Using a Tax Shelter? IRS Says Beware

People look for many different ways to save on taxes, or even to avoid paying some of the taxes they really do owe. However, despite taxpayers’ best efforts, the IRS is always on the prowl and if you’re using unscrupulous means to avoid paying taxes there is a good chance you will get caught, including employing what the IRS calls “abusive tax shelters and structures.”

According to IRS Commissioner John Koskinen taxpayers should stay away from anyone who promotes or sells phony tax shelters whose only purpose is to avoid paying taxes that are owed. These schemes can end up costing taxpayers much more in penalties, interest and back taxes, said Koskinen.

Koskinen added that these types of schemes “have evolved from simple structuring of abusive domestic and foreign trust arrangements into sophisticated strategies that take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit/debit cards issued from offshore financial institutions.”

If you want to save on taxes legally your best bet is to work with a highly capable accounting and tax firm, like GROCO, which knows how to utilize every legal tax measure available in order to get you the best refund possible. Give us a call or contact us online and make sure you avoid the perils of getting involved with the wrong kind of “tax help.”

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How to Handle Tough Decisions

Everyone has to make decisions in life and many of those decisions can be very difficult to make. The same can be said for businesses. Decision makers in the business world face a lot of tough choices and some of these choices can actually make or break their companies. So how do they make tough decisions? How do CEOs and other top-level executives make those hard choices? There are many different philosophies that decision-makers use and there is no one-size-fits-all answer to making tough decisions. However, when I spoke with David Bradford about how he makes tough decisions he shared one idea with me that he feels makes a huge difference for any decision maker, and in turn, that person’s company.

Timing Does Matter

David, who is the current Chairman of the Board of VIEW – Virtual Immersive Educational Worlds aka FluentWorlds, has also spent time as an Executive, as a CEO and a as Chairman at several other companies, including Novell, Fusion-io and HireVue. When I asked him point blank how he makes tough decisions he told me his philosophy. He said: “It’s better to make a good decision today than an excellent one six months from now.” Dave went on to tell me that he has seen, especially with startup companies, the CEO be “so caught up in doing the ‘right’ thing, in terms of making the right strategic decision that it becomes disabling to the organization.”

Waiting for the Perfect Time Is Wrong

No one wants to make the wrong decision because one catastrophic choice could set a company back for years, or worst-case scenario become the cause of its complete downfall. It’s not uncommon for a decision maker to spend hours stressing over important choices in order to try to determine the best possible decision. However, by waiting too long to make a decision you could end up doing more harm than you would have done by making a good decision sooner, even if it wasn’t the best possible choice. Again, as David told me, making a good decision in the moment is better than waiting six months to make the perfect decision. He then hammered that point home by telling me, “You’ve got to make decisions now.”

Follow the Best Examples

David also said that he has seen CEOs that have great decision making skills and those are the ones that he loves to emulate. For example, he mentioned that he and Scott McNealy, the CEO and co-founder of Sun Microsystems have become good friends over the years. He said that one thing he loves about Scott is that “he is a decisive guy, no mistake about it.” So that is the kind of decision maker that David tries to follow. When it comes to making decisions, no one is perfect. People don’t always make the right choices, but as David explained to me it can be much worse to delay a decision too long and you can actually end up hurting your company more by waiting. Therefore, when you are faced with a difficult choice, be decisive.

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Tell Me Your Value Equation

Every company feels like it has what it takes to make a difference in its customer’s lives. No matter what product or service they offer their clients, all companies feel like they can do it better than anyone else. So what makes one company stick out from another? Is it how much money that company makes for its own bottom line or is how much it helps its customers? When it comes to investing and getting behind a startup company or an entrepreneur, the real question is what is your value equation? That’s according to silicon valley’s legendary entrepreneur Rob Ryan.

What Sets Entrepreneurs Apart?

Rob and I spoke about his experience with helping entrepreneurs, which is his main focus now since retiring from running his company. In 1999, Rob sold Ascend Communications, which helped create and build the entire infrastructure of the Internet, to Lucent Technologies for about $24 billion. To this day, this deal still holds the record as the the biggest merger between technology companies. Rob is now the Chairman and co-founder of Hero Club, which is an organization dedicated to training and developing entrepreneurs. However, Rob told me that one of the main things he looks for when trying to determine the true value of a company is not how much the company itself is worth, but how much value the company brings to its customers.

What Is the Value Equation?

This is what Rob calls the value equation and he says a lot of companies can’t really accurately answer this question. Many companies speak about what they do well and how their product or service is different, but they aren’t really explaining what their value is. For Rob, he’s looking at how much you can really help your customer, not yourself. Rob shared an example with me regarding the question, how much money can you make or save your customer? He said if a company were to answer him that its product or service could help save it’s customer $800,000 a year because it’s capable of the doing the following things…then he knows he has a good one. He said that is a company he is going to explore deeper.

Do You Know Your Value Equation?

Rob said that he has a lot less interest in the companies that can’t really answer that question or that haven’t take the time to determine what their true value equation is. In fact, the answer to that question is so important to Rob that he told me that “the people that have actually taken the time to explore and work with their customers and know where the customer’s pain is and how much that pain is costing them, that would be the one question I would ask if I only had one question to ask.” Therefore, as far as Rob is concerned, if you want to set yourself apart as an entrepreneur or a startup company then you need to know your value equation. That means you need to know what the real value is that you bring to your customers and how to explain what that value is.

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Have You Heard About These New Income Tax Changes?

February is almost over. Can you believe it? That means the annual income tax return deadline is fast approaching.  If you still haven’t done your taxes then there are some important changes you should know about. Hopefully, if you’ve already filed, then you were aware of these changes beforehand. If not, and you think they could impact your return then you could always file an amended return.

In any case, here are some key changes to be aware of. The due date for taxes this year is actually Monday, April 18 in most states, however, for those taxpayers that live in states that celebrate Patriot’s Day the due date falls on Tuesday, April 19. First, for those claiming certain credits, like the child tax credit and the American Opportunity Credit, the IRS now requires a Social Security or tax ID number.

You’ve heard of an IRA, now the U.S. Treasury Department is offering myRA, a free retirement account that allows eligible taxpayers to fund it either through their personal accounts or via payroll deductions. Elsewhere, the Personal Exemption rate has increased to $4,000 for the majority of taxpayers. For those that make more than $258,250 the exemption is not as much.

Another deduction that has gone up from last year is the standard deduction. It has increased $100 for individuals and $200 for married couples filing jointly from 2014, to $6,300 and $12,600 respectively. Meantime, if you use a vehicle for business you can use the mileage used for that business as a deduction. While that is not new, the rate per mile for 2015 was 57.5 cents, up from 56 cents in 2014.

Of course, if you still need help with your tax returns you can contact us at 1-877-CPA-2006 or by clicking here.

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Some of the Most Amazing Tax Deductions Ever

At GROCO, we have been doing this for more than 50 years. That means we’ve heard just about every crazy tax story you can imagine. With tax season now officially in full swing we thought we would share some of the craziest tax deduction stories we’ve ever heard; and they’re all true.

A gas station owner gave away free beer at his gas station. At tax time he put all the expense for the beer on his tax return as a business expense. He told the IRS he was trying to entice new customers to pull in and fill up, which was actually a way to promote his business. The IRS agreed.

A couple managing some rental properties decided that they didn’t have enough time to drive around a mountain pass to visit all their homes. The couple decided to buy a private jet instead, so they could see their homes much quicker. They said it should be allowed as a deduction because it saved them so much time. The IRS agreed with them and said it should be allowed as a normal, ordinary and necessary business expense.

Another couple, which owned a junkyard bought a large supply of cat food and then claimed the purchase as a deduction. They said they needed to use the food to attract stray cats. Why, because they needed the cats to keep the rat and snake populations under control.

The best part about all of these stories is that they really happened and the IRS really let these people take these crazy deductions. There’s no question that these taxpayers knew how to milk the system. Want to hear some more crazy tax deduction tales? Just click here.

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What Is Section 1202 Stock?

The Protecting Americans From Tax Hikes Act of 2015 (PATH Act), which was signed into law late last year, finally made several temporary tax breaks permanent. Among the tax breaks included is the Small Business Stock Gains Exclusion, known as Section 1202.

So what is the Small Business Stock Gain Exclusion? Section 1202 is designed to help small businesses, new ventures, and specialized small businesses by encouraging individual investors and investment companies to place their financial backing into these companies. Because these investors are taking a risk by putting their money behind these companies, the Internal Revenue Code offers them relief via Section 1202.

Thanks to the new PATH law, the exclusion of 100 percent of the gain on the exchange or sale of qualified small business stock (QSBS) that has been held for more than five years and which was obtained after September 27, 2010 is now permanent. In addition, the PATH Act also permanently extends the rule that eliminates the 100 percent excluded QSBS gain as a preference item for Alternative Minimum Tax (AMT) purposes.

You can learn a lot more about this important change and about Section 1202, by clicking here. You can also contact us at GROCO if you think that you might qualify for Section 1202. Just call us at 1-877-CPA-2006 or contact us online. We’ll take you through the analysis of the best way to take advantage of this section of the tax code. In addition, many states, including California, have exclusions available, but each state is a little different from the federal requirements, so be sure to contact us to find out how we can help you.

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Will Your Tax Return Draw the IRS’s Attention?

No one wants to experience a tax audit. The good news is that most people never will have to go through that experience. The IRS simply doesn’t have the time and resources to audit every tax return. In fact, the IRS only audits about 1 percent of all returns. That means most people don’t have to worry about being audited. However, if you want to be extra careful and decrease your odds off being chosen even more, there are some tips to keep in mind when you file your tax return.

There are some red flags that could increase your chances of catching the IRS’s all-searching eye. Here are a few of them:

  • You make a lot of money
  • Your deductions are higher than normal
  • Your charitable deductions are high
  • You don’t report all taxable income
  • You own or run a small business
  • You claim the alimony deduction
  • You claim a loss for a hobby
  • You claim rental loss
  • You deduct a lot of business expenses: travel, entertainment and meals
  • You don’t report a foreign business account
  • You cash out some of your 401k or IRA early
  • You claim large gambling losses or don’t report big winnings

These are some of the most common ways to get the IRS’s attention, but if you avoid these kinds of things you might reduce your chance of an audit.

However, there is no full-proof way to avoid an audit, but keep this in mind: as long as you are being honest on your taxes you don’t have anything to worry about. Even if you are selected for an audit you will come out unscathed if you have nothing to hide. Another thing that can help is to contact a professional tax preparer to do your taxes for you. This will decrease errors and your chances of being selected for an audit. Contact GROCO if you need help with your taxes. Call 1-877-CPA-2006, or click here.

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Is The U.S. Really a Low-Tax Country?

Many U.S. taxpayers feel that our country’s taxes are too high, no matter which economic class you’re in. Likewise, regardless of which side of the political world you rest, most people would agree that the U.S. tax system needs some serious upgrading, and not just some fine-tuning. However, it appears that compared to many of the other developed countries in the world, the U.S. is actually on the low end of the tax scale.

According to the Organization for Economic Cooperation and Development, some of the most recent numbers show that about 30 other developed economies have higher taxes than the United States. In 2014, the U.S. government collected 26 percent of the gross domestic product revenue, which was way below the average of the rest of the world, which is 34.4 percent.

Of the 30 countries included in the report, there were only three economies that had a smaller tax percentage than the United States: South Korea, Chile and Mexico. Denmark leads the list with the highest percentage; a whopping 50.9 percent, and France, Italy, the U.K. and Germany were all over 30 or even 40 percent as well.

So why do U.S. taxpayers complain so much about taxes, if the country is actually towards the bottom of the list? It’s because the U.S. is the only country on the list that doesn’t use a Value Added Tax, or VAT. A VAT helps supplement revenue from other sources, which raises nearly 7 percent of the GDP in these countries. The U.S., on the other hand, has to count on other taxes to supplement its revenue because it does not have a VAT. And that won’t likely change any time soon.

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Can a Roth Really Help You Lower Your Taxes?

Patience is a virtue, but will it save you money on taxes? That depends on the situation, but if you’re talking about a Roth IRA, then the answer is typically yes. Traditional IRAs will usually give you an immediate tax savings, while a Roth IRA won’t. However, for those who have patience, a Roth can be a great tax saver in the years to come.

Because the IRS doesn’t give you an immediate tax deduction you are essentially being forced to use your own after-tax income to build your retirement account. The benefit of a Roth IRA over a traditional IRA is that when it comes time to withdraw the money you can take it all tax-free. With a traditional IRA you will be taxed on that income when you withdraw it.

That means your Roth IRA could give you a big boost. Any gains your account has made can be withdrawn tax-free so long as you have had the account for at least five years and as long as you don’t withdraw the money before the age of 59-1/2. There is one other tax-related benefit to Roth IRAs in some cases, and it is an upfront tax break. Some low- or middle-income earners can use what’s called a Saver’s Credit, which allows them to receive a 10-50 percent tax savings on the first $2,000 they put in their retirement account. This goes for 401k plans, as well as both traditional and Roth IRAs.

So there you have it. When it comes to taxes and Roth IRAs, patience is indeed a virtue. Click here to contact us and learn about other tax savings and retirement tips, or give us a call at 1-877-CPA-2006.

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What Are the Wealthy Really Worried About?

At GROCO we work very closely with some of the most highly successful people in the world and because of that we know what makes these types of individuals tick. We understand how they think and how they operate and we offer top notch business consulting to help them be successful. We also know what the wealthy are really worried about. And when it comes to investing, wealthy investors’ biggest concern is to protect their wealth, even more so than big returns.

In fact, wealthy investors typically focus on a few particular strategies as they ultimately make plans to pass on their values and their wealth to future generations. Because we work with many of these individuals we are able to share with you the most common strategies employed by the highly successful. Let’s take a closer look.

Creating an effective cash-flow model is at the top of the list of most wealthy investors. Another common strategy used by many of the wealthiest clients we have is to maximize their retirement accounts. That means that they contribute as much as they can to their retirement accounts. Backdoor Roth conversions are also another popular move commonly employed by the wealthy.

Wealthy investors also focus on lowering their income and their capital gains taxes, as well as doing everything they can to avoid estate taxes. Lastly, many of the wealthiest people we work with put a strong emphasis on philanthropy. They not only put a plan in place to distribute their wealth but also their values.

At GROCO, we know that the wealthy have a lot of things to be concerned about, not the least of which is protecting that wealth. That’s why we help the highly successful prepare for the future with careful tax planning and business consultation, among other things. We can help you, too. Just click here to contact us or give us a call at 1-877-CPA-2006.


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