Tag: tax

Bill Davidson’s $2.8 Billion Estate Tax Bill

Posted by Ari Good, JD LLM on

Estate Tax Bill the Size of a Small Nation’s GDP

 

Estate Tax
Estate taxes tend to be a bit more

The estate of billionaire Bill Davidson is suing the IRS. Their beef: a $2.8 billion tax deficiency notice. That’s in the neighborhood of GDP for small nations like Greenland and the Cayman Islands! A private man, most would know Mr. Davidson for owning the Detroit Pistons sports franchise. He financed the purchase of his beloved Pistons through a personal fortune amassed running the family business of glass manufacturing, Guardian Industries. Forbes estimated his wealth at $3.5 billion when he passed in 2009.

The heart of this tax dispute focuses on tax planning strategies and accounting methods Mr. Davidson employed prior to his death. The sheer magnitude of the financial dispute is rare, but the techniques his estate used are not uncommon when managing wealth. The IRS’ laundry list of complaints include:

  • Transfers of wealth to family.  

Lawyers drafted several trusts on behalf of Mr. Davidson, months before his death, for his children and grand-children. Each trust is valued at tens of millions of dollars and are funded by Guardian Industries stock. The IRS claims, however, that accountants undervalued each stock by up to $1,500. Davidson’s lawyers counter that the IRS’ accounting does not consider a free fall in automotive and construction stocks occurring in late 2008 and 2009 when valuing the stocks.

  • Self-Cancelling Installment Loans (SCIN’s).

Mr. Davidson also transferred wealth to his heirs through a series of “self-cancelling installment notes” (SCIN’s). SCIN’s operate like a loan or mortgage. Mr. Davidson gave certain assets (e.g. homes, boats, cars) to his heirs. The heirs, in turn, had to make regular payments on the gifting of these assets. The big difference between typical loans and SCIN’s, however, kicked in when Mr. Davidson died. The debt his heirs owed owed on the gifted assets evaporated and they owned the assets free and clear. The IRS claims the payments on these SCIN’s should have been higher. These low payments, therefore, qualify the assets as “taxable gifts.” Morbidly, the IRS’ assertion that the payments were too low is because it believes a 5 year life expectancy for Mr. Davidson was too long when lawyers drafted the SCIN’s.

  • Transfers of wealth to his spouse.

Not to be left out of the fun, the IRS argues that Mr. Davidson made taxable gifts to his wife for tens of millions of dollars. His wife also used money from his fortune to build a home for her daughter and son-in-law. The IRS claims lawyers left these figures out when settling his estate.

The IRS ended up calculating Mr. Davidson’s taxable estate and gifts to be worth $4.6 billion. It arrived at the $2.8 billion tax deficiency by figuring $1.9 in estate tax and penalties, as well $900 million in other taxable gifts and back taxes. Outside groups, however, say the IRS is double-counting to come up with a $2.8 billion figure. This is likely true because the IRS cannot later add amounts it did not initially include in its deficiency notice. It would not be surprising to see a settlement or judgment that results in a figure far below the IRS’ stated deficiency.

Ari Good, JD LLM, a tax, aviation and entertainment lawyer, is the Shareholder of Good Attorneys At Law, P.A. He graduated from the DePaul University College of Law in 1997 and received his LL.M. in Taxation from the University of Florida.

Contact us toll free at (877) 771-1131 or by email to info@goodattorneysatlaw.com.

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10 Tax Issues and Deductions in Producing your Own Sound Recordings

Posted by Ari Good, JD LLM on

Tax Issues and Decutions for the Production of Sound Recordings

 

Planning your taxes when recording music (sound recording) is likely not a priority. It is, however, a good idea. Musicians are increasingly recording their own music and money is often an issue. With that in mind, here are 10 tax issues and deductible expenses you should know when recording your own music. (These tax issues and deductions may also apply to other creative endeavors like film-making)

1. Costs for producing “sound recordings” typically must be written off over a period of years (“Capitalized”).

The IRS mandates that costs associated with the creation and production of sound recordings are written off over a period of years. This means that you cannot deduct the entire amount of a sound mixer, for example, in the year you buy it. Rather, that cost must be spread out over a number of years. The production of sound recordings, motion picture films, and video tapes are specific examples of “tangible personal property” that cannot be deducted entirely in the year of purchase or cost.

The exact method of accounting for these costs is extraordinarily complex and is best left to a tax professional when filing your taxes. The following, however, are prime examples of purchases and costs you should keep track so that your tax professional can maximize your tax savings.

2. Home Studio/Office Expenses

Tax write off for your home studio and sound recordings
Tax Write Off for your Home Studio and sound recordings

You obviously need a location for where the recording will occur. This is where expenses for a home studio or off-site studio come into play. Whether you’re stocking and preparing the home studio for a great musical environment, or renting a studio outside the home, these costs are part of the expense in producing a sound recording. If it’s from home, you may also be able to write off part of housing expenses like rent, internet, and electricity.

3. Equipment Expenses

Need to buy a laptop to create your masterpiece? This is an equipment expense for the production of sound recording. Other examples include speakers, sound systems, printers, audio systems, amplifiers, recorders. If it’s necessary for creation of the sound recording, make sure to keep track of it.

4. Software/Program Expenses

There are may pricey music programs out there make it easier to produce music (or just are simply necessary). Don’t forget to keep track of your purchase of these programs and software.

5. Instrument Expenses

This can include common examples like guitars, drums, and keyboards that put the sound in your sound recording. It can also include associated musical supplies, like picks, drum sticks, strings, as well costs in repairing and upkeep of the instruments.

6. Promotional Expenses

This is one of the categories of expenses normally associated with music production that it’s possible to deduct in the same year. The costs with connecting an audience to your sound recording fall into the realm and can include: business cards, professional photos, CD’s, DVD’s, videos, website development and hosting, or advertisement.

7. Educational Expenses

Educational expenses cover things like: voice training, purchase of musical arrangements, music downloads and CD’s, musical publications, sheet music, or other types of coaching and lessons

8. Travel Expenses

Need to travel as part of your music production? Don’t forget to keep track of those costs and and expenses

9. Professional Expenses

Legal and accounting services may be an afterthought for smaller scale music production. It also may be necessary if you want to reap the financial and artistic rewards from your creations. Other professional expenses can include costs to be part of a musical association or trade group, as well as licensing and copyright services.

10. Labor Expenses

If you need others to help you in your creation (and not good friends working for free), the cost of this “labor” is a tax write off. Just make sure that you keep records of your payments. These labor costs cover not only the technical aspects of the sound recording production, but musicians and singers.

Ari Good, JD LLM, is an experienced Miami entertainment lawyer and aspiring musician himself who represents DJs, live musicians, fashion models, and other entertainers in copyright, licensing, and contract matters. For a free and confidential consultation to discuss your legal rights, contact Ari of Good Attorneys at Law, P.A., in Miami-Dade County at (239) 216-4106 or toll free at (877) 771-1131 or by email to info@goodattorneysatlaw.com. Visit goodattorneysatlaw.com for more information. 

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The Obamacare Tax Credit

Posted by Ari Good, JD LLM on
Obamacare tax credit for small businesses
Employers providing health care coverage to employees get credit

The Obamacare Tax Credit – The Patient Protection and Affordable Care Act (“Obamacare”) permits certain small businesses to claim a tax credit for providing health insurance to their employees.  While there are many different options for claiming the Obamacare tax credit, the following is broad breakdown.  The maximum credit is 35% (25% for charities) of the total cost paid to employee covered health care premiums and expands to 50% (35% for charities) in 2014.  Small businesses may also still claim a deduction for premium expenses paid beyond the allowable tax credit.  This tax credit is transferable between tax years and can even create a refund when no federal taxes are owed. To qualify, a small business: (1) must cover at least 50% of the cost of single (not family) health care coverage for all of its employees; (2) cannot have more than 25 full time employees; (3) and employees must have an average wage of less than $50,000.  A business’ tax credit will vary, but generally, the smaller your business, the larger the tax credit.  An amended tax return can even capture health care tax credit unclaimed in prior years. An experienced tax advisor can assist you in maximizing your tax savings, not just this tax year, but for past and future years.  Contact us.

Federal Excise Tax Audits: How smart decisions can keep you out of trouble

Posted by Ari Good, JD LLM on

The Federal Excise Tax (FET) on commercial flights, by definition, is a tax on “amounts paid for transportation by air of persons” under IRC Sec. 4261. This generally refers to transportation by air that begins and ends in the United States. Traditionally non-transportation services such as charges for meals, hotel accommodations and so forth have not been subject to FET, nor have aircraft management services that do not relate to particular flights.

Federal excise tax audits haven’t always been a bone of contention for smaller private aviation companies. More recently, however, management companies, brokers and owners have growing concerns that they may be next on the list to be audited.

The FET has been an easy way for the IRS to target these companies for audit based on the somewhat loose definition of what makes an “amount paid for transportation”. Many private aviation companies charge one fee that includes both transportation and non-transportation components. The operator may subtract the amount received for non-transportation services, and pay the government its 7.5% on the “true” transportation amount, fine. A one size fits all invoice however, while customer friendly, can create a headache. A best practice is to break out the charges for transportation and non-transportation charges for everyone to see. Why make your life hard and the auditor’s job easy?

And what of charter brokers? Upon audit the IRS could view a charter broker as assuming the burden of making sure the FET is paid, despite the fact that he isn’t responsible for the operator’s taxes. The broker could be fingered as a responsible party having touched the taxable amounts. One suggestion: include language in your brokerage agreement that clearly specifies that it is the operator who collects and is responsible for paying “any and all applicable taxes”.

Further, even if you collect a lump sum from you customer, make this separation before sending it along to the operator. You might even consider making two separate payments to the operator based on what THEY consider their taxable or non-taxable services. Be ready to present a detailed account of what you collected, for what, from whom, and who is required to calculate and remit the tax. To a numbers guy numbers speak louder than words.

Contact us today for a brief consultation to make sure your tax records are in line both you’re your business practices and the best practices when it comes to FET. With these matters squared away, and the threat of audit diminished, you can focus your energies where they belong: your business.

Florida extends aircraft maintenance tax exemptions

Posted by Ari Good, JD LLM on

Florida legislators wisely passed a law that expanded the pre-existing tax exemption for aircraft maintenance costs, including equipment used in repairs. This is great news for general aviation aircraft owners and business aircraft operators. The law was initially passed by the Florida House of Representatives in February 2012, and has been in effect since July 2012.

Under the old Florida law, the maintenance tax exemption was applicable to aircraft weighing more than 15,000 pounds (rotary aircraft weighing over 10,000 pounds). This meant that most light-weight, corporate, and private aircraft were subject to in-state maintenance and repair tax, and small aircraft owners took their business elsewhere accordingly. The new law reduces the weight limit to 2,000 pounds, considerably broadening the types of aircraft that fit in under the state tax exemption.

This revision is a home run for the Florida general aviation community in a sluggish economy. With this new tax exemption there are rising hopes that Florida can return to its leadership role in attracting general aviation contractors and related small businesses. Florida is now one of 32 states to have passed significant aviation-based tax exemptions in the last few years. Both lawmakers, and local business leaders, expect an immediate boost in employment, maintenance traffic, and production.

Rep. Stephen L. Precourt, chairman of the Finance and Tax Committee, introduced the new tax exemption law as a bill, and moved it directly to the House late last year. However, the bill was initially created based on provisions provided by two separate bills, introduced by House Rep. Steve Crisafulli, and Senator Mike Bennett. Their goal was to expand sales, use tax, and maintenance tax exemptions to encourage economic growth in the industry. The new tax exemption bill, formally known as HB7087, was heavily supported by local organizations such as the Florida Aviation Trade Association (FATA), the Florida Airports Council (FAC), and the Aircraft Owners and Pilots Association (AOPA).