Tax

What Can NFL Players Deduct on Their Taxes?

Football season just kicked off and fans are keenly aware that the players out there are raking in more money in one season than most people will make in a lifetime. New Orleans Saints quarterback, Drew Brees for instance, is averaging $20 million a year. Most team members don’t make anywhere near that, but rest assured they are well paid.

Big Bucks Big Taxes

NFL players also have enormous out-of-pocket expenses. Naturally they can write off all the usual items as long as they qualify. But what else can they deduct?

  • Agent fees, which are generally a percentage of a player’s income. These max out at 3% but for other income such as endorsements the fees are higher.
  • Ground transportation costs (taxis, parking fees, and tolls) related to away-games, training, meeting with agents, scouts, trainers, etc.
  • Fines for acts which do not violate public law.

“I am often asked if player fines are deductible,” said CPA Robert A. Raiola. “For example a fine for speeding is not deductible but a fine for being late to practice is deductible because it violates team policy, but not public law.” Many people believe fines are deductible because some leagues, including the NFL, donate this money to charity. “That’s a common misconception. Whether the fines are donated or not, they are deductible to the athletes,” said Raiola. Raiola is head of the Sports & Entertainment Group for the New Jersey-based accounting firm of Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC.

Additional expenses include:

  • Athletic equipment related to his sport. Also deductible are training classes and general workout equipment classes which are part of his overall athletic development.
  • Therapeutic massages may be deductible.
  • Reasonable costs of chiropractic care and body maintenance fees, during the season.
  • Temporary housing, for a definite time period, such as for rehab after an injury.
  • Rookie expenses.

Rookies are generally expected to take the team or a position group out for meals at times. It’s considered a normal business expense in the NFL, and generally it is deductible, subject to the standard 50% meals and entertainment limit.

The Lesson?

The deductions are out there, but it takes the expertise of a trained professional to get the best tax results. That’s true for anyone who receives a large sum of money from any source, such as a lottery win, a legal settlement, an inheritance, life insurance, a gift. You’ve heard the stories of people who were suddenly rich, rolling in money. A few years later they are flatbroke, bankrupt, in tax debt, and with no idea how it happened.

The problem was, they had money coming out their ears, but what they didn’t have was the financial sophistication to handle the money well, guard their assets, and minimize the tax bill. For anyone who gets a large sum of money from any source, the first dollar spent should be to get a good financial professional on your side. It’ll be worth the cost.

Photo: Matt McGee

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Rashia Wilson, Queen of Tax Fraud

The Tampa Federal court has sentenced self-proclaimed “First Lady” and “Queen of Tax Fraud” Rashia Wilson to a 21-year prison sentence for multiple criminal charges. Charged with aggravated identity theft, wire fraud and a felon for possessing a firearm, she pled guilty to all charges. Her most egregious crime is stealing north of $3 million from the Internal Revenue Service (IRS) through fake tax returns. Authorities claim she actually stole $20 million. Along with her prison sentence, the court ordered her to remit $2.2 million of the traced proceeds connected with the criminal charges.

Wilson, 27, grew up with little money and a diagnosed bi-polar disorder. Her father was in prison during her childhood and her mother a reported drug addict. But recent reports have her enjoying a very comfortable lifestyle from her tax refund schemes. Spending more than $30,000 for her daughter’s birthday party with carnival games, she also reportedly bought an Audi vehicle for $90,000. This is in addition to a list of other cars and designer clothing, vacations, and jewelry.

Based on court documents, Wilson testified that she and an alleged accomplice, Maurice J. Larry, used bogus identifications and hijacked social security numbers to collect misrepresented tax returns from April 2009 to September 2012.  The two worked together out of Wilson’s home, Tampa hotels and other workspaces. Reports have her system performed so efficiently that taxpayers with legitimate claims had to wait up to 12 months.

Courts documents detail how she and the alleged co-conspirator Larry ran their scheme. Tax returns were submitted to the IRS in other taxpayer’s name without their approval or understanding. Upon acceptance, Wilson obtained prepaid debit cards and refund checks for the refunds for the fraudulent tax filings. Searches of Wilson’s home and Larry’s storage unit discovered countless medical bills among the list of thousands of Social Security numbers and names. The home also contained jewelry, a firearm and luxury goods.

After noticing a lull in drug dealing in Wilson’s area, Tampa authorities, the United States Postal Inspection Service, and other federal officials launched “Operation Rain Maker” to look into the increase in the amount of money reaching her mailbox.

According to her Facebook page, she said was “untouchable.” Comments on her Facebook page included, “I’m Rashia,” proclaiming that she is, “the queen of IRS tax fraud.” She eluded to her financial status, “I’m a millionaire for the record,” alluding to how she felt about the government coming after her, “so if U think indicting me will B easy it wont.”

The Queen of Tax Fraud was wrong. As Assistant Inspector in Charge Barney Morris stated, “The culmination of the Rashia Wilson investigation reflects what can happen when local, state and federal law enforcement agencies work collaboratively to combat these types of crimes.”

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8 Tips to Lower Your Taxes During Retirement

This post originally appeared on The Fiscal Times.

When you leave the workforce and give up a paycheck, life seems grand – endless free time, no more alarm clocks, and lower tax rates – or so it seems at first. Even if you’re raking in over a million dollars in retirement savings a year, you won’t have to pay Social Security and Medicare taxes, and some states don’t tax such income either.

But those tax savings won’t get you very far.  As you start drawing Social Security checks and supplement them with tax-deferred retirement plan withdrawals and investment income, your taxable income can go up sharply. What really matters is not how much you have in retirement accounts, but what you’re left with after taxes.

Planning your income in retirement – and reducing your overall tax bill – is critical to making your money last. Here are eight ways to manage your tax bite after you leave the workforce.

1. Strategically withdraw from your IRA. 

Rules on tax-deferred retirement plans like IRAs, 401(k)s, and 403(b)s allow you to take distributions starting at age 59.5, and you must start withdrawing the required minimum by age 70.5 or face stiff penalty fees. It’s usually better to pull money out when your taxable income for the year will be lower, especially when the total stays under the 25-percent tax bracket (which starts at $36,250 for singles and $72,500 for married filing jointly in 2013), says William Reichenstein, investment management chair at Baylor University.

Being strategic means you’ll pay the 10- or 15-percent rate on those withdrawals. You might take out tax-deferred money, for example, in a year when you have a lot of deductions – when you’re paying high medical expenses, for example, or are making a large charitable contribution, which would significantly reduce your taxable income. For example, you might have one year when your income from a pension is $40,000, but you have medical expenses of $20,000; this would be an excellent time to withdraw from an IRA. If you know you’ll exceed $36,250 (or $72,500 for married couples), it’s best to stay under the next tax bracket. Find the 2013 tax bracket rates here.

2. Pay estimated taxes on your Social Security benefits.

Social Security income is taxable, depending on the amount of your “combined income,” which the government defines as your adjusted gross income, plus any non-taxable interest (interest earned on tax-free municipal bonds, for example), plus 50 percent of your Social Security benefits. For an individual, if your combined income is between $25,000 and $34,000, you’ll pay normal income tax rates on up to 50 percent of your benefits; if it’s more than $34,000, you’ll pay tax on up to 85 percent. Mark Steber, chief tax officer at Jackson Hewitt Tax Service, says you can request that the Social Security Administration withhold those taxes from your checks, but it’s better to make estimated payments yourself because it’s common for combined income to fluctuate a lot, and the amount withheld would likely be too high or low.

3. Consider delaying your Social Security checks.

One benefit of waiting to collect Social Security until you’re older is that your checks will be larger. Though you can start collecting any time between the ages of 62 and 70, for every year you wait, your check will grow by roughly 6.25 percent, says Philadelphia-area financial planner Daniel White of Daniel White & Associates. But taxes also play into it.

In a paper last April for the Journal of Financial Planning, Baylor’s Reichenstein and a coauthor tested the effects of starting Social Security at different ages. They found that someone who retired in 2011 at age 62 with $700,000 in savings and started taking monthly Social Security checks of $1,125 that year would exhaust their portfolio in 30 years at a given spending level. But if they used their own assets to fund their early retirement and started taking their now-much-larger checks of $1,980 at age 70, their portfolio would last at least 40 years at that same spending level. This is in part because only 50 percent of your Social Security benefits count toward the combined-income threshold. Of course, all decisions like this are a gamble — if you die young, it would have been better to start taking Social Security earlier. However, if you have a surviving spouse, he or she would receive all or part of your benefit, depending on their age.

4. Give your children appreciated assets instead of cash.

If you’re planning to give money to the children or grandchildren, one way to do so while getting a tax benefit is instead of cash, give them a stock that’s grown since you bought it, says White. Of course, your family member will pay the capital gains tax when they sell the asset, so for both of you to benefit, the recipient should be in a lower tax bracket than you are – which is likely if you’re helping them out.

5. Convert your IRA to a Roth IRA. 

If you can afford to pay the taxes, start converting your IRA to a Roth IRA, says Matthew Curfman, certified financial planner at Richmond Brothers in Jackson, Michigan. Growing your money in a Roth and then being able to withdraw it tax free will protect you against future tax increases. Also, since there’s no mandatory withdrawal on a Roth, it makes an excellent long-term contingency fund – and any withdrawals don’t count in the combined-income formula used to tax Social Security benefits, notes David Littell, co-director of the American College of Financial Services’ Center for Retirement Income.

6. Make charitable contributions from your IRA. 

The New Year’s Day fiscal cliff deal resuscitated an expired provision for 2013 that allows people age 70.5 or older to donate up to $100,000 from their IRA to a qualified charity, without having to pay taxes on the transfer. That donation can help satisfy your required minimal distribution. You can’t beat that provision, Curfman says. If you donate $20,000 from your IRA to the charity, the nonprofit gets all of it. But if you withdraw $20,000 out of your IRA and then donate the cash, the IRS taxes it before you make the donation – so if the tax was $3,000, the charity gets only $17,000.

7. Raise the cost basis of your investments when your income is lower.

Low-income years in retirement are a great time to sell a stock that has appreciated and reinvest the gain in stock of a similar class, says Reichenstein. That’s because, under the fiscal cliff deal, the long-term capital gains rate is zero (yes, zero) on people whose income puts them in the 15-percent bracket or lower (up to $36,250 for a single filer and $72,500 for married filing jointly).

In years when you’re in one of those brackets, you can sell a stock you bought originally at $40,000 that’s now worth $50,000 and buy another stock worth $50,000. You’ve raised the cost basis of the stock by $10,000, reducing the taxes you’ll pay if you have to sell it in a year when you’re in the 25-percent or higher bracket. Use caution though, says Reichenstein: Make sure that $10,000 in gain doesn’t push your income for the year high enough that it would cause your combined income to rise to the point that your Social Security benefits are taxed at a higher rate.

8. Move to a tax-friendly state.

If you’re moving for retirement, consider taxes as part of your decision, says Diana Webb, assistant professor of finance at Northwood University. A report last September from Kiplinger identified Alaska, Nevada, and Wyoming as the three states with the most retirement-friendly tax laws. The worst include Ohio, California and New York.

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How to Protect Yourself From Tax Relief Scams

Don’t fall victim to tax relief scams. Learn how to spot a scam and what to do. Thousands of people fall victim to tax relief scams every year – make sure it’s not you.

Unfortunately, the Tax Relief Industry attracts circling vultures waiting to prey on those who are weakened by the threat of IRS action. You’ve probably seen the ads. You’ve heard the commercials. “Settle your tax debt for pennies on the dollar,” they claim. “We are the country’s largest tax resolution firm,” they explain. “We are a publicly traded corporation,” they proclaim. Well Enron was a very large publicly traded company as well, and they weren’t exactly trustworthy, were they? Some of these same firms have been sued by Attorney Generals for consumer fraud and theft. Others have over 1,000 complaints with the Better Business Bureau (BBB) for their tax resolution scams.

Arm yourself with the tools necessary to defend against fraudulent companies and their self-serving actions. Start by informing yourself about some of the most common tax relief scams below and learn how to protect yourself.

Top Tax Relief Scams

Tax Relief Scam #1 – Non-Refundable Upfront Payments Without Any Guarantees

The most common tax relief scam performed by these companies is to charge money upfront while promising to get results that they know are unpredictable, if not impossible, to achieve. The company may ask you to commit a very large sum of money upfront before an investigation is conducted or before the IRS side of the story is pulled (through the Master Transcript). These are the companies that are the sour apples in the industry because they are focused more on driving upfront revenue than actually helping their clients.

Tax Relief Scam #2 – Misrepresenting Potential Outcomes

Another common scam comes from aggressive salespeople who try to reel in clients by dangling anecdotal stories of ‘pennies on the dollar’ Offer in Compromise tax settlements. The reality is that very few taxpayers qualify for an Offer in Compromise (about 25% to 33% of applicants).

But the scam companies out there won’t tell you that. They may string you along and make you think you are being taken care of only to discover that, when all is said and done, you did not qualify for the Offer in Compromise. At which point the tax settlement scam company will conveniently assert that it was because the IRS did not approve it, and it was not their (the company’s) fault.

There are multiple factors the IRS considers in an Offer in Compromise application such as the taxpayer’s ability to pay, income, expenses, and asset equity. The truth is that most taxpayers don’t qualify.

When you are dealing with a new tax resolution company, ask yourself, does the company make a thorough assessment of the factors above? Do they emphasize the importance of these qualifications? Do they make it clear that an Offer in Compromise is difficult to obtain? If the answer to any of these questions is no, you may be dealing with a company who does not have your best interests in mind.

Tax Relief Scam #3 – Marketing Companies Posing as Service Providers

There are a lot of companies that advertise tax relief services but do nothing more than sell the customer’s information to other service providers.

A consumer is led to believe they are working directly with the company that’s doing the marketing, but in actuality their information will be sold to other service providers or outsourced independent contractors. The companies doing the marketing have no control over the quality of the product or the service levels given. In the worst cases, they sign up a consumer, with no intention of servicing the client whatsoever.

Information to protect against data brokers are:
  • Social Security number
  • First & Last Name
  • Date of Birth
  • Prior Year Annual Gross Income (AGI)
  • Driver’s License Number
  • Current City, Address, Territory, and Zip code
  • Electronic Filing PIN

Tax Relief Scam #4 – The Outright Fraudsters

Unfortunately, there are some firms who have outright cheated and stolen from their clients. These are the firms that are being targeted and shut down by the Attorney Generals and who have tarnished the industry.  In these cases, the unscrupulous companies will enroll many clients into a program and collect their money without providing adequate services. Some don’t even send the necessary paperwork to the IRS.

As soon as there are too many complaints or upset consumers, the company will simply change their name and start preying on consumers all over again. Adding insult to injury, many of these companies don’t provide refunds and leave people even further in debt.

Tax Relief Scam Companies Charged for Fraud in Recent Years

Tax Master’s

TaxMasters-Tax Relief ScamsOn March 30, 2012, Tax Master’s was ordered along with its founder, Patrick Cox, to pay $195 million on charges that it defrauded customers nationwide. A few weeks prior, the tax relief firm filed for bankruptcy “in an apparent effort to avoid the state’s enforcement action,” explained the Texas Attorney general.

Tax Master’s unlawfully misled customers about their service contract terms, failed to disclose its no-refunds policy, and falsely claimed that the firm’s employees would immediately begin work on a case – despite the fact that Tax Master’s did not actually start to work on a case until its customers paid in full for services, even if that delayed response meant taxpayers missed significant IRS deadlines.

Roni “Tax Lady” Deutch

ronideuch Tax Relief Scams

In August 2010, former tax attorney Roni Deutch was hit with a $34 million lawsuit for allegedly defrauding thousands of customers seeking tax advice. Then California Attorney General Jerry Brown (now Governor of California) accused her of airing misleading advertisements about her services and engaging in heavy-handed sales techniques to pressure clients. Included in the allegations were charges that Deutch’s firm not only did not provide the services promised to clients but that she refused to refund fees.

An order was issued in August of 2011 prohibiting Deutch from destroying any evidence related to the case. According to the current attorney general of California, Kamala D. Harris, however, Deutch began shredding documents immediately. The attorney general’s office alleges in its complaint that Deutch shredded nearly 2,000 pounds of the firm’s documents, or about 200,000 pages the day after the order was issued.

J.K. Harris

jkharris Tax Relief ScamsThe company has been sued by a number of U.S. Attorneys General after receiving numerous consumer complaints settlement of a class-action lawsuit that had been brought against JK Harris by the Attorneys General of 18 states, including the AG of South Carolina, home to JK Harris’ headquarters.about misleading business and advertising practices. In July 2007 a South Carolina judge approved a $6 million settlement of a class-action lawsuit that had been brought against JK Harris by the Attorneys General of 18 states, including the AG of South Carolina, home to JK Harris’ headquarters.

The suit claimed that JK Harris & Company was charging customers fees for resolving back tax debts, but then failed to deliver on their promises, and engaged in deceptive marketing and advertising practices, such as promoting that their regional offices were staffed by tax experts when they were often only sales representatives.

American Tax Relief

tax relief scamThe FTC filed charges against American Tax Relief in September 2010. The defendants allegedly defrauded consumers out of a whopping $100 million during a short period of time in business! A summary judgement in favor of the FTC found that American Tax Relief falsely claimed they already had significantly reduced the tax debts of thousands of people and falsely told individual consumers they qualified for tax resolution programs that would significantly reduce their tax debts.

In February 2013, the defendants were found personally liable and settled  the matter under an agreement with the Federal Trade Commission. The settlement order imposes a $103.3 million judgment against ATR, Hahn, and Joo HyunPark.  It also imposes judgments of $18 million and $595,000, respectively, against Young Soon Park and Il Kon Park, Joo Park’s parents, who were found by the court to have received significant sums from the scheme’s earnings. The judgments will be suspended once the defendants and relief defendants have surrendered assets that total more than $15 million, including cash, a home in Beverly Hills and a condo in Los Angeles, jewelry and gold items and a 2005 Ferrari.

How to Protect Yourself

Do Your Research

Thankfully we now live in a world with Google and it’s very easy to find out if a firm is one of the good guys or bad guys.  To find out if the firm you are dealing with is trustworthy just look them up through the Better Business Bureau (BBB) or other similar sites. Below are some of the best places to do your research.

1)      Better Business Bureau (BBB) – www.bbb.org/us/Find-Business-Reviews

2)      Rip Off Report – www.ripoffreport.com

3)      Complaints.com – www.complaintsboard.com

Ask The Right Questions

Do you require upfront payments for services?

Firms that make you pay for their services upfront should be avoided. These are the most common tax relief scams. The reputable firms in this industry will be paid their fees after they have rendered their services. Some firms will include a nominal “discovery fee” for them to assign a tax professional to your case and do the research necessary to provide their recommended course of action.  This is preferable to working with a firm that assesses all payments due upfront without knowing the specifics of your case.

What is your refund policy?

If you’re still considering working with a firm that is charging for their services upfront, you’ll want to at least work with a firm that has a formal refund policy. If they are not able to deliver what they claim, you’ll be able to get some or all of your money back.

Do you have any guarantees?

Ask them to put their money where their mouth is. A reputable firm will be willing to guarantee their performance.

Do you service your own clients?

Many firms are just marketing affiliates taking a cut for referring clients to larger backend companies. Ideally, you’ll want to work with a company that services their own clients with an in-house team of CPA’s and tax negotiators.

Please don’t fall for any tax relief scams. If you have an issue with the IRS, contact us today to talk to a professional tax relief advisor you can trust.

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