Don't Mess With Taxes

Film tax credit survives California $ woes

California's budget crisis has all the elements of a major disaster movie.

There's the big-name star politician star, Gov. Arnold Schwarzenegger.

There are the continuing battles, no special effects needed, between Democrats and Republicans in Sacramento.

There's the supporting cast of millions, an electorate that propels the main money story line by voting for projects but against ways to pay for them.

And there's the unbelievable plot twist, a state paying its bills with IOUs.

Now all we need is a studio to green light the project. That shouldn't be too hard to find since, despite all it's money troubles, California has maintained its tax breaks for movies made in the state.

No money, but tax breaks: Yes, it's true. California's film incentive program is alive and well.

On July 1, the Californian Film Commission began accepting applications for the $100 million available to TV an movie producers in this the first year of the program.

According to Commission Director Amy Lemish, as of last week about 60 productions had applied.

Most of the tax break applications are from filmmakers planning independent movies with budgets between $1 million and $10 million. But there also are studio projects with stars applying for the break. (Has anyone checked The Governator's calendar recently?)

So how does a state that's now forced to pay businesses and individual taxpayers with IOUs (officially, they're registered warrants), justify keeping such a large tax break in place?

The IOU issue doesn't affect the California film tax break, according to state officials, because unlike incentives in some states, the Golden State break is not a refundable credit. Production companies can use it only to reduce their tax obligations, or sell it to someone else who can do the same.

The thinking apparently is that while the film companies may not owe much, or any, taxes, the ancillary companies and people that it hires will. Plus, at least those folks will have jobs.

Light, camera, tax break ... maybe: Speaking of other states, some are rewriting their TV and movie making tax credits.

In recent years,states around the country have implemented tax breaks to get the productions to shoot within their borders.

But now that budgets are tight, Marketplace radio reports that some critics are raising new questions about the tax strategy.

The radio program, however, might want to do a follow-up story in Iowa. Tax Updates notes that Hollywood is flocking to the Hawkeye State's 50 percent filmmaker subsidy.

Related posts:

• Hooray for Hollywood tax breaks
• Eastwood film benefits from tax breaks
• NYC tax code gets Emmy thanks
• New York gets ugly ... Ugly Betty, that is
• Accountants exciting lives -- on film
• Oscar Special: Movies & Money
• We'll always have Paris … I mean taxes!

Goodbye, Michael & Farrah. Hello, eBay

If you believe the old saying that things come in threes, we should be done, at least for a while, with the passing of pop culture icons.

Within two days, the world's #1 second banana Ed McMahon, TV sex symbol Farrah Fawcett and King of Pop Michael Jackson passed away.

Yesterday, eBay's offerings exploded.

Hey, everyone grieves in his or her own way.

Michael mania: As soon as Jackson's death was confirmed, the online auction company was flooded with items related to to the singer-dancer-songwriter. My last search showed 21,914 items for sale.

Merchandise includes records, DVDs, magnets, photos, pins, buttons, newspapers from the day of his death, figurines and scores of Jackson-related one-off items.

The priciest piece of memorabilia so far is an original signed Fedora, one of Jackson's trademarks, with a starting bid set at $4,995. Or you can buy it immediately for $9,750 plus the $46.05 shipping fee.

No prospective takers yet.

Don't have any Michael items to sell? Just wait. One company is said to be producing mousepads and drink coasters with "R.I.P Michael Joseph Jackson August 29 1958 - June 25 2009" printed on them.

Another vulture seller reportedly is checking out just how much the Internet domain name ripmichaeljacksondead.com will fetch.

Auction already in place: In a morbid coincidence, an auction already was scheduled today to sell off some Michael Jackson items.

According to the Las Vegas Sun, Julien Auction’s annual summer bidding on celebrity memorabilia kicks off this afternoon at Planet Hollywood with lots from both the King of Pop and the father-in-law he never met, the King himself, Elvis.

"While the timing is impeccable," notes the Sun, "the auction was planned well in advance of Jackson's passing…." There are 21 Jackson- and Jackson Five-related auction items, including vintage photos of Michael from the 1970s, early concert posters and Jackson-worn costumes.

If you want to catch a flight to Sin City, the event runs from 2-to-5 p.m. Pacific Time.  There are no reserves.

Don't forget Farrah: More than 3,000 items showcasing Fawcett are up for eBay bid.

I suspect some of my former high school classmates have already called home to see if Mom still has that classic poster tucked in a box with all the other stuff they left at home.

The highest asking price so far on eBay for that piece of paper autographed by the actress is $549.99.

And, yes, there even are a few (217) McMahon items on eBay.

Tax implications of online auctions: Aside from making us focus on mortality, taste and our fixation with celebrity, the online sale of items, celebrity connected or not, also brings up some very real tax issues.

The IRS has long been trying to make sure sellers of items on eBay and other online auction sites properly report any taxable income.

All income from auctions, traditional or online, and consignment sales is generally taxable unless certain exceptions are met, says the IRS. This income is usually considered either "business" or "ordinary" income.

In certain circumstances such income can qualify for capital gain treatment. There are also some exceptions where income can be excluded from taxable income.

Generally, according to an IRS Fact Sheet created to address auction tax issues, you must report a gain from a sale. A reportable gain is the income above the original cost or basis of the item. These gains may be business income or capital gains.

The agency also has created a comprehensive Online Auction Sellers Tax Center to help you decide if the $50 you got for your Jackson Five or Charlie's Angels lunch box is taxable income.

Jon and Kate plus 8 divorce tax tips

I must admit that I've never seen the television show starring Jon and Kate and their brood. I'm not a fan of reality, or quasi-reality as is usually the case, shows.

And being childless, I don't have anything in common, thank goodness, with a family coping with eight kids.

I've also been happily married (and I think the hubby has been, too) for many more years than Jon and Kate. But there's no way anyone can escape the news of the Gosselin's crumbling marriage.

So it seems as good a time as any to offer some tax tips, eight to be exact in keeping with the show's title, to folks who are severing their marital ties.

1. Decide who will get the children's tax exemptions.
This definitely is a tax concern that Jon and Kate and lots of splitting parents must deal with at tax time. An article posted at Divorce 360 notes that this can be a sticking point with many divorcing couples. One approach is to make the exemption contingent on custody payments. If  the person paying child support makes all payments in full and on time throughout the year, allow that parent to take the exemptions.

2. Use the correct filing status.
You might be suddenly single again, but a more tax advantageous filing status is head of household. It offers, in part, a larger standard deduction amount. But only the parent who has physical custody of the child for more than half the tax year, and who provided more than half of the costs of the household's upkeep, is eligible to file this way.

3. Consider filing separately while still legally married.
If the breakup drags on, you could find yourself still married in the eyes of the IRS but leading separate lives for all intents and purposes. In this case, you might want to consider sending in two individual 1040s using the married filing separately status. In this case, each soon-to-be-ex-spouse will report only his or her income, exemptions, credits and deductions.

Be careful though, notes iVillage, if you live in a community property state -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In these jurisdictions you most likely will have to report half of the "community income" and claim one-half of the "community deductions."

4. Know the rules regarding tax breaks for kids.
Jon and Kate are about to discover that kids and taxes get even more complicated with a marital dissolution. DivorceSource.com points out that several tax benefits connected to your child depend upon not only who gets to claim the youngster's dependency exemption, but also upon a parent's residential status of the spouse.

These include, but are not limited to, the child and dependent care credit, the child tax credit, education credits and the Earned Income Tax Credit, or EITC.

The Wandering Tax Pro offers a more detailed look at how divorce affects the claiming of educational tax credits. And the post underscores the importance of discussing with your attorney and tax adviser how child-related tax breaks might be affected and whether some other form of compensation should be made to the spouse who is unable to utilize the tax benefits.

5. Don't automatically take the house.
A couple's residence is most often their most expensive jointly-owned asset. When they divorce, the ex-wife usually wants to keep the house so the kids, who typically live with her, can continue to live in the place where they've grown up and stay close to their friends and school. But that might not be the best tax-saving move.

Divorcing couples can sell the home before the final decree is issued and divide the potential $500,000 tax-excluded profit. If the spouse that ends up as sole owner of the property decides to sell it later, his or her allowable tax-free net profit will be just $250,000.

6. Time your breakup.
In a situation as emotional as ending a marriage, tax timing is probably not going to be a major consideration. But it could hurt or help you. Remember that your filing status is determined by your marital status on the last day of the year.

If you're still legally married on Dec. 31, you have the option of filing a joint return. Even couples who don't want to be together might find it worth some valuable tax benefits to tough it out a bit longer to use this filing status.

Similarly, if you're single on Dec. 31, even if you were legally married the other 364 days, you no longer can file a joint return. Familiarize yourself how your status change might affect your taxes and plan accordingly.

7. Understand the tax treatment of support payments.
Alimony generally counts as taxable income to the person receiving it and can be deducted by the person paying it.

Child support, however, is not taxable, either to the spouse receiving it or the children for whom it is supposed to be spent. And child support payments can't be deducted by the paying parent.

The different tax treatment of these common divorce-related payments could have a major impact on your tax life and should be taken into account in structuring your divorce agreement.

8. Write off some divorce costs.
You generally cannot deduct legal fees and court costs incurred in connection with your divorce. DivorceNet.com notes, however, that you may be able to deduct fees paid to appraisers, actuaries, and accountants for services in determining your correct tax or in helping to get alimony.

You can read about more tax and general financial financial considerations in Dealing with Divorce Dollars and Cents, as well as in IRS Publication 504, Divorced or Separated Individuals.

Related posts:

• When love goes bad: Divorce and taxes
• For better or ... apparently just better
  

Image excerpted from magnet available at AllPosters.com

Tax those tacky ads to pay for health care

Health care continues to be all about the money.

Accounting giant PricewaterhouseCoopers projects that U.S. employers will face a 9 percent increase in health care costs in 2010. That's slightly lower than in 2008 (9.2 percent), but overall, medical-cost increases continue to outpace inflation and pay hikes.

The health care reform debate on Capitol Hill also has run into the expected fiscal roadblocks.

Congressional Budget Office estimates are that a bill drafted by the Senate health committee would cost $1 trillion to cover just 16 million more uninsured folks. So the Senate has countered with a proposal that would require most people to buy health insurance, as well as authorize an expansion of Medicaid coverage and create consumer-owned cooperative plans instead of the government coverage that Obama wants.

Some of the Senate plan is laid out in a draft document obtained by the Washington Post. It's so "draft" in fact, that you're going to have to be able to read upside down to get all the info. Serendipitously fitting of this task, don't you think?

Across the Hill, House Democrats are examining various funding options. They include a surtax on the rich, an increase in the payroll tax for all workers, the ever-popular sin tax on sugary drinks and alcohol and possibly a national value-added tax of up to 3 percent.

Ad tax option: Christopher Bergin at Tax.com, however, has come up with a revenue raiser I really like. He suggests taxing irritating television commercials.

"You know the ones that start off by telling you that if you have a hangnail you must ask your doctor to prescribe the latest drug the company responsible for this annoying break in your TV viewing has invented,' blogs Bergin.

He may be onto something.

Bergin cites a Bloomberg report in which House Ways and Means Chairman Charles Rangel (D-N.Y.) says he and his colleagues are considering imposing a tax on drug makers by taking away the companies' deductions for advertising expenses. It would raise, says Rangel, $37 billion.

Bergin offers a way to collect even more. "Maybe we can have a marginal tax apply based on how annoying specific commercials are," he suggests.

Which commercial would you want to heavily tax? Personally, I want to tax every "male performance" ad into oblivion! Buh-bye, Bob!

Hat tip to TaxProf Blog

Un-Broke: $$$ advice from famous folks

That's what ABC television thinks we want and/or need. It's the premise of its program UN-BROKE: What You Need to Know About Money, airing today, Friday, May 29 at 9 p.m. Eastern, 8 p.m. Central.

The network says the show will provide viewers the basics on finance via an "unconventional look at the fundamentals of everyday finance." Unconventional means that celebrities will be doing the schooling. Presumably they are rich and famous. Otherwise, why would you want to hear from them?

I know for sure that some of the Un-Broke folks are doing just fine financially: Will Smith, Samuel L. Jackson and the Jonas Brothers. And who doesn't want to get money management tips from teen heart throbs?

But, hey, if ABC can deliver on its promise to provide "all the facts about credit cards, mortgages, stocks and bonds, investing and 401(k)'s, in a fresh new format combining information and humor," who am I to criticize? I doubt they can do it "all" in just an hour, but with way too many folks making major financial decisions with minimal information, any attempt to educate and lend some basic guidance is welcome.

Mellody Hobson, financial correspondent for Good Morning America and President of Ariel Investments, is the program host. "The economic crisis was a harsh wake-up call that we can't keep doing the same thing in the same way," said Hobson. "To me, that meant taking a fresh look at my own approach to financial education. This will make people laugh while they learn."

Among the features that ABC hopes will be fiscally informative as well as entertaining are:

• Will Smith getting down to basics with a boardroom full of corporate finance executives.
• Samuel L. Jackson appearing as a bestselling author of self-help books and who is "Broke as Hell and Not Going to Take it Anymore!"
• The Jonas Brothers teaching screaming teenage girls the mysteries of the stock market.
• Seth Green explaining mortgage fundamentals.
• Cedric the Entertainer talking back to credit cards.
• Christian Slater and Rosario Dawson discussing the importance of investing in a 401(k) retirement plan.
• The E*Trade Babies chatting online about money from their high chairs.

Hmmm. No mention of taxes. Will could talk about his early career tax troubles. But then ABC is giving them just one hour. A tax tutorial can be the sequel!

So, as they say, check your local listings.and mark your viewing calendar. Or at least set your Tivo or DVR.

'Fat naked' tax felon freed from jail

Richard Hatch, who garnered attention on the first Survivor reality show for his pudgy physique and penchant for showing all of it off, went to federal prison in connection with the $1 million he won in 2000 on the CBS program.

Now he's out of the slammer.

It's been a long legal journey involving the taxes Hatch didn't pay on his winnings. He had contended throughout the legal process that the network had agreed to pay his IRS bill.

That theory didn't fly and in 2006 he began serving his 51-month sentence in federal prison. Last fall, the U.S. Supreme Court refused to hear Hatch's appeal.

He was scheduled for release this October, but good behavior helped spring Hatch from the West Virginia Club Fed facility last week.

Hatch, however, is not totally home free yet. He must live in a Pennsylvania halfway house until Oct. 7.

There's no word on the house's precise location. So Keystone Staters, if you see someone wandering your neighborhood with too few clothes, you've been warned!

Tax advice from TV talking heads

And one of those tax-yammering heads was mine.

FoxBusiness.com Live, the cable TV network's noon online program, focused today on taxes. Four of us -- Fox's resident accountant Tracy Burns, H&R Block's Amy McAnarney, Chuck Jaffe from Marketwatch, and moi.

I was approached to talk about a story I did for Bankrate on housing tax laws. I did get to that, but the hosts Connell McShane and Jenna Lee also were captivated by my blog item on sin taxes.

A good portion of the 12 minutes I spent on air was spent on the potential for overhaul of the tax code (a dream that's still a long way off), the IRS change of heart on deducting e-payment charges and sin taxes.

Unfortunately, I fear we on the program and the viewers who were Twittering with the hosts during the broadcast, came up with more possible bad habit areas to tax! I just hope not too many lawmakers were on watching!

You can watch the program below or here if you don't see the video box. I debut around 33 minutes.

After a slow start -- doing a remote and not seeing the folks in the studio, I wasn't immediately sure Connell was talking to me -- I did OK. They let me ramble for 12 minutes, so I guess they thought so did, too.

And yes, that's the actual Texas capitol building behind me. Pretty cool, eh?

Anyway, that's my 15 (or 12) minutes of fame ... for now!

Sing along, y'all, to The TARP Song!

Singer-songwriter Bill Zucker has put into verse and set to music what every American has been saying for months: I want some TARP!

Yes, it does indeed seem, as Bill sings, that the $700 billion Troubled Assets Relief Program is "giving away money for free."

The song debuted, as you can see from the video, on CNBC's Power Lunch program.

Zucker told the Boston Herald that the idea came to him as he watched the cable business news channel and saw "my life savings dwindle in front of my eyes. I was pretty heavily invested in the real estate and stock market, and I got killed, so pretty much I want some TARP."

Thanks to Joseph Calhoun at Alhambra Investments for the tune tip and special thanks to Bill Z. for a little bit of levity in these trying economic times.

'Millionaire' gifts and taxes

The latest reality television show is the British import "Secret Millionaire."

Each week, or as long as ratings allow, donors worth millions of dollars will go undercover into one of the most impoverished areas of the country. They spend one week canvassing the town, meeting as many people as possible and learning the residents' stories and dreams. Then the millionaire reveal their real identities and motives and hand over a check.

On Wednesday's Fox-TV premier, Todd and Gwen Graves of Baton Rouge, La., visited folks still struggling to recover from Hurricane Katrina. By the end of the program, they had given away three $100,000 checks.

I caught the last half of the program and I admit it got to me.

Maybe it was because I watched alone in a hotel room (I'm in the Washington, D.C., for a meeting of the Taxpayer Advocacy Panel) or maybe it was because Katrina was so horrific and the recovery so slow that the tragedy of so many affected areas remain. Whatever, I am glad that people who have plenty of money are committed to helping at least a few folks who don't have nearly enough.

Tax consequences of TV gifts: Such programming is not new. Other reality shows in which individuals were helped by benefactors didn't always work out so well.

"Extreme Makeover: Home Edition," for example, has for years provided families with new residences. But those properties come with expenses such as annual real estate taxes, which some upgraded homeowners had difficulty paying.

The real estate downturn also forced "Makeover" producers this season to face other economic realities.

As for "Secret Millionaire," taxes shouldn’t be a problem, at least for the recipients of the millionaires' generosity. A gift is not taxable to the receiving person.

However, the millionaires better have their tax planners on speed dial. The donor is generally responsible for paying the gift tax.

And while the money given out in Wednesday night's premiere was to people who definitely were doing good things for others, the millionaires' gifts are not deductible. Only donations to qualified charitable organizations, not individuals no matter how noble their deeds, can be itemized on your tax return.

Adding up annual gift exclusions: The philanthropic millionaires do get a bit of a break. Tax law allows individuals to give away a certain amount of money each year with no tax consequences.

For 2008, you can give up to $12,000 to another person; it can be anyone, not just a relative as is sometimes mistakenly thought. If you're married, your spouse can give the same amount.  The gift tax exclusion is periodically indexed for inflation. In a few weeks, the 2009 limit will be $13,000.

So in the case of the couple in last night's show who received $100,000 from the millionaire couple, the Graves don't have to worry about $48,000 of that gift. It falls under the exclusion limits this way:

$12,000 to the recipient wife from Gwen
$12,000 to the recipient wife from Todd
$12,000 to the recipient husband from Gwen
$12,000 to the recipient husband from Todd

In the other $100,000 gifts to two other Louisiana men, the Graves get exclusions of $24,000 for each gift. All told, $96,000 can be excluded.

But what happens when, as last night's millionaire couple did, you exceed the gift exclusion limits?

You may have to file a federal gift tax return, Form 709 (download the form here; instructions here). Gifts in excess of the annual limit are technically taxable.

For generous couples such as the Graves, when the gift comes from community property, each spouse will have to file a Form 709. For $100,000 checks that come from a joint account, the IRS considers that $50,000 is from Gwen and $50,000 is from Todd.

Exclusions exceeding $1 million: Another amount, however, comes into play before you have to write Uncle Sam a check: $1 million.

You can give away that much if you wish over your lifetime, as long as you do so during the tax year in the allowable increments to separate recipients. When you do give more than the annual limit, it goes toward that million-dollar limit.

And it's only after you exceed $1 million in gifts beyond the annual exclusion limits that you'll owe gift tax, which could be as high as 45 percent.

As you can tell just from looking at Form 709 and its instructions, even when you don't owe taxes, you probably should hire a professional to help you complete the filing.

Of course, if you're literally sharing your wealth, you likely already have a financial and tax adviser on retainer to help you meet your IRS obligations and figure out ways to help lessen any potential tax costs.

Additional TV and tax information: Coverage of the "Secret Millionaire" can be found in the Calgary Herald, Newsday and the Wall Street Journal's Wealth Report blog.

As for gift taxes, you can find out more at this IRS FAQ page.

The Baglady also has a comprehensive post on Gift Tax 101. It was guest-written by Robert D Flach, who has his own fine tax blog at The Wandering Tax Pro.

Separated at birth?

You don't run across many tax-related doppelgangers, but I definitely think this is one.

IRS Commissioner Douglas Shulman and actor John Francis Daley are my candidates for the popular separated-at-birth comparison. Or at the very least, as I noted on Twitter on Wednesday, "waiting for Bones. is it just me or does actor who plays Sweets look like IRS commissioner Doug Shulman's only slightly younger brother?"

Take a look.

Shulman, there to the right, became the 47th head of Internal Revenue on March 24, 2008. He's in charge a tax administration with a budget of $11 billion, collects around $2.4 trillion a year and employs more than 100,000.

Previously, he was vice chairman of the Financial Industry Regulatory Authority (FINRA), the private-sector regulator of all securities firms doing business in the United States.

He also had some prior IRS-related experience, having served as Senior Policy Advisor and then Chief of Staff of the bi-partisan National Commission on Restructuring the Internal Revenue Service. In that capacity, he worked on legislation which eventually led to the IRS Restructuring and Reform Act of July 1998.

You can review Shulman's full bio here.

And then there's John Francis Daley, pictured at left. The baby-faced actor plays the young psychiatrist Lance Sweets in federal agency employ on Fox television's "Bones."

OK, the resemblance is a bit more pronounced in this blog post photo, taken when Shulman was a bit younger. Still, I think that these two guys could show up at a family reunion and not raise any eyebrows.

Plus, there's the whole "how old did you say you were?" vibe.

In Sweet's fictional world, the FBI agents, prosecutors and forensics team members all have a field day poking fun at the character's youth. In real life, Daley is only 23 years old, the same age as his "Bones" character, but he has a decent acting resume.

That same incredulous attitude and ageism were pervasive among tax watchers, me included, when the 40-year-old Shulman took over the IRS. But maybe that says more about me than the commish.

Since I've not yet found a way to stop the birthday calendar pages from flipping (no, denial doesn't work), I've resigned myself to every day encountering more "kids" in adult jobs. So right here, right now, I pledge to give all those whippersnappers the benefit of the doubt.

And I sincerely wish both young Mr. Shulman and young Mr. Daley success in their chosen fields.