Over the River and Through the Woods

Thanksgiving is a time for homecoming, and some of us are fortunate to return to a place where we've spent decades of holidays. Who wouldn't relish celebrating in a cozy farmhouse out of a Norman Rockwell print, with an overstuffed chair in front of a crackling fire and a warm kitchen smelling of pumpkin pie?
But these days, more Americans spend their Thanksgiving in a different setting. Who wants grandma's cramped parlor when they can welcome guests in a two-story foyer with dueling spiral staircases and a faux-crystal chandelier? We're talking, of course, about the design mishmash that critics have dubbed "the McMansion."
A McMansion is more than just a big, new house. It's a special breed of architectural jumble that favors sheer size and showiness over quality. You may not be able to define it, but you sure know it when you see it! Blame them, if you like, on the eager builders who sell them and the feckless zoning boards that green-light them. But there's one more more enabler that makes them possible, and that's our beloved U.S. tax code.
When Congress birthed the income tax back in 1913, they made all interest deductible. But the tax itself hit less than one percent of Americans. And most buyers in that day paid cash for their homes. So there was no specific intent to subsidize mortgage interest for the masses.
Since then, however, mortgages have become indispensable to the home buying economy and the mortgage interest deduction has become central to the tax code. In 1986, Congress eliminated tax breaks for most personal interest, but kept the deduction for interest on up to $1.1 million of mortgage debt. Today's code also lets you exclude up to $500,000 of capital gains from your income when you sell your primary residence.
Given our progressive tax system, these tax breaks tend to favor the wealthy. Mortgage interest is deductible only for the highest-earning third of Americans who itemize deductions. And the capital gains exclusion helps the most in high-cost markets clustered on the east and west coasts. One study found that just five high-cost urban areas snagged 87% of the net tax benefit, with over half going to California alone.
So . . . combine imperfect tax subsidies with the general decline of aesthetic integrity, and what do you get? Crimes against architecture. You can love stately brick courses, homey wood shingles, and even grand stone accents, without mashing them all into a single facade. You can admire the Greeks' taste in columns without slapping stick-on foam imitations on your bathroom wall like a suite at Caesars Palace. You don't need to know what a hipped roof, a gable, and a jerkin-head are to know they don't all belong on the same house.
Making fun of McMansions has even become part of popular culture. There are several web sites dedicated to mocking the form. In House of Cards, Frank Underwood gave home buyers his own brand of home buying advice: "Money is the McMansion in Sarasota that starts falling apart after ten years. Power is the old stone building that stands for centuries."
We don't care if your dream home is a suburban estate, a city loft, or a condo at the beach. Our job is to help you navigate the jumble of tax laws that make even the gaudiest McMansion look balanced and proportional. So call us when you're ready for a blueprint — we'll be here to help you build the tax shelter you need!

All You Need is Love

No matter who we voted for, we can all agree that this has been the nastiest presidential election since Thomas Jefferson called John Adams a hermaphroditic bastard. This week it's finally (finally!) come to an end. Whether you're elated or nauseated by the results, there's probably one emotion you share with most Americans right now: relief that the campaign is over. You've taken a long hot shower, and you got to enjoy your Sunday afternoon football with no political ads.

Now it's time for everyone to make nice. Donald Trump began his victory speech by graciously praising his rival Hillary Clinton: "Hillary has worked very long and very hard over a long period of time, and we owe her a major debt of gratitude for her service to our country." Hillary returned the favor the next day, telling her supporters we owe Trump an open mind and a chance to lead. Outgoing President Barack Obama stated we are all on the same team and we are all rooting for his success.

As the Beatles once sang, it seems that "all you need is love." Unfortunately, not everyone seems to agree. We're talking, of course, about the romantics at the Internal Revenue Service.

Our story this week starts with Joseph L. Jackson and his wife Sylvia. Joseph is the pastor at Triumph Church of God, a tiny Florida congregation with just 25 to 30 regular members. His wife sat on the board of directors. Together, the Jacksons managed the church's checking account and appeared to sign all checks jointly. As you can imagine, this won't be one of those stories involving rich people with billions of dollars or rich corporations with trillions of dollars.

Joseph told the church's board of directors that he didn't want an actual, taxable salary for his work. However, he said, he would be perfectly delighted to receive "love offerings," gifts, or loans from the church. In 2012, the couple signed $4,815 worth of checks payable to Mr. Jackson, with "love offering" or "love gift" marked on the memo line.

At the end of the year, the church issued Jackson a 1099-MISC for the income. Next year, when the Jacksons filed their return, they reported $6,478 in deductible contributions to the church. But they omitted the $4,815 the church had paid to them. Naturally, with 1099 in hand, the IRS objected, and everyone wound up in court.

Last month, Special Judge Daniel Guy issued his opinion in Jackson v. Commissioner. No one objected to the deduction for the Jacksons' gift to the church. But the love gifts were a different matter, and Judge Guy took just four sentences to conclude that Jackson's "subjective characterization of the payments as nontaxable 'love offerings' and 'love gifts' is misguided." (By "misguided," of course, what he really meant was "ridiculous" — you just don't get to say that when you're a Tax Court judge.)

When your kids were little and they got flustered, you might have looked down at them and said "use your words!" The same advice is true here. It's a common misperception that taxes and tax planning are all about numbers. But really, they're about the words we use. Can we legitimately interpret words to characterize money we receive as "nontaxable"? Can we interpret them to characterize money we spend as "deductible"? Merely calling something "nontaxable" or "deductible" isn't enough. Call us if you want to use your words to pay less. We're pretty sure you'll love the results! 

No, They Don't Want Justin Bieber Back

Given how long the 2016 presidential election season was, you're probably in one of two camps right now: ready to move to Canada, or relieved you don't have to. Either way, it's likely more Americans have actually thought about Canada in the last year than in the entire last century. So let's take a look at how Canada's tax system works, eh? Here's what you're in for (or what you're missing) from a country that calls its money the "loonie."

At first glance, Canada's tax system looks a lot like ours. The Canada Revenue Agency is the Great White Northern equivalent of our IRS, and it collects income and payroll taxes. "Revenue Canada" also collects the Goods and Services Tax (a 5% value-added tax) and Harmonized Sales Tax, a combined federal/provincial sales tax that replaces the GST in five eastern provinces. Tempted to cheat? Just remember they've got the Mounties on their side!

Canada's federal income tax looks a lot like ours, too, only nicer. Rates start at 15% and top out at 33% on incomes over $200,000. (Right now, one dollar equals about 1.34 loonies.) Capital gains are taxable; however, you'll only include 50% of them in your income. You can defer up to 18% of your previous year's income, up to about $25,000, into a Registered Retirement Savings Account that resembles our 401(k)s. You can also put up to $5,500 per year into a Tax-Free Savings Account that resembles our Roth IRAs.

The big difference comes in the provinces and territories. Here in the US, state tax rates rarely climb above 8%. California has the top rate at 13.3% and it doesn't apply until $1 million. Canada's provincial rates generally start around 8% and climb quickly from there. Quebec has the top rate at 25.75%, and it kicks in at just $103,151. (But it sounds so much better because it's in French!)

Of course, Canadians get something for their provincial tax dollars that we don't get from our states: Canada's legendary healthcare system. Canucks love their healthcare almost as much as they love maple syrup. Doctors handle billing directly with the government for everything but prescription drugs, long-term care, eyeglasses, and dental care. It's hardly perfect, of course — critics point to long wait times for specialists and Canadians traveling to the U.S. for elective surgeries. But in the end, Canadians drop just 9% of their GNP on healthcare, versus 17% here.

And Canada has the usual collection of oddball tax rules you'd expect in any democracy. Blank CDs carry a special "private copying levy" because the government assumes you're using them to violate somebody's copyright. Geese, ducks, and turkeys are tax-free if you're going to breed them, but taxable if they're on the menu. And just this year, Alberta boosted taxes on small breweries from 10 cents to $1.25 per liter, which drinkers are finding hard to swallow.

Canadians will roll out the welcome mat if you decide to pack up your skates and take off. If you're single, visit MapleMatch.com, a dating site to match fleeing Americans with lovelorn Canadians. (Check the boxes for "bacon" and "hockey" to up your odds.) And don't forget that Canada's most recent election lasted just 78 days.

The new administration is sure to bring to change to Washington, and that probably includes changing tax laws. We'll stay on top of it all to help you pay less. Maybe you'll use some of the savings for a city weekend in Montreal, or a ski trip to Whistler? Bring us back some souvenirs, hoser!