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Forbes
2 days ago
- Business
- Forbes
Guilty Plea For Role In Directing And Promoting An Illegal Tax Shelter
The goal of an illegal tax shelter is typically to hide income. getty A Colorado man has pleaded guilty to conspiring to defraud the United States and tax evasion related to his promotion and use of an illegal tax shelter. He also pleaded guilty to wire fraud related to his operation of a fraudulent investment scheme. According to court documents, Timothy McPhee, of Estes Park, Colorado promoted a fraudulent tax shelter to taxpayers across the country. A tax shelter is a financial strategy used to reduce taxable income. Not all tax shelters are illegal—Iegal tax shelters include tax-favored accounts like retirement account. But illegal tax shelters—those created to generate unintended tax 'benefits'—are created for the purpose of evading tax. The abusive tax shelter that McPhee touted was made up of a private family foundation and three trusts: a business trust, a family trust, and a charitable trust. The trusts were successively layered, meaning that each trust named the next trust in the series as its beneficiary. McPhee taught clients who purchased the tax shelter how to use the trusts and foundation to evade paying federal income taxes on nearly all their income. More than two hundred taxpayers nationwide purchased the abusive tax shelter. These clients collectively sheltered approximately $159 million in income, which resulted in the underpayment of about $45 million in federal income taxes. To carry out the abusive tax shelter, McPhee and his co-conspirators first instructed clients to restructure their business as a multi-member limited liability company (LLC), with 98% owned by a business trust and 2% personally owned by the client. The clients were told they could choose different percentages if they wanted, which essentially let them decide how much tax they paid. Although this restructuring appeared to give the impression that the clients had given up about 98% ownership of their business, they maintained full control over their operations, as if nothing had changed. Under McPhee and his co-conspirators' direction, the clients would then report legitimate income and deductions on Form 1065 (partnership return) for the business and allocate 98% of the ordinary business income to their business trust via a Schedule K-1. The client would then report the remaining 2% of the ordinary business income on their Form 1040 and pay taxes on that income to avoid scrutiny from the IRS for paying no taxes. Then, by filing a series of fraudulent Forms 1041 (trust returns), the clients would reduce the remaining 98% of their business income to $0 to avoid paying any taxes on that income. The Form 1041 for the business trust would report the 98% distribution from the LLC as income. This income would be offset by non-deductible personal expenses disguised as 'other deductions,' and any remaining income would be distributed to the beneficiary, i.e., the family trust, and deducted as an income distribution. As a result, the business trust would report $0 or less in taxable income. The process was a rinse and repeat for both the family trust and charitable trust. Income was offset with non-deductible personal expenses disguised as 'other expenses,' and any remaining income was either distributed (for the family trust) or donated (for the charitable trust) to the next entity in the series. The last piece was the so-called private family foundation. While private foundations can be legitimate entities, in this case, the clients never actually gave up control of the income they claimed to have 'donated' from the charitable trust to the private family foundation. For any given year, the clients who used the scheme paid no taxes on 98% of their ordinary business income. To establish a paper trail supporting the scheme, McPhee and his co-conspirators instructed clients to sign trust documents claiming to create non-grantor trusts. They also directed clients to open bank accounts in the name of their trusts and private family foundation and to move funds between these accounts in the same way the money was transferred on the false tax returns. Although the false tax returns created the illusion that the client gave up control of 98% of his or her business income, the client maintained full control of that income and maintained complete control over their assets. Promotion To promote the scheme, McPhee hosted seminars across the country. At the seminars, they distributed promotional materials that described the tax shelter, how to set it up, and how it worked to eliminate taxes owed. McPhee explained that clients could avoid paying taxes on up to 98% of their income by using the tax shelter. McPhee also assured the audience that the method he promoted was legitimate and legal. McPhee often told prospective clients that they would 'own nothing, control everything' if they purchased and established the trusts. For example, McPhee explained that clients would not give up control of the money they 'donated' to their private family foundation because they could 'invest' that money or 'loan' it back to their business, business trust, or family trust tax-free. McPhee also told clients that any money spent by the trust, including personal expenses, could be claimed as a tax deduction on the trust's tax return. McPhee and his co-conspirators also told clients that they could use their family trust to pay for personal expenses, such as weddings, suits, pools, and vacations—and they could be claimed as tax deductions. McPhee personally did not sell the tax shelter for a fee. Instead, if a client wanted to purchase the shelter, McPhee referred the client to another co-conspirator. The cost? Typically $25,000 for three trusts and an additional $25,000 for the private family foundation. Other Professionals To keep up the scheme, McPhee referred clients to handpicked bookkeepers and tax return preparers (at least two of whom were charged as co-conspirators). And, to encourage clients to purchase the abusive tax shelter, McPhee assured clients they would have a team of 'experts' in place to support them as they learned how to use the trusts and the foundation. Personal Use Of The Tax Shelter McPhee also personally used the abusive tax shelter to hide more than $5 million in income from the IRS between 2016 and 2021. As a result, McPhee did not pay approximately $1.8 million in federal income taxes he owed during those years. Guilty Plea In pleading guilty, McPhee acknowledged that he gave directions to clients that he knew directly contradicted IRS guidance and that he deliberately ignored warnings from accountants and attorneys that the tax shelter was fraudulent and illegal. According to court documents, McPhee is represented by Ronald Gainor. Gainor did not immediately respond to a request for comment. Criminal Charges And Plea McPhee pleaded guilty to one count of conspiracy to defraud the United States, one count of tax evasion, and one count of wire fraud. Conspiracy charges mean that two or more persons agreed to commit a crime (in this case, defraud the United States) and the defendant joined, knowing the purpose of the scheme and intending to help accomplish that purpose. Court documents indicated that there were at least four other co-conspirators, including Larry Conner, Roderick Prescott, Suzanne Thompson, and Weldon Wulstein. Tax evasion is the illegal and intentional act of underpaying or failing to pay taxes owed. Wire fraud involves wire communication—in this case, the internet—sent across state lines to promote or commit fraud, while mail fraud involves the use of the U.S. Mail (or other mail carriers) to execute a scheme. According to court documents, the tax loss for Count l is $43,993,900 and the tax loss for Count 15 is $1,863,634. The fraud loss, including relevant conduct, is $7,956,001. Those amounts will impact the sentencing. That's because the federal sentencing guidelines, established by the United States Sentencing Commission (USSC), requires the calculation of a base offense level (determined by the loss amount) which can be adjusted for factors like sophisticated means or criminal activity. Other factors may include any criminal history. Sentencing Following his guilty plea, McPhee is scheduled to be sentenced on October 23. He faces a maximum penalty of five years in prison and a fine of $250,000 for conspiring to defraud the United States, a maximum penalty of five years in prison and a fine of $250,000 for tax evasion, and a maximum penalty of 20 years in prison and a fine of $250,000 for wire fraud. IRS Criminal Investigation IRS Criminal Investigation (CI) and the FBI investigated the case. CI is the sixth-largest law enforcement agency in the U.S. and is the criminal investigative arm of the IRS, responsible for conducting financial crime investigations like tax fraud, narcotics trafficking, money laundering, public corruption, healthcare fraud, and identity theft. While other federal agencies also have investigative jurisdiction for money laundering and some bank secrecy act violations, the IRS is the only federal agency that can investigate potential criminal violations of the tax code. The agency has 19 field offices located across the U.S. and 14 attaché posts abroad. 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Forbes
29-07-2025
- Business
- Forbes
Quirk Of ‘Big Beautiful Bill' Makes 45.5% Actual Top income-Tax Rate
A phaseout for high earners in the newly increased state and local tax (SALT) deduction essentially ... More introduces a new top tax rate. One of the defining features of the 'One Big Beautiful Bill' Act (OBBBA) is its significant increase in the limit on the state and local tax (SALT) deduction from $10,000 to $40,000. This high-profile tax benefit for reducing taxable income is available for those who itemize deductions on their federal tax returns instead of using the standard deduction. However, the higher cap on the SALT deduction comes with a catch: a phaseout for those with yearly income exceeding $500,000. While the income-tax rates for most of those taxpayers are 35% and 37% (the top two brackets), this phaseout of the SALT deduction can push your actual marginal tax rate to almost 46%. This significant jump has prompted financial advisors to suggest various strategies in response—including simply working less! This article explains the tax oddity around the increased SALT deduction and the approaches to it that advisors are recommending. SALT Deduction Review State and local tax (SALT) is an itemized deduction on Schedule A of your Form 1040 tax return. SALT includes property tax and state income tax. In a state without an income tax, you can deduct sales tax. You go with itemized deductions to reduce your taxable income when your itemized total (including mortgage interest and charitable donations) is greater than the standard deduction. Under the OBBBA, in 2025 the standard deduction is $15,750 for single filers and $31,500 for joint filers. In 2018, the Tax Cuts & Jobs Act (TCJA) imposed a limit of $10,000 on the total SALT deduction available to itemize, no matter how much more SALT you actually paid. This was unpopular, especially in high-tax states such as California and New York. To get enough votes from Republicans to pass in the House of Representatives, the OBBBA needed to include a meaningful increase in the cap on the SALT deduction. Accordingly, the OBBBA dramatically hiked the cap on SALT deductions to $40,000 per year from 2025 through 2029, with a 1% increase each year. The deduction limit is scheduled to return to $10,000 in 2030—expect to hear a lot about the 'sunset' of this provision as that time approaches. Alert: If you pay estimated taxes and are eligible for the higher SALT deduction, check with a tax professional (e.g. CPA, Enrolled Agent, tax lawyer) about any needed adjustments for the remaining quarterly payments of 2025. This is one tax-law change I personally benefit from. I live in a town in Massachusetts with high property taxes that pay for its excellent public schools and local government services. Additionally, the state income-tax rate is 5%. An extra 4% state tax applies to income of $1 million or more (not my worry). The higher limit on the SALT deduction also makes up for my personal frustration with the OBBBA for permanently ending the tax-free employer reimbursement of up to $20 per month for bike commuting. That annoyed me because I bike to work year-round, including in the harsh New England winter, as part of my training for the Pan Massachusetts Challenge (PMC), a yearly fundraising event for the Dana-Farber Cancer Institute. Higher SALT Cap Phases Down As I explain in my recent article 'Big Beautiful Bill' Affects Tax Planning For Stock Options And RSUs, phaseouts are the laser gun of the tax code. They vaporize taxpayer-favorable provisions to meet federal budget rules, while also adding complexity to the tax code. The OBBBA imposes a phaseout—called a 'phasedown' in the tax law—on the new additional SALT deduction based on your income: from $40,000 down to the base $10,000 SALT deduction. For taxpayers with modified adjusted gross income (MAGI) above $500,000, the additional deduction phases out at 30% of every dollar over that threshold and completely phases out at $600,000 of MAGI. At that point, you are left with just the underlying $10,000 SALT deduction that is not part of the phasedown. Because it takes away potential deductions from your taxable income, the phaseout increases your true marginal tax rate—how much in taxes you are really paying for each additional dollar in income. Holistiplan, which provides a tax-planning platform with tools for advisors, calculated this tax increase for me. The 2025 numbers below are for both single taxpayers and joint filers, as the maximum SALT deduction and the income point where the phasedown starts are the same for both (a clear example of the 'marriage penalty' in the tax code). Table provided by Holistiplan for article Quirk Of 'Big Beautiful Bill' Makes 45.5% ... More Actual Top Tax Rate For High-Income Taxpayers 'The phasedown of the SALT deduction introduces a new 'marginal' bracket for those impacted,' observes Ben Birken, Vice President for Subscriber Support & Adoption at Holistiplan. 'In fact, the tax code is packed with these non-published marginal brackets for things like the phaseout of the child tax credit, taxation of Social Security, when capital gains shift from being taxed at 0% to 15%, and the phaseout of the Qualified Business Income (QBI) deduction.' In general, comments Birken, 'you could say the tax code is a vast ocean littered with unseen tax torpedoes, of which the OBBBA adds even more.' What Advisors Are Telling Clients Financial and tax advisors are viewing the span of $500,000 to $600,000 in adjusted gross income (AGI), and the income range approaching it, as critical areas to watch for their clients. The issue was concisely expressed by Jeff Levine, a tax advisor and the Chief Planning Officer with Focus Partners in St. Louis, Missouri, during a recent webinar on the OBBBA: 'As you go from $500,000 of AGI to $600,000 of AGI, if you were getting your full $40,000 deduction for SALT taxes and you go down to $10,000, you're effectively paying taxes on not $100,000 more of income but on $130,000 more: the $100,000 of income you actually received plus the $30,000 of deductions that you lost.' When you add in any state and local taxes to that income, he pointed out, you may end up keeping just half of the money you made. Advisors recommend many planning ideas to try to hold your income below the phaseout zone. These include maximizing contributions to qualified retirement plans, such as a 401(k) or IRA; putting salary or bonuses into any nonqualified deferred compensation plan that's available; exploring eligibility for other retirement or pension plans that defer income; and making bigger charitable donations (directly or to a DAF). Plus, where possible, you want to evaluate whether to avoid triggering more income, such as with Roth IRA conversions, nonqualified stock option exercises, and asset sales. Levine urged advisors that 'if your client is at $600,000 of income, you basically want to do anything you can, perhaps, to lower their AGI, because it's that meaningful.' He even (only half-jokingly) suggested to advisors that they may turn to some of their more workaholic clients and say: 'You're working your tail off, running around doing all your work, working all this overtime, or trying to max out your bonuses. Why don't you just take it a little bit easier this year? Instead of making $600,000 you'll make $500,000, but you'll get back all this time in your life, and it's only net-net going to cost you $50,000 after the taxes.'
Edinburgh Reporter
23-07-2025
- Business
- Edinburgh Reporter
What Financial Documents Matter Most When Applying for a Loan?
Denied over one missing document? Yep—it happens almost all the time. Today, whether you're in the U.S. or the U.K., about 1 in 7 loan rejections come down to sloppy or missing paperwork or documents. So, forgetting a tax return, a bank statement, or daily balances will no longer hold water; your application is out. Fast. Image Source: Pexels If you need a sure-deal approval to finance a timely project, then show up armed and ready. Here's what lenders actually want—and what they usually won't forgive you if you slip. Payslips & W‑2s: Your Income Backbone You may have to double-check all your papers even if you think your income's locked. It's today's caveat that even one missing paystub can derail your approval train. In 2025, about 11.1% of U.S. mortgage denials were labeled 'incomplete credit applications'—often due to missing documents like W‑2s or pay stubs. Even if you're eyeing a small business loan for your startup, you may need a two-year period of W‑2s plus your last 30–60 days of pay slips. You need to be meticulous to earn attention, so put them in a folder, label them, and send them fast. No surprises, just clear compliance. Tax Returns & IRS Transcripts: The Underwriter's Truth You might think your deductions paint you broke and unable to compete in the loans market—but transcripts don't lie (all the time). Lenders often want two years of Form 1040 and their schedules, and verify these with IRS transcripts, cutting out fraud and speeding up the underwriting process for your application. It's like you're authorizing the IRS automatically through IVES or ordering transcripts yourself so your lenders may see you have the character and capability to pay. If you're given an extension to comply with your lacking papers, you have to flag, set reminders, or do everything to help you comply on time and not get ditched. Just make sure you don't bury it down memory lane. Bank Statements: Self‑Employed's Secret Weapon If your income jumps in and out of your coffers, whether you're a work-from-home freelancer or an online retailer, traditional W‑2s won't cut it. That's where you only need deposit and loan certifications, for windows like bank statement loans for self-employed earners come in. These self employed mortgages rely on alternative documentation to verify income. Most lenders now accept 12–24 months of bank statements, analyzing deposits to calculate your monthly income, even when tax returns dip due to many deductions. Often, these creditors count 50–80% of your deposits as income, switching the spotlight from 'reported' to your actual cash flows. It's perfect for freelancers and indie business owners like you. Just keep personal and business accounts cleanly segregated in your books, then highlight steady deposits and explain any weird spikes as they happen. Profit & Loss (P&Ls): Professionalism in Print Your profit and loss statement tells lenders you're more than a 'gig-worker'—that you're a legit firm. It breaks down revenue, costs, and net profit—one line at a time. When matched with bank statements, it shows you're organized and serious about how you do business. Here, you may need an accountant to prepare a clean P&L statement so financiers take you seriously and favorably. Credit, Assets & DTI: Your Safety Net Even with your perfect income docs, this trio can still trip you up, such as: Credit Most of today's creditors want 620+; FHA (Federal Housing Administration) accepts down to a 580 credit score. Assets You need to show your savings, investments—or 401(k)—especially for down payment and reserves so they'll know you have 'treasures' to back you up. DTI ratio Aim for a debt-to-equity ratio of less than 43%, even though some lenders stretch, you're cognizable with a very viable portfolio. Also, incomplete data can push your denial into the 15–20% range ─ inside mortgage finance reported incomplete app data was cited in 19.9% of refinancing denials in 2024. Underwriting Red Flags: The Stats to Mind Here's what's tanking loans in most instances: Missing docs – 11.1% denials Unverifiable info – 4.29% DTI, Credit history, Collateral issues – top HMDA causes at ~21% each Employment changes & big purchases mid-cycle – giant red flags But, with the right docs, you dodge at least 15–20% of common denial triggers along the loan application lanes. Why This Matters Right Now: Trending in 2025 In 2024, incomplete loan application data rose to about 19.9%, and refinance denials—nearly 1 in 5 applicants. With millions of Americans going independent, bank statement loans are no longer a probable niche, they're essential to approval. Bottom Line You're not just an applicant waiting to see whether or not your papers get approved, you're making your case attended to. You need to show lenders you understand their risk, speak their language, and respect their process through efficient and timely documents. Because in today's fast lane, missing one document isn't a small oops, it's a full stop and can get all your efforts flagged. So, if you want fast approval, then act like it; be prepped, prolific, and polished, your paper is your presence in the eyes of your lender. Like this: Like Related
Time Business News
21-07-2025
- Business
- Time Business News
How Much Does It Cost to Have Someone Help With Your Taxes?
Filing taxes can feel overwhelming, especially if your financial situation is a bit complex. While many people file their own taxes using software, others prefer hiring a tax professional to make sure everything is accurate and to save time. One of the most common questions people ask is: how much does it cost to get tax help? The answer depends on a few important factors. Whether you're an individual with a simple return or a small business owner with multiple forms to file, the cost can vary. In this post, we'll break down the average prices and what influences them, so you can understand what to expect when seeking tax help. The cost of having someone help with your taxes is influenced by several key things: Type of tax return – A basic tax return (Form 1040) with no added schedules or business income is usually cheaper. – A basic tax return (Form 1040) with no added schedules or business income is usually cheaper. Your filing status – Single filers generally pay less than those who are married filing jointly, or those with dependents. – Single filers generally pay less than those who are married filing jointly, or those with dependents. Your income sources – If you have W-2 income only, it's easier. But if you're self-employed, own rental properties, or have investments, it may cost more. – If you have W-2 income only, it's easier. But if you're self-employed, own rental properties, or have investments, it may cost more. Location – Fees can vary depending on where you live. Larger cities or high-income areas may see higher prices. – Fees can vary depending on where you live. Larger cities or high-income areas may see higher prices. Experience of the tax professional – A Certified Public Accountant (CPA) or Enrolled Agent (EA) may charge more than a seasonal preparer, but may also provide better insights and planning advice. According to recent industry reports and surveys from national tax associations: Basic 1040 Form (no itemized deductions): $150 – $250 $150 – $250 1040 with Schedule A (itemized deductions): $250 – $400 $250 – $400 1040 with Schedule C (self-employment income): $400 – $600+ $400 – $600+ Business Tax Returns (LLC, S-Corp, C-Corp): $600 – $1,200+ $600 – $1,200+ State Tax Returns: Usually $50 – $150 extra per state These are average figures. Actual rates may vary based on complexity, forms needed, and the preparer's fee structure. Some tax experts charge flat rates, while others charge by the hour (often $100 to $300 per hour). Here's the affordable Services Provider: Even though paying for tax help might seem like an added expense, it can save you money in the long run. Tax professionals know the latest tax codes and deductions, and they can help you avoid costly mistakes. Here are some reasons people choose to hire tax help: Peace of mind – No second guessing if you've filled out everything correctly. – No second guessing if you've filled out everything correctly. Time-saving – You don't have to spend hours researching rules and filling out forms. – You don't have to spend hours researching rules and filling out forms. Better refunds – Experts may find deductions or credits you might miss. – Experts may find deductions or credits you might miss. Audit support – Some tax professionals will represent you if the IRS has questions or requests more information. If your taxes are straightforward (just W-2 income and no deductions), filing yourself using online software might be enough. But if any of the following apply, hiring help may be a smart move: You're self-employed or own a small business You had major life changes (marriage, divorce, new baby, etc.) You bought or sold property or investments You want to plan ahead to reduce future tax bills You received IRS letters or notices 5. Choosing the Right Tax Professional Not all tax preparers are the same. When picking one, check their credentials and experience. Ask for a clear breakdown of their fees upfront and make sure they'll be available after tax season, in case follow-up is needed. It's also wise to work with someone who understands local and federal tax rules, especially if your return involves different states or business income. Many individuals and businesses in Fair Lawn, NJ, turn to Wraga Tax & Financial Services LLC for help with their taxes. Known for their dependable and clear approach, they assist both individuals and business owners with filing, planning, and IRS compliance. Their services are especially appreciated by small business owners who need more than just a yearly filing — they want year-round support and strategic advice. Visit their website: For simple returns, online tax software might cost between $0 to $100. However, these tools have limits and don't always give personalized advice. If your tax situation has complications, the cost of hiring a pro can be well worth it. In short: Tax software: Good for simple returns, lower cost Good for simple returns, lower cost Tax professional: Best for complex returns, better accuracy, long-term support The cost of hiring someone to help with your taxes depends on your situation, but it's often a valuable investment. Whether you need help with a basic return or have a more complicated financial picture, having an expert on your side can save you time, stress, and money. Always compare options, ask questions, and choose someone who understands your needs. And remember, the right tax support isn't just about filing once a year — it's about making smart financial choices all year round. TIME BUSINESS NEWS
Mint
06-07-2025
- Business
- Mint
Donald Trump's tax cuts could boost your paycheck—Here's a breakdown
President Trump's new tax law gives special breaks to workers, seniors, and homeowners — but only if your income is low enough. For example, servers and bartenders won't pay taxes on up to $25,000 of tips if they make under $150,000 a year (or $300,000 for married couples). Overtime pay gets a $12,500 deduction under the same rules. Seniors aged 65+ can claim a $6,000 tax bonus if they earn less than $75,000 ($150,000 for couples). These cuts start this year and expire in 2028. However, people earning above these limits get smaller deductions or none at all, so checking your income is crucial. Homeowners in high-tax states like New York or California get relief too. The law raises the deduction for state and local taxes (SALT) from $10,000 to $40,000 through 2029, but only for households earning under $500,000. If you buy an American-made car, you can deduct up to $10,000 in loan interest if your income is below $100,000 ($200,000 for couples). All these breaks depend on your 'modified adjusted gross income' (MAGI), which usually matches the number on line 11 of your tax return. The IRS uses this to decide who qualifies, and most people won't need complex calculations. The one piece of good news is that for 90% of taxpayers, MAGI is the same as your adjusted gross income (AGI). That's your total pay minus things like retirement contributions or student loan interest. Only Americans with foreign income or housing expenses might see a difference. To see if you qualify for the new breaks, check last year's tax return (Form 1040, line 11). If you're close to the income limits, you still have time to lower your MAGI for 2025. Putting money into a 401(k), IRA, or health savings account (HSA) reduces taxable income. Seniors over 70 years can also donate to charity directly from an IRA to shrink their MAGI. These tax breaks take effect this year! If your income is slightly too high, consider boosting retirement savings before December 31. Contributing $5,000 to a 401(k) could drop your MAGI below the $150,000 tip/overtime cutoff. But remember: Some cuts won't last. The overtime and tips deductions vanish after 2028, and the SALT cap drops back to $10,000 in 2030. While wealthy Americans get bigger permanent tax cuts, the new breaks help middle earners most. Still, critics warn Medicaid and food aid cuts could hurt low-income families, offsetting their small tax savings.
