When you think of "federal crime," you probably think of big-ticket offenses like mail fraud, identity theft, and tax evasion. But our criminal code is also full of, shall we say, lesser offenses. For example, according to the Crime a Day Twitter feed, "18 USC §1854 makes it a federal crime to cut, chip, or chop a government-owned tree to get turpentine out of it." 7 USC §8313 "makes it a federal crime to bring an imported camel's blanket into the United States without the permission of the port inspector." And 8 USC §1865 "makes it a federal crime to roller skate in Alaska's Sitka National Historical Park."
Our Internal Revenue Code similarly focuses most of its attention on core questions like brackets, rates, standard deductions, and personal credits. But the tax code's 70,000 pages include their fair share of lesser provisions, too. And the Tax Cuts and Jobs Act that just passed includes a couple that might sound like the tax equivalent of sneaking a smelly camel's blanket in under a port inspector's nose.
Here's one that just seems petty and mean. Under the old law, you could exclude a whopping $20 per month of income for expenses related to riding your bike to work, so long as you weren't getting other pretax transit benefits. That's not a whole lot of benefit for bike commuters. Granted, most bikes aren't that expensive — but cyclists face far bigger dangers than taxes, in the form of road-hogging trucks and SUVs who can run them over without even seeing them.
Section 11047 of the Act lets the air out of the "qualified bicycle commuting reimbursement," for tax years beginning after December 31, 2017 and before January 1, 2026. And how much will derailing this break save the Treasury? A million dollars. A whole million dollars a year in new revenue. That's a rounding error, at best, for a bill with trillions of dollars of impact.
Of course, the bill keeps the tax subsidies for car commuters that cost the Treasury $8.6 billion per year — and contribute to the six tons of carbon the average vehicle pumps into the atmosphere every year as well!
Here's another minuscule transportation-related change that wasn't buried quite so deep in the act's fine print, and so attracted a bit more attention. Under the old law, Code Section 4261 imposed a 7.5% ticket tax on payments to aircraft service management companies that help private plane owners with chores like scheduling, flight planning, and weather forecasting. The purpose of the tax was to replace revenue the Treasury loses by not charging private aviation passengers a ticket tax.
Section 13822 of the Act eliminates those taxes, under the rationale that aircraft management services shouldn't pay the ticket tax because they don't sell tickets. Plenty of observers cried foul at the fat cat jet owners getting another tax break. But the provision's primary sponsor was Democratic Senator Sherrod Brown of Ohio, who is nobody's idea of a pawn of the rich. And the congressional Joint Committee on Taxation estimates that grounding the tax will cost the Treasury less than $500,000 per year.
Paying the least amount of tax obviously means starting with bigger questions like choosing the right entity for your business. But this week's story shows that, whether your ride to work is a Schwinn or a Cessna, there's always an opportunity for planning. So call us when you're ready to save. We don't care how you get to our office . . . we just want to see you do it!
Tuesday, January 30, 2018
Thursday, January 25, 2018
iTaxes Version 38 Billion.0
In 2016, SyFy debuted a new show called Incorporated about a dystopian future where corporations, not governments, rule the world. If that nightmare ever comes true, we all know which real-world corporation will rule them all. It's Apple, of course, which just took the shrink-wrap off their $5 billion ring-shaped headquarters in Cupertino, CA and is on the verge of becoming the world's first trillion-dollar company.
Odds are good that you've got an iDevice of some sort in your home, office, or pocket. Apple's product design geniuses use crack-like design and technology that keeps users hooked like heroin addicts, to make Apple the most valuable corporation in the world. But what you may not know is how Apple's financial geniuses use proactive tax planning to make their company even more valuable. And now, the Tax Cuts and Jobs Act has inspired them to act again.
Apple has scattered their manufacturing operations throughout the world to take advantage of lower costs overseas. (You think your 10-year-old's science fair project is special? Big deal — 10-year-olds in China are making iPhones!) This has prompted various entertaining debates over the ethics and politics of offshoring, which we won't presume to touch here.
Apple hasn't just offshored manufacturing operations to cut manufacturing costs. They've also offshored their profits, to take advantage of tax rates that are lower than our own traditional 35%. This involves strategies with names like the "Double Irish with a Dutch Sandwich" strategy, which sounds like something you'd see figure skaters attempting at the upcoming Winter Olympics. Apple's Irish subsidiary, Apple Operations International, earned $30 billion from 2009-2012, and didn't even file tax returns for those years.
Hoarding cash before the IRS gets to grab 35% of it doesn't mean stuffing it under some sort of supersized Irish mattress. The parent company borrows their own subsidiary's cash, deducts 35% of the interest they pay for it here in the U.S., and pays tax on that interest at just 12.5% in Ireland, shifting even more money out of IRS reach.
Now the Tax Cuts and Jobs Act has cut the rate on Apple's iProfits to just 21%. It even includes a bonus "get out out of jail free" card for companies with cash overseas, letting them pay a one-time 15.5% rate to load those bales of cash on a plane and bring them home. So Apple is repatriating $252 billion, and writing the IRS a $38 billion check — enough to finance the entire government of Wisconsin for a year, with enough left over to pay for Jacksonville or St. Louis, too. But that's still $43 billion less than paying the 35% on the full amount.
And what will Apple do with their iSavings? Throw a party, of course! They've announced plans to hire 20,000 new employees, build another major domestic campus, and boost R&D to diversify away from the iPhone. They'll also use billions more for dividends (which put cash in shareholders' hands) and share buybacks (which also rewards them by pushing prices up).
We realize you don't have $252 billion to plan for. But that doesn't mean you can't profit from planning, too. So give us a call when you're ready to take full advantage of the new tax law and see how much iCash we can put in your pocket!
Odds are good that you've got an iDevice of some sort in your home, office, or pocket. Apple's product design geniuses use crack-like design and technology that keeps users hooked like heroin addicts, to make Apple the most valuable corporation in the world. But what you may not know is how Apple's financial geniuses use proactive tax planning to make their company even more valuable. And now, the Tax Cuts and Jobs Act has inspired them to act again.
Apple has scattered their manufacturing operations throughout the world to take advantage of lower costs overseas. (You think your 10-year-old's science fair project is special? Big deal — 10-year-olds in China are making iPhones!) This has prompted various entertaining debates over the ethics and politics of offshoring, which we won't presume to touch here.
Apple hasn't just offshored manufacturing operations to cut manufacturing costs. They've also offshored their profits, to take advantage of tax rates that are lower than our own traditional 35%. This involves strategies with names like the "Double Irish with a Dutch Sandwich" strategy, which sounds like something you'd see figure skaters attempting at the upcoming Winter Olympics. Apple's Irish subsidiary, Apple Operations International, earned $30 billion from 2009-2012, and didn't even file tax returns for those years.
Hoarding cash before the IRS gets to grab 35% of it doesn't mean stuffing it under some sort of supersized Irish mattress. The parent company borrows their own subsidiary's cash, deducts 35% of the interest they pay for it here in the U.S., and pays tax on that interest at just 12.5% in Ireland, shifting even more money out of IRS reach.
Now the Tax Cuts and Jobs Act has cut the rate on Apple's iProfits to just 21%. It even includes a bonus "get out out of jail free" card for companies with cash overseas, letting them pay a one-time 15.5% rate to load those bales of cash on a plane and bring them home. So Apple is repatriating $252 billion, and writing the IRS a $38 billion check — enough to finance the entire government of Wisconsin for a year, with enough left over to pay for Jacksonville or St. Louis, too. But that's still $43 billion less than paying the 35% on the full amount.
And what will Apple do with their iSavings? Throw a party, of course! They've announced plans to hire 20,000 new employees, build another major domestic campus, and boost R&D to diversify away from the iPhone. They'll also use billions more for dividends (which put cash in shareholders' hands) and share buybacks (which also rewards them by pushing prices up).
We realize you don't have $252 billion to plan for. But that doesn't mean you can't profit from planning, too. So give us a call when you're ready to take full advantage of the new tax law and see how much iCash we can put in your pocket!
Thursday, January 4, 2018
He's Mister Tax Miser
Welcome to 2018! New Years' always brings changes to taxes. Key numbers, like tax brackets, standard deductions, personal exemptions, and qualified plan contribution limits, all roll over on January 1. But this year brings more change than any year since 1987. Washington has just passed a sweeping overhaul of the entire tax code, from working individuals all the way to multinational corporations. Tax planners across the country are scrambling to ferret out the opportunities hiding in its 503 pages of typically dense, impenetrable text. (There's a reason tax lawyers drive Jaguars.)
This year's tax bill avoids one particularly awkward tax transition we faced in 2010 — one that became, for some families, literally a matter of life or death. Remember the old children's Christmas special, Year Without a Santa Claus, with the dueling Heat Miser and Snow Miser? Those guys had nothing on 2010 . . . the Year Without an Estate Tax!
Estate taxes date back as far as 700 B.C. in ancient Egypt. (Of course, the Egyptians also buried their pharaohs with food, clothing, and jewelry for the afterlife.) Here in the United States, they began with the Revenue Act of 1862, which included gift and estate taxes ranging up to 6%, including bequests to charities. The Revenue Act of 1916 created the modern transfer tax system, with rates up to 10%. But those rates quickly climbed — when America's first billionaire John D. Rockefeller died in 1937, his estate paid 70%.
In 2001, the Bush tax cuts began raising the threshold for paying the tax from $675,000 to $3.5 million over a series of years through 2009. In 2010, the tax disappeared entirely. But then, due to Senate budget rules, it reset in 2011 at 55% on estates over $1 million. Of course, Congress had planned to do something to plug that one-year hole, but . . . you know how Congress sometimes doesn't get around to doing everything they're supposed to, and we rang in 2010 with no estate tax at all. Finally, in December 2010, Washington reinstated the tax beginning on January 1, 2011.
This presented a pretty straightforward challenge as 2009 drew to a close. Keep Grandpa alive past midnight! But December, 2010 posed a very different challenge. How much will Grandpa cost his heirs if he lives long enough to raise one final toast to auld lang syne? Here's how the Wall Street Journal reported one case:
"In New York the lapsing tax spawned a major family conflict, according to one attorney. As a wealthy patriarch lay dying at the end of the year, it became clear that under the terms of the will his children would receive more if he died in 2010, while his wife (not the children's mother) stood to benefit if he died in 2009. The wife then filed a "do not resuscitate" order and the children challenged it. The patriarch lived a few days into 2010, but his estate . . . remains unsettled given the legislative uncertainty."
What, if anything, happens to estate taxes in the newest law? Good news . . . the amount you can leave to your heirs without paying actually doubles, to $11.2 million! Even better, there's no provision for the rules to change again any time soon, which makes planning so much easier. So raise a toast to 2018 . . . and remember that, at least where taxes are concerned, saving money won't require you to pay the ultimate price. We'll be here for you this New Years' and beyond, with all the strategies you need to pay the least amount allowed!
This year's tax bill avoids one particularly awkward tax transition we faced in 2010 — one that became, for some families, literally a matter of life or death. Remember the old children's Christmas special, Year Without a Santa Claus, with the dueling Heat Miser and Snow Miser? Those guys had nothing on 2010 . . . the Year Without an Estate Tax!
Estate taxes date back as far as 700 B.C. in ancient Egypt. (Of course, the Egyptians also buried their pharaohs with food, clothing, and jewelry for the afterlife.) Here in the United States, they began with the Revenue Act of 1862, which included gift and estate taxes ranging up to 6%, including bequests to charities. The Revenue Act of 1916 created the modern transfer tax system, with rates up to 10%. But those rates quickly climbed — when America's first billionaire John D. Rockefeller died in 1937, his estate paid 70%.
In 2001, the Bush tax cuts began raising the threshold for paying the tax from $675,000 to $3.5 million over a series of years through 2009. In 2010, the tax disappeared entirely. But then, due to Senate budget rules, it reset in 2011 at 55% on estates over $1 million. Of course, Congress had planned to do something to plug that one-year hole, but . . . you know how Congress sometimes doesn't get around to doing everything they're supposed to, and we rang in 2010 with no estate tax at all. Finally, in December 2010, Washington reinstated the tax beginning on January 1, 2011.
This presented a pretty straightforward challenge as 2009 drew to a close. Keep Grandpa alive past midnight! But December, 2010 posed a very different challenge. How much will Grandpa cost his heirs if he lives long enough to raise one final toast to auld lang syne? Here's how the Wall Street Journal reported one case:
"In New York the lapsing tax spawned a major family conflict, according to one attorney. As a wealthy patriarch lay dying at the end of the year, it became clear that under the terms of the will his children would receive more if he died in 2010, while his wife (not the children's mother) stood to benefit if he died in 2009. The wife then filed a "do not resuscitate" order and the children challenged it. The patriarch lived a few days into 2010, but his estate . . . remains unsettled given the legislative uncertainty."
What, if anything, happens to estate taxes in the newest law? Good news . . . the amount you can leave to your heirs without paying actually doubles, to $11.2 million! Even better, there's no provision for the rules to change again any time soon, which makes planning so much easier. So raise a toast to 2018 . . . and remember that, at least where taxes are concerned, saving money won't require you to pay the ultimate price. We'll be here for you this New Years' and beyond, with all the strategies you need to pay the least amount allowed!
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