Featured

Recent Tax Court decision could wreak ha

Glover v. Comm, a recent tax court decision, presents several issues to Merchant Mariners. Mr. Glover worked for Reinauer Transportation. His tugs pushed oil coastwise as far as Virginia. The tugs wou

Read More
Recent Tax Court decision could wreak havoc on Mariners

State Taxes and Mariners

Suz asked this question So, what about if you live in one state (TN) and work as a merchant mariner in another state (HI), 45 days on/45 days off rotation? Do you pay HI state taxes, or does the payro

Read More
State Taxes and Mariners

Mariner Tax Update January 2011

E-Filing alert! How many times have you read that mariners cannot E-File? How many websites have posted this. Year after year. And then all of a sudden preparers start proclaiming “mariners can

Read More
Mariner Tax Update January 2011

Employee vs. Non-Employee LLC and S-Corp

I’ve been a client of yours for a few years now and I had a general tax question concerning my wife’s job status. She currently works full time for a marketing firm in “Deleted”

Read More
Employee vs. Non-Employee LLC and S-Corp Planning for Mariners and their families

Maritime Tax Preparers and the Alternati

What they don’t want you to know… This video points out the tremendous effect of the AMT on merchant mariners. Seamen taking business deductions and offsets may very well be realizing litt

Read More
Maritime Tax Preparers and the Alternative Minimum Tax

Employee vs. Non-Employee LLC and S-Corp Planning for Mariners and their families

2
by on January 10, 2011 at 8:12 pm

I’ve been a client of yours for a few years now and I had a general tax question concerning my wife’s job status. She currently works full time for a marketing firm in “Deleted”. She intends to cut back to a part time status where she can pick and choose which projects to work on. Some people in her field create their own “small business” if they are contracting out their services. She has the option to stay on her company’s payroll or to create herself into this “business.” I don’t know what the pros and cons are to this move tax wise. We are currently living in the “deleted” Area and I am still going to sea. If you could give me a little advice I would really appreciate it.

To LLC or not to LLC… That is the question… Or is it?

First off – like political economic theory – this is (more…)

Maritime Tax Preparers and the Alternative Minimum Tax

6
by on January 8, 2011 at 2:40 pm

What they don’t want you to know…

This video points out the tremendous effect of the AMT on merchant mariners. Seamen taking business deductions and offsets may very well be realizing little to no benefit from these offsets. It also examines some alternatives that may or may not assist in alleviating the effect of the AMT. It’s important to examine the short term and long term benefits of tax strategies. Tell your tax planner your short and long term goals.

AMT Effect on mariners incidental per diems

These expenses, like all employee business expenses are subject to AMT limitations. When a mariners income gets to a certain point, these deductions have little to no effect.

Mariners in the situations outlined in the video should pursue long term tax planning strategies to address AMT. Bogus Sailor tax offsets will not be effective.

Top 20 Silly Tax Deductions

0
by on January 6, 2011 at 8:42 pm

Laugh if you like but some were allowed…

  1. Free beer – YES  -  Strange but true. A gas station owner gave his customers free beer in lieu of trading stamps and the Tax Court said yes, this is a legitimate business expense and tax deductible, which makes the next entry even stranger…
  2. Free whisky – NO  -  One gentleman thought a case or two of whisky would make nice client gifts, and thus tried to deduct them on his annual tax return. The category he chose was “meals & entertainment” saying it was for client entertainment. However, not only was it not allowed, it was a gift that violated state laws. Ouch!
  3. Cost of hiring an arsonist – NO  - I suppose hit men are out too? A man with a failing furniture business decided to hire someone to burn it down. The store-owner’s plan was not only to collect the $500,000 insurance money, but also to deduct the $10,000 expenses of hiring the arsonist! He was denied.
  4. Fake Boobs – YES  - This one is infamous. A stripper going by the name of “Chesty Love” used her hard-earned savings to boost the size of her boobs, to the eye-popping size of 56-FF (this is huge by the way and the only time I’ve ever seen boobs this big was on a 6’3″ drag queen in Cleveland and yes, they were actual implants.) She figured it would get her more tips and you guessed it, the write-off was allowed, being considered a stage prop essential to her act. (Imagine the exhibits at that trial)…
  5. Prostitution expenses – NO  - Maybe in Amsterdam or at the Bunny Ranch in Nevada, but you can’t deduct expenses of illegal professions. Trying to deduct 4000 condoms and a case of flavored lube isn’t going to work if you put down “prostitute” as your career. Similarly, drug dealers can’t deduct the cost of baggies or claim the drugs they buy to resell as costs of goods sold.
  6. Cat food – YES  - Junkyard owners set out bowls of pet food nightly to attract wild cats. The wild cats also took care of their nasty snake and rat problem, making the junkyard safer for customers and providing a useful business service. Yep, you guessed it…the pet food is a business expense and was allowed.
  7. Your own racehorse – NO  - I can see how this would be a business expense to some people. But if you just go out and buy your own prize-winning horse, name it after yourself (the ego on some folks) and then take clients out to see your horse run, you cannot deduct this. It’s not a business expense, it’s a personal expense. But hey, if you can afford a racehorse and stables, why are you worried about the deduction in the first place?
  8. A fabulous African Safari – YES  - If the IRS considers a business trip “ordinary and necessary”, you can take it as a deduction. For the owners of a dairy business, this included a wonderful African Safari, because many of the activities on the trip were focused on wild animals.
  9. The costs of moving… the family pet – YES  - Whether you’ve got a Great Dane or a Great White Shark, your pet is considered a personal effect. And that’s great news for you. When it comes to any expenses relating to any kind move associated with a job, Uncle Sam says yes. But I suspect hiring a Hummer Limo to move your gerbil across the state may not be looked upon favorably.
  10. A Trip to Bermuda – YES, YES, YES  - I love this one! ANY business convention held in Bermuda can be written off without even showing there was a special reason to hold your business meeting in paradise. And it’s not the only place. Barbados, Costa Rica, Dominica, the Dominican Republic, Grenada, Guyana, Honduras, Jamaica, Saint Lucia, Trinidad and Tobago, Canada, Mexico and all U.S. possessions also fall into this special tax treatment. But outside the U.S. is a different story.
  11. Body Oil – YES  - If you’re a regular Joe, body oil is a once in a blue-moon splurge. Maybe something to spice up an evening with your partner, but certainly not a write-off. However, if you’re a pro bodybuilder and need gallons of body oil to make your muscles glisten, then it is a genuine tax write-off. I personally have a few celebrity clients  and these clients deduct their makeup, their facials and occasionally, if they can prove its necessary for a movie or other job, even their nose jobs! Models have similar options with their deductions.
  12. A trip to the Super bowl – NO  - I’d like to put this one in the ‘nice try’ category. Someone decided to take clients and their spouses to the Super bowl, but just could not prove that the shindig was in any way related to business. And even if it was, it’s an extravagant expense for a meeting and would have been disallowed anyway. Sorry bud.
  13. A Private Airplane – YES  - A couple with a rental condo didn’t fancy the hassle of driving up to 7 hours to check on it. They didn’t want to be stuck to the schedule of the only daily flight available. So, they did what you or I would do… they bought their own jet! They were allowed to deduct all expenses on the jet relating to the condo, including the high costs of fuel. That must have been some condo!
  14. A Mink Coat – NO  - fur… it’s so tacky these days. One man tried deducting a mink coat claiming that it was a conversation piece when visiting clients with his wife (what was the topic? tackiness?) Fortunately, he was denied.
  15. Babysitting costs – YES  - Believe it or not, you can deduct the cost of a babysitter as a charitable deduction, if the mother of the child is leaving the house to do volunteer work for a charity. Which, of course, we all do on a daily basis.
  16. A ‘Playmate’ Party – YES  - The owner of a nightclub promotions firm decided that a regular party wasn’t good enough for his clients. So, he brought in a bunch of scantily clad “bunnies” as decoration. The tax man said sure, it’s a valid expense. Whether or not pictures of the bunnies were attached to the return is unknown at this time.
  17. A Nuclear Fallout Shelter – NO  - This one bombed (sorry… bad pun). Yep, way back in the days of the cold war and the threat of nuclear meltdown, one clever man built a nuclear fallout shelter on his property and then decided to list it as “preventative medicine.” The IRS gave that one a big thumbs down. Wow, didn’t see that one coming!
  18. A beautiful swimming pool – YES  - This one’s a great example of lateral thinking. After being told by his doctor that he needed to exercise (after developing emphysema), the smart fella put in a swimming pool. The deduction was put down as a necessary MEDICAL EXPENSE and was allowed, along with the various chemicals, heating, cleaning and general upkeep of the pool. Now that’s using your head.
  19. Dancing lessons – NO  - Dancing With The Stars may be popular, but it’s not going down well with the IRS as the subject of a deduction. You CANNOT take dancing as a deduction for medical expenses, and the following reasons are outlawed – dancing to relive varicose veins, dancing to cure arthritis and finally, dancing to alleviate nervous disorders. Try any of these and you’ll be dancing all the way to the tax courts.
  20. Sperm donation as a loss – NO  - Okay, I saved the best (or worst) one for last. It’s one thing to make a little extra cash as a sperm donor. It’s quite another to try and claim a depletion loss on the aforementioned sperm. Hey, I’m just glad I wasn’t the tax preparer who had to deal with this client. It amazes me every year when I hear the crazy ideas clients have regarding their deductions.

Never dismiss a deduction…

Secret Tax Deductions…

0
by on January 6, 2011 at 6:36 pm

You just never know

Here are three unique deductions you’d think the IRS would laugh at — but instead they approved.

  1. The “significant other” deduction. When a man hired his live-in girlfriend to manage some of his rental properties, the Tax Court allowed him to deduct $2,500 of the $9,000, which he paid her as a business expense. Her duties included finding furniture, overseeing repairs and, of course, running his personal household.
  2. The moving the family pet deduction. Whether your pet is a dog, a bird or even an Oriental Yeti, it’s OK to deduct the cost of moving said pet from your old residence to your new abode if you can pass a couple of simple tests.
  3. The body oil deduction. Just as carpenters can’t be expected to work without their tools, bodybuilders can’t be expected to compete without their … body oil. While the Tax Court balked at letting a pro bodybuilder write off buffalo meat and special vitamin supplements, it did allow him to deduct his ample supply of body oil as a business expense.

Lesson learned…

Never dismiss a deduction, no matter how silly it may seem.

Homeowners Penalized

0
by on January 6, 2011 at 4:29 pm

Mid February for Schedule A Filers

Imagine this…

Your boss comes in. Says “we’re going to make some adjustments to one form”. The adjustments were finalized in mid December. The “adjustments” are essentially repeating what you did last year. You tell your boss “yeah it’ll take me about 2 months…” This is what happened. We have essentially a carbon copy schedule A, and the IRS is anticipating mid February for implementation.

According to the IRS, itemized deductions on Schedule A “include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted on Dec. 17.”

Ask your preparer if they can take you before the forms are finalized. My office will have no issue with this. Some software platforms won’t be able to produce returns until the finalization date.

What if I prepare my taxes beforehand

If you’re e-filing you’ll need to wait until the forms are approved. Your return will be e-filed once this happens. I would anticipate some backlogging at that point as there will be a lot of returns beaming in that day.

Bottom line is we’ll see :)

in Hot Press

Filing Deadline Changed

0
by on January 5, 2011 at 5:08 pm

Tax Deadline Extended

The Internal Revenue Service recently opened the 2011 tax-filing season by announcing taxpayers have until April 18 to file their tax returns. The IRS reminded taxpayers impacted by recent tax law changes that using e-file is the best way to ensure accurate tax returns and get faster refunds.

Taxpayers will have until April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on April 15.

If you live in a State that observes a Monday Holiday, your due date may be extended even further.

in IRS Updates

Bracket Hedging

0
by on January 5, 2011 at 4:29 pm

Mariners should optimize the standard and itemized deduction

You just got a great job off the board. You just got your license. You just started shipping. You just graduated from the Maritime Academy. These events all scream change from a tax perspective. Our tax system takes a reverse psychology approach – the better we do, the more they get. It’s a disheartening blow that we wish we could alleviate. There are some planning tactics that can help. Where should we start looking for tax savings. Let’s look at our Uncle…

You get a very large, free deduction from Uncle Sam

It’s not unique to Merchant Seamen. It’s the standard deduction. Many years ago, our selfless leaders took it upon themselves to provide a deduction that would be representative of the cost of living. Now a days it’s about $6,000 for single individuals. You are allowed to use this deduction on your tax return as an offset.

Basic Tax Formula -

  1. Income – you take any income that is not excluded and combine it
  2. Adjustments – you deduct any adjustments (student loan interest, etc…) that you are entitled to
  3. Standard or Itemized Deduction – you subtract your standard or itemized deduction (whichever is larger) from your adjusted gross income (AGI)
  4. Taxable Income – After the previous offsets we go into the tax tables and determine your tax… We’ll stop at this point…

Important terms…

  1. Marginal Tax Rate (MTR) – the rate at which (more…)

2011 Social Security Tax Cuts

1
by on December 29, 2010 at 5:40 pm

What to expect -

There will be a 2% decrease in Social Security withholding in 2011. We are normally taxed at 6.2% up to the first $106,800 earned. The benefit comes out to about $20 per thousand. This could mean a maximum savings of $2,136 (per spouse).

Irony -

  • Since we’re losing the making work pay credit, low income households may very well see a decrease in tax benefits in comparison to last year.
  • Isn’t Social Security underfunded as it is? How will this help to catch up?
  • By lowering Social Security withholding instead of providing an untaxed credit, they are able to still tax all of your savings – aka – social security wages and non social security wages are subject to the Federal Income Tax. The making work pay credit is not…

Great job guys… Please don’t become air traffic controllers :)

Making Gifts From Your IRA

0
by on December 28, 2010 at 5:45 pm

Wish I had this problem…

The provision itself is simple–at least as tax rules go. It allows a taxpayer who is 70½ or older to contribute a total of $100,000 in IRA assets to one or more qualified charities. The payout can satisfy the required minimal distribution. The donor gets no deduction, but neither does he or she have to report the payouts as income.

That last point is key: If the donor had to claim the payout as income and then deduct it, there could be problems. The deduction itself could be limited because of other tax rules, or else the donation might swell the donor’s reported income, possibly raising Medicare premiums or taxes on Social Security payments. Instead, the donation bypasses tax calculations altogether.

via Tax Report: Making Gifts From Your IRA – WSJ.com.

Mariners last minute tax checklist…

2
by on December 28, 2010 at 5:36 pm

Shipped out all year?

That’s a lot of dough… With four days left in the year you may be wondering how much you’ll be owning when you file your return next spring. You might be able to substantially reduce your tax bill if you act now. But when the ball drops at midnight – game over… There’s one golden rule – time deductions in December and income in January….

Here’s a few helpful last minute tips…

  1. Do you pay State income taxes? Did you make your estimated payments? Did you make your 4th quarter payment? Do it now… You get the deduction in the year the taxes are paid. By writing a check out for $5,000 in December, you’ll get a deduction for Tax Year 2010. If you wait until 2011, you’re out of luck.
  2. Homeowner? If so, two things. Make your January mortgage payment and pay your property tax bill. Again, you’ll get the property tax and interest deduction for Tax Year 2010.
  3. Are you due vacation pay? Don’t file until next year! That way you hold the money for the year before you pay.
  4. In the Union? Paying down an initiation fee? Pay it down. Or pay your dues for that matter.
  5. Need to take license? Pay the fees now.
  6. Need a certification class? Sign up and pay.
  7. Flying to a hall to look for work? Buy your ticket.
  8. Have some loser stocks? Dump em… Up to a $3,000 net loss.
  9. Energy credit is still in effect. If you were going to upgrade your home anyways, might as well get the tax benefit.
  10. There are still several hybrid credits available as well.

Things I didn’t mention

  1. Close on the house you’re buying… You won’t see any benefit until next year.
  2. Pay medical expenses. With the 7.5% limitation, there’s rarely a recognized benefit.
  3. Donate that old junk car. I applaud charitable tendencies. But from a tax perspective it’s not very beneficial. Odds are you won’t get more than a $500 deduction (about $150 cash). If you can sell it for $500 on craigslist, you’re in better shape… Again, I’m not discounting donations, just not solely for tax purposes. It’s more of a fringe benefit.