual tally on track to top 2016’s record. 

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.

Ironically, leaving America can be costly. The U.S. charges $2,350 to hand in your passport, a fee that is more than twenty times the average of other high-income countries. The U.S. hiked the fee to renounce by over 400%, as previously there was a $450 fee to renounce, and no fee to relinquish. Now, there is a $2,350 fee either way. The State Department said raising the fee was about demand and paperwork, but the number of American expatriations kept increasing. Moreover, to exit, one generally must prove 5 years of IRS tax compliance.

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 strategies for mitigating personal and corporate tax liabilities that may apply to your situation.

Only broadly experienced tax advisory professionals can provide a truly global perspective so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. Talley welcomes the opportunity to discuss with you the current opportunities available to you and your family. For more information, contact us today.

Earlier this week, J.J. Watt launched an online relief fund for Hurricane Harvey victims on Sunday with an initial goal of raising $200,000. Watt started the fundraiser when he and his teammates were stranded in Dallas during the NFL preseason. Incredibly, the fund has raised more than $29 million and is still growing. 

The fund has been buoyed by big donations from some big names in the world of sports. Chris Paul donated $50,000, Watt donated $100,000 of his own money and Tennessee Titans owner and Houston native Amy Adams Strunk donated $1 million on behalf of the Titans organization.

“It’s such a testament to the people out there,’’ Watt, an all-pro defensive end for the Houston Texans, said Sunday when the total raised was at $17 million. “It’s such a testament to how much good there is in the world.’’

The total raised hit the $20 million mark at 1:30 p.m. ET Tuesday, and Watt already has been exploring how best to spend the money. On Sunday, Watt said he had talked to members of Team Rubicon and St. Bernard Project — organizations highly regarded for their natural disaster recovery work — and to people who were involved in Hurricane Katrina’s relief efforts.

“It’s been a pleasure and privilege to work with JJ Watt, his team and his foundation,” said YouCaring CEO Dan Saper. “But even though we’re looking at potentially the largest crowdfunding campaign of all time, it’s important to remember that this is just a drop in the bucket to the damage that was inflicted on the Houston area by Hurricane Harvey.”

No matter the amount, your generosity in donating 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 & Company today.

Eager to pay more taxes? Just move to Norway. To no one’s surprise, Norway’s voluntary tax contribution has not been successful. Hammered by the opposition for slashing taxes and going on a spending spree with the country’s oil money, the center-right government has hit back with a bold proposal: voluntary contributions.

Launched in June, the initiative has received a tepid reception so far, with the equivalent of just $1,325 in extra revenue being collected by the program so far, according to the Finance Ministry. That is a paltry amount, considering Norway has a population in the neighborhood of 5.3 million people, many of whom are already accustomed to paying some of the highest taxes in the world (the top rate of income tax is 46.7 percent).

“The tax scheme was set up to allow those who want to pay more taxes to do so in a simple and straightforward way,” Finance Minister Siv Jensen said in an emailed comment. “If anyone thinks the tax level is too low, they now have the chance to pay more.”

Who is ever eager to pay more taxes??

In late 2013, the Norwegian government was faced with one of the worst economic shocks in recent memory as the price of crude plunged. The government responded by aggressively cutting taxes and tapping into the country’s massive wealth fund for the first time.

Left-of-center opposition parties claimed the tax cuts would benefit the richest and boost inequality. Jonas Gahr Store, the wealthy Labor Party contender who is leading in the polls ahead of the September 11 elections, has so far refused to take up the government’s offer.

Ironically, it was Store, whose net worth is $8 million, who prodded the government into action by complaining earlier this year that he had ended up paying less taxes under the current administration.

“This is an election campaign showcase by the government,” said Harald Jacobsen, a political adviser at the Labor party, who argues that the scheme has cost more than what it has generated.

Only broadly experienced tax advisory professionals can provide a truly global perspective so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. Talley welcomes the opportunity to discuss with you the current opportunities available to you and your family. For more information, contact us here.


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