Friday, November 5, 2010

Top 10 Celebrities with Tax Problems

Celebrities, some of us love them and some of us hate them.  They are rich, famous, and have everything!  But guess what, celebrities have tax problems too and really big ones.  Here my list of top 10 celebs with tax problems.

10.  Flavor Flav $183,000
This rapper-turned-reality star has been listed by the California Franchise Tax Board as owing over $183,000 to the state of California. 

Looks like your giant clock has ran out of time and it's time to pay up.

9. Jaime Pressly $376,000

This famous actress has been on hot show "My Name is Earl" and in popular movies such as "I Love You Man" and "Not Another Teen Movie,"  Now the IRS and CA FTB have filed tax liens against her in LA County. IRS for $281,699 and FTB for $95,080.

8. Xzibit $502,000

Rapper/Pimp My Ride host have run into various financial debts which include $501,840 in taxes to the IRS.

Looks like he wont be pimping anything until he pays up.

7. Val Kilmer $539,000

This actor had a tax lien filed in New Jersey on an address in the town of Old Tappan.

Not so smooth after all Val.

6. Aaron Carter $1,000,000

The pop star who once stole the hearts of many little girls has now stolen a lot of money from Uncle Sam. At least that's what a lien that was filed by the IRS in LA county says.  The lien was filed for about $1,000,000 dating back to 2003.

5. Al Capone $80,000 ($1,073,039 today's value according to inflation rates)

Ah yes, Al Capone.  The famous Chicago gangster who once made jokes about taxes and how the feds could not collect legal taxes on illegal money.  The feds tried many strategies to bring him down and put him away but failed until in 1931 the IRS charged him with tax evasion and was sentenced to 11 years in jail.

4. Pamela Anderson $1,952,000

This sexy Baywatch babe has been listed on the Franchise Tax Board website as top 250 delinquent taxpayers.  Liens have been filed against her in LA county by the IRS for $1,700,173 and Franchise Tax Board for $252,360.

3. Heidi Montag & Spencer Pratt $2,000,000

MTV famous couple, who love attention from the press, have now caught the eyes of the IRS.  The couple is said to be bankrupt, homeless living with Spencer's dad, and owing about $2,000,000 in back taxes. 

2. Chris Tucker $3,600,000

Comedian/Actor famous for his role in "Rush Hour" is also in trouble with CA FTB.  Tucker owes taxes to the state of California for 2001-2002 and 2004-2007.

1. Joe Francis $33,800,000

Famous for his Girls Gone Wild videos, Joe was in trouble with the IRS and had a lien filed against him for $33,800,000.  Papers say that he sued the IRS and won.  No news on the lien being released.

So what can we all learn from this?  Know what's going on with your finances and taxes. Hire a professional before it's to late.

Monday, October 18, 2010

Questions from taxpayers

October 15th has passed and all extensions have been complete. Now I can get back to my tax blog. I apologies to those that I have kept waiting ;) As promised here are some questions that I have received from clients/friends that I though some of you folks might find interesting.

Question #1: I am a business owner/independent contractor, can I expense the use of my vehicle?

Answer #1:  To expense the use of your personal vehicle, the IRS requires that your vehicle use be ordinary and necessary to perform your day to day business operation and your evidence supporting the expense must be in writing.

You must have a mileage log that supports your business trips/miles driven and must describe the business purpose of the trip.

Microsoft Office has a great template that many of my clients use and taxpayers that I have represented in audit have used. 

Mileage Log Template

Taxpayers can either choose the Actual Expense Method or the Standard Mileage Rate Method.

Under the Actual Expense Method, actual car or truck expenses include: Depreciation, Lease payments, Registration fees, Licenses, Gas, Insurance, Repairs, Oil, Garage rent, Tires, Tolls, and Parking fees.  For example, if, based on records maintained by a taxpayer, total actual vehicle expenses for a given year are $2,500 and the vehicle is used 75 percent for business, the allowable deduction using the actual expense method is $1,875 ($2,500 x 75 percent).

Under the Standard Mileage Rate Method, vehicle expenses are based on amount of miles driven and calculated by the standard mileage rate that is determined by the IRS.  For 2010, the standard mileage rate is $.50 per mile.  For example, if, based on records maintained by a taxpayer, total business miles driven for a given year is 10,000 miles, the allowable deduction using the standard mileage rate method is $5,000 (10,000 miles x $.50 per miles).

Which ever method you choose, you must keep records to support your expenses.

IRS Publication 463, page 14-24 provide additional information to taxpayers.

Question #2: I keep hearing about Bush Tax Cuts that are set to expire, what are these tax cuts?

Answer #2: During 2001 and 2003 there were many tax cuts and credits that were enacted by the Bush administration, many  of these tax cuts and credits are set to expire at the end of 2010.

Here what this means for most taxpayers:

The standard percent rates -- the baseline percentage of your income that goes to the government -- will universally rise from 10% to 15% (for lowest-income earners), from 25% to 28%, from 28% to 31%, from 33% to 36%, and from 35% to 39.6% (for highest-income earners).  So what this means is if you are in the 10% tax bracket, in 2011 you will most likely be in the 15% and so on.  This is estimated to generate roughly about $157 billion in additional tax revenue.

Taxes on capital gains and dividends will increase.  No more reduced tax on long-term capital gains.

Child tax credit will go back down to $500 per child, currently $1,000 per child.

Below are some example based on Tax Foundation's 2011 Income Tax Calculator of what the effect of these expired tax cuts may be.

Family of four, combined income of $75,000, tax increase of $2,143 next year (2011).

Family of four earning $150,000, tax increase by $4,510.

Single filers earning $50,000, tax increase of $605.

Single filers earning $75,000, tax increase of $1,355.

Single parent with one child earning $25,000, tax increase of $955, decreasing his tax refund of $1,856 to just more than $900.

Low-income family of five earning $45,000 would see their taxes increase by $2,538.

Retired married couple with income of $60,000  ($10,000 in qualified dividends, $25,000 in Social Security benefits and $10,000 in 401k) tax increase by $2,676.

Question #3: What are high IRS Audit areas?

Answer #3: From my 5+ years of representation taxpayers in audit, I have noticed the areas that the IRS continues to focus over and over gain on are Car & Truck Expense, Meals & Entertainment Expenses, and Travel Expenses.

Why? Because these areas are common for taxpayers to hide personal expenses.  The IRS rules for any business expenses are "the expense must be ordinary and necessary to run your business."

The IRS may disallow these expenses in an audit if you do not meet the IRS record keeping requirements.  All of these expenses require proof of expense and a log describing the 5 W's (When, Where, Who, What, &Why)

IRS Publication 583 provide some useful information on starting a business and keeping records.

Please feel free to contact me with any of your questions/concerns

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.

Friday, October 1, 2010

15 Intersting Facts About the IRS

1. President Abraham Lincoln created the IRS during the Civil War to help pay for the military expenses.
Good Old Abe

2. The initial income tax was a mere 3% tax on individuals making over $800. Nowadays the top tax bracket consists of a 35% tax.

Rip Off! So that's why we are poor!

3. When it was first created, the IRS was known as the Bureau of Internal Revenue, it wasn’t until the 1950’s that the name was changed to the Internal Revenue Service.

4. Over 229 million income tax returns were filed with the IRS in 2006.

Wow that a lot!

5. In 2006, the IRS collected over $2.2 trillion, with $1.2 trillion coming from just income taxes.

6. Prior to the introduction of the Taxpayer Bill of Rights in 1998, the burden of proof was put entirely on taxpayers, meaning taxpayers had to prove themselves innocent.

Yes you now have some rights:

7. The IRS sends out an average 8 billion page of paper every tax season. If all the pieces of paper were laid out end-to-end, it would wrap around the earth 28 times.

8. In order for the IRS to print the necessary forms and documents on paper over 300,000 trees must be cut down every year.

What happened to going green? Save the trees

9. The federal government spends $200 billion per year on federal tax compliance, which is more money than it takes to produce every vehicle in the United States.

Yeah they audit like Crazy!

10. The IRS employs over 114,000 individuals, which is over double as many as the CIA and five times more than the FBI.

11. The United States tax systems is widely known for being confusing and difficult to understand. As such over 60% of seek professional help preparing their tax returns.

Yes that's why you should hire me ;)

12. The average family pays over 38% of their total income to the IRS, which is more than the average family spends on food, clothing, and shelter combined.

Food BAD, Taxes GOOD. I kidd

13. The federal government spends about $10 billion per year to pay the IRS’s 114,000 employees.

14. The IRS has a whistleblowers program designed to help catch tax evaders. In 2005 they paid over $27 million to informants which resulted in nearly $350 million in revenue.

Those jerks!

15. Tax Day, the date when tax returns must be filed with the IRS typically falls on April 15th. However, if the 15th falls on a weekend or holiday, Tax Day is moved to the next business day.

Friday, September 24, 2010

American Opportunity Credit

Under the American Recovery and Reinvestment Act of the 2009, the American Opportunity Credit allows taxpayers to get a credit on their 2009 and 2010 tax return of up to $2,500.

How can you qualify for the credit?
  1. You must be enrolled in a program that leads to a degree, certificate or other recognized educational credential.
  2. You must be enrolled as a full time student for at least half of the school year.
  3. You cannot have any felony drug convictions.
  4. The credit can only be taken for the first four years of education.

What expenses qualify for the credit?
  1. Tuition and fees
  2. Course materials as long as they are required by the institution.
This means books, supplies, lab supplies, calculators, and yes even a COMPUTER as long as is is required the by institution.

You can find out more from the IRS website or you can email me and I will do my best to answer your questions.

Sunday, September 19, 2010

And that's a wrap

As the tax year begins to wrap up, many of you may be wondering "how much will my refund be when I file my 2010 tax return," or "how much will Uncle Sam take from me this time?" 

Thanks to our good friends (just joking) at the IRS there is a Withholding Calculator that can help you determine whether you are having enough withheld by your employer.  Check it out before the year comes to an end.

Visit our blog next week for more tax tips.