One Small Step . . .

Fifty years ago this weekend, in what many people consider the crowning accomplishment in all of human history, astronaut Neil Armstrong stepped foot on the moon. Eight years earlier, President Kennedy had challenged the nation, before the end of the decade, to land a man on the moon and return him safely to earth. An army of 400,000 scientists, engineers, administrators, and other dreamers assembled to take up the challenge — and did it with five months to spare. Who thinks we could get a lousy highway overpass built in eight years today? Anyone?

A lot has changed in the 50 years since 650 million people (a fifth of the world's population!) watched Armstrong take his giant leap for mankind. There's more computing power in your home wi-fi router now than there was in the car-sized mainframe NASA used to guide Apollo. (Such a shame that people waste most of it checking Facebook and streaming Friends reruns on Netflix.) We even eat differently today: we don't drink Tang, or send our kids to school with Space Food Sticks in their lunch boxes.

You know what else has changed since Armstrong touched down at the Sea of Tranquility? Taxes, of course. NASA spent over 25 billion taxpayer dollars on Apollo — a planet-size chunk of change, considering Uncle Sam collected just $187 billion the year he landed. Skeptics mocked the mission as a "moondoggle," begging Congress to spend the money closer to home. Imagine dropping $467 billion of today's dollars on a mission to Mars, and you'll see just how big a commitment Apollo represented.

As for individual taxpayers, they faced 25 separate brackets in 1969 (33 for heads of households). Joint filers paid 14% on their first thousand of taxable income and topped out at 70% over $200,000 (roughly $1.4 million in 2019). Taxes on capital gains were capped at 27.5%. Folks who filed their own returns used something called a "pencil" to fill out the forms. Form 1040 looked a lot like today's version, although you didn't have to list your kids' social security numbers, and you could pay your bill with a money order.

Armstrong paid the same tax on his $20,000 salary as anyone else. That's because we're one of the few countries on this blue marble we call Earth that taxes citizens on all income, even if they earn it on the moon. (Hardly seems fair.) After Armstrong returned from the moon's magnificent desolation, he taught engineering at the University of Cincinnati (where he was a tough grader), investigated the Apollo XIII and Challenger accidents, and advertised cars for Chrysler. Can you even imagine the endorsements he'd be offered if the moon shot happened today?

Did taxpayers get their money's worth from it all? Consider some of the spin-off technologies, first developed for the Apollo program, that still generate tax dollars today: digital fly-by-wire controls that guide today's airliners and cars, food safety systems that keep our meat and poultry clean, earthquake-proofing shock absorbers for buildings and bridges, and rechargeable silver-zinc hearing aid batteries. And how many more scientists and entrepreneurs have been inspired by the Apollo's can-do spirit and legacy of dreaming bigger than ever before?

Today's space heroes aren't astronauts anymore. They're capitalists like Jeff Bezos, Elon Musk, and X Prize creator Peter Diamantis, hoping to tame the wilds of space for taxable gain. How long will it be before they makes space exploration a profit center for the IRS? Keep your eyes on the future, and we bet it will arrive sooner than you expect!

Blimey!

Great Britain's new Prime Minister, Alexander Boris de Pfefel Johnson, inspires the same sort of love/hate relationship as a certain novice head of state on our side of the pond. Johnson's fans celebrate him as a self-deprecating man of the people, happy to zip-line across a park waving Union Jacks to celebrate Olympic gold. His opponents mock him as a dangerous buffoon, a gaffe machine, and a bitter chutney of ignorance, racism, and lies. With a "hard Brexit" looming just three months away, we'll soon see if he rises to the occasion like his hero Winston Churchill.

At first glance, Johnson seems the ultimate British toff. He studied classics and played rugby at Oxford, where he struck classmates as a modern-day lord out of Downton Abbey. (Honestly, with a name like "Alexander Boris de Pfeffel," where else could he have gone?) He belongs to London's exclusive Beefsteak Club, where, by tradition, diners address all the stewards and waiters as "Charles." He once said about himself, "You can't rule out the possibility that beneath the elaborately constructed veneer of a blithering idiot, there lurks a blithering idiot."

So why on earth are we writing about Johnson here? Funny you should ask. It turns out he was born in New York City, when his English father Stanley was studying economics on a Harkness Fellowship. And he lived there, in a one-room loft across the street from the famed Chelsea Hotel, until he was five. That meant enjoying dual American and United Kingdom citizenship. And that, in turn, makes him subject to U.S. tax on all his worldwide income, wherever he earns it.

We have no idea how Johnson handled his U.S. taxes for most of his career. But it finally became a sticky wicket in 2009. London real estate was flying higher than a nanny with an umbrella, and Johnson and his wife had just sold their house for a £730,000 gain. Now, her Majesty's Revenue and Customs doesn't tax home sale gains. No problem there. But the IRS wants a piece of anything above a $500,000 allowance — even for taxpayers living abroad!

Naturally, Johnson was not amused, and he had a hard time keeping a stiff upper lip. One reporter asked him point-blank if he would pay Uncle Sam, and he literally sputtered: "No, is the answer. I think, it's absolutely outrageous. Why should I? I think, you know, I'm not a . . . I, you know, I haven't lived in the United States for, you know, well, since I was five years old." That's an uncharacteristically tongue-tied response from a guy who headed up the Oxford Union debating society.

Like most politicians, though, Johnson's promise proved . . . "flexible." In 2015, he paid the American tax to avoid embarrassment before setting out on a U.S. tour. A year later, he renounced his U.S. citizenship entirely, a process which includes paying an "exit tax" on the value of his appreciated assets as if he had sold everything the day before surrendering his passport. Maybe his experience giving up his citizenship helps explain why he thinks pulling Britain from the European Union should be so easy?

Today, Johnson is settling into a far tonier hundred-room house at Number Ten Downing Street, one that comes with everything a modern minister could want. (There's even a Chief Mouser to the Cabinet Office, a cat named Larry.) Even better, he won't owe any tax on the place when he leaves. That's the sort of result we work to create for you. So let's all sit back and enjoy a cuppa while we watch Johnson take on Brexit!

The Perfect Crime

Everybody needs money. That's why they call it money. Maybe that's why the heist movie is still a Hollywood staple. It's been a while since we thrilled to classics like Heat, or Oceans 11, or The Sting. But who can resist the heist film's enticing promise: the coolest crew coming together to take the ultimate shortcut to the American Dream, the one huge payday that means never working again?

They say Washington is Hollywood for ugly people, so it shouldn't surprise you that Washington likes a good heist, too. Except, in Washington, the thieves aren't

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Everybody needs money. That's why they call it money. Maybe that's why the heist movie is still a Hollywood staple. It's been a while since we thrilled to classics like Heat, or Oceans 11, or The Sting. But who can resist the heist film's enticing promise: the coolest crew coming together to take the ultimate shortcut to the American Dream, the one huge payday that means never working again?

They say Washington is Hollywood for ugly people, so it shouldn't surprise you that Washington likes a good heist, too. Except, in Washington, the thieves aren't eyeing priceless art, jewels, or stacks of bearer bonds. (Why do bearer bonds even exist other than to get stolen in heist movies, anyway?) In Washington, they're after your money — and they're tiptoeing as carefully after it as the stealthiest cat burglar.

On May 12, the House voted 417-3 to pass the "Setting Every Community Up for Retirement Enhancement" (SECURE) Act. (Someone on the Government Office Acronym Team worked overtime on that.) Now, "SECURE Act" probably conjures up images of happy seniors sipping lemonade on the porch, watching the grandchildren frolic in the sprinkler. And the bill includes a grab-bag of provisions designed to keep Grampy and Nona smiling, like adding annuity options to defined contribution plans and pushing back the required minimum distribution age from 70½ to 72.

But the bill sneaks in one move that even Danny Ocean would admire. Under current law, your nonspousal beneficiaries can keep your retirement accounts on life support, even after your death, for as long as their own life expectancy. It's called a "Stretch IRA," and it can mean decades of extra tax-deferred compounding. The SECURE Act forces them to take everything out — and of course pay tax on it — over just 10 years. Maybe they should have called that provision the Hidden Efforts Imposing Stealth Taxes (HEIST) Act!

The SECURE Act won't just make your beneficiaries pay tax faster. It's probably going to make them cough up more. That's because they'll have to pile those forced distributions on top of their regular income. Imagine a six-figure executive or professional inheriting a significant IRA. The extra cash could easily push them into higher tax brackets at both the federal and state levels.

Had enough? It gets worse. Right now we're enjoying the lowest tax rates in a generation, thanks to the Tax Cuts and Jobs Act of 2017. But those rates are scheduled to self-destruct after 2025, making SECURE Act distributions even pricier. (While we're at it, if your grandchildren are heading to college, the extra cash could blow up their FAFSAs, too.)

Right now, the Act is stalled in the Senate. Texas Senator Ted Cruz, who's never been afraid to irritate his colleagues if it means scoring brownie points with his base, is the roadblock. He's holding it hostage because it doesn't let families raid their kids' 529 accounts to pay for home schooling costs. It's almost a shame . . . in today's Congress, a 417-3 agreement is more precious than the Monet Pierce Brosnan targets in The Thomas Crown Affair. Still, the Capitol Hill Bandits will probably wind up taking down the score.

The greatest trick the devil ever pulled was convincing the world he didn't exist. And just like that, your money's gone. Good thing you've got us to keep an eye on Congress. So call us whether Washington gets away with this one or not — either way, we'll have your plan!

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priceless art, jewels, or stacks of bearer bonds. (Why do bearer bonds even exist other than to get stolen in heist movies, anyway?) In Washington, they're after your money — and they're tiptoeing as carefully after it as the stealthiest cat burglar.

On May 12, the House voted 417-3 to pass the "Setting Every Community Up for Retirement Enhancement" (SECURE) Act. (Someone on the Government Office Acronym Team worked overtime on that.) Now, "SECURE Act" probably conjures up images of happy seniors sipping lemonade on the porch, watching the grandchildren frolic in the sprinkler. And the bill includes a grab-bag of provisions designed to keep Grampy and Nona smiling, like adding annuity options to defined contribution plans and pushing back the required minimum distribution age from 70½ to 72.

But the bill sneaks in one move that even Danny Ocean would admire. Under current law, your non spousal beneficiaries can keep your retirement accounts on life support, even after your death, for as long as their own life expectancy. It's called a "Stretch IRA," and it can mean decades of extra tax-deferred compounding. The SECURE Act forces them to take everything out — and of course pay tax on it — over just 10 years. Maybe they should have called that provision the Hidden Efforts Imposing Stealth Taxes (HEIST) Act!

The SECURE Act won't just make your beneficiaries pay tax faster. It's probably going to make them cough up more. That's because they'll have to pile those forced distributions on top of their regular income. Imagine a six-figure executive or professional inheriting a significant IRA. The extra cash could easily push them into higher tax brackets at both the federal and state levels.

Had enough? It gets worse. Right now we're enjoying the lowest tax rates in a generation, thanks to the Tax Cuts and Jobs Act of 2017. But those rates are scheduled to self-destruct after 2025, making SECURE Act distributions even pricier. (While we're at it, if your grandchildren are heading to college, the extra cash could blow up their FAFSAs, too.)

Right now, the Act is stalled in the Senate. Texas Senator Ted Cruz, who's never been afraid to irritate his colleagues if it means scoring brownie points with his base, is the roadblock. He's holding it hostage because it doesn't let families raid their kids' 529 accounts to pay for home schooling costs. It's almost a shame . . . in today's Congress, a 417-3 agreement is more precious than the Monet Pierce Brosnan targets in The Thomas Crown Affair. Still, the Capitol Hill Bandits will probably wind up taking down the score.

The greatest trick the devil ever pulled was convincing the world he didn't exist. And just like that, your money's gone. Good thing you've got us to keep an eye on Congress. So call us whether Washington gets away with this one or not — either way, we'll have your plan!

Billions

Showtime's hit series Billions invites us into the gilded life of Bobby "Axe" Axelrod, a working-class kid from Yonkers who makes his billions running a hedge fund. The camera teases us almost erotically with the spoils of his success: the $63 million Hamptons house he buys on a whim, the his-and-hers private jets he and his wife take when just one jet isn't enough, and the helicopter that drops his sons off at Little League practice. Axe is a guy who loves every dime he spends, and he isn't afraid to let us watch him spend it.

Of course, the full story is a little darker. (We're talking Showtime, not the Hallmark Channel.) Axe is so shady you could throw a picnic under him. His portfolio strategies include bagmen, blackmail, and bribery (and those are just the ones that start with "B"). His plots and schemes are so deep and layered they could teach philosophy. Axe gives millions in charity to museums and 911 first responders. But behind the scenes, he's evidence of Balzac's epigraph that behind every great fortune, there's a great crime.

Axe has his fingers in lots of different pies. (Note to self: don't eat the pie.) He makes plenty of enemies, wheeling and dealing his way through four seasons of Billions. But there's a new threat lurking on his horizon, and it's the sort of thing Bobby should spot from miles away. We're talking about politicians looking to raise revenue without targeting the actual masses of voters who get them elected. How do they do that? They skip "income" entirely and head straight to net worth.

Massachusetts Senator Elizabeth Warren is the highest-profile legislator floating this sort of wealth tax. Her "Ultra-Millionaire tax" takes 2% of their assets above $50 million and 3% over a billion. Warren estimates her plan would raise $2.75 trillion over 10 years. Best of all, it hits just 75,000 registered voters. (Sadly for Warren, they're also the registered voters with the most money to hire lobbyists to fight back.)

Of course, it's easy to propose that sort of flashy new tax. It's harder to collect it. Who wants to fill out a form telling the IRS everything they own? (Oh, did I forget that second Swiss bank account?) What price do you use for assets that fluctuate, like stocks? What about illiquid assets like real estate, closely-held businesses, and art? How would Axe value his yacht, his cars, and his motorcycles? And who's going to pay for the auditors to make sure he does the math right on his wealth tax return?

As for the tax itself, three percent might not sound like much. But when you're a billionaire, it adds up fast, especially if you're getting mugged for it every year. Amazon founder Jeff Bezos has $158 billion, which would make his tax $4.74 billion. Stroking that check would have to hurt, even for him!

Warren isn't the only high-profile American who says we should tax the rich like we mean it. Last month, a group of card-carrying plutocrats including Abigail Disney, Facebook founder Chris Hughes, and Hyatt heiress Liesel Pritzker Simmons signed an open letter urging every 2020 presidential candidate to back Warren's plan. And polling shows that a surprising 60% of voters support it. (We're guessing the other 40% think someday they'll be that rich, too.)

Warren's wealth tax isn't going anywhere soon. It might not even be constitutional. But it's starting a conversation, at a time when Washington is looking harder than usual for sneaky new ways to pay the bills. So, while it may not be on Bobby Axelrod's radar, it's on ours. We'll let you know when it's time to start hiding your helicopter and pawning your jets!

La Dolce Vita

Picture yourself at an "ozmiza," or "eight-day tavern," overlooking the Adriatic Sea on Italy's Carso coast, near the Slovenian border. A guitarist serenades you and your companions with local folk tunes. Your server treats you to heaping platters piled high with housemade meats and cheeses. There's plenty of local vino, of course — Malvasian wines by the jugful, along with bottles of crisp prosecco. Off in the distance you catch glimpses of a seaside castle.

Now think about everyone who made this experience possible. There's the farmer raising the pigs for your prosciutto, and the one with the cows giving milk for your cheese. There's the viticulturist growing grapes for your wine. Finally, there's the tax law that lets the tavern operate in the first place!

Last month, the Wall Street Journal published a piece on ozmiza culture in the Carso region. And while they focused on the the food, the wine, the conviviality, and the sheer dolce vita that so many of us would jump to enjoy, a single throwaway sentence caught our attention. "As long as osmize sell only products made on site — sharp Istrian cheese, say, or chocolatey Teran wine — these cash-only businesses can operate tax-free."

How exactly did such a loophole come to let locals to offer their bounty? The story goes that back in the late 1700s, the Dowager Empress Maria Theresa had hit the region's peasants with harsh taxes (as Dowager Empresses are wont to do). The peasants naturally rioted (as peasants are also wont to do), so the Empress threw them a little bone. From that point on, they could open eight days out of the year to sell their surplus wine, meat, cheese, and produce without paying the usual tax. The only condition: display a "red branch" sign letting customers know they were taking advantage of the law.

Since then, the region's governments have seen more than their fair share of despots, dictators, and strongmen — the kind of thugs you'd expect to crush the ozmize just because they could. But the scrappy little taverns just keep on keeping on. Even now, most open just a few weeks each year, and they still display the centuries-old red branch. (Technology has introduced one welcome update: You can visit www.ozmize.com/calendario to see who's serving when. Google will even helpfully translate the page from Italian!)

The whole ozmiza culture fits beautifully in the "farm-to-table" movement that dominates dining out these days. Imagine impressing your Instagram friends (and maybe even your real friends) with dishes of savory stewed pork shoulder, or white Vitovska wine lovingly served from a rustic pitcher. Just don't drink too much wine — area roads are steep and winding!

So, would serving up the usual range of income, sales, and VAT taxes spell the end of the ozmize? Of course not. The hordes of tourists who've already eaten and drunk their way through the Cinque Terre and Amalfi coasts are dying for new seaside cliffs and castles to explore. The local farmers would just stir in the extra costs for customers to pay. It's fascinating, though, to see how a centuries-old tax policy still gives visitors even more reason to fall in love with Carso.

Ernest Hemingway once wrote, "If a man does not love Italy, he cannot love at all, for he has no soul." (Actually, we just made that up, but it sounds like something Hemingway would say.) The point here is that taxes affect every financial choice you make — even where you eat on vacation. That's why we're here to help you pay less!

Presto Change-o

Back in December 2017, while you were finishing up your holiday shopping and spiking the eggnog, Congress spiked the tax code. The goal was simple. First, eliminate a bunch of deductions that made the whole thing more complicated. Then, take advantage of that broader base to cut overall rates. There's nothing radical about that sort of tinkering. The hard part is deciding which sacred cows get gored to make it work.

Much to many peoples' surprise, the state and local tax deduction wound up on the chopping block. Until 2018, you could deduct an unlimited amount of state and local income, sales, and property taxes. The new law capped that deduction at $10,000. That's a big deal in states with high income taxes like California (13.3% top rate), Hawaii (11%), and New York (8.95%). It's even a problem for a state like Texas with no income tax but high property taxes.

Naturally, the high-tax states weren't jazzed about that part of Uncle Sam's plan. They struck back with a fiendishly clever proposal that would have dazzled Harry Houdini with its sheer magic. Encourage residents to make gifts to special state funds, then give them dollar-for-dollar credits against their taxes for those contributions. Abracadabra! Now your payments aren't nondeductible taxes anymore. Now they're fully-deductible charitable gifts!

Last week, the IRS threw a wet blanket over the states' prestidigitation, issuing 74 pages of final regulations that they could have condensed into a single word. And that word is: "Really?!?" They start out by defining a "gift" as something you make with no expectation of return benefit. Then they go on to explain that if you make a "gift," and expect to receive a state or local tax credit in return, it's not a gift. It's a quid pro quo. And while the tax code is full of deductible quid pro quos, you can't write them off as charity.

The regulations outline a few exceptions to that general rule, including programs that give you dollar-for-dollar deductions (as opposed to credits), and programs that credit your tax bill for less than 15% of your gift. (They wouldn't be Treasury regulations without fine print, right?) But it really just comes down to substance over form. The IRS essentially said, "Look, it walks like a duck, it quacks like a duck, and if we put our tongue on it, we bet it tastes like a duck, too. So it's a tax, not a charitable contribution. Better luck next time!"

The truly amazing thing about the regulations isn't that they run 74 pages. (74 pages!) It's that they take the states' argument seriously in the first place. Of course the IRS was going to shoot them down! Are you kidding? If you surprise your six-year-old in the kitchen with crumbs all over his face, you don't listen to his excuses for why the cookies are gone. You give him an immediate time-out, not "due process"!

In the end, the change was more bark than bite. Many of affected taxpayers had already lost their state and local tax deductions to the alternative minimum tax. Even the ones who wound up paying tax on more income benefited from the lower overall rates.

Want some good news? You don't need to perform sleight-of-hand with the tax code to pay less. The law is full of legitimate deductions, credits, loopholes, and strategies you can use to pay the legal minimum. And you don't need to risk the IRS laughing at your arguments to succeed. So call us for a plan, see how much you can save, and let us worry about the 74-page regulations!

All Fun and Games Until Somebody Loses an Eye

On March 12, the "Varsity Blues" scandal hit the headlines, and gossips across America leaped at the fresh meat. That's the day we learned about a group of 1%ers who paid anywhere from $15,000 to $6.5 million to cheat their kids' way into some of the most prestigious colleges in America. The Department of Justice indicted 50 people, including actresses Felicity Huffman and Lori Loughlin. Those who pled guilty right away are starting to receive sentences. Those who claimed innocence got rewarded with additional money laundering charges.

The parents worked with a private college counselor named Rick Singer. In some cases, they paid him $15,000 or more for crooked proctors to doctor their kids' SAT tests. In others, they paid up to $6.5 million for him to bribe complicit coaches to tag the children as athletic recruits. Of course, nobody put "bribe" on the memo line of the check. Instead, they made "donations" to Singer's "charity," the Key Worldwide Foundation. That way, they got to deduct the bribes as charitable gifts! But now the chickens are coming home to roost . . . and the IRS is there to collect, too.

Prosecutors have piled up 3 million pages of evidence, including over a million pages of emails, 4,500 wiretapped phone conversations, extensive bank records, and cooperation agreements from Singer and half a dozen of his henchman. (When you conspire with a guy named "Singer," don't be shocked when he sings like a canary when the you-know-what hits the fan.) Deciding whether or not to plead sounds like some sort of one-question IQ test. Still, just 22 of the original 50 defendants have taken that easier way out.

Actresses Huffman and Loughlin have attracted the biggest headlines. Huffman represents the man-up end of the spectrum — she copped a tearful plea almost immediately to mail fraud charges for paying $15,000 to doctor her daughter's SAT scores. Since the dollar amount in her case was at the low end of the scale prosecutors have recommended a relatively light sentence: four months in a place that looks nothing like Wisteria Lane, 12 months of supervised release, a $20,000 fine, and additional restitution.

Loughlin and her husband, fashion designer Mossimo Gianulli, represent the opposite end of the spectrum. The couple dropped $500,000 to get their bratty daughters into a school they clearly don't even want to attend. Loughlin swiped left on a deal that would have included two years in a fuller house, and now faces up to 40 with the extra money laundering charge. Us magazine — everyone's go-to source for breaking legal news — reports that the IRS is eyeing the couple's tax returns like a hungry bear eyeing a particularly fat fish.

It looks like parents can count on paying back the taxes they avoided by deducting whatever they paid Singer. Real estate mogul Bruce Isackson pled guilty to paying (and deducting) $600,000 in bribes to pass his daughters off as athletes. The charges included one count of conspiracy to defraud the IRS. Prosecutors are recommending he spend 37-45 months occupying a 6'x8' parcel of federal property and pay $139,509 in restitution. That figure just happens to equal the exact amount of tax he saved by writing off the bogus "gifts."

Singer reports that he collected a total of $25 million to help 761 families open "side doors" to schools for their kids. That means we can probably expect more names to be named. Hopefully yours won't make the list! The good news is, while we can't help you get your kids into the Ivy League, we can help you make the most of tax breaks for paying the bill. So call us for a plan before you pack up the car to move them in, and see how much we can help you save!