Segal, Cohen & Landis Reviews Local Currencies and the IRS

According to Kelly Erb at Forbes, the IRS is sitting up and taking notice of the increasing use of local currencies. Erb writes about the growing use of local currencies by communities. She attributes this growth to many people’s fear of an economic collapse and states that more and more people are volunteering or working in exchange for local currencies.

Erb also notes that many people using local currencies are under a mistaken impression that this currency is not taxable. Although Erb does not believe people are intentionally avoiding paying taxes on local currencies she does make it clear that they are mistaken and the IRS is paying attention.

Erb cites to the example of the government shutdown of Liberty Reserve in May 2013. Liberty Reserve was an offshore alternative currency exchange – which handled more than 6 billion dollars during its existence. It was quickly shut down because of its lack of use of identifying data, no forms W-2 or other tax documents which made it all too easy to launder money and evade taxes.

For these reasons and more the IRS is expected to continue to crack down and take note of the use of alternative currencies.

Segal, Cohen & Landis
9100 Wilshire Blvd Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Segal, Cohen & Landis Reviews Possible Further IRS Budget Cuts

According to a recent article in Forbes by Howard Gleckman, the IRS is facing possible budget cuts. The House Republicans have publicly stated that they will bring a series of proposals regarding the IRS to the house floor in the coming months. Also, the appropriation committee’s spending bill proposes further cuts to the IRS budget, which would leave the budget levels below the congressionally-approved budget from March (24%, to be exact).

In the article, Gleckman calls the move “foolish and counter-productive,” emphasizing that such budget cuts would only weaken the agency’s ability to carry out essential functions even further.

He notes that as a political move, it is effective, as the IRS has been in hot water with the public after the tax-exempt scandal broke earlier this year, but as a realistic proposal, it is not. Gleckman goes on to say that the root of the issue may have been in the “low skills, poor training, low morale, a shortage of resources, and bad management.” Whether or not this is the case, budget cuts would only cause these issues to worsen.

Gleckman ends the article by stating that is obvious that this will not pass, but it will certainly cause more stress and uncertainty at a time when the IRS needs such things the least.

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Segal, Cohen & Landis Reviews New IRS Safe Harbor Rules

A recent article in Forbes, entitled “Does the IRS New Safe Harbor Rules Help or Hurt Remote Workers?”, discusses the IRS weighing in on a popular topic of the moment: telecommuting. Yahoo’s CEO Marissa Mayer’s decision to bring telecommuters back into the office every day sparked discussion in several spheres. The article notes that regardless of which side of the debate you land on, there is one thing most people believe is a benefit of working at home—pleasant tax deductions.

While this is the common thought, this is not always correct. Unfortunately, the terminology used when referring to this arrangement, such as “working from home,” doesn’t always paint an accurate picture. The terms are ambiguous, and do not readily note the different circumstances.

For example, “working from home” could mean an individual is a solo entrepreneur trying to start up a business, or it could mean that he or she is a parent working for a large corporation. The IRS takes this distinction very seriously. The article notes that with the way the Home Office Deduction is set up, it seems like they side with Mayer in her approach to telecommuting.

The IRS looks at telecommuters and self-employed taxpayers very differently. The new Safe Harbor exception is one such instance in which the difference is obvious.

Before this year, the tax laws were seemingly inhospitable to the increasingly-prevalent telecommuting that was going on. Unsurprisingly, the original form for deduction was complex, with 43 lines and 4 pages of text.

The new Safe Harbor method allows workers to deduct $5 per square foot of home office space, with a maximum of 300 square feet. The IRS has stated that it expects the new method to save small business owners more than 1 million hours each year in recordkeeping and paperwork time.

The new rules are not the same for telecommuters though. The new rules state that if taxpayers are compensated for their home office set up, they are not eligible for a deduction.

Also, the rules make it clear that the convenience must be on the side of the company, not the taxpayer, in regards to telecommuting. This is not advantageous for individuals who must telecommute for personal reasons, such as parents who must watch over children.

While not explicitly working against telecommuters over small business owners, there are aspects to the new Safe Harbor method that could put telecommuters in a challenging spot.

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Segal, Cohen & Landis Reviews Taxes and Basketball

The Fourth of July weekend was interrupted for many Lakers basketball fans as news broke that Dwight Howard was potentially leaving Los Angeles. Fans and sports commentators waited with baited breath as Howard weighed his options. In the end, Howard decided on the move to the Houston Rockets, despite being offered more by the Lakers. Many asked why he would leave behind a bigger contract in California. The answer could lie in one thing—taxes.

The Lakers offered Howard $118 million over four years, while the Rockets offered $87.6 million over four years, which would be a smaller 4.5% annual increase over his existing contract with the Lakers. A recent Forbes article written by a tax expert notes that taxes do matter, as tax advisers have calculated what Howard would receive after taxes in California (with a 13.3% tax rate), and they have decided that it would end up being a smaller amount than in Houston, as Texas has no state income tax. The Forbes writer points out that it isn’t sufficient to merely take note of who is the highest paid, but rather who is bringing home the most money after the requisite taxes are paid.

Another Texan professional athlete is similarly placed in a favorable position due to the lack state income tax—Tony Romo. Romo, who is the fifth highest paid NFL player before taxes, is the number one highest player after taxes. He is an example of how significant the impact of taxes can be on the highest earners.

Last November, California voters approved the raising of tax rates to the high rate of 13.3%, an increase from 10.3%, on taxpayers earning more than $1 million in income. Some think that such a high tax rate will provide an incentive for athletes and other professionals alike to seek out states with lower tax rates, leaving California for greener (money) pastures.

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999