Archive | Tax Advice

For Michael Jackson estate, $1B disagreement with IRS is no thriller

There’s the average person’s disagreement with the IRS over a tax bill. And then there’s the estate of Michael Jackson.

The executors of Jackson’s estate pegged his net worth at $7 million. But papers filed with the U.S. Tax Court in Washington, DC, show that the IRS believes his estate is worth $1.125 billion, which is, as The Los Angeles Times so nicely put it, “a difference so vast it looks like a typo.” (10 free articles and then a paywall.)

At that level, the estate would owe more than $500 million in taxes, plus another $200 million in interest and penalties. Among the areas of dispute: The IRS says Jackson’s image & likeness are worth about $434 million; the estate filing put the value at…$2,105.

Inheritance tax disputes are often settled before trial, but I’d like to see this case go to court, if for no other reason than that the testimony, and eventual ruling, is bound to be fascinating.

Make more than $200K? Your taxes are (probably) going up

Remember all the talk after the 2012 election about tax hikes? Well, they’re here–but you’re probably going to be affected only slightly, or not at all, if you are earning less than six figures. However, once you get above $200,000 of total income, you’re almost sure to see a hike in your tax bill this year.

The most significant increases affecting higher-income earners this year include:

–The new 3.8% Net Investment Income Tax on singles with modified adjusted gross income of more than $200,000 ($250,000 for joint filers.) As Brent Hunsberger of The Oregonian points out, this tax on investment income includes real estate income. Remember that real estate income is ordinary income, so this is a 3.8% tax on top of whatever your ordinary marginal tax rate already is. (Department of Shameless Self-Promotion–Hunsberger quotes Yours Truly in his article.)

–A Medicare Tax increase of 0.9% . You are subject to this if you have wages and/or self-employment earnings of more than $200,000; $250,000 for joint filers. Note: Because employers don’t know all of your sources of income, they cannot withhold this additional tax. You’ll be reporting it yourself on the all-new Form 8959.

–An increase in the top rate on long-term capital gains and qualifying dividends to 20%, instead of 15%. This hits people with taxable income above $400,000; $450,000 for joint filers.

–An increase in the top marginal tax rate, from 35% to 39.6%. Again, only the highest earners–people with more than $400,000 of taxable income, $450,000 for joint filers–are affected.

The biggest problem for folks who are affected by all of these increases? Maybe it’s figuring out where the few people are with whom you can commiserate. As this handy-dandy calculator from Kiplinger’s shows , people with adjusted gross income for $400,000 or more are in the top 1% of income earners nationwide.

How Oregon is helping a billionaire save some bacon on Bacon

There are two current mysteries about Francis Bacon’s Three Studies of Lucien Freud. First, who paid $142.4 million, the most ever paid for a work of art at auction, in November for the triptych? Second, why is it currently being displayed a mere three miles from my home, in the well-regarded-but-let’s-face-it-not-internationally-renowned Portland Art Museum?

Can’t help you with the first question. But the answer to the second seems to come down to…taxes!!

See, if the buyer is a collector living in a state like California or New York or Washington, all of which have high sales taxes, he could be subject to more than $10 million in sales taxes or use taxes on the purchase.

But, as gallerist Elizabeth Leach told Willamette Week’s Matthew Korfhage, if the artwork detours to the no-sales-tax state of Oregon for at least 90 days, the buyer could avoid paying sales tax altogether.

Here’s a link to Korfhage’s excellent summary of who the buyer might be and the possible reason why Portlanders can enjoy this work through March 30. By the way, I was at the museum late one day in early January and spent close to a half-hour in the room where the work is displayed. I don’t think there were more than a dozen visitors in the room at any time. Check it out, art lovers!!!

Some professional athletes are getting screwed by Tennessee taxes

Did you know you’re generally supposed to pay income tax to any state in which you earn income? Since most people only work in one state, they’ve never heard of this rule. But professional athletes are finding out about it big-time, as state taxing authorities recognize them as a nice little source of tax revenue. After all, who could possibly object to highly paid athletes kicking in a few bucks to the coffers?

Well, for some players, the tax they pay can literally be more than they earn for a game.

In the case of basketball players going to Memphis to play the Grizzlies, the state of Tennessee charges a “flat tax” of $2,500 per game. Now, for a player like Lebron James, $2,500 is a rounding error. But for someone like Milwaukee Bucks backup guard Nate Wolters, $2,500 is more than he earns for that game.

The New York Times has the whole sad story here.

IRS says, “If you’re married, you’re married: gay or straight, in any state.”

At last, a little clarity on tax filings for same-sex couples who get married: the IRS has announced, as The Washington Post reports that married same-sex couples should file as married couples — whether or not they live in a state that recognizes gay unions.

That means that if you’re gay and married, you can file for federal tax purposes as “Married Filing Jointly” or “Married Filing Separately”, but not as “Single.”

However, if you are in a state that does not recognize gay marriage, you may have to file as Single on your state return.

You still don’t get to file as a married couple at the federal level if you are in a civil union or a registered domestic partnership, as The New York Times points out.