Tax Strategies for Somali Pirates

Ahoy, matey!

Today’s rough economy has cost the country millions of jobs. At the same time, news reports that Somali pirates have raked in seven- and eight-figure ransoms have many laid-off Wall Streeters contemplating a more traditional form of piracy. Here’s what you’ll need to know about taxes before you join the Somalis for a life of adventure:

• U.S. citizens are taxed on all income from whatever sources derived. This includes income from illegal activities, even if those activities are conducted abroad.

Cash ransoms are taxable as ordinary income. Noncash “treasure” and “booty” are taxed at fair market value. This is true even if the cash proceeds you generate from “fencing” ultimately total less than that initial fair market value.

If you pay foreign income tax on your booty, you may qualify for the Foreign Earned Income Exclusion.

Business Expenses

• Ships and other equipment you buy to conduct raids are capital assets. You’ll depreciate these over the applicable period. (Guns, grappling hooks, outboard motors for inflatable craft, and similar items may qualify for first-year expensing.)

If the Indian Navy or other coastal defense fleets destroy your ship, you can deduct the remaining basis as a capital loss (subject to the 10% floor on adjusted gross income).                                                                     

Unfortunately, there’s no deduction for the cost of illegal expenses. This is a gray area, but we suggest you treat the cost of surplus Kalashnikovs, ammunition, and similar items as nondeductible expenses — just to be safe!

If you start feeling guilty about the ransom amounts you collect, relax! Most shippers carry insurance for such expenses — which, of course, they pay for with deductible dollars. And most of those policies are written with international giant AIG, which has received over $160 billion in government bailouts. So ultimately, it’s all your tax dollar anyway!

Meals and entertainment are ordinarily just 50% deductible. But — you can deduct 100% of the cost of meals that you furnish employees (and yourself, unless you’re taxed as a proprietor) for the convenience of the business and not for compensation. These include meals you furnish on-premises to let employees stay available for emergency calls, meals you furnish during short lunch periods (up to 45 minutes), meals you furnish where there aren’t adequate eating places near the workplace, and any meals you furnish to over 50% of employees. You can also deduct off-premises meals you provide as part of required business meetings (i.e., meals you serve onboard commandeered vessels).

Finally, remember that while piracy may be lucrative, it's still illegal. Be aware that while reporting your income protects you from bootlegger Al Capone’s fate, you may still be subject to federal and international regulatory and criminal sanctions.

Be sure you call us to help you make smart choices before you launch any business venture.

ATT Jails Blind Springfield Man

From the State Journal Register online:

Bob Simonson blew up. As a result, he is in the Sangamon County Jail in Springfield, facing a felony terrorizing charge. He is accused of threatening to blow up the AT&T call center in East Baton Rouge, La. However, finding his way to it would have been a challenge for Bob. He is blind.



Read more by clicking the above link.

September 30, 2010 Client Newsletter

Where to start?

Last week the IRS announced that they are going to get tougher on unpaid employment taxes.  

What it means to us. The large number of in-business taxpayers who are pyramiding trust fund tax liabilities is a major compliance problem for the IRS. The collection of taxes through employment tax returns is a significant source of revenue for the federal government. As of Sept. 30, 2009, the total IRS inventory of currently not collectible amounts included almost $20.7 billion of unpaid employment taxes from business taxpayers. Of that total, approximately $1.1 billion (roughly 5 percent) was from in-business taxpayers.  Expect more scrutiny from IRS collection personnel if you plan on continuing in business and decide not pay your payroll taxes.  They call it follow up compliance checks.  However in typical IRS efficiency don’t expect this new scrutiny to start right away.  It took three years to study the problem and anticipate another two years to implement it.

No movement from Congress in regards to the expiring tax rates.

What that means to us.  Little or no impact for this year. However, if nothing happens in the November lame duck session, and something will happen, it will have a huge impact on every taxpayer’s return filed for 2011.  Congress is beginning to feel the heat about the excesses in the Health Care provisions passed earlier this year.   Specifically the new 1099 filing requirements for purchases  buried deep in the Health Care law  will be a huge administrative problem for most businesses both large and small.  Several laws repealing this provision have already been introduced.

President Obama put his John Hancock on a $30 billion small business lending bill intended to spur economic growth among, well... small businesses.

What it means to us.  I just think it's ironic it takes $30 billion to generate the 500k new jobs projected by President Obama to be created as a result of the new bill. Government math has never been my strong suit but I will give it a try. My calculations are $60,000 per job created.  Pretty expensive stuff.  Our experience is that small business loans are in fact tougher to get today.  Some very qualified clients have had their loan packages rejected by banks. Victims of the credit crunch and tighter underwriting standards.  Bankers have told me that small business loan demand is down.  Way down. It’s too early to tell if demand will increase, or loan qualifications will change. However I can tell you that some banks were waiting for this bill to pass before saying yes to some of our clients.


The bill includes eight business-oriented tax cuts:

• Zero Taxes on Capital Gains from Key Small Business Investments
• Extension and Expansion of Small Businesses’ Ability to Immediately Expense Capital Investments   
• Extension of 50% Bonus Depreciation
• A New Deduction of Health Insurance Costs for Self-Employed
• Tax Relief and Simplification for Cell Phone Deductions
• An Increase in the Deduction for Entrepreneurs’ Start-Up Expenses
• A Five-Year Carryback Of General Business Credits
• Limitations on Penalties for Errors in Tax Reporting That Disproportionately Affect Small Business

I have added a link on our blog with a discussion of these tax cuts.  More to follow.

Starting in 2011, paper tax coupons payments will no longer be accepted by your bank as a means of paying your income tax.

What it means to us.  We are working out the kinks.  Expect an announcement about what we plan to do once IRS announces the new rules later this year. More than likely, we will be instituting electronic payments for our clients starting in January 2011.

The recession is over.  According to the National Bureau of Economic Research (NBER), the recession ended in June of 2009, but they just got around to announcing it last week

What it means to us.  Please forgive us if this comes as news to us — it's come as news to many people, not least the small business owners who've been struggling to survive in an economy where credit is tight, health care costs are high, and consumers and investors remain skittish. Our crystal ball is very cloudy right now when it comes to predicting better business seas ahead.

Calendar

Our office will be closed for Columbus Day, October 11, 2010.
Drop dead due date for 2009 personal income tax return filing is October 15, 2010.
Quarterly payroll returns due November 1, 2010.

Client Workshops

OK I’m incorporated, what’s next? Whether you are a brand new corporation, or been around for years, you chose wisely.  We will show you how to avoid IRS problems with one of the most complicate tax structures that remain the most popular corporate tax entity in America today.


Saturday, October 9, 2010 at 10:30 a.m.

Cash –It’s hard to get and there is never enough.
Cash flow 101.  45 minutes talking about sales and pricing and things that we can do to make more money in today’s very difficult times.  Please don’t miss it.

Wednesday, October 13, 2010 at 5:30 p.m.
Saturday, October 16, 2010 at 10:30 a.m.

All workshops are free to active clients and held in our office.  Since space is limited,l please let us know if you are planning to attend.  Refreshments will be served.

Talk to you soon.



Donald C. Fuener E.A.
President
September 29, 2010