Where Does Cardi's Money Go?

The rapper Cardi B grew up in the South Bronx's Highbridge neighborhood, where the median family income barely tops $27,000. Cardi, born Belcalis Armanzar, couldn't wait to get out. She spent much of her time at her grandmother's home across the Harlem River in Washington Heights. By age 23 she released her debut video and album. Last year she joined the A-list with her hit "Bodak Yellow," where she raps about being rich and arriving at "the club" in a Rolls-Royce Silver Wraith.

Apparently, Cardi really is stacking some nice paper. On March 22, she recorded an angry rant demanding to know where her tax dollars go. "So you know the government is taking 40% of my taxes. And, Uncle Sam, I want to know whatchyou doing with my [gerund favored by rappers] tax money. Because, you know what I'm saying? When you donate, when you donate to a kid from a foreign country, they give you updates of what they're doing with your donation." She complained about rats infesting New York City's subway, and concluded, like any good auditor, "I want receipts."

Cardi does have a point here. If you give to a group like Save the Children, you'll get letters from the child you're helping. It's too bad Cabinet secretaries don't write taxpayers detailing where their dollars go. ("Dear Taxpayer: I write to tell you that I dropped $31,000 for a dining room table and millions more for private jet rides.")

Fortunately for Cardi, it's easy to find exactly where each federal spending dollar goes. (One caveat: it's not entirely accurate to talk about where "tax dollars" go because the government spends almost $1.20 for every dollar it takes in.)
•The biggest chunk — 23 cents out of every dollar — goes to Social Security. Now, Cardi is just 25, so she's probably not spending much time worrying about retirement, but she can take satisfaction knowing at least some of that will make its way back to her grandmother in Manhattan.

•Medicare and other healthcare services take 13 cents each. In fact, more than two-thirds of every tax dollar goes towards various social insurance programs, which also include unemployment compensation, veterans' benefits, and the like.

•National defense takes 15.3 cents out of every dollar. Interest on the national debt eats up six cents more. And education takes another three cents.

•That leaves just six cents out of every dollar to cover everything else. That total includes all the perennial punching bags that budget hawks love to attack, like foreign aid (one penny per tax dollar), the Corporation for Public Broadcasting (1.2 hundredths of a penny), and the much-maligned National Endowment for the Arts (four thousandths of a penny).


We're willing to bet that no matter where your tax dollars go, you'd like to see less of them going there. So don't just criticize like Cardi B. Call us for a plan, and we'll give you something to dance to!

Ooops!

Back in 1985, a group of ambitious lawmakers set out to reform the federal income tax code. House Ways & Means Chair Dan Rostenkowski introduced the legislation. (This was before he became inmate #25338-016 at the Oxford Federal Correctional Institution.) Congress held dozens of hearings, cast 29 roll call votes, and debated 111 amendments on philosophical questions like Dan Quayle's proposal "to provide that the period during which an individual is in the United States competing in a charitable sporting event shall not be taken into account in determining whether such individual is a resident alien."

Ten months and 18 days later, President Reagan signed the Tax Reform Act of 1986 into law. Two years after that, Congress passed a "technical corrections" bill to fix hundreds of drafting errors that made it into the final text.

Fast forward to 2017. Technology and the internet have made everything faster, right? That includes legislation, of course. On November 2nd, House Ways & Means Chair Kevin Brady introduced the Tax Cuts and Jobs Act. There were zero hearings, handwritten amendments in the middle of the night, and a quick "never mind" when Senators realized they had accidentally killed the Research & Development credit.

On December 22 — just 50 days later — the President signed the bill into law. That's less time than it usually takes to rename a post office after a local school board member. Now those lawmakers may be rediscovering something their grandmothers told them back when they were little: namely, "marry in haste, repent in leisure." It turns out Congress may have skipped ahead to the bottom of their homework a little too quick, and made a teensy-weensy boo-boo or two along the way.
•The cut in the top corporate tax rate, from 35% to 21%, happened to give big grain producers like Archer Daniels Midland a big advantage over smaller farmers. So a couple of agriculture-state senators tried to level the playing field by giving producers who sell to co-ops the same 20% "qualified business income" deduction as other pass-through businesses. Unfortunately, they let those farmers deduct 20% of their gross sales when they wanted to let them deduct 20% of their taxable income. Big difference. Can Congress pass a fix?
•Lawmakers wanted to give restaurant owners and retailers a tasty break for renovation expenses by letting them deduct so-called "leasehold improvements" over 15 years. Instead, they made it 39 years. Restaurant lobbyists understand this was an honest mistake, like overcooking a steak. But, same as you can't UN-cook an overdone slab of beef, there's no easy "do-over" to fix the problem short of amending the actual law.
•Even the giant multinational corporations you would expect to applaud the new lower rates are howling over "base erosion" rules, intended to stop them from playing games by shifting profits offshore to avoid taxes here. (Trust us, you don't want to know the details.) It's hyper-technical stuff, but there are big dollars at stake. Can you even imagine how many lawyers will buy new Jaguars with the money they bill for "taxsplaining" what Congress really meant in court?


Drafting errors and "technical" corrections certainly make tax planning harder. But they don't make it any less important. We can't let the perfect be the enemy of the good. So call us when you're tired of wasting money on taxes you don't have to pay, and let's see if we can show Congress how to do it right.

IRS Investigates Pot of Gold at End of Rainbow

St. Patrick's Day is here, and every "Irish for a day" tippler in your social circle will take advantage of this convenient excuse to haul grandma out of the house for a little day-drinking. (It seems unnecessary on a Saturday, but whatever.) Faux-Irish saloons across America are tapping kegs of Guinness, pouring shots of Jameson, and covering their walls and ceilings in every Celtic cliche they can find: the shamrocks, the hats, the green beads, and of course, the leprechaun jealously guarding his pot of gold at the end of the rainbow.

Now, leprechauns are usually pretty happy little fellas. Wouldn't you be happy if you found a pot of gold in some misty bog? But this isn't always true, as you'll see if you look at the University of Notre Dame "Fighting Irish" mascot. Have you ever wondered why that little guy is so hostile? Maybe it's because he just discovered the IRS wants a share of his stash!

Unfortunately for our diminutive Hibernian friend, the tax code has all sorts of special rules to help the IRS dig their hands deeper into his treasure:
•Code Section 61 defines gross income as "all income from whatever source derived." The code does go on to carve out all sorts of exclusions from this broad definition. For example, Section 101 excludes life insurance death benefits and Section 105(b) excludes employer-provided health benefits. Unfortunately, there's no exclusion for pots of gold at the end of the rainbow. (Sounds like the National Organization of Leprechauns needs to hire some better lobbyists!)

•Income received in the form of property is taxed under the rules of Code Section 83(b). Generally, the finder owes tax on the fair market value of property as of the date it's found. In the case of gold, where there's a public market to establish value, our leprechaun takes the average of the highest and lowest quoted trading prices for the yellow metal on the day he finds his treasure. If he finds it on a weekend, he'll need to take the average price for the Friday and Monday bookending the day he finds it.
•Gold is considered a capital asset. This might seem like good news, as gains are generally taxed at preferential rates capped at 20%. However, precious metals are classified as "collectibles," making them subject to special higher rates of up to 28%. Gains on gold are also subject to the 3.8% "net investment income tax" for leprechauns with adjusted gross income above $200,000 (single filers) or $250,000 (if filing jointly with Mrs. Leprechaun).
•Finally, there's a special prohibition against holding gold coins in IRAs or other retirement accounts. This may not sound like a big deal at first. However, Irish folklore holds that leprechauns live for 300 years, which makes saving for retirement especially crucial.
Now, don't go feeling too sorry for your pint-sized prospector. After-tax gold isn't as much fun as pre-tax gold. But it's still better than no gold at all. And with gold currently trading at $1,300 per ounce, there's plenty in the pot to pay for good tax-planning help. Conveniently, that's where we come in. So call us when you're ready to pay less. Don't count on finding a four-leaf clover when you can follow the rainbow to a plan!

Area Man Treats Colleague to Dinner, Drinks

The three-martini lunch has a long and mostly honorable history as a deductible business expense. As former President Gerald Ford once said, "Where else can you get an earful, a bellyful, and snootful at the same time?" Ford's successor, famed buzzkill Jimmy Carter, tried (and failed) to cut the deduction from 100% to 50%. The Tax Reform Act of 1986 succeeded in that goal, and today's business diner has probably switched from martinis to white wine. But old habits die hard — check any happening lunch spot and you'll find happy diners eating partly on Uncle Sam's dime.

The rapper-turned-mogul Jay-Z may have 99 problems, but reaching for the check isn't one. Last month, he treated the president of his Roc Nation Sports talent agency, Juan "OG" Perez, to an epic birthday night in Manhattan. The posse started with dinner at Zuma in midtown, where he dropped $13,000. After dinner, he took them uptown to Made in Mexico for $9,000 worth of drinks. And a group of six stragglers finished off the night at Playroom, where the real fun started.

Apparently, Jay-Z and his friends were very thirsty, very generous, or both. The group's bar tab — ticket #48 — included 20 bottles of Ace of Spades brand "gold" champagne at $1,200. Each. Plus 20 bottles of "rose" champagne at $2,500. Each. Plus $6,035 in sales tax (of course). Plus an $11,100 tip. Grand total, $91,135.00. Hear it for New York!

So . . . Jay-Z takes his employee out to dinner. Surely they talked business while they were painting the town. Should Jay-Z stuff his receipt in a shoebox to save for this year's tax return?

For starters, there's a debate brewing over whether business meals are now deductible at all. For 31 years, there was no debate that you could deduct 50% of meals where there was a substantial, bona fide business discussion. The Tax Cuts and Jobs Act clearly eliminates deductions for "associated entertainment" expenses, like golf or a ball game taking place before or after that business discussion. However, some tax professionals read the new law as eliminating the deduction for meals, too.

But even assuming the deduction survives the new law, there's another hurdle to overcome. Code Section 274(k) prohibits deductions "for the expense of any food or beverages unless such expense is not lavish or extravagant under the circumstances." Now, you can argue that if you're Jay-Z, you're expected to make it rain with $74,000 worth of champagne. And if you're talking a glass or two to celebrate signing a big deal, you might even be right. But we can probably assume that even Jay-Z's fans at the IRS would draw the line somewhere well before the 40th bottle.

As for that $11,100 tip . . . sure, it sounds like a baller move. But it's actually just 15% of the pre-tax tab, and pretty stingy for New York! Plenty of celebrities are known for being better tippers. Shaquille O'Neill asks servers to tell him how much they want. And George Clooney routinely leaves servers a 150% surprise. Walter White, of Breaking Bad fame, left a $100 tip for breakfast on his 52nd birthday, although it did turn out to be his last meal.

When was the last time you went out for a really special meal? Was it a birthday, an anniversary, or some other celebration? It probably wasn't deductible. But careful tax planning might keep enough in your pocket to cover your own epic night out. So call us when you're ready to save, and let's see if you can raise a glass of bubbly to the results!