How a Government Shutdown Will Affect the Economy

Posted on October 1, 2013 by Kursti Nakagawa

How will the Government Shutdown Affect the Economy?

The major news headlines everywhere are focused on the government shutdown. The government shutdown is the result of the recent vote by House of Representatives opposing funding for Obamacare (Obama’s healthcare law) as part of a bill to pay for government operations after the close of the fiscal year on September 30th. Questions remain as to how this government shutdown will affect the economy.

When the government shuts down, it is estimated that about 800,000 federal employees will be out of work. Obviously the workers’ lost wages are a problem, but these lost wages will also bleed into other related areas. In particular, some businesses will be forced to reduce or even suspend their services until the shutdown is over. This will lead to cut back in spending for everyone involved in the cycle. Depending on the amount of time the government is shut down, this reduction in spending could have huge implications for the economy. Another important factor to keep in mind is the uncertainty factor related to just the mere threat of a potential government shutdown. The financial markets generally react negatively to business uncertainty so there is the potential for unknown damage in this area.

If the government is shut down for even a relatively brief period of time such as a few days it could have a significant impact on the nation’s economy. One analyst estimated that a month’s shutdown could cost the economy about $55 million. Due to the government shutdown, the Small Business Administration has suspended operations, which means that no loans will be processed. Even tourism and air travel will be threatened since travelers will not be issued visas due to the temporary closing of government offices. In short, many businesses and sectors will be touched by the temporary suspension of government services.

A shutdown for any length of time will significantly cut the growth of the US economy. Most importantly, the temporary suspension of government services will result in a dip in the gross domestic product. Some analysts believe that the short term closure of certain government offices could cut the fourth-quarter economic growth by as much as 1.4 percentage points. While the effects of a government shutdown will be just an inconvenience for some, they will affect others more harshly. Some analysts believe that the long term effects could be hazardous to the economy, even to the point of causing a recession.

If you have tax questions or a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law together with the experience to know which settlement option will be the best fit for your specific set of circumstances

Beanie Babies Creator Admits Tax Evasion

Posted on September 26, 2013 by Kursti Nakagawa

Beanie Babies Creator Admits to Tax Evasion

The creator of Beanie Babies, Ty Warner, has been accused of tax evasion due to the non-reporting of income earned on funds held in a secret Swiss bank account. Mr. Warner failed to report $3.2 million in income on an account which held as much as $93.6 million in assets. He will be assessed over $50 million in penalties for his oversight.

U.S. attorney Gay Shapiro said that Warner, 69, will plead guilty in federal court to dishonestly recording his 2002 income as $49.1 million, overlooking money he made on his UBS account. His plea will take place on October 2^nd. Once his plea is entered, he will be required to pay a civil penalty of $53.6 million for failing to file the required Report of Foreign Bank and Financial Accounts.

In 1996, Warner opened a secret account at UBS. Then, in December of 2002, he transferred $93.6 million to an alternate secret Swiss account. He was able to cover his involvement with this account by holding it under an entity called the Molani Foundation. However, because he failed to report his UBS income of $3.2 million to his outside accountants, the tax return he filed for 2002 was false.

In 2009, Warner tried to avoid prosecution for tax evasion through an amnesty program set up by the Internal Revenue Service known as the Offshore Voluntary Disclosure Program. However, he was denied entry.

Warner founded Ty Incorporated in 1985. The company took off after he created Beanie Baby toys in the 1990’s. Despite the current proceedings, Ty Incorporated is now a $4.5 billion business and Warner has donated almost $140 million in cash to charities and other organizations. Mr. Warner also owns the Four Seasons Hotel in New York, the San Ysidro Ranch in Santa Barbara, and the Las Ventanas al Paraiso in Los Cabos, Mexico.

If you have questions about FBAR reporting, the Offshore Voluntary Disclosure Program or other issues concerning the taxation of foreign income, our tax settlement professionals are happy to answer them free of charge. Visit us today at www.professionaltaxresolution.com or call us at 877.889.6527 for more information about our full range of tax settlement services. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law as it applies to the reporting and taxation of both foreign and domestic income.

Tax Relief: Will Mickelson Stay in CA after British Open Tax Bill?

Posted on September 11, 2013 by Kursti Nakagawa

Is Phil Mickelson's California Tax Bill Too Much?

Phil Mickelson Wins British Open—And California Taxes It

Tax relief is what Phil Mickelson needs after his CA tax bill from the British Open. According to Sports Illustrated, Phil Mickelson made $36 million last year from his sponsors. Companies such as KPMG, Barclays, and Callaway endorse Mickelson. His recent win in the British Open escalates his endorsement and marketing appeal, which will mean even more revenue in the future. However, with more revenue, there will be more taxes.

Although Mickelson currently resides in a high-tax California home, he has become a poster-child for selecting residency based on tax law. Mickelson found himself in the news after he announced that his taxes were high and that he would have to look at all available options. He even withdrew his offer to purchase the San Diego Padres, announcing that high tax rates were the motivating factor for this decision.

“There are going to be some drastic changes for me because I happen to be in that zone that has been targeted both federally and by the state and it doesn’t work for me right now,” Mickelson made this statement after his T37 finish at the Humana Challenge in Palm Springs. Although his tax comments were disciplined by any standard, they still triggered an outcry. He apologized, but even that the apology created a strong reaction from observers who liked the fact that he cited high taxes.

Most states and countries tax entertainers and athletes when they perform or play within their confines. Foreign entertainers and athletes must file U.S. income tax returns and face distinctive withholding rules. Such income usually includes endorsements, merchandise sales, pay for performances, royalties and other income associated with the event. However, as a California resident, California gets a portion of it all.

Tiger Woods has said that California’s high taxes were one of the reasons he moved to Florida in the 1990’s. Since that time, the state’s tax rates have increased even more. California’s Prop 30 which was passed in November of 2012 increased state tax rates for those earning $250,000 to $300,000 a year from 9.3% to 10.3%. For those earning over $1 million, the rate is 13.3%, up from a prior top rate of 10.3%. In comparison, the combined state and local top rate in New York is 12.7%.

One survey shows that jobs, housing costs, family ties and climate are usually more important than tax rates in determining where people choose to reside. Apparently even wealthy taxpayers normally don’t move for tax reasons. However, this may not hold true for a professional athlete who is not tied to a particular team. If Phil Mickelson decides to move, he will not be the only one running from high taxes. Should he stay in California, his tax will probably increase even more. This could make a move to Texas or Florida very appealing.

Tax Breaks: Same-Sex Marriages will Receive Equality Across the Entire Nation

Posted on September 4, 2013 by Kursti Nakagawa

Tax Breaks for Same Sex Marriages Across the Nation

A new ruling has declared tax breaks for same sex marriages since they will now receive equality across the entire nation.The Defense of Marriage Act (DOMA), enacted by Bill Clinton in 1996, was terminated this summer. This act, which allowed same-sex couples to receive the same tax benefits as heterosexual couples, was recently repealed by a 5-4 majority vote of the Supreme Court. While this vote may demonstrate a shift in the opinion of the American people, it also provides certain fiscal advantages for gay couples. Previously, only states that recognized gay marriage allowed same-sex couples to file federal tax returns as married couples. Now, however, gay partners are permitted by law to file federal returns as married couples in any state regardless of whether that state recognizes same-sex marriage.

The repealing of the Defense of Marriage Act raises questions as to how states will treat same-sex marriage. While some states may not acknowledge these unions, they are now forced to give gay couples the same federal tax benefits as straight couples. Same-sex couples are now able to file their federal returns, either jointly or separately, as married couples and are therefore entitled to the same tax benefits. However, if their state of residence does not recognize gay marriage, then the couple will be unable to file their state return as a married couple. Currently, only Washington D.C. and 13 states recognize gay marriage.

These new tax advantages extend beyond this year’s return. Same-sex couples can go all the way back to the year 2010 to receive their new-found benefits. To file one of these refund claims, taxpayers are instructed to use Form 1040. In addition the tax benefits already described, gay couples no longer have to pay federal income tax on the health insurance benefits received by one spouse when that spouse is claimed as a dependent on their partner’s plan.

Besides the obvious tax savings that are now available to gay couples, there are other small bonuses that come with the IRS acknowledgement of same-sex couples. Such couples can now transfer unlimited funds between one another whereas the allowable amount was previously restricted. In addition, they can now “gift split” which means that each spouse can gift up to $14,000 to a particular recipient for a total of $28,000. Lastly, gay couples are able to make use of “portability.” This enables widows and widowers to add their spouse’s unused estate tax exclusion to their exclusion. However, in order to use the “portability” benefit, estate tax returns must be filed within nine months of a decedent’s death.

Small Businesses May Owe Back Taxes In California

Posted on August 26, 2013 by Kursti Nakagawa

Small Business Owners May Owe Back Taxes In California

A court ruling from December of 2012 could result in many small business investors in California owing large sums of money in back taxes from a practice now deemed unconstitutional. Five years ago many small business investors in California were promised a tax break. The investors were told that if they invested in specific types of businesses, they would receive a large tax deduction. Now these same investors are being told that they could receive tax bills that for up to $250,000 for deductions that were granted under tax laws that were on the books at the time the investments were made.

Of course there is an enormous uproar and battle over this ruling! Senator Ted Lieu (a Redondo Beach Democrat) said, “When we make a promise, we have to uphold it.” He went on to say that these people relied on the law the way it was written, which was they would receive a tax break if they invested in certain types of businesses. Unfortunately, now the Franchise Tax Board feels that they are due the money that was previously granted in tax deductions. Senator Lieu is in favor of passing a bill that will defend these small business investors.

Some feel that this new court ruling is potentially very damaging to small businesses. Ken DeVore, with the Federation of Independent Businesses, believes that people will naturally become skeptical of government if they comply with existing laws only to be penalized down the road. If this new ruling is upheld, it is calculated that 2,000 small business investors will have to pay back taxes totaling more than $120 million. The saving grace will be if Senator Lieu’s bill passes. As of this date, the Franchise Tax Board has had no comment on the matter.