Tuesday, May 24, 2016

Mickelson Lands in the Rough

Spring is here, and golfers across the country are busting out their loudest pants to hit the links. Tiger Woods is taking a break from chasing pancake-house waitresses to shank wedges into water hazards. And Phil Mickelson, everyone's favorite lefty champ, is struggling with a different sort of hazard right now . . . specifically, legal problems over a hole-in-one he shot on Wall Street four years ago.
Phil's a successful guy by most measures. Forbes magazine ranks him #8 in their latest list of highest-earning athletes. They estimate he took home $51 million last year, including $2.8 million in tournament winnings and an enviable $48 million more in endorsements.
But he seems to have a harder time managing his money than most $51-million-a-year guys. He's complained that taxes slice 62% off his income, which makes ends harder to meet. He's even said he passed on buying a piece of his hometown San Diego Padres due to high state taxes.
Mickelson also seems to have an appetite for gambling. But sometimes luck works in his favor. Back in 2012, he found himself in hock to a big-time sports better named Billy Walters. At one point, Walters hinted it might be a good time to invest in Dean Foods. Mickelson sank $2.4 million into the stock. A week later, it spiked 40% on positive earnings news. The very next day, Mickelson sold for a $932,000 gain and paid his debt to Walters.
Last week we discovered how Mickelson teed up such a lucky shot: the government announced insider trading and securities fraud charges against Walters and former Dean Foods chair Thomas Davis. Walters, who allegedly used insider tips to enrich himself by $40 million, says he looks forward to defending himself in court. He'll start out from a poor lie, though — Davis has already pled guilty to 12 counts, and even confessed to throwing a "burner" cellphone he got from Walters into a creek after FBI agents visited his home.
Mickelson was named as a "relief defendant," which means he's not actually charged with a crime. (If you've got to be a "defendant," that sure sounds like the way to go.) So he's not headed to rich-guy jail like his pal Walters and Davis appear to be. But he does have to give back the $932,000. And that raises an interesting tax question. He paid the tax on the gain when he made it — so does he get it back now that it's gone?
You might think he could just take a mulligan and amend his 2012 return. But that's not how taxes work — every year stands on its own.
Yes, he can take a capital loss for the repayment in 2016. But unless he has an equivalent amount in gains to report, that may not give him the full benefit of the deduction this year.
His best option may be Code Section 1341, which may let him calculate the tax he paid on the gain in 2012 and essentially take it as a credit against this year's bill, without actually "deducting" it in 2016.
In short, careful planning should help Mickelson turn his tax bogey back into a par. And it can do the same thing for you, even if you're not fading six-figure purses and seven-figure endorsements. Remember that the next time you get a hot stock tip, and call us first!

Tuesday, May 17, 2016

A Tale of Two CEOs

Every year, business reporters look forward to listing the country's highest-paid CEOs. Corporate chiefs have always done well for themselves — in 1980, the average S&P 500 head earned 42 times more than the average worker. But lately those compensation numbers have swollen fat enough to boggle Stephen Hawking's mind — in 2000, the CEO-to-worker ratio reached a high of 500:1.

Last year's CEO pay champ was Discovery Communications skipper David Zaslav. His total haul started with $3.0 million in salary and $6.1 million in bonus, before piling on $94.6 million in stock and $50.5 million in options, He also scored $1.9 million in "other" comp, like $296,930 for personal use of the company jet and a $16,800 car allowance (because it's hard to afford reliable transportation on a $3 million salary). Not bad for a guy whose company brought us Shark Week and Here Comes Honey Boo Boo!

You would think every CEO wants to make the top of that list. But some of the smartest ones are hiding out at the other end, happy to count themselves among the lowest salaried. Why on earth would they choose to work all year for peanuts? If you guessed "taxes," you're absolutely right!

Let's take a closer look at Zaslav's $9 million in salary and bonus. Sure, stacking that kind of paper sounds great. (Okay, it probably is.) But "$9 million" is really more like an opening offer. First the IRS grabs 39.6% in federal income tax. There's FICA tax of 7.65% on the first $118,500, plus 2.9% on anything above that, plus 0.8% more on anything above $250,000. Then the Empire State piles on another 8.82% more. (OK, here's where we insert the obligatory joke about how Zaslav would rather face one of those sharks his network loves to film.)

Now let's look at another CEO: Larry Page, who heads up search engine Google. His salary last year? A dollar. One measly buck. A year's worth of work for less than the cost of your morning coffee. But (and this is a pretty big but) he saw the value of his stock shoot up about $8 billion — including a mind-blowing $4 billion in just one afternoon. (Friday, July 17, 2015 was a spectacularly good day to be Larry Page.)
And how much tax did Page pay on those billions? Nothing. In fact, he won't be taxed at all until he chooses to sell. Even then, he'll qualify for special lower rates, capped at just 23.8%.

But wait, there's more! If Page wins promotion to that great corner office in the sky without having sold his stock, he'll enjoy a "stepped up basis" and avoid tax on the gains entirely. Well, he won't enjoy it, but Mrs. Page and the surviving Pagelets probably will.

Page's strategy may not make the IRS happy. But Google shareholders love it. Seeing CEOs tie their fortunes to long-term stock prices reassures investors that executives have their best interests in mind. And studies show that CEOs with low salaries are less likely to engage in the sort of shenanigans that lead to surprise earnings restatements, expensive lawsuits, and embarrassing stretches behind bars. (Just because you call it a "country club" prison doesn't actually make it a "country club.")

Here's the bottom line, and it applies whether you make a buck a year or a million. When it comes to paying less tax, it's just as important how you make your money as how much you make. So call us for a plan to help structure your income so you can keep as much as possible!

Monday, May 9, 2016

The Gambler, The Billionaire, and The Game of Kings

Backgammon is an ancient game of dice, strategy, and skill. The name dates back to the 1600s, but the game itself goes back to the Byzantine Emperor Zeno (AD 476-481). While it's never been as popular here as poker or chess, it became a huge fad in the 1960s, with Playboy founder Hugh Hefner hosting high-profile games at his Chicago mansion.
John McManus is an Irish gambler who started out taking bets at a greyhound track before moving up to horses and currency trading. He's parlayed his initial stake of four pounds into a €775 million fortune, enough to make him the Emerald Isle's eighth-richest man.
Alec Gores is a private equity mogul worth $2.1 billion who lives in a $31 million chateau just down the street from home-run king Barry Bonds. Gores has wagered millions in Hollywood poker games with celebrities like Tobey Maguire, Ben Affleck, and Matt Damon. He's not afraid to color a bit outside the lines, and drew fire for hiring a shady Hollywood private eye to wiretap his brother and former wife to confirm that they had become "inappropriately involved."
What do backgammon, McManus, and Gores have in common? Well, both men are backgammon fanatics. In fact, McManus famously travels with a portable set, and he's been known to start games with strangers on airplanes to win back his airfare. (Seriously, the guy flies commercial? What a peasant.)
In 2012, McManus and Gores sat down for "a serious backgammon match." When the dust settled, three days later, the luck of the Irish had prevailed and McManus had taken $17.4 million from the billionaire. "You always feel good after winning," McManus quipped to The Independent after his score. (Gores may be a billionaire and all, but it still had to feel a bit like waking up in a bathtub full of ice with a sore back and a hollow spot where a kidney used to be.)
Here's why we're talking about the story today. Gambling winnings are taxable, of course — at least here in the U.S. So Gores "helpfully" withheld $5.2 million of the Irishman's score and forwarded it to the IRS.
But McManus says he doesn't owe the tax. He stakes his claim on a treaty between the U.S. and Ireland, signed in 1997, designed to prevent double taxation. That treaty lets certain wealthy Irish residents avoid tax on U.S. income in favor of a flat "domicile levy" of €200,000 on their non-Irish income.
McManus filed a U.S. nonresident tax return and requested his $5.2 million back. He says the IRS approved that claim before sending it "to another department" for review. Since then, he hasn't heard a word. So now he's filed suit in the U.S. Court of Federal Claims. The IRS replies that McManus didn't qualify as an Irish resident under the terms of the treaty, and didn't even file an Irish tax return for that year. They have until October 30 to respond to the suit, so we'll have to wait until then to learn what happens next.
Here are a couple of lessons to ponder while the case makes its way through the system. First, don't sit down for a high-stakes gamble without knowing your opponent! And second, don't let the IRS catch you by surprise. Navigating the tax game board without a plan is a gamble you don't want to take! Come to us so you don't have to leave your fortune to a toss of the dice.

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!