In the grand scheme of things $3.5 Million of benefits spread over 13 years for a billion dollar operation is not a huge issue and in probably 99.9% of the cases leads to a civil, not criminal case. However there are some of the charges that are on pretty solid ground while others are tenuous. The charges involving the rent free apartment are the strongest. He and his wife lived in the apartment and clearly the checks for the rents were paid by the Trump Organizations without calling it compensation and his salary was reduced by the rent payments. This leads to the inevitable conclusion that he was receiving a rent free apartment as part of his compensation. The private school tuition payments for his children are on the tenuous side. Those were actually paid by Donald Trump or by his trust. That would tend to make them a gift from Mr. Trump and if they are less than $28,000 per year per child, they don’t even trigger a gift tax calculation. So, that part of the indictment might fail (although apparently there is a plea deal in the works so he will cooperate with an investigation into former President Trump).
So, the lesson from this is that if you are a hard target of those who wish to discredit you, you probably should make sure that all transactions are fully defensible and not bleed into the tax fraud realm. Tax avoidance is acceptable and if there is a business purpose and economic reality to a transaction, it is not fraud. In this case, the rent free apartment is of a possible tenuous business purpose (perhaps he was on 24 hour/day call and needed to be close to the office), but normally that still doesn’t cure the economic reality that he was getting a place to stay courtesy of his employer and his salary was being reduced accordingly. Those two facts push it into the compensation zone and it was taxable and shows intentionality.
Category Archives: Uncategorized
New Virginia Filing Requirement for Certain Corporations July 1, 2021
The Virginia legislature is doing a study on unitary taxes for brother/sister or parent subsidiary corporations. https://www.tax.virginia.gov/news/corporate-unitary
This study requires corporations to file a special return by July 1, 2021 based upon their 2019 tax returns.
Corporations must be “unitary businesses”.
“”Unitary business” means a single economic enterprise made up either of separate parts of a single business entity or of a commonly controlled group of business entities that are sufficiently interdependent, integrated, and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts. A “unitary business” includes that part of the business that meets the definition in this section and is conducted by a taxpayer through the taxpayer’s interest in a partnership, whether the interest in that partnership is held directly or indirectly through a series of partnerships or other pass-through entities. A “unitary business” shall not include persons subject to, or that would be subject to if doing business in the Commonwealth, the insurance premiums license tax under Chapter 25 (§ 58.1-2500 et seq.), Code of Virginia, or the bank franchise tax under Chapter 12 (§ 58.1-1200 et seq.)”
So, talk to your tax advisor if this applies to you.
Cryptocurrency and 1099-K
People who trade cryptocurrency had a surprise in 2019.
Some cryptocurrency companies sent out (incorrectly in my view) 1099-K forms for cryptocurrency transactions. This led to the IRS looking for Schedule C income for taxpayers and assessing taxes for unreported income.
Some have said will start issuing 1099-MISC in 2020 which likewise may be incorrect. A 1099-MISC is not meant for:
At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
At least $600 in:
Rents.
Prizes and awards.
Other income payments.
Medical and health care payments.
Crop insurance proceeds.
Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
Payments to an attorney.
Any fishing boat proceeds.
In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.
If you received a 1099-K in 2019 and didn’t report that income on your return what should you do. Amend your return with a schedule C showing the income and then backing out 100% of the income with a negative number (stating that the 1099 was issued erroneously). If you had trading profits or losses, you (and didn’t report them) you should amend schedule D to reflect those using the 1099-K number as gross proceeds.
If you receive a 1099-MISC in 2020, again, you may have to file a schedule C back out the number and then report the transactions on Schedule D.
In some respects, Cryptocurrency companies are stuck in the middle. Some people accept cryptocurrency in their businesses for payment, others trade the currency and these companies can not differentiate who is who.
The main lesson is don’t ignore the form, and be sure to include that income clearly on your return where the IRS will be looking which will be Schedule C.
More Tax Planning Pre-Biden
If you make more than $400,000 (apparently in compensation) then there will be a 12.4% social security tax on top of your income tax which will go up to 39.5% Federal and who knows what will happen in high tax states who are losing payers by the day. So, if in fact the trigger is compensation, it might be time to look at those LLC’s and turn them into S Corporations starting 1/1/2021. That way you can limit compensation to reasonable compensation and the rest would be S Corp dividends. Given this was the method used by none other than Joe Biden to save medicare taxes on his $15 Million of book royalties, I don’t feel as bad about mentioning it. We’ll keep looking at this subject in days going forward.
What if your home was vandalized by a group of peaceful protestors
Under the 2017 Tax Act, no deduction for you. Hope you’re insured because until 2023 such a loss is not deductible. I suspect those living in some of these riot zones are going to have a big surprise.
What if you car was destroyed, same result. Personal property is also not subject to a casualty loss for vandalism.
The only casualty losses allowed are for casualty losses from a natural disaster in a federally declared natural disaster. Luckily the Administration has been quite generous in declaring FEMA natural disasters.