Tax-Free Smarts

Graduation season is here, and grads of all ages are excited to move on! Kindergartners are celebrating mastery of letters, shapes, and not eating crayons. Awkward eighth-graders just want to finish getting through puberty. High-schoolers are looking forward to careers, college, and moving out of their parents' nests. College grads are looking forward to crushing student debt and moving back in to those nests. And some panicky grad students (you know who you are), are searching desperately for one last degree to avoid joining the rest of us in the real world.

Most graduations are pretty pedestrian affairs. The same Pomp and Circumstance, the same gowns, caps, and tassels, and the same trite, inspirational speeches filled with dad jokes and lame puns. But every so often, a graduation makes real headlines. This year, it came on May 18, at Atlanta's Morehouse College, a private, historically-black men's college.

Robert F. Smith founded Vista Equity Partners, a private equity firm investing in software companies. Smith is one of the best in that particularly challenging business — he's built a $5 billion fortune and made himself the richest African-American in the country. (Take that, Oprah!) This year, Morehouse granted Smith an honorary degree and invited him to deliver the commencement address. Smith, who has been a generous supporter of educational causes, pledged $1.5 million to the school. So far pretty typical, right?

But Smith saved his real news for the ceremony itself, without even announcing it to administrators ahead of time. He told the audience of 396 graduates: "We're going to put a little fuel in your bus . . . . This is my class, 2019, and my family is making a grant to eliminate their student loans." While the exact figure is still unknown, recent classes have graduated with roughly $10 million in debt.

The best part, as far as students are concerned, is that Smith's extraordinary gift is tax-free. Recipients never owe tax on gifts. As for Smith, givers can give up to $15,000 per year to as many recipients as they like, or $30,000 for joint gifts with their spouse. And givers can pay any amount for medical or educational purposes so long as they stroke the check directly to the institution providing those services. Givers don't owe actual tax until their total lifetime gifts above those "annual exclusion amounts" top $11.4 million per person.

But Smith shouldn't even face those gift tax consequences. That's because, as he announced at the ceremony, he's making a "grant" to nuke the loans. Doing it through the school should qualify it as a deductible charitable contribution, meaning Uncle Sam will cover up to 37% of that cost.

Smith is no stranger to deductible gifts. He's given $50 million to his own alma mater, Cornell, which named their school of chemical and biomolecular engineering for him. (Who knew you could slice and dice engineering schools like that?) He's supported the Smithsonian's new National Museum of African-American History and Culture. And last year, he bought two houses — where the Rev. Martin Luther King was born, and where he lived with his family — and donated them to the National Park Service.

Smith is obviously smart as well as generous. And one thing he seems to know is you don't build a $5 billion fortune without minimizing interference from the IRS. Would you love to be able to make some sort of grand, generous gesture at the next graduation you attend? Call us for a plan to pay less tax, and let's see how generous we can help you be!

May the 21st Be With You, Yes?

A long time ago in a galaxy far, far away (okay, on May 21, 1980), The Empire Strikes Back introduced the world to Yoda, the oldest, most-powerful, and most syntactically-challenged Jedi knight in the universe. Yoda delighted audiences as he trained Luke Skywalker, launched him into battle against Darth Vader, and died peacefully at age 900, his body becoming one with the Force. Today, his fans remember Yoda by celebrating May 21 as National Talk Like Yoda Day. And celebrating we are this year by talking about taxes!

Hard to believe it is, but taxes lie at the heart of the Star Wars universe. In Episode One: The Phantom Menace, in the very first paragraph of the opening crawl, we learned that taxation of trade routes to outlying star systems was in dispute. The Galactic Senate had imposed taxes to fight interplanetary pirates, and in response, the Trade Foundation had blockaded shipping to Naboo to pressure the Senate into repealing those taxes. The Supreme Chancellor dispatched two Jedi Knights to resolve the dispute . . . and the adventure begins!

Yes, more to the story there is than that. The Sith Lord Darth Sidious — masquerading as Senator Palpatine — used the dispute to seize dictatorial powers, declare himself Emperor, lure Anakin Skywalker to the Dark Side, commission a Death Star factory, and proceed to ravage the Galaxy. But really . . . dig down deep enough, past the epic space battles, light saber duels, and colorful aliens inhabiting Mos Eisley's cantina (aka "the bar scene"), and you'll find just another battle over tariffs. Like the American Revolution almost it sounds, hrmmm?

The Galactic Senate isn't the only body levying taxes in the Star Wars universe. On the desert planet of Tatooine, so common it was that Jabba the Hut imposed a tax on murder. The bodies murderers even plotted to cheat the tax by hiding. Smart tax policy on Jabba's part? Possibly . . . although probably not sustainable in the long run, yes? That is, unless the Tatooine Department of Tourism manages to make the desert planet appealing enough to attract future victims to emigrate!

There's even a real-life tax-planning success behind the Star Wars story. Back in 2012, before releasing the final three installments of his saga, creator George Lucas sold his production company Lucasfilm to Disney. Closed the deal he did less than three months before the maximum tax on capital gains was scheduled to jump from 15% to 20%, and the new 3.8% net investment income tax was scheduled to begin. Lucas's timing saved him around $176 million in earthbound taxes, yes?

Lucas with one last challenge success faces. With somewhere north of $5 billion in assets, he's facing an estate tax bill the size of a minor outlying planet. But estate planning moves he has. Lucas has signed Bill Gates' "Giving Pledge," which encourages wealthy people to donate most of their wealth to charity. Signing the pledge accelerates normal charitable giving into hyperdrive and cuts estate taxes with the power of the Millennium Falcon.

When it comes to saving money on taxes, one thing you must remember there is: plan or plan not. There is no try. Jedi tax planning you need. Fortunately, you don't have to fight your way through an army of stormtroopers to slash your bill. You just have to pick up the phone. So call us, and feel the proactive power of the Force!

Oh, Baby!

On May 6, England's Prince Harry and his wife Meghan introduced the world to a baby with the delightfully British name of Archie Harrison Mountbatten-Windsor. The new royal is now seventh in line for the throne, which means he won't have to spend his life faking fascination with mundane royal duties like touring factories or christening ships. The poor kid doesn't even have a title, at least not yet. You'd think he would at least be Laird of some Scottish fishing village, or Earl of ye olde shopping malle somewhere.

The U.S. Department of Agriculture estimates it costs an average of $233,610 to raise a child. (Make that $264,090 in the urban northeast, and "just" $193,020 out in the sticks.) That total includes the costs of paying for more house, skinned knees and braces, and daycare until they get old enough that you just want to send them to school already.

Pound for pound, then, babies like Archie are the priciest people on earth. Here on our side of the pond, our tax code offers all sorts of goodies to make raising them easier. There's a $2,000 annual child tax credit, deductions for at least part of the mortgage interest and property tax on the new McMansion, a $2,100 dependent care credit for daycare, and various strategies for out-of-pocket medical costs. But what sort of goodies will Britain's newest royal enjoy, aside from the obvious perk of being born with a platinum spoon in his mouth?

The British tax system works a bit like ours, but with posher accents. Her Majesty's Revenue and Customs (which sure sounds warmer and fuzzier than "Internal Revenue Service") phased out most child tax credits two years ago. The mortgage interest deduction disappeared all the way back in 2000. Health care is already free. And as for Archie's nanny bills, HMRC offers a "tax-free childcare" subsidy of £2 from the government for every £8 they spend, up to £2,000 per year.

Of course, the latest royal moppet won't really need any of those. His father benefits from the Queen's Sovereign Grant — £76.1 million in 2018 ($103 million) — which she uses partly to maintain Kensington Palace where Archie lives. Harry also shares in his own father Prince Charles's Duchy of Cornwall income, which has been handed down to the eldest son of the monarch since 1337. And mom Meghan is no slouch herself, with a net worth estimated at $5 million from her Hollywood days.

Climbing further up the family tree, Forbes pegs Archie's great-grandmother the Queen's personal fortune at $500 million. She also benefits from the $25 billion Crown Estate, which includes the really pricey stuff like Buckingham Palace (worth $4.7 billion) and the Crown Jewels. Do your jewels have names? (Fun fact: The thoroughly modern Queen even posts on Instagram now!)

So, with all that Sovereign Grant money raining down on the Queen, the royals are a burden on the state, right? Think again. The Grant money works out to just about 69 pence per taxpayer. But the monarchy also generates $700 million per year in tourism revenue. Harry and Meghan's royal wedding last summer added another $1.5 billion to the coffer. That means, despite anti-Royalist criticism, Archie's family is actually a profit center.

You may be thinking none of this has anything to do with you. But children can make great, sticky, squirmy little tax-planning opportunities. So call us after the baby shower, and let us help you hire them for your company, write off their braces as business expenses, and even help pay for their college!

Law & Order: Tax Crimes Unit

In the criminal justice system, tax-based offenses aren't considered especially heinous . . . but they still cost the government a ton of money. In field offices throughout the country, the dedicated Special Agents who investigate these expensive felonies are members of an elite squad known as IRS Criminal Investigation. (They're also the only IRS agents who get to pack heat, rock a Kevlar vest, and go undercover.) From the FY 2018 CI Annual Report, these are their stories. (Dun Dun.)

• Shawanda Nevers — aka Shawanda Hawkins, Shawanda Bryant, and Shawanda Johnson — operated several businesses in New Orleans, including a sports bar and a tax-prep shop. She must have thought her taxes should be as spicy as her cooking. So she whipped up returns giving her clients fake business losses, deductions, and credits. In 2014, the IRS permanently barred her from preparing taxes. But she kept letting les bon temps rouler until CI agents busted her again, fined her $7 million, and sentenced her to seven years of bland prison chow.
  
• Kelly Sue Reynolds worked as a bookkeeper in North Carolina. Over five years, she embezzled $439,459.97 from her employer, including the money that was supposed to pay their taxes. (That's the mark of a top-notch bookkeeper, right? They can tell you down to the penny how much they stole.) When the IRS came looking for their money, CI agents busted Reynolds' scheme. Now she's counting down two years in the "camp" where Martha Stewart served. It's been called "America's cushiest prison" . . . but Reynolds still gets to learn if orange really is the new black.
  
• Rick Rizzollo ran a "gentleman's club" in Las Vegas, where he paid employees in cash and filed bogus employment tax returns. (He's a real gentleman himself — he hired teenage strippers, and used a baseball bat to "persuade" customers into signing fraudulent credit card charges.) In 2006, he copped to the employment tax fraud. Then he hid his money to dodge the back taxes and sent $900,000 from selling a second club to an account in the Cook Islands. But CI agents demanded the naked truth, and helped send Rizzollo to 24 months in a place where the "bouncers" don't wear tuxedos.
  
• Lizzie Mulder (not a CPA) posed as a CPA in California, where she had clients make out checks payable to "Income Tax Payments." Perfectly kosher, right? What clients didn't know was that she had set up a phony account called (wait for it) "Income Tax Payments," under her own name. She used their money for a pricey house, cosmetic surgery, vacations, and an Arabian horse. Lizzie's husband ratted her out to clients, then CI agents joined to "stable" her in a Phoenix prison for five years.
  
• Monsignor (!) Hien Minh Nguyen was a priest for the San Jose archdiocese and director of the local Vietnamese Catholic Center. Apparently he missed class the day they discussed that whole "poverty" thing in priest school. Nguyen stole cash donations from parishioners and deposited their checks in his personal account, among other sins. CI agents visited him, hoping for a confession, and used his lies and inconsistent answers to build a case that led to $1.9 million in restitution and three years in prison. (He can probably count on a few years in purgatory, too.)

It's sometimes fun to see what happens to people when their good judgment and common sense take early retirement. Of course we all want to pay less tax! But you don't have to risk a visit from a pistol-packing Special Agent to do it. Call us for a plan, and see how much you can save without posing for mug shots.