Monthly Archives: September 2014

Watch Out Tom Brady, the Tax Man is Coming

by Alex Franch, Tax Specialist

As football season gets going, Tom Brady and the Patriots are almost back on top. I say almost because the Bills are ahead on the divisional record to the tiebreaker goes to the Bills right now.

Let’s consider the post-season for Tom Brady and when I say post-season, I really mean tax season. This case study applies to most professional athletes who play in multiple states, but I digress. I did a search for Mr. Brady’s contract and he seems to be making about $17 million per season just from his NFL contract. Let’s call it $1 million per game for argument sake and we will only consider the top tax rates when considering the states.

OK you fantasy football number crunchers, here we go. So far Mr. Brady has made $1M in Florida, no tax; $1M in Minnesota, top tax rate of 9.85%; and not $1M, but $3M in Mass, flat rate of 5.2%. But wait, in typical Brady fashion, he was still playing in January 2014 where he made $1M in Colorado, flat rate of 4.63% and not $1M, but $2M in, not Mass, but California, top rate of 12.3%. The internet tells me he moved from California to Massachusetts this year.

Let’s recap What Tom Brady’s Tax Return Looks Like So Far

 

Massachusetts part year resident: $3M income x 5.2% = $156K in taxes

Minnesota Non-Resident return: $1M income x 9.85% = $98K in taxes

California part year resident: $2M income x 12.3% = $246K in taxes

Colorado Non-Resident return: $1M income x 4.63% = $46K in taxes

But wait, he made $5M so far but he is getting taxed on $7M; that is not right. How very astute. Tom Brady will get a credit in his resident state for the taxes paid to a non-resident state. He should get the full $46k paid to Colorado as a credit to California.

But wait, he only gets back $52k out of the $98K he paid to Minnesota because the tax rate in Massachusetts is lower.

 

Graphic-1-4-State-comparison-Part-Year-versus-Non-Resident2

Total Income $5M, Taxes to the states $448K. Oh, he owes the IRS another $1.8M, I guess I forgot to mention that.

Now that is a flea flicker.

Only 13 more games to go. Maybe we should take this one game at a time.

. . . or one out of state rental property at a time
. . . or one out of state job at a time
. . . or one out of state K-1 at a time
. . . or one multi state business at a time

Do you have an out-of-state experience you would like to discuss? You may leave a comment below or go to our Facebook or Google Plus pages.

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Incorporating a New Business

Quarterly-ScheduleAre you thinking of incorporating a new business?  Do you have a business that is on extension?  Do you have a real estate partnership?

Owning and operating a business can be a challenge in and of itself. The various filing requirements and tax implications can add a level of complexity that blindsides many business owners and creates its own sets of challenges.

That September 15th deadline, or some will say, 9/15 deadline for your tax return is right around the corner. Have you filed your annual report yet? Each state has a different rules, deadlines, and fees.

There is a misconception that incorporating in a particular state may save you from filing in the state in which you do business. This is simply not so. If you have a Delaware corporation operating in Massachusetts for example, you need to file a Delaware tax return AND Massachusetts Tax return. In addition to the tax returns, there are often corporate excise taxes and franchise taxes; these vary by state and can often be a labyrinth of red tape for many small businesses. Failing to file the appropriate forms can lead to a variety of late charges and the involuntary dissolution of your business.

One also needs to consider how the business income is taxed. Income can sometimes pass through the business to your personal taxes or taxes can be paid by the corporation. In either case, it would not exempt you from filing the corporate tax return. Then there is the question of how one takes the money out of the business. If not done properly, this can create additional tax liabilities to the shareholders. There are elections one can make.

This one really trips people up; has an owner or shareholder passed away? Well, you can’t take it with you. This begs the question, who gets the business income now and how is this share of the business treated differently?  This happens often with real estate partnerships and can multiply the number of parties involved quickly.

Finally, there are a number of additional filing requirements that can vary greatly. You might have a payroll in which case you have to file monthly, quarterly, and annually. There is sales tax which might be due every month or once per year in Massachusetts; however, rates and frequency vary from state to state and even county by county. The same is true of meals taxes. Filing requirements and rates can vary from town to town, not to mention state by state.

The 9/15 deadline is right around the corner, if you have questions about your tax returns feel free to leave a comment below. Also, you may go to our Facebook or Google+ pages, or you can call Alex at 781-849-7200.

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Moving Deductions

Got moving expenses? You may be able to get a tax deduction for them.Fragile-Moving-Box-300x168

The first step is to clear out all your stuff from your attic or basement. If some of that stuff is in good condition, consider donating it and getting a tax deduction for it rather than hauling it with you. It is all about new beginnings. Speaking of new beginnings, perhaps you landed that dream job. If you are moving for a new job, you may be able to deduct your moving expenses.

Here is what you ought to know about moving deductions:

    • The move needs to be job-related

This means you are moving for a new job, or you are moving because of business relocation

    • The timing of the move needs to be correlated with the new job

The time of your move must be closely related to the time of starting your new job or new location of your business. “Closely related,” as defined by the IRS, generally means within a year of starting your new job or relocating due to business. If you are unemployed, it is not necessary that you arrange work before heading to a new locale.

    • Unlike some other tax provisions, you actually need to work for this one

If you are a current employee, directly after your move, you must work at least full-time, 39 weeks in the first 12 months. If you are self-employed or unemployed, the above applies, plus, you must work at least 78 weeks in the first 24 months.

    • You need to satisfy the 50 mile rule

Your new workplace must be at least 50 miles farther than what your past job was from your old home. If you had no previous workplace, your new job location must be at least 50 miles from your old home.

moving-expense-graphic-1024x314

So what are allowable deductions?

    • Tax deductions for travel

Expenses that you can claim are gas, oil, tolls, and parking fees. For mileage, you can either keep tabs on expenses, or you can take the standard deduction of 23.5 cents per mile.

    • Packing and moving belongings

These types of expenses are deductible. And also is the cost of shipping your pets or cars.

    • Storage cost

Any storage costs associated with your move, starting on the day you leave your former home and for the next 30 days, are tax deductible.

Welcome to Massachusetts!

If you came to Massachusetts for a new job, the tax deduction carries over to your Mass tax return. That is the consolation prize for having to file two state part-year resident tax returns. If you are leaving Massachusetts, well, you are out of luck on Mass, unless you are moving to one of these other fine welcoming states that allow a moving expense deduction.

What has been the furthest distance you were required to move either as a result of a job change? Leave your comment below or visit our Facebook or Google+ pages.

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