Tax Concerns for Same Sex Marriages

There have been plenty of struggles for the legalization of same sex marriages in United States. To date, 17 States have ratified the changes to the law and now permit same sex marriages. Within the past years, 10 States have declared gay marriage legal not including Washington D.C.

The question that now comes to mind is how does this affect taxes for same sex marriage couples?

Couples that got married in one of these legalized jurisdictions are considered to have equal rights regarding tax laws unless they reside in a state that currently doesn’t recognize same sex marriages. Same sex couples can now file amended joint tax returns for the prior three years.

Most of the rules between traditional and same sex marriages apply such as retirement savings contribution limitations, income thresholds, property division, adoption credit rules, dependency exemptions and head of household for separated couples. However, it can be a little more bewildering when living in one state and working in another with opposing bureaucratic laws on same sex marriage.

Many complications may arise from the disparate enactment of same sex marriage laws as it relates to the implications of tax laws across state lines. Normally, married filers who file in more than one state prepare their home state return first and then calculate taxes owed for all other states. They then carry those amounts back to the home state tax return. However, this method is cannot always achieve accurate results for states that do not recognize same-sex marriages.

Married couples who live in a state that recognizes same-sex marriages before 2013 should take a look at their previous returns and see if they should re-file for the previous years as it could be extremely beneficial. Gay married couples who earned significantly more than their spouses re-filing as joint could use the loss against the gain. It is important for taxpayers in these circumstances to call competent tax attorneys or tax counsel to review their options.

10 Strange Tax Deductions

tax deductionsThe tax season can be a skittish time, especially when trying to figure out what you can or can’t write off. We all want to keep our taxes at a minimum and with the tax season here, knowing even the most peculiar deductions can lower it significantly. Here is an interesting list of a few strange and bizarre items you can

Write Off:

1. Whale hunting: I know what you are thinking and yes it is illegal, except for all those in the Native American culture of course. In 2004, Internal Revenue code 170 states that Whaling Captains can write off up to $10,000 which includes food, weapons, repairs for the ship and distribution of whale meat. The American Jobs Creation Act added this policy change as a means to promote jobs and charity.

2. Music Lessons: Since 1962, the clarinet and music lessons can be used as a tax deduction for medical purposes because Orthodontists said that it helps prevent children from having overbites. This is an exciting and relatively ancient tax code for parents with kids who play the woodwind instrument as they can range from $200-$600.

3. Defense Attorney and Fraud Restitution: This one is great for some of you criminals out there. Even though you must pay taxes on the stolen goods, you can deduct 40% of your defense attorney fees bringing the $10,000 you owe down to $6,000. Even with fraud restitution you get a tax break! You can deduct the restitution while you pay back the victims.

4. Breast Enlargement: In 1988, a stripper named Cynthia Hess (aka. Chesty Love) stated that her $2,088 breast implants, size 56FF, were a business expense. They go along in the same category as work clothes and uniforms, making them a vital necessity in the work force.

5. Parents of a Kidnapped Child: If your child is kidnapped, now you can still claim them as a tax-deductible as long as the kidnapper isn’t a relative and has been declared kidnapped by the authorities till they are 18 years old or deceased. Previously the law stated that you could claim them till the year they were kidnapped.

6. Medical expenses: Some people aren’t aware you can write off multiple facets of medical costs including abortions, rehabs for alcoholism and drug addiction, gas and travel expenses to and from AA or NA meetings, wigs from hair loss due to a disease, quitting smoking programs including patches or nicotine gum, artificial limbs and teeth, ambulance trips as well as Braille books and magazines.

7. Caribbean Cruises: My personal favorite… You can write off your trip to the Caribbean as well as a few more destinations as long as it is business related such as a meeting or conference, which is why many business folk plan their meetings in these exotic locations. Transportation, food and hotel count as business travel expenses. Islands that the Internal Revenue Service count as a tax-deductible include Hawaii, Trinidad, Jamaica, Bermuda, Honduras, Costa Rica, Dominican Republic, Grenada, Dominica, Guyana, Saint Lucia, Porto Rico, Mexico and Tobago.

8. African Savanna: If you are a dairy farmer, then you are in luck! If you take a vacation, I mean an ‘ordinary or necessary’ business trip to Africa, then you are allowed to write it off because you are learning about animals that are relevant to your business.

9. ‘Exceptional’ Trees: If you live in the Aloha State and have an Araucaria Heterophylla or more commonly known as a Norfolk Pine in your backyard, which grows only in the Hawaii, you can write off $3,000 as a deduction to protect and preserve this special species.

10. Body Oil: This cost can be deducted if you are a body builder to make those beefy biceps shine and radiate in the limelight.

Segal Cohen & Landis Reviews Breaking Bad’s Tax Problems

According to Robert Wood at Forbes Breaking Bad has some serious tax law issues embedded in the story line. Woods points out that illegal income is still income and that many criminals have been convicted not on their more heinous crimes but rather on tax evasion. For example, Al Capone was not convicted of murder, graft or racketeering, but of income tax evasion.

Criminals also have an issue with deductions. If you report your illegal income-which may be admitting to a crime- tax deductions can be limited. Currently even the legalized medical marijuana industry is having problems with deductions. Section 280E of the tax code denies tax deductions for those dealing in controlled substances, even if they are legal.

Some criminals might attempt to launder their money and create a false return. Filing a false return is still a felony that can result in a prison term of up to three years plus a fine. Failure to file a return can also land you a one year in prison per violation. In short there is no way to exactly legally declare your ill gotten gains without landing in some hot water.

Segal Cohen & Landis Reviews Russia’s Divorce Tax

Russia is getting creative in reducing its national deficit. Currently Russia is considering increasing its divorce tax from 400 rubles ($13 US) to 30,000 rubles ($941 US). An increase of nearly 7500% would accomplish two things: raise revenue and discourage divorce.

According to Forbes this tax increase would put more than 19 billion rubles ($595 million US) back into the Russian treasury each year. Currently Russia’s deficit is set to reach $30.4 billion US in 2014 and the increase would help offset it by 4%. The increase is also meant to help stifle divorce rates. Currently Russia is experiencing a high rate of divorce. In 2012, there were 642,000 divorces and 1.2 million marriages in Russia- a 54% divorce rate. Currently the US is at a 41% divorce rate.

The announcement of the tax increase came at a particularly interesting time. Russian President Putin recently announced his own decision to divorce his wife of thirty years, Lyudmila, in June of this year. Rumors swirled that Putin was having an affair with former Olympic gymnast Alina Kabeva. However, I doubt the President will have a difficult time paying the increased tax rate.

Segal Cohen & Landis Reviews Sports Gambling

Before you go betting on your favorite NFL teams you might want to consider how much of your winnings will be going to the IRS. All gambling winnings are included in taxable income according to Section 61 of the IRS code. If you are a recreational gambler and only like to gamble during football season then you are going to report your winnings on Line 21: Other income.

Just incase you and your favorite football team are not so lucky you can still deduct your losses although not without a few caveats. Unless you are a professional gambler your losses are only deductible as “other miscellaneous itemized deductions” on Schedule A. This is a downside because if your itemized deductions don’t exceed the standard deduction, then you won’t get any tax benefit.

According to Tony Nitti at Forbes, you may only deduct losses to the extent of your winnings; you cannot generate a net loss from your gambling activities. There is a upside however. Unlike most “other miscellaneous itemized deductions,” gambling losses are not subject to the 2% of adjusted gross income floor. Gambling losses are also not subject to the PEASE limitation, which generally causes a taxpayer to lose 3% of itemized deductions for every dollar adjusted gross income exceeds $300,000 ( $250.000 if single). So if you love betting on your favorite team, go for it! Just remember to pay your taxes on any winnings!

Segal Cohen & Landis Reviews Back To School: Deducting Your Child’s Music Lessons

As many parents know this time of year can be rather expensive. Sending your children back to school is no financial laughing matter. Many parents are forced to pay exhausting amounts of money for uniforms, instruments, books, school supplies and extracurricular activities but there is hope according to Kelly Erb at Forbes.

According to Ms. Erb you can at the very least deduct your child’s music lessons in certain cases. Generally music lessons are not deductible because they are largely considered a personal expense. However there a few exceptions that allow you to take a deduction. One such exception is if your child’s music lesson was prescribed by a doctor as behavioral therapy for a special-needs child. In which case, the lesson can be deducted as a medical expense. Music lessons prescribed by a doctor for other reasons may also be deductible.

According to Ms. Erb in 1962, the IRS allowed a deduction for clarinet lessons the grounds that an orthodontist prescribed it to correct an overbite. If your child’s music lessons are not doctor prescribed don’t worry there still may be hope. If the lessons fall outside of the school day and take the place of regular child care, it still might be considered a qualifying child care expense.

Segal Cohen & Landis Reviews Taxing Social Security Benefits

Many people today have reached the age of retirement and are collecting their retirement but at the same time working full time. Segal Cohen & Landis reviews how this affects your taxes. Segal Cohen & Landis reviews the rules. Once you reach retirement age the question of whether your Social Security payments are taxable depends on two things. One, your filing status and two how much other income you receive.

Segal Cohen & Landis reviews the process of figuring out how your taxes will be affected. Segal Cohen & Landis reviews the steps. The first step is to check your federal form SSA-1099 for the total of your benefits. Once you have that number here are a few more pointers. Segal Cohen & Landis reviews the second step.

If your only source of income is from your Social Security Benefits, your benefits are not generally taxable according to Kelly Phillips at Forbes. Segal Cohen & Landis reviews Phillips knowledge. However, if you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status. Whether or not the income is taxable is based on a formula.

Segal Cohen & Landis reviews the formula. One version of the formula is to add one-half of the total Social Security benefits you received (what is reported on the form SSA-1099) to all your other income, including any tax exempt interest and other exclusions from income. Then compare this total to the base amount for your filing status:

Segal Cohen & Landis reviews the base amounts (which are never adjusted for inflation):

  • $32,000 for taxpayers who file as married filing jointly;
  • $25,000 for taxpayers who file as single, head of household, qualifying widow/widower with a dependent child, or married filing separately who did not live with their spouses at any time during the year; and
  • $0 for married persons filling separately who lived together during the year.

If the total is more than your base amount, some of your benefits may be taxable.

These tips are not legal advice.

Segal, Cohen & Landis
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Beverly Hills, CA 90212
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Segal Cohen & Landis Reviews Amazon No Longer Tax-Free: 10 Surprising Facts as Giant Loses Ground

Segal Cohen & Landis reviews the fact that Amazon has changed its notorious anti-tax stance. Historically Amazon has avoided paying taxes at all cost. Segal Cohen & Landis reviews its history of sales tax evasion. For years Amazon’s prime company strategy was avoiding sales tax. The reason being that price was the main selling point of the company, more important than convenience. In order to be able to provide low prices Amazon’s strategy was to avoid sales tax.

Segal Cohen & Landis reviews Amazon’s tax avoidance history. Jeff Bezos, Amazon’s founder, was originally so adamant about avoiding taxes that he investigated setting up the company on an Indian Reservation in order to avoid taxes.  Segal Cohen & Landis reviews  the motive behind this strategy. Amazon’s strategy of pitching to customers the fact that they could avoid tax was incredibly important. By selling customers on the idea of no taxes and low prices it was a 10% profit margin in an industry where 10% is huge.

Although the idea of planting Amazon on an Indian reservation didn’t work Segal Cohen & Landis reviews some of Amazon’s other tactics. In order to avoid taxes Amazon has gone as far as cutting ties with affiliates in states that passed online sales tax bills, including California, North Carolina, Colorado, Connecticut, Arkansas, Illinois and Rhode Island. Amazon even went as far as announcing its reason for closing affiliate accounts in Minnesota as “a direct result of unconstitutional Minnesota state tax collection legislation passed by the state legislature.” Segal Cohen & Landis reviews  another clever tax evasion tactic. Amazon went so far as to even restrict company travel by employees in some states in order to avoid creating a taxable presence.

Segal Cohen & Landis reviews Amazon’s current position. These days Amazon has found itself in a vulnerable position. Segal Cohen & Landis reviews Amazon’s last crises which took place on August 19, 2013 when Amazon went down for approximately 30 minutes, preventing shoppers from accessing the website. Segal Cohen & Landis reviews their losses at an estimated $66,340 a minute.  Aside from this embarrassing loss in revenue Segal Cohen & Landis reviews the fact that they are also losing their competitive edge. It is now becoming cheaper to shop for certain products at the store than it would online.

 

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

Segal Cohen & Landis Reviews Taxes and Football

Football season has officially started so to get you in the spirit of the game Segal Cohen & Landis is reviewing how your favorite football stars are defeating the IRS. According to Kurt Badenhausen and Sean Packard at Forbes football players have the easiest tax returns among the four major sports. This is based off the fact that they play the fewest games and therefore have the fewest number of returns. (typically filling in 10-15 states and cities). However, this does not mean that their tax planning is a walk in the park.

NFL general managers are constantly trying to restructure player contracts in order to serve the needs of players and teams while remaining under the salary cap. This often means lots of signing bonuses. So what do all these crazy bonuses and restructuring mean for the CPAs handling the returns?

Take the case of Tony Romo, as part of his contract extension Mr. Romo’s agent and the Cowboys reshuffled his compensation agreement to pay him a signing bonus of $10 million plus a base salary of $1.5 million instead of the $11.5 base he was due this season. Either way Romo is walking away with $11.5 million so why does it matter if the base is $1.5 million with a $10 million bonus or $11.5?

It turns out that it makes a huge difference in taxes. Signing bonuses are generally taxable only in a player’s home state, provided contract language meets certain criteria. So Romo will only be taxed based on his $1.5 million of income instead of $11.5 million. Since Romo lives in tax-free Texas all the contract restructuring will save Romo nearly $300,000 in state taxes and another $213,000 savings in California alone where Romo will also be filing Taxes since their training camp is in California.

 

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

Segal Cohen & Landis Reviews New Federal Tax Breaks for Same Sex Couples

Since the Supreme Court’s historic June 26 decision on same-sex marriage another question has been looming. Will the IRS apply the law of the state where same sex couples live, or the law of the state where they were married? The U.S. Department of the Treasury and the IRS have determined that only the state where they were married, the state of celebration, will matter for tax purposes.

According to Deborah Jacobs at Forbes this means that for example, if you are legally married in New York, the IRS will consider you married even if you retire to Florida, a state that does not allow same-sex marriage.

Under the IRS ruling, which will to be published on Sept. 16, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country will be covered by the ruling.

 

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