Holy Taxes, Batman!

On July 23, Batman turned 75! Everyone knows how the billionaire industrialist Bruce Wayne dons a bat-like costume to protect Gotham City from supervillains like The Joker, The Penguin, and The Riddler. But did you know that he's just as resourceful when it comes to fighting The Tax Man, too? Let's use the occasion of the DC Comics character's Diamond Anniversary to see what bat-deductions he can bring to the fight:

• Batman may be a brilliant detective and master martial artist, but he can't protect Gotham all by himself. Dick Grayson was the youngest member of the "flying Graysons" acrobat troupe when a mafia boss killed his parents. Batman took Grayson in as his legal ward, and soon Grayson became "Robin." Claiming Robin as a dependent gives Batman a personal exemption, which would reduce his taxable income by $3,950 this year if Batman's high income didn't phase out most of that deduction. But more important, it lets Batman file his taxes using more advantageous "head of household" rates!
  
• Batman and Robin live at stately Wayne Manor, an enormous fortress outside Gotham City. Batman's family has owned the home for generations, which means Batman isn't likely to be paying tax-deductible interest on a mortgage. However, he can deduct an unlimited amount of property tax he pays on the home and grounds, including the Batcave. Oh, and the solar panels Batman installed after the mansion was damaged in an earthquake qualify for a 30% solar investment tax credit.
• Alfred Pennyworth is a British actor and former intelligence agent who serves as Batman's butler and best friend. Alfred manages Wayne Manor and cares for the Batcave below. It's not a business relationship, so Batman can't write off Alfred's salary. However, it seems evident that Alfred is required to live on the premises as a condition of his employment — which at least makes his room and board tax-free to him.
• When Robin left for college, Batman decided Wayne Manor was a bit too stately for just Alfred and him. So they decamped to a penthouse high atop the Wayne Foundation building in Gotham City. Naturally, the penthouse includes a secret elevator, leading to a secret Batcave, in a secret sub-basement deep under the building. But there's no need to hide anything from the IRS — it also qualifies as a second home, meaning Batman can deduct interest on up to $1 million of "acquisition indebtedness" on the property, plus an unlimited amount of property tax as well.
• Batman is one of those rare comic book superheroes without actual superpowers. He can't fly, like Superman, or breathe underwater like Aquaman, or transform himself into an invulnerable green humanoid like The Incredible Hulk. (He can't even make plants grow like the Clorophyll Kid!) But he can harness an arsenal of specially-designed bat-themed gadgets and tools. This includes the fleet of vehicles we all love — the Batmobile, Batplane, Batboat, Bat-sub, and Bat-cycle. And it includes a special utility belt to carry the "batarangs" he uses in lieu of firearms (because a gun killed his parents). Batman's "toys" naturally help him fight crime. But they also help him fight taxes — inventing and producing them qualifies for lucrative Research & Development tax credits and Domestic Production Activity deductions!

Billionaire Bruce Wayne understands that smart tax planning doesn't have to mean revealing his secret identity. We can be sure he uses at least part of the savings to fund his fight against the supervillains! But you don't have to be a millionaire crime-fighting playboy to benefit like he does. Activate your bat-signal — or just pick up your batphone and call us — and we'll give you the plan you need to fight taxes you just don't have to pay.

Berkshire Giveaway

Someday, the financial wizards who run things on Wall Street will realize there's "paper to be stacked" opening an Investor Hall of Fame. (Hey, the Rock and Roll Hall makes $40 million a year, and it's in Cleveland.) And when they do, they'll have to dedicate an entire wing to Warren Buffett. The so-called "Oracle of Omaha" has become a rock star among money managers. His chart-topping net worth soared by $37 million per day last year. And his annual Berkshire Hathaway shareholder meeting attracted 40,000 attendees this spring, making it the Burning Man Festival for the cocktail set.

Buffett affects a folksy style, posing for photos with a ukelele and quipping that Wall Street is the only place where people drive Rolls-Royces to get advice from people who ride the subway. But he didn't get to be #2 on the Forbes 400 by being dumb — and this is true with taxes, too. Buffett has made headlines criticizing the carnival of confusion that passes for the "Internal Revenue Code" for taxing his secretary at a higher rate than it taxes him. But his actions show a keen grasp of the power of smart tax planning.

Let's take a look at Buffett's charitable giving. Now, there's no doubt that his motives are sincere — he's pledged to give a whopping 99% of his fortune to charity. But his generosity may have the side benefit of saving him $30 billion or more in tax.

So far this year, Buffett has donated $2.8 billion, including $2.1 billion to the Gates Foundation, $215 million to the Susan Thompson Buffett Foundation, and $150 million each to the Howard G. Buffett Foundation, the Sherwood Foundation, and the NoVo Foundation. But those gifts didn't really "cost" him $2.8 billion. That's because he didn't give cash — he gave Berkshire Hathaway stock. Donating appreciated stock lets Buffett deduct the fair market value of that stock at the time of the gift, even though his "cost basis" — or actual investment in it — is likely to be far, far less. Giving away appreciated stock also lets him avoid tax on the appreciation in that stock.

Let's say Buffett's basis in this year's gift stock was an even billion dollars. (It's probably even less, but who's counting?) If Buffet had sold the stock at a $1.8 billion gain, then given cash, he would have had to pay $712,800,000 in regular tax, plus another $68,400,000 in "net investment income tax." Giving appreciated stock directly, then letting the charities sell it, boosts his largesse by nearly $800 million — money that Buffett evidently thinks his charities can spend better than the folks in Washington.

Buffett probably won't ever "retire" in the go-fishing-in-Florida-and-eat-dinner-at-4 sense of the word. But at some point, he'll get promoted to that great boardroom in the sky. That's when his charity will really sidestep our friends at the IRS. Buffett could set up his heirs for generations to come. But with a 40% estate tax, leaving his current net worth of $58.5 billion to family would cost $23.4 billion in tax. Leaving his wealth to charity avoids that hit. And it spares the rest of us decades of reality TV about spoiled, dissolute heirs — their gilded lifestyles, their trips to rehab, and their endless Paris Hilton-esque shenanigans.

We realize you don't have billions to give like Buffett. But if you're one of the millions of Americans who admire his business wisdom, take a lesson from his tax wisdom as well. And call us before you make any sort of major gift, to your church, your college, or your community. We'll help you structure it to squeeze out the maximum advantage. You can be sure Warren Buffett would approve!

Cleveland Rocks!

Cleveland, Ohio has historically been one of America's most populous and productive cities, peaking as the fifth-largest back in 1920. Today, "C-town" is a shadow of its former glory, another Rust Belt factory town, best known for the Rock and Roll Hall of Fame. But last week, Clevelanders had reason to celebrate once more. Are we talking about the Republican National Committee's decision to host their 2016 nominating convention in the city dubbed "the Mistake on the Lake"? Of course not! We're talking about basketball superstar LeBron James's decision to leave the Miami Heat and return to the city where he spent the first seven years of his career.

On the face of it, James's decision seems curious. Few athletes with any choice in the matter would happily trade Miami's bright lights, sunny pastels, and Caribbean vibe for Cleveland's cold winters, gray skies, and flammable river. But LeBron, who grew up in nearby Akron, believes in home — and for him, the move is a slam dunk. "My presence can make a difference in Miami, but I think it can mean more where I’m from," he told Sports Illustrated. "I want kids in Northeast Ohio . . . to realize that there’s no better place to grow up. Maybe some of them will come home after college and start a family or open a business . . . Our community, which has struggled so much, needs all the talent it can get."

Cleveland fans aren't the only ones who will applaud LeBron's move. You can be sure that basketball fans at the IRS will cheer, too. LeBron will make a reported $20.7 million per year in Cleveland — $1.6 million more than the $19.1 million he earned last season in Miami. He'll pay the top income tax rate of 39.6% on that difference, along with an extra 3.8% Medicare tax — and that, in turn, will mean about $694,000 more for Uncle Sam. (His total Medicare tax on his playing salary will reach almost $785,000, or nearly enough to pay for a heart transplant.)

But the biggest winner here may be the Ohio Department of Taxation. Last season, LeBron played his home games at Miami's American Airlines Arena, where he enjoyed Florida's lack of personal income tax. When he returns to Cleveland's Quicken Loans Arena, he'll pay Ohio's top rate of 5.421%. That's no mere technical foul — state taxes on the half of his games that he'll play at home will run more than half a million dollars per year!

Fortunately for LeBron, he makes his real money off the court. In 2013, he collected a whopping $50 million in endorsements from Nike, Coca Cola, Cadbury Schweppes, Juice Batteries, Upper Deck, Cub Cadet, McDonald's, Microsoft, and State Farm — among others. He was an early investor in Beats by Dre, and reportedly parlayed that stake into $30 million when Apple acquired the headphone maker. But LeBron will keep his residence in Florida, which should shelter the bulk of his financial three-pointers. No less a business authority than Warren Buffett has said of LeBron, "He's savvy. He's smart about financial matters. It's amazing to me the maturity he exhibits."

When it comes time to pay all those taxes, you can be sure that LeBron James doesn't just drop off a shoebox full of receipts with his accountant on April 15. He's got a plan to "defend his net" as vigorously as the law allows. Now, you probably can't fill Lebron's size-16 sneakers. But you can take advantage of the same sort of proactive planning that superstar athletes use to save millions. And you don't even have to wait for free agency! You just have to pick up the phone and call us. So, what are you waiting for?

Inside Job

The IRS currently has nearly 90,000 employees — about the population of Springfield, OH, or Muncie, IN. The vast majority of them are honest, hardworking civil servants, doing their best to navigate the all-you-can-eat buffet of confusion known as "the Internal Revenue Code." They use their training and knowledge to do their sometimes thankless jobs, then head home to their families, secure in knowing they're helping our government finance its operations.

But a tiny number of these so-called "servants" use their powers for evil instead of good. They cheat the system to enrich themselves, at the expense of all the rest of us. Fortunately, for those of us who play by the rules, they usually leave tracks behind them. Here's one of the better stories, from the IRS Criminal Investigations unit's Fiscal 2013 annual report.

Patricia Fountain had worked at the IRS Service Center in Philadelphia for 10 years. In 2006, she discovered the IRS wasn't verifying requests for the telephone tax credit from filers claiming less than $1,500. Then she learned the Service wasn't verifying claims for first-time homebuyer credits. She smelled opportunity — and launched a criminal scheme of such dazzling brilliance that . . . well, we'll let you be the judge.

First, she enlisted her boyfriend, her hairdresser, and a third friend to join her scheme. According to the Philadelphia Inquirer, the four conspirators then recruited a motley collection of "drug addicts, welfare recipients, and ex-cons" who needed cash, would let the gang file false returns on their behalf, and would hand over $400 of the resulting fraudulent refunds. Fountain's henchmen used her position within the IRS to "add an air of credibility" to the scheme and convince the straw filers to join. And life was good, at least for awhile. From 2006 through 2012, our criminal masterminds bilked the government out of more than $3 million.

And how could Fountain count on her straw filers to cooperate and kick back her $400? If she didn't think they were coughing up her share fast enough, she would "red flag" them by filing another return, triggering the IRS to seek repayment and unleashing the collections department on them. (Yes, she actually did this — eight times!)

Fountain's vindictive streak proved to be her undoing — predictably, one of the women she "red flagged" ratted her out. Things fell apart from there, with conspirators pointing fingers at each other in a mad rush to avoid consequences. Fountain claimed she was framed by her boyfriend, then had a hard time explaining her fingerprint on the stamp used to mail her own fraudulent return. Another co-conspirator — a Mensa wannabe by the name of Calvin Johnson, Jr. — used information from the scheme to continue filing false returns as late as 2012, while he was being supervised on pretrial release for filing his first batch of fraudulent returns!

Fountain will have the next 19 years to decide if orange really is the new black, plus $1.7 million in restitution. Her boyfriend got 12 years behind bars and $1.75 million in restitution. Johnson gets 18 years of federal hospitality. And four more of the gang, including Johnson's father, drew sentences for their parts as well.

It's all pretty comical, yes. But in the end it's more sad than funny. There are so many honest ways to make a good living, and so many honest ways to pay less tax on it. So call us when you're ready for a plan — because, in the end, it's what you keep that counts.