Tax Lessons from U2

I was listening to an old U2 song while working and think that it is fitting for this time of year. It goes something like this. “October and the trees are stripped bare of all they wear. What do I care?” (U2, October, 1981)

I really think that this song is about taxes and believe me, U2 cares!!! In 2006 the Irish government decided to limit tax free earnings on artistic royalties to €250,000 ($338K US). This would have caused a huge tax bill for the band so they decided to move some of their business to the Netherlands which is considered to be one of the most tax favorable countries in the world.

According to Billboard, U2’s 2009-2011 tour grossed around $736 million. It is estimated that the total net worth of the band is over $800 million. So, you can imagine their tax savings by leaving Ireland and its 12.5% tax on royalties for the Dutch tax rate of 5%.

U2 has received a lot of bad press for this move since critics believe that it is totally hypocritical to their human rights activism. I’ll let the philosophers debate the ethical issues. I can say that what they did is perfectly legal and the band still pays close to half of their income in various taxes.

It is October…Do you care? What’s the moral of this story? Good tax planning saves money! It doesn’t need to be complicated and you won’t have to go to Holland. Sometimes simply taking a look at your situation before the year is over can save you money.

Now is a great time to plan for the end of the year. If you would like to discuss your tax planning please call me.

Getting a Hug

This has never happened to me before but last week I met with two different clients that I had not seen in a few months.  I held my hand out to shake theirs and both clients gave me a hug.  Those who know me well also know that I am not a publicly affectionate person.  But I must say that both of these hugs made me feel very nice.  It was almost as though they were acknowledging the service that I provide.  I really enjoy working with my small business clients and consider building relationships as important as the work itself.  It is very rewarding when I can see the passion that my clients have for their business and know that my services are helping them to succeed. 

Bad news for firms that reimburse workers tax free for health insurance

Employers could owe a $100 per day penalty according to the IRS. 

The IRS just issued guidance on the tax treatment of employers who give tax-free money to their employees to help pay for insurance purchased through health insurance exchanges like the Mass. Health Connector.  These employers will be in violation of the Affordable Care Act (ACA) and subject to tax penalties that could be as much as $100 a day or $36,500 a year, per employee. This ruling effectively prevents employers from shifting costs to the government by “dumping” employees into the new health exchanges rather than providing workers with health coverage, as mandated by the ACA.

This new ruling eliminates many arrangements that employers have made in the past with workers to reimburse them for health insurance premiums and out-of-pocket costs. According to the IRS, when an employer reimburses employees for premiums, the arrangement, known as an employer payment plan, is subjected to taxes.

Right now, the IRS has not indicated how strict it will be in levying the penalty.  If the premium reimbursement is done on an after-tax basis, that arrangement generally is not subject to the excise tax. 

The federal government has already postponed until 2015 enforcement of the employer mandate, which requires employers with 50 or more full-time employees to provide insurance for full-time employees until 2015. Failure to comply carries a penalty of up to $3,000 per employee. The $100-a-day tax is separate from that fee, and will be assessed on employers who fail to provide plans that meet ACA standards.