Monday, May 2, 2016

Sign "O" the Times

The artist forever to be remembered as Prince shocked the world with his unexpected death last month at his Paisley Park compound outside Minneapolis. As is often the case when legendary musicians pass away, his album sales have soared. Fellow artists from Bruce Springsteen to the cast of the Broadway smash Hamilton quickly honored the seven-time Grammy award winner with their own versions of his iconic hits. But it's just a matter of time before the gritty realities of settling an estate intrude on the purple rain of praise . . . and that includes the gritty reality of taxes.
Like many chart-toppers, Prince was a control freak when it came to his sound and his career. Apparently, though, that planning didn't extend to his finances — last week, his sister filed papers with a Minnesota state court revealing he had left no will.
So who gets the assets, and just how much are we talking here? Well, Prince had no wife when he died, and his parents had already passed away. Under Minnesota law, that means his sister and five half-siblings stand to inherit his fortune. Most reports estimate there will be around $300 million to share . . . which should be enough to keep everyone rolling in little red corvettes for the rest of their lives.
Of course, that assumes that everything goes by the book. Already there are reports of would-be love children slithering out of the shadows, and Prince's half-brother Alfred has hired an attorney to represent him after being barred from last week's memorial. That may mean it's the accountants and attorneys who get to party like it's 1999.
Settling the estate without tearing it apart is just half the battle. That $300 million comes before taxes. The IRS takes 40% of everything above $5.45 million. The Gopher State takes another 16% of everything over $1.6 million. A little fourth-grade arithmetic suggests the tax man can go crazy with $150 million or more.
We can probably expect a fight over the exact amount due. Estate taxes are based on valuation, not income. So who's to say what Prince's name and image are "worth"? What about a vault of 2,000 unrecorded songs? What about the unpronounceable "love symbol" he adopted instead of a name to spite his record label? How much would Pepsi pay to make a commercial starring a holographic image?
That's all before the tax man takes a bite out of the millions more in future royalties that his estate will certainly earn. Prince's rival Michael Jackson earned $115 million last year, despite dying way back in 2009. Elvis Presley hasn't recorded since Jimmy Carter was President, yet his estate earned $55 million last year thanks to ticket sales at his Graceland mansion. No one remembers the last time Elizabeth Taylor performed without embarrassing herself, yet her estate earned $20 million last year from her fragrance line. It's enough to make you think that dying is just some sort of extreme viral marketing stunt.
The good news, at least for Prince's heirs, is that he was rich enough to survive his failure to plan. But are you? Failing to plan for your legacy can be the most expensive mistake you ever make, and could throw your heirs into years of struggle and grief. So call us to help make sure that doesn't happen!

Tuesday, April 26, 2016


For most of us, filing a tax return is a fairly private affair, just between us and our friends at the IRS. But for President Obama and his family, it's a high-profile event. Last week the White House posted the Obama's' return online, and it reveals a lot about how the tax laws apply at the highest levels.
The President's base pay is $400,000 per year, the same as when he took office seven years ago. When he talks about American workers not getting pay increases, he really does feel their pain! (He's not the only one in Washington with that complaint; Congressional salaries have also been frozen since then.)
Of course, the job comes with some pretty nice tax-free perks. There's a nice white house on 18 acres of prime Pennsylvania Avenue real estate, with a fenced yard, vegetable garden, and tennis court. Zillow says it would rent for about $2 million/month. There are a couple of nice private jets for trips to see foreign leaders around the world. There's a nice helicopter just to get from the nice white house to the nice jets. And there's a $50,000 entertainment allowance for hosting the friends he makes on those trips around the world.
The President also earned $348 in taxable interest, $9 in taxable dividends, and $3,000 in capital losses. Finally, he earned $56,069 in net business income from book royalties. That's way down from 2009, when Dreams From My Father and The Audacity of Hope raked in $5.2 million. Those revenues have dropped every year since he took office, and his current income is barely enough to put him in "the 1%." On the bright side, the self-employment income let him stash an extra $11,064 into a self-employed retirement account.
On Schedule A, the Obama's included $18,390 in state and local income taxes, $30,167 in property taxes, $36,587 in mortgage interest, and a generous $64,066 in charitable contributions. However, there's a phaseout on itemized deductions starting at incomes over $309,900, which limits their actual deduction to just $145,545. That isn't the only phaseout that hits the Obama's . . . their income level means no child tax credit for daughters Sasha and Malia, and the Personal Exemption Phaseout costs them $16,000 in personal exemptions they could otherwise claim.
The First Family finishes with $290,640 in taxable income and $71,440 in tax. But wait . . . there's more! The Alternative Minimum Tax wipes out those state and local tax deductions and costs the Obama's an extra $7,743. The President owes $1,502 in self-employment tax on his book earnings. He also owes $1,766 in additional Medicare tax imposed, starting in 2013, by his own Affordable Care Act. ("Thanks, Obama!")
The Obama's signed their return on April 7. Under "Occupation," Barack listed his as "US President" and Michelle listed hers as "US First Lady." So where is her income in all of this? Nowhere to be found! Realistically, the Obama's won't ever have trouble making ends meet. But fans of the First Lady's work argue that failing to pay her sends a terrible message about paycheck equality. Even former President Ronald Reagan, who probably would have opposed today's paycheck fairness legislation, once quipped that with his wife Nancy, the government "gets an employee free."
Here's what may be the most surprising fact about the Obama's taxes: they paid too much. Granted, the President is in a unique position of having to demonstrate strict compliance with the law. But his 1040s over the years reveal plenty of perfectly legal missed opportunities to pay less. Fortunately, you don't have to publish your return every year, so you can take advantage of every legal strategy. Call of for a plan and we'll show you how!

Monday, April 11, 2016

Where Are All the Americans?

Last Sunday, the International Consortium for Investigative Journalism stunned the world with their release of findings from 11.5 million files leaked from the Panamanian law firm Mossack Fonseca. The "Panama Papers" blow the lid off the firm's creation of over 214,000 companies, mostly in the British Virgin Islands and similar "sunny places for shady people" where financial miscreants go to hide their loot.

Most of the press has focused on 140 political figures and family members caught with their pants down. Iceland's Prime Minister Sigmundur Gunnlaugsson has already resigned. British Prime Minister David Cameron has released his tax returns to rebut claims he improperly benefited from his father's offshore investments. And Russian President Vladimir Putin, whose close cronies have been named, has denounced the leak as a U.S.-led plot to weaken Russia. But there's one question on every one's lips — specifically, where are all the Americans?

It's not like there aren't any Americans lurking in the files. Billionaire developer Igor Olenicoff, who paid $52 million to settle tax-evasion charges back in 2007, is there. He says he's been framed. (Right.) John "Red" Crim, another convicted tax cheat who sold sham trusts to hundreds of marks around the country, is there too. But those are the sorts of people you'd expect to find hiding offshore. Where are the senators, the televangelists, and the Wall Street fat cats you really want to see exposed?

Here's one possible explanation that House of Cards fans might appreciate. Clifford Gaddy, a former Russian finance ministry advisor, suggests that Putin himself may be behind the leaks. The Russian strongman is popular enough in his own country to withstand exposure, and most critics already assume he and his billionaire henchmen are looting "the Motherland" blind. Gaddy's hunch is that Putin may be holding back information on Americans to blackmail them. (Is Gaddy really serious? Or is he just trolling the Kremlin?)

But the real reasons are disappointingly less suspicious. The surprising truth is that we Americans don't get any tax benefits simply by moving our income offshore. That's because U.S. law taxes us on everything that moves we earn no matter where in the world it moves we earn it. Titling businesses and investments offshore doesn't save tax unless we just "forget" to report them.

We also don't have to go offshore to cloak our ownership. We can incorporate anonymously in business-friendly places like Nevada (where Mossack Fonseca kept an office) or Delaware, and stay nearly as far under the radar as if we had spent our money on a Caribbean vacation.

Even when we do go offshore, there's nothing inherently improper or unlawful about it. For example, Hollywood billionaire David Geffen used a Cayman Islands company to hold title to a $300 million yacht he bought from a Russian billionaire's ex-wife. Juicy? Sure! Illegal? Sorry, move along . . . nothing to see here.

Here's all you really need to know. The Panama papers remind us that the global elite really do have ways to hide their money from threats, including taxes. But here in the U.S., you have plenty of legitimate deductions, credits, loopholes, and strategies you can use to accomplish those same goals — without hiding or cheating. All you really need is a plan. So call us for strategies that won't risk exposure to muckraking reporters and front-page headlines!

Monday, April 4, 2016

Start Warming Up Your Texting Thumbs

If you're not already one of the millions of Americans with a smartphone glued to your hands, this story may make you reconsider . . . . Vermont Senator Bernie Sanders has fired up the progressive left with his long-shot White House run. Sanders describes himself as a "democratic socialist," and asks Americans, "What's wrong with being more like Scandinavia?" Naturally, his platform includes Scandinavian-style higher taxes on America's wealthy.
Texas Senator Ted Cruz may be Sanders' complete and polar opposite, an unabashed conservative who appears biologically allergic to anything related to government. Naturally, his platform slashes taxes for nearly everyone. If that's not enough, he wants to abolish the IRS entirely, and replace them with taxes we can file on a postcard.
So what do you think would happen if you locked Sanders and Cruz in a room and forced them to come up with a tax system they both could support? Well, it probably wouldn't be pretty. (Seriously, can you imagine?) But those two unlikeliest of bedfellows just might come up with something to make April 15 look like any other day.
Our current system couldn't be much uglier. In January, your mailbox fills up with W-2s, 1095s, 1098s, and 1099s. Starting in February, you'll get your K-1s and your corrected 1099s. (It's enough to make you suspect the tax code is a conspiracy put together by paper and printer manufacturers.) Then it's time to compile all that information and crunch those numbers on brain-numbingly obtuse federal forms. In 2010, a White House panel estimated Americans spend 7.6 billion hours and 140 billion dollars keeping the IRS off their backs. (Hey now, we know what you're thinking, and don't blame us.)
But what if we could avoid all that hassle? What if the IRS could do you taxes for you — then send you the forms, all ready to approve? In millions of cases, they already have all the information they would need to do that. (Computers, too, if they could just protect them from hackers.)
That's already reality in eight countries, including Sanders' favorites Norway and Finland. In nearby Estonia, most taxpayers file online in less than five minutes.
But the gold medalist in speed-filing gold may be everyone's favorite sub-arctic socialist paradise, Sweden. In Sweden, most taxpayers just wait for the government to send their return, already filled out. But some of them actually get it by text message. And if everything looks good, they text "yes" and they're done. (That's one Swedish policy that even Ted Cruz might be able to get behind!)
Unfortunately, there are too many groups with vested interests in the current system to make that a reality here. But there is a silver lining, if you look hard enough. (Harder!) And that's the fact that complexity creates opportunity. Every deduction, credit, loophole, and strategy that Washington throws into the code gives us a chance to help you pay less. And all you need is a plan. So whip out your smartphone — or even, god forbid, your landline — and call us!

Tuesday, March 29, 2016

The Great Eskimo Tax Scam

Spring is here, at least according to the calendar, and you probably aren't thinking much about Eskimos as April 15 approaches. But here's a fun story from the Wayback Machine to remind you it's never the wrong time to pay attention to taxes.
Back in 1971, President Nixon signed the Alaska Native Claims Settlement Act. The law was intended to settle a long history of land disputes dating back to before Alaskan statehood. It distributed up to 104.5 million acres of land to the native tribes, paid out $962.5 million in cash, and created 13 "Alaska native regional corporations" to manage those assets. But timing, as they say, is everything. Fishing, timber, and oil industries collapsed, and nearly all of the new corporations were left with losses.
In 1983, Alaska's senior Senator, Ted Stevens, added a provision to the 1984 tax bill letting the new corporations sell those tax losses. Let's say you're a profitable corporation riding the 1980s economic boom and you're looking at a $4 million tax bill on a $10 million profit. You find a needy native Alaskan corporation with $10 million in losses. You pay that corporation, say, $2 million in cash for the right to take the tax loss on your own bottom line (even though you didn't actually incur the loss yourself), and poof — you've just saved yourself $2 million in tax!
It didn't take long for tax planners to find Stevens's little Easter egg. In 1986, a Marriott exec named Stephen Norris learned about the new loophole. Norris hooked up with David Rubenstein, a former Carter administration official who had left his White House post to start peddling influence from a Washington law firm. Marriott paid Rubenstein's firm a seven-figure sum in fees for saving an even higher seven-figure sum of taxes. Norris smelled opportunity for himself and checked out of Marriott to set up shop brokering tax deals with Rubenstein.
Norris and Rubenstein had no trouble finding needy Eskimos. They flew the struggling CEOs into Washington, wined them and dined them, and got them just as hooked on free money as the crack cocaine that enterprising drug dealers were just then bringing to America's Lower 48. The partners took 1% of the transaction for themselves and juiced a billion dollars of losses through the system. (If you hated math in school, that's $10 million in fees.) In 1987, the pair built on that success to help found the Carlyle Group, a private-equity fund named after the pricey New York hotel that became a home away from home for senior Washington officials looking to cash in on their government connections.
Meanwhile, back in Alaska, our naive native tribes were learning the hard way why Wall Streeters caution, "Bulls make money, bears make money, pigs get slaughtered." Eskimo companies started overstating their losses, taking "liberties" and "cutting corners" marking down the value of their timber and oil assets. Suddenly everyone had losses for sale, and even the accountants were getting rich! But every party has a pooper, and pretty soon the IRS caught on. In 1988, Congress repealed the law, put the tax break on an ice floe, and pushed it out to sea.
Arrangements like the Great Eskimo Tax Scam force tax planners to scramble as they appear and disappear. Fortunately, our tax code includes dozens of perfectly legal strategies that aren't in any danger of disappearing — and don't include the word "scam" in their name. Call us when you're ready to start putting more of them to work for yourself!

Monday, March 21, 2016

A Little Tax Magic

You already know that our Congress is as gridlocked as at any time in recent history. Budget and spending bills get rolled up into year-end monstrosities. Urgent priorities like immigration reform get hijacked by partisan posturing and "appeals to the base." The wizard Merlin himself would have a hard time pulling a sword from the solid block of stone that is today's U.S. Senate.
So here's a welcome breath of legislative fresh air that everyone can support. Representative Pete Sessions (R-TX) and six colleagues have introduced House Resolution 642 "recognizing magic as a rare and valuable art form and national treasure." Magic "is timeless in appeal and requires only the capacity to dream," they say. It "transcends any barrier of race, religion, language, or culture." It even helps children with disabilities improve their physical and mental dexterity and build confidence.
You know who else seems to like magic? The candidates offering tax plans as part of their effort to succeed Barack Obama as President of the United States! Take Republican Donald Trump, for example. He's drawn attention for his proposal to eliminate the "carried interest" loophole that lets private equity fund managers pay tax at preferential long-term capital gain rates on much of their income. But he also proposes to cut taxes to 15% on business income and 25% on individual income. He would also eliminate tax for singles earning less than $25,000 and joint filers earning less than $50,000, eliminate the marriage penalty and the alternative minimum tax, and make the estate tax vanish into thin air. Sounds great, right? But what does that tax plan do to the country's financial health? According to the Committee for a Responsible Federal Budget, those proposals would pull $12 to $15 trillion more debt from a hat. To balance the budget, spending would need to be cut by 40-80%, or the economy would have to grow by over 10%.
Trump isn't the only Republican with a little magic up his sleeve. Texas Senator Ted Cruz promises that on his first day in office, he'll saw the IRS in half. (Conveniently for the rest of us, he won't be putting it back together.) He also promises we'll be able to do our taxes on a postcard. (That's sort of a "card trick," right?) And former candidate Marco Rubio promised to make capital gains taxes disappear in a puff of smoke. "There's just a lot of magical thinking going on on the Republican side," says Len Burman, director of the Washington-based Tax Policy Center. Republicans aren't the only ones counting on some fiscal sleight-of-hand to make ends meet. Everyone's favorite Democratic Socialist, Bernie Sanders, promises to nationalize health care, make public colleges tuition-free, and raise taxes on the rich. But New York magazine has accused him of "thinking like a Republican," citing four former chairs of the Council of Economic Advisors who hit Sanders for "magic math" claims that his plan would lead to 5.3% economic growth and 300,000 new jobs per month. And while nobody has accused Hillary Clinton of magical thinking, she'll need a fair amount of sorcery to get her plan through Congress.
Look, we all wish we could wave a magic wand and make our tax bills vanish. But unless Penn & Teller run for the White House, that's not going to happen. What's the next best thing? A proactive plan can save you far more than a rabbit hidden in a hat. So call us today and see if we can make some taxes vanish!

Monday, March 14, 2016

The Humor Endures

The passing of former First Lady Nancy Reagan last week at age 94 marks a bit of an end to the 1980s. Nancy earned both praise and criticism for restoring what she saw as some much-needed Kennedy-esque pomp and circumstance to the White House. Later, she earned praise for her work against drug use and, in later years, for championing embryonic stem-cell research. The passage of time proved kind to Mrs. Reagan — her funeral drew an A-list of politicians, Hollywood celebrities, and even former A-Team start "Mr. T," whom Nancy befriended as part of her "Just Say No" campaign. Ironically, given Nancy's own penchant for glamour, her husband Ronald made much of his reputation through his folksy, homespun wit. And taxes were a prime target of his humor. So in honor of both Reagans, here are some of Ronald's most famous quotes about taxes to enjoy as April 15 approaches. And just to make it interesting, we've thrown in a ringer. Can you spot the words that actually came from Russian president Vladimir Putin?
"The taxpayer — that's someone who works for the federal government but doesn't have to take a civil service exam." "We don't have a trillion-dollar debt because we haven't taxed enough; we have a trillion-dollar debt because we spend too much." "Republicans believe every day is the Fourth of July, but Democrats believe every day is April 15." "The government's view of the economy can be summed up in a few short phrases. If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." "There were always those who told us that taxes couldn't be cut until spending was reduced. Well, you know, we can lecture our children about extravagance until we run out of voice and breath. Or we can cure their extravagance by simply reducing their allowance." "History shows that when the taxes of a nation approach about 20% of the people's income, there begins to be a lack of respect for government . . . . When it reaches 25%, there comes an increase in lawlessness." "The tax agencies have no right to terrorize business . . . "
If there's anything Ronald Reagan hated more than taxes, it was the "evil empire" of the former Soviet Union. That's why it's especially ironic that the last quote about tax collectors terrorizing business came from Russian strongman and former KGB apparatchik Vladimir Putin! Presidents and their spouses will always come and go. (Someday, Americans will mourn the passing of the first "First Gentleman.") But some things won't ever change, and we're confident it won't ever be easy to pay taxes. Want to make things easier? Come to us for a plan to pay as little as possible! Every day you wait is a day you might be able to pay less.