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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

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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

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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

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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”

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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

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Maritime Tax Preparers and the Alternative Minimum Tax

New IRS Rules for Investors

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by on September 10, 2010 at 12:43 pm

If you have a brokerage account, you soon will get a mailing or call about a new tax law that takes effect next year. Don’t ignore this one.

The subject: what you must do now that your broker must report an investment’s cost basis to the Internal Revenue Service after you sell a stock.

Cost basis is an area that is both crucial and confusing to taxpayers. It refers to the price of acquiring an investment, which then becomes the starting point for figuring tax when it is sold. Tracking basis can be complex, especially when there are multiple purchases, splits or dividend reinvestments. Shares in the same investment sold for the same price, for instance, generate different amounts of tax if they have different cost bases.

via Tax Report: New IRS Rules for Investors – WSJ.com.

in IRS Updates

Deductible opportunities in education for mariners

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by on August 25, 2010 at 1:50 pm

Pursuing Higher Education Underway

Technology has certainly changed the way we do business! It has also drastically changed learning. I have taught many e-learning classes where I never come in contact with the students. This is daunting to say the least. As an instructor this poses new challenges. “How do I get my point across without being in a classroom?” This is similar to the time tested exercise – “write down instructions on how to tie a shoe lace” I’m standing by the bunny ears approach…
E-Learning has opened up many avenues that were not available to professionals in years past. People don’t have to lose valuable time commuting to a class room. More importantly, people in areas without higher learning institutions can pursue their educational goals. Hopefully it will only be a matter of time before E-Learning becomes an integral part of the maritime community. (more…)

The Growing Popularity of Preferred Stocks

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by on August 13, 2010 at 1:54 am

The Growing Popularity of Preferred Stocks

Appeal Tied to Dividend Priority, Low Correlation to Common Stock

Companies that are seeking to raise money usually have two basic options: They can sell equity shares or they can borrow by issuing bonds. However, an increasing number of companies are turning to a less-used option: issuing preferred stock.

Preferred stock is becoming more popular among certain types of companies, especially banks, because it can be less expensive than issuing equity and it helps keep debt off the balance sheet.1

Investors may be attracted to “preferreds” because they are a potential source of dividend income. Preferreds also enjoy a low correlation with common stock returns, and they offer yields that are typically higher than those available from bonds, short-term debt instruments, and common stock.2

The essential difference between preferred stock and common stock is that preferreds convey additional rights to shareholders, although not all of these additional rights translate into guaranteed advantages.

First in Line for Dividends

Preferred stockholders are first in line when the company decides to issue a dividend. Preferred stocks generally offer a fixed dividend, usually a percentage of earnings, which must be paid before any dividends can be paid to common shareholders. Although the company is not generally required to pay a dividend (and may elect not to offer one when its earnings are below a certain level), some preferred shares are designated as cumulative. This means if the company fails to issue an expected dividend, the obligation to preferred shareholders accumulates and must be satisfied before the company can issue future dividends to common shareholders.

Low Volatility vs. Limited Upside

Preferred stocks tend to be less volatile than their common counterparts, but this is a sword that cuts both ways. If a company enjoys an accomplishment that causes the price of its common stock to rise, the preferred shares may not experience the same appreciation. Yet if the price of the stock falls for some reason, preferred shares are not as likely to experience a corresponding loss of value.

The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.

Sometimes Convertible, Usually Callable

Preferred stocks that are convertible can be exchanged for a certain number of common shares according to a conversion ratio set by the issuer. A conversion might make sense if the common shares are worth more than the preferred shares for which they can be exchanged. Of course, after a conversion, the preferred shareholder is no longer entitled to preferred dividends.

Keep in mind that most preferreds are callable at the option of a company. This gives the issuer the right to buy back the shares according to terms outlined in the prospectus. Callability is among the reasons why preferred shares are sensitive to interest rates. When interest rates fall, the issuer may be able to reduce costs by calling its preferred shares and issuing new shares that better reflect market conditions.

When interest rates increase, the value of preferred shares will usually decline as a result. If rates fall, outstanding preferred shares typically become more valuable, but they are also subject to an increased call risk. Preferred stocks have evolved in recent years as the demands of investors have changed. Call to learn more about the role that preferred stocks could play in your portfolio.

via Integrated Financial Partners – The Growing Popularity of Preferred Stocks : Newsletter: The Growing Popularity of Preferred Stocks.

in Investing

No Brainer – FSA Dependent

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by on June 18, 2010 at 1:21 am

Easy tax money

If deciding between the dependent care credit and using the FSA is keeping you up at night – I’ve got great news for you!!! It’s bedtime. 99.999% of the time it makes way more sense to use the FSA account.

What is a Dependent FSA?

The Dependent FSA is similar to the medical FSA in that you are allowed to circumvent Federal, State, and payroll (social security and medicare) taxes. You can allocate $5,000 into your FSA. One dependent will generally produce effective tax savings in the range of $1,000-$1,400. There aren’t any pesky phase out limitations to worry about as well.

VS Dependent Care Credit

The dependent care credit allows for a credit offset of $600 per child (with limitations). Cash credits are generally king. But in this instance we’re able to circumvent several taxes while lowering our AGI (these deductions are usually after AGI is calculated “known as from AGI”).

What are the drawbacks?

This is essentially a no brainer as far as tax maneuvers go. The biggest drawback is that you have to offset dependent care eligibility with the FSA offset. Still, 99.999% of the time it’s better.

Advantages?

Besides the obvious tax savings you’re lowering your AGI. This can reduce the impact if you’re in one of those pesky phase out positions where you are losing child or other tax credits. It can also effect AMT phase outs and exemption allocations.

Unfortunately…

Well I have to add this in… Even though we almost always effectively save more, there’s an issue. We as taxpayers tend to base our savings on our refund. Problem being that payroll will lower your withholding when you contribute to your FSA. Meaning your refund will most likely not be better (it actually might be less)….

FSA factors for Mariners to consider

First – there are unfortunately very few maritime employers who have implemented flexible spending accounts. And if they’re not available, there’s no option.

Second – Multiple States… Say you live in New Hampshire. You sail foreign. Your spouse works in Massachusetts. Both employers offer FSA’s. Who Pays in? THE SPOUSE DOES… Not because we’re mean. Simply because your spouse has to file a non-resident return in Massachusetts every year. Meaning they’ll be able to offset that pesky State tax where you will not.

Third – State Employees… Flashback – (My dad had a sign that said “A Taxpayer is someone who doesn’t have to pass a civil service exam to work for the government….”) Joking aside, many State employees aren’t required to pay into Social Security and Medicare. Meaning if one spouse does, you’re losing a 7.5% offset. Always determine what Federal and State retirement systems you are paying into.

American Opportunity Credit

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by on January 29, 2010 at 8:54 pm

Way Better Than The Hope and Lifetime

The American Opportunity Credit is not available on the 2008 returns taxpayers are filing during 2009. The new credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.

via American Opportunity Credit.

in IRS Updates

Hey Sailor, It’s Not a Tax Deduction

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by on November 23, 2009 at 7:16 pm

Need A Degree to deduct Sex Therapy…

Here’s something that’s been all over the net (special shoutout to Joe Kristan at Roth & Co.). A tax lawyer in New York, who has been practicing for more than 40 years (which puts him well into his 70s), attempted to deduct the costs of prostitutes, porno, and literature on sex therapy.

When the IRS denied the deductions, “Willie” went to the Tax Court to fight the fine. (According to court records, his name is actually William. But, come on, this thing just begs for “Willie.”)

Now, I can rant about what a waste of court time and taxpayer expense this is. But what fun is that?

It seems our friend, Willie, actually kept records of his sex transactions. In court, he didn’t argue that his deductions were legal. He argued that his “therapy” had such positive health effects that he should get the deductions anyway.

I would argue that his preoccupation with his willie has gone too far. I mean, he had the temerity to claim more than $100,000 over two years on his self-proclaimed medical deductions?

As I said, lots of people have already weighed in on this case. But here’s my two cents: I keep saying that tax law is a truly funny subject worthy of great attention because you just can’t make this stuff up. Thanks, Willie, for more evidence that I’m right.

via tax.com: Hey Sailor, It’s Not a Tax Deduction.

in Really Happened

Appeal Affirmed For Government – UNITED STATES v. KAPP – US 9th Circuit

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by on September 23, 2009 at 6:52 pm

Examining compliance requirements on accountants…

If you’re related to the maritime industry and are here reading you’ve heard the story. CPA in California won a fight for mariners, gaining them income tax deductions. One tax court case fueled a deduction frenzy that resulted in the US Department of Justice stepping in to correct what they saw as errors.

Kapp is a Certified Public Accountant who specializes in preparing federal income tax returns for individuals employed in the transportation industry. ? This case relates to his preparation of federal tax returns for mariners who work on oceangoing ships and who are at sea for long periods without returning to port (“deep sea mariners”), and mariners who work on tug boats and barges (“tug and barge mariners”), which return to port more frequently. ? Deep sea mariners are provided meals by their employer while working on board the ship. ? Tug and barge mariners also typically do not incur meal related expenses. via No.?07-56408. – UNITED STATES v. KAPP – US 9th Circuit.

Banks Collapsing… Government Enticing More Risky Mortgages…

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by on September 23, 2008 at 7:42 pm

Looking for logic

I’m all for tax incentives and credits. But aren’t we on the verge of some really rough times? Banks looking for government assistance… All because they never thought about what would happen if the housing market stopped climbing. Solution??? Let’s print some more money and use it as an incentive to anyone who is thinking buying a house might not be a financial possibility. Brilliant!

Not a free lunch

The way it’s written, you have 15 years to pay the money back… Great, an interest free loan. My concern would be that there are some serious compliance issues. I can picture folks e-filing claiming a home credit and running to the bank laughing. How many returns will be filed stating they purchased “1600 Penn Ave, Washington DC”? This is not easily regulated. Refundable credits usually require social security numbers for verification. I thought they learned their lesson with this under Reagan.

I’ll bet this ends up being a free lunch down the line when it isn’t causing the necessary stimulation.

First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.

Washington, D.C. – infoZine – Available for a limited time only, the credit:

* Applies to home purchases after April 8, 2008, and before July 1, 2009.

* Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.

* Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.

However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.

via Tax Credit to Aid First-time Homebuyers; Must be Repaid Over 15 Years – Kansas City infoZine News.

in IRS Updates
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