Americans love peeking into the wallets of the rich and famous. Just how much are they really worth? How did they get there? And who's on top of the pile? For years, Microsoft founder Bill Gates ($76 billion) has been the king of that particular gilded hill, with Berkshire Hathaway chief Warren Buffett ($65 billion) capturing a respectable second place.
But last week brought news that there's a shakeup near the top — and taxes played a big role in that change. Amazon founder Jeff Bezos, who owns about 18% of the company, has seen his stock shoot up over 50% since its recent low in February. At the same time, Warren Buffett has seen his Berkshire Hathaway shares languish. On Friday, July 22, Bezos's uptick and Buffett's downtick crossed, making Bezos the second-richest man in America and the third-richest man on earth.
Now let's look at just a few of the ways taxes played in growing Bezos's wealth:
Amazon got an early boost by helping customers avoid the state and local sales taxes they would pay at a local brick and mortar retailer. Buying online already meant saving a trip to the store. But skipping the tax bill made the whole proposition even more attractive. Even today, the company collects sales tax in just 28 states.
Amazon's international headquarters is based in low-tax Luxembourg, where it benefits from a sweetheart ruling negotiated with local authorities seeking to lure multinational corporations. Low taxes mean the company has more to reinvest in growing its business.
The company profits from an elaborate structure, dubbed "Project Goldcrest," designed to shift income from high-tax jurisdictions to low-tax jurisdictions. (It sounds like something a James Bond villain would name his tax plan, but it earned the name because the goldcrest is Luxembourg's national bird.) For example, Amazon used a 28-step (!) series of intracompany transfers to shift income from intellectual property like software, trademarks, and brand names to a nontaxable Luxembourg partnership before passing anything back to the United States.
Bezos's taxable salary is $81,840 — just $14,000 more per year than what a lowly Facebook intern makes for fetching Mark Zuckerberg's coffee. (Bezos has no nanny for his four kids, and his wife picks them up from school in a Honda minivan.) His net worth grows through stock appreciation, which isn't taxable until he sells his shares. If he dies while he still owns the stock, his heirs will avoid income tax on that appreciation entirely.
Finally, on July 14, Buffett donated $2.9 billion to a group of private foundations. Buffett is a legendarily generous guy, who's already pledged to give away the bulk of his fortune at his death. But he's also a legendarily smart guy, and he certainly won't be passing up the sweet tax deduction he gets for his gift. Of course, that tax-advantaged gift helped close the final gap between Bezos and Buffett.
Here's the moral of the story. Smart tax planning didn't just help Jeff Bezos make Amazon more valuable. It was a crucial part of his strategy, right from the start. Shouldn't it be part of your strategy? Call us to learn more!
Monday, July 25, 2016
Tuesday, July 12, 2016
Shell Games on the Big Screen
The dog days are here, and multiplexes across America are delighting audiences with the usual summer fare. Down to the left in Theatre Three, a motley crew of undersea chums are busy finding their friend Dory. Across the hall in Theatre Five, Universal Studios has ripped off reimagined the Toy Story premise with pets instead of playthings. Around the corner in Theatre Six, you can watch the earthlings unite once again to defeat the aliens in Independence Day: Resurgence 3D. (Don't forget your $10 tub of popcorn and your $6 soda!)
Director Steven Soderbergh has shot his share of thrillers, including the Oscar-winning Traffic and the casino-caper series Ocean's Eleven, Ocean's Twelve, and Ocean's Thirteen. Now he's launched work on a different kind of thriller that the critics at the IRS will be sure to applaud: an as-yet unnamed project based on (you guessed it) the pulse-pounding Panama Papers.
Need a quick refresher? Back in April, the International Consortium for Investigative Journalism released bombshell results from a year spent combing through 11.5 million documents leaked from the Panamanian law firm of Mossack Fonseca. The papers revealed the owners of 214,000 mostly-secret shell companies. Mossack Fonseca's clients included the king of Saudi Arabia, the presidents of Argentina and Ukraine, and the former prime ministers of Georgia, Iraq, Jordan, Qatar, and (again) Ukraine.
There's nothing inherently illegal about using offshore entities. Investors often find it easier to own assets outside their own countries through shell companies, and there are legitimate tax advantages as well. But not everyone unmasked by the leak appears to have been operating entirely aboveboard. The prime minister of Iceland resigned after his citizens learned that he and his wife secretly owned millions of dollars worth of Icelandic bank bonds while he was in charge of negotiating their bailout. (Oops.) And it's hard to believe that Mallory Chacón Rossell, an "alleged" money launderer tied to Mexican druglord Joaquín "El Chapo" Guzmán, was using her offshore entity to hold, say, bank CDs.
Soderbergh previously turned the price-fixing scandal at Archer Daniels Midland into a serviceable film called The Informant, and even convinced Matt Damon to star. In this film, he'll be dramatizing the upcoming book Secrecy World, which recounts the tale of the journalists who broke the story. So we won't just be watching a bunch of lawyers in tropical-weight pinstripes filing corporate documents with various governments.
Casting hasn't yet been announced. But there are some stars who may not want to audition. Emma Watson is rumored to have made £24 million for her role as Hermione Granger in the Harry Potter series. But her name turned up in the Papers as beneficiary of a British Virgin Islands company. (No points for Gryffindor!) And martial-arts star Jackie Chan owned at least six BVI companies, including one called Jackie Chan Ltd. (If he really was trying to hide something, he probably should have worked harder on a name.)
We have no idea how much Soderbergh will make from this latest project. But we trust he's smart enough to realize he doesn't have to hide it offshore to pay less tax on it. All he really needs is a plan — and we would be happy to provide it! We can do the same thing for you, too. So call us if you want to pay less without winding up in an unwelcome spotlight!
Director Steven Soderbergh has shot his share of thrillers, including the Oscar-winning Traffic and the casino-caper series Ocean's Eleven, Ocean's Twelve, and Ocean's Thirteen. Now he's launched work on a different kind of thriller that the critics at the IRS will be sure to applaud: an as-yet unnamed project based on (you guessed it) the pulse-pounding Panama Papers.
Need a quick refresher? Back in April, the International Consortium for Investigative Journalism released bombshell results from a year spent combing through 11.5 million documents leaked from the Panamanian law firm of Mossack Fonseca. The papers revealed the owners of 214,000 mostly-secret shell companies. Mossack Fonseca's clients included the king of Saudi Arabia, the presidents of Argentina and Ukraine, and the former prime ministers of Georgia, Iraq, Jordan, Qatar, and (again) Ukraine.
There's nothing inherently illegal about using offshore entities. Investors often find it easier to own assets outside their own countries through shell companies, and there are legitimate tax advantages as well. But not everyone unmasked by the leak appears to have been operating entirely aboveboard. The prime minister of Iceland resigned after his citizens learned that he and his wife secretly owned millions of dollars worth of Icelandic bank bonds while he was in charge of negotiating their bailout. (Oops.) And it's hard to believe that Mallory Chacón Rossell, an "alleged" money launderer tied to Mexican druglord Joaquín "El Chapo" Guzmán, was using her offshore entity to hold, say, bank CDs.
Soderbergh previously turned the price-fixing scandal at Archer Daniels Midland into a serviceable film called The Informant, and even convinced Matt Damon to star. In this film, he'll be dramatizing the upcoming book Secrecy World, which recounts the tale of the journalists who broke the story. So we won't just be watching a bunch of lawyers in tropical-weight pinstripes filing corporate documents with various governments.
Casting hasn't yet been announced. But there are some stars who may not want to audition. Emma Watson is rumored to have made £24 million for her role as Hermione Granger in the Harry Potter series. But her name turned up in the Papers as beneficiary of a British Virgin Islands company. (No points for Gryffindor!) And martial-arts star Jackie Chan owned at least six BVI companies, including one called Jackie Chan Ltd. (If he really was trying to hide something, he probably should have worked harder on a name.)
We have no idea how much Soderbergh will make from this latest project. But we trust he's smart enough to realize he doesn't have to hide it offshore to pay less tax on it. All he really needs is a plan — and we would be happy to provide it! We can do the same thing for you, too. So call us if you want to pay less without winding up in an unwelcome spotlight!
Tuesday, July 5, 2016
Harry Potter and the Deathly Tax Bill
Harry Potter's sidekick Ron Weasley has challenged opponents from a mountain troll to the Horcruxes to the Death Eaters. Now the actor who plays him, 27-year-old Rupert Grint, is taking on a foe as powerful as Voldemort himself. Last month, he challenged a squad of dementors taking on the deceptively ordinary appearance of bureaucrats at Her Majesty's Revenue and Customs, Great Britain's equivalent of our IRS.
Grint has conjured up a fortune since being plucked from his local theatre group to play Harry Potter's friend. He's rumored to have collected about £24 million for his work in the series. (That's about $32.4 million, give or take, depending on how panicky currency traders are feeling about last month's Brexit vote.)
In Harry Potter's world, the Ministry of Magic imposes a Hexing Tax of up to 3,000 galleons on the privilege of wizarding. (Junior Wizard Savings Accounts at Gringott's Bank are thankfully free from this tax!) But in our Muggle world, Her Majesty's Revenue and Custom wants considerably more, taxing non-wizardry income at rates up to 40%.
Grint's accountant, Dan Clay, doesn't have a magic wand. But he does appear to have taken a class or two in Defence Against the Dark Arts. On April 6, 2010, the top tax rate on incomes over £150,000 leapt from 40% to 50%. Because the higher rate took effect in the middle of the year, the law required high-income taxpayers to split the 20-month period leading up to the transition into two separate tax periods, of eight months and 12 months. Clay chose a split that let his client report his income from the sixth and seventh films into the period before rates went up so that he could pay the lowest possible bill. But tax inspectors found documents during an unrelated audit suggesting Grint had intended to choose a different split, and imposed the higher tax.
Grint has paid the new tax in full and his barrister is quick to point that out. "There is no tax avoidance involved here." But after paying the tax, Grint filed suit to request a refund in the neighborhood of £1 million. (Pricey neighborhood!) Thus he found himself at a Tax Tribunal sitting at the high court in London, where he told Judge Barbara Mosely that his knowledge of taxes was "quite limited" and he had trusted the details to his father and his accountant. If we had Hermione Grainger's Time Turner, we'd tell you whether he wins. But we don't, so we'll just have to wait for the judge's decision.
Sometimes tax planning involves big-picture concepts and strategies like tax-efficient entity structures for business owners. (If we were to advise the barman at the Leaky Cauldron Inn that opens into Diagon Alley, we might suggest the British equivalent of an S corporation.) Sometimes it involves arcane technical details like accounting periods. And sometimes you have to resort to potions and spells. (We've got those, too. We just can't give them to you because you're a Muggle. Sorry.)
Has the Sorting Hat placed you in a top tax bracket? Here's the good news: You don't have to take on the Ministry of Magic to pay less. You just need a plan. So pick up the phone and call us — or have your owl bring us a letter — and let's see what we can do for you!
Grint has conjured up a fortune since being plucked from his local theatre group to play Harry Potter's friend. He's rumored to have collected about £24 million for his work in the series. (That's about $32.4 million, give or take, depending on how panicky currency traders are feeling about last month's Brexit vote.)
In Harry Potter's world, the Ministry of Magic imposes a Hexing Tax of up to 3,000 galleons on the privilege of wizarding. (Junior Wizard Savings Accounts at Gringott's Bank are thankfully free from this tax!) But in our Muggle world, Her Majesty's Revenue and Custom wants considerably more, taxing non-wizardry income at rates up to 40%.
Grint's accountant, Dan Clay, doesn't have a magic wand. But he does appear to have taken a class or two in Defence Against the Dark Arts. On April 6, 2010, the top tax rate on incomes over £150,000 leapt from 40% to 50%. Because the higher rate took effect in the middle of the year, the law required high-income taxpayers to split the 20-month period leading up to the transition into two separate tax periods, of eight months and 12 months. Clay chose a split that let his client report his income from the sixth and seventh films into the period before rates went up so that he could pay the lowest possible bill. But tax inspectors found documents during an unrelated audit suggesting Grint had intended to choose a different split, and imposed the higher tax.
Grint has paid the new tax in full and his barrister is quick to point that out. "There is no tax avoidance involved here." But after paying the tax, Grint filed suit to request a refund in the neighborhood of £1 million. (Pricey neighborhood!) Thus he found himself at a Tax Tribunal sitting at the high court in London, where he told Judge Barbara Mosely that his knowledge of taxes was "quite limited" and he had trusted the details to his father and his accountant. If we had Hermione Grainger's Time Turner, we'd tell you whether he wins. But we don't, so we'll just have to wait for the judge's decision.
Sometimes tax planning involves big-picture concepts and strategies like tax-efficient entity structures for business owners. (If we were to advise the barman at the Leaky Cauldron Inn that opens into Diagon Alley, we might suggest the British equivalent of an S corporation.) Sometimes it involves arcane technical details like accounting periods. And sometimes you have to resort to potions and spells. (We've got those, too. We just can't give them to you because you're a Muggle. Sorry.)
Has the Sorting Hat placed you in a top tax bracket? Here's the good news: You don't have to take on the Ministry of Magic to pay less. You just need a plan. So pick up the phone and call us — or have your owl bring us a letter — and let's see what we can do for you!
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