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 24, 2016
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!
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.
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!
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!
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