Nowhere Else to Go But Up

Life comes at you fast. Two months ago, the Dow was flirting with 30,000, unemployment was at 3.5%, and the economy was looking forward to spring with the rest of us. Today, of course, we've put the economy in a medically-induced coma. People who are trapped at home with cranky partners and children are wondering what it takes to declare their loved ones "nonessential." And trillions of dollars that used to slosh through our fingers have dried up like our social lives after the onslaught of the Coronavirus Shutdown Machine.

Late last month, Washington rushed out the CARES Act to start replacing those dollars. It's like one of those one-man-band machines with all the instruments firing at once. The IRS is paying out billions in tax refunds and "Economic Impact Payment" stimulus checks. The Small Business Administration is shoveling out billions more in Paycheck Protection Program and Economic Injury Disaster Loans to mom-and-pop businesses (and an occasional cliched steakhouse chain). The Federal Reserve is about to launch a $600 million "Main Street" business lending program.

How is all that money playing out on the street? Mostly slow and creaky. But not always! A couple of weeks ago, an Indiana firefighter named Charles Calvin went to an ATM to withdraw rent money and see if he had gotten his stimulus check. He expected to find $1,700. But when he checked his receipt, he was stunned to see there was $8.2 million in his account.

And what did Calvin do with his windfall? Did he unleash his best Bobby Axelrod impression and snap his finger for a helicopter or a Bentley? Did he channel his inner Logan Roy and start scheming to pit his ungrateful kids against each other?

Sadly for Calvin, life came at him fast, too. When he checked with his bank the next Monday morning, his balance was $13.69. In fact, they told him, the money was never there in the first place. They blamed the ATM for the problem, which sounds like a poor attempt at shooting the messenger. As for Calvin, he was philosophical about the whole thing: "It kind of sucks you go from being a millionaire on paper one second then back to being broke again, but I guess once you're poor you ain't got nowhere else to go but up."

(Just between us, we're wishing he had tried blowing at least some of the bogus cash. It would have made a better story. Any halfway ambitious lottery winner in his shoes would have used the weekend to get a jump start on bankruptcy.)

If Calvin's millions were real, would he have owed taxes on them? According to the CARES Act, arguably not. Those payments are a "refundable credit" against your 2020 tax (which means they won't come out of your 2020 refund). However, the money hitting bank accounts now is based on your 2019 return (if you've filed), your 2018 return (if not), or your latest Social Security benefit statement (if you don't file at all). The new law pretends you made a payment now equal to whatever stimulus you get. Most important, there's no provision for clawing back any excess.

Recovering from the coronavirus is probably going to be the financial challenge of our time. It's not going to be easy for anyone. But we will get through it, and there will even be opportunities for some. So stay safe while the cases rage, and let us help you recover when the time is right!

Don't Count Your Chickens...

A couple of weeks ago, we wrote about the great toilet paper shortage of 2020. It gave us a great opportunity to indulge in the sort of lowbrow humor that made MAD magazine such a hit with 10-year-old boys. The problem turns out to be simple. Toilet paper makers produce two separate products for two separate markets: the plushy stuff we use at home and the scratchy stuff we find at offices and businesses. With coronavirus stay-at-home orders keeping us housebound, we've upset that usual balance of supply and demand.

But toilet paper isn't the only commodity with a scrambled supply curve right now. This week's story involves a much-loved delicacy invented by Teresa Bellissimo at the Anchor Bar in Buffalo, NY, and an odd tax that has nothing to do with her creation. That's right . . . coronavirus has created a national chicken-wing glut, at a time when politicians and economists are fighting over a "chicken tax" you've probably never heard of!

First, the glut. Why are there so many wings? The problem here stems from the same imbalance that emptied toilet paper aisles. Most people don't get their wing fix at home. They chow down at bars and restaurants, usually in front of TV sports. Suppliers were "locked and loaded" for March Madness. But now we're all cooped up at home. Restaurants, bars, and even March Madness itself have all gone dark. Demand for the tasty snack has plummeted. The wholesale price of wings has dropped over 20%, from $1.60 to $1.25 per pound. And commercial packaging won't fly for home kitchens.

(While we're on the topic, and don't get us started on so-called "boneless" wings. There's no such thing as a boneless wing. It's just something menu planners hatched up so grownups wouldn't be embarrassed ordering chicken nuggets. As if there's something wrong with chicken nuggets to begin with. Also, do you dip your wings in blue cheese? Or do you prefer ranch dressing because you think blue cheese smells like feet?)

Now for the tax. After World War II, "factory farming" turned chicken, which had been a delicacy in Europe, into a staple. We were producing enough of it here to satisfy demand in Europe, too. But overseas governments naturally wanted to protect their own farmers. So, in 1961, Germany and France slapped a tariff on American chicken. Deep-fried diplomacy failed to resolve the dispute, dubbed the "chicken war." In 1964, President Johnson retaliated with a 25% tariff on imported chicken — and, among other things, light trucks and vans. (Definitely not chicken feed!)

Of course, just like every party has a pooper, every tax has a loophole. (In trade, it's called "tariff engineering.") In 1972, Ford and Chevy realized they could import foreign-built trucks with no cargo bed or box at a 4% tariff, then finish the vehicles here to avoid the remaining 21%. (Jimmy Carter closed that loophole in 1980.) Today, Ford imports Transit Connect vans from Turkey with rear seats to avoid the tax, then strips them out before sale. Mercedes imports parts for its Sprinter vans to assemble in South Carolina, then sells the final product as "made in America."

That same tariff is still in effect, 55 years later. Donald Trump, never one to walk on eggshells, has even tweeted praise for it, arguing that if we had it in place on passenger cars, General Motors wouldn't have had to close factories in 2018. (Right now it may not matter, considering coronavirus has run new car sales off the road along with chicken wings.)

Today it looks like most of the excess wings will wind up frozen for a day, hopefully not too far away, when they can be served at your favorite local pub. Until then, we'll be keeping an eye out for any sort of tax planning developments to help ease your way through the crisis!

Something to Celebrate

Our calendar is full of "Hallmark holidays": meaningless commemorations and celebrations, usually created by marketers and publicists. Just this month, there's National Talk Like Shakespeare Day, National Hug a Plumber Day, and National Wear Pajamas to Work Day. (That last one may not feel like a celebration right now). Food fans have National Burrito Day, National Chocolate Covered Cashew Day, and Lima Bean Respect Day. (Two out of three ain't bad.) Literally every day marks a holiday of some sort. Think of them as participation trophies for the days that can't be real holidays.

This week marks a special day for those millions of you who found the love of your life, married him or her, and then discovered maybe they weren't the love of your life after all. That's right, Tuesday, April 14 is National Ex-Spouse Day. Reverend Ronald Coleman of Kansas City created it in 1987 with the laudable goal of encouraging us to come to terms with our divorces and forgive our exes so we can move on. In our hands, of course, it's just another excuse for some snarky commentary layered in a thin veneer of tax talk.

To paraphrase Tolstoy, "all happy marriages are alike; while each divorce is unhappy in its own way." Maybe there were religious differences. (He thinks he's God; you disagree.) Sometimes it's like junior-high algebra. (You look at your X and wonder Y.) Joan Rivers quipped that "half of all marriages end in divorce. And then there are the really unhappy ones." Not to be outdone, Zsa Zsa Gabor once bragged "I'm a marvelous housekeeper — every time I leave a man I keep his house." (She was divorced eight times, so she got lots of practice.)

In all seriousness, divorce is rarely easy or cheap. Does the tax code offer any relief? Well, it used to be that if alimony was involved, the spouse who paid it could deduct it from their income and the one who got it would report it on theirs. This had the effect of shifting the tax burden on that money from the higher-income income payor to the lower-income recipient. Sadly, the Tax Cuts and Jobs Act of 2017 eliminated that small comfort, effective January 1, 2018. (#Bummer.) Was the Treasury really losing that much money on alimony?

It also used to be true that you could deduct whatever part of your legal fees went towards determining that alimony. The 2017 Act shot that down too, by eliminating an entire category of breaks called "miscellaneous itemized deductions, subject to the 2% floor." Now, divorce is even more expensive because you're paying your lawyer with after-tax dollars along with your ex. (Of course, as the classic joke goes: "Why is divorce so expensive? Because it's worth it.")

Finally, what about all of those houses, retirement accounts, and other assets changing hands? (There may be more than a few cynics and sociopaths eyeing the recent stock market collapse and thinking "hmmm, if we pull the plug now, it'll cost me 20% less.") Finally, some good news! Transfers "incident to divorce" are gift-tax and income-tax free. The tax code also includes something called a "qualified domestic relations order" that lets you divvy up your retirement accounts tax-free. Of course, any gain on that property, including during the marriage, is taxable when you sell.

OK, so, your friends in Washington aren't interested in making divorce any easier. Hey, at least you aren't quarantined with your ex!

The Great Toilet Paper Wipeout of 2020

Coronavirus has turned millions of Americans who used to laugh at the doomsday preppers on National Geographic into converts. Your neighborhood supermarket is working overtime to keep shelves stocked as panicked shoppers rush to settle in for stay-at-home orders. And the first item to disappear was . . . (checks notes) . . . toilet paper. Your grocery store aisle is probably still bare, and even Amazon ran out. But why? Is it because, as some psychologists say, bringing home the sheer bulk of a jumbo pack gives shoppers a sense of control in uncertain times? Or something more nefarious?

The answer will be a disappointment to conspiracy theory fans. (Speaking of which, Epstein didn't kill himself.) The toilet paper market is divided into two parts. There's residential paper — the soft, plush stuff those smarmy bears advertise on TV. (Apparently, they don't all do it in the woods.) And there's commercial paper — scratchy rolls the size of truck tires or, even worse, those uselessly tiny folded squares you find in disgusting gas station "rest" rooms. With all the "business" we're doing at home, we've simply upset the usual balance of supply and demand.

Now, if you were to sit down and draw a Venn diagram with circles representing "toilet paper" and "taxes," you probably wouldn't expect there to be much overlap. But there is, and it has to do with the trees that the toilet paper (and tax forms, for that matter) come from.

It turns out trees don't just grow on trees. You have to plant them, manage them, protect them, and harvest them. That process takes at least 10-20 years, and sometimes 40-50. So the tax code gives you plenty of breaks to encourage such long-term investment. Naturally, you can deduct your day-to-day operating expenses. Your sales will taxed at lower long-term capital gain rates so long as you own your stand for more than one year. And you can take a special "depletion deduction" for standing timber you buy or inherit that breaks out a "basis" in the trees from the rest of the property.

Toilet paper farmers (OK, "timber producers") can also profit from going green. Trees sequester carbon, which helps combat climate change. Growing trees can help you earn and sell carbon credits. These are especially valuable for new forests, sustainably-managed forests, and timber for long-lived wood products like houses and furniture (as opposed to cheap pulpwood for paper or pallets). You can also donate land-use rights for valuable charitable deductions, including "working forest conservation easements" that let you keep profiting from harvesting timber on your land.

Timber producers get one final break that uses the time value of money to shrink tax bills. It's an advanced strategy, sometimes called a "monetized installment sale," that lets you sell a capital asset like a business or appreciated real estate and defer the tax for 30 years. Ordinarily, if the accumulated balance of payments owed to you tops $5 million, you have to pay interest on the unpaid tax. But that doesn't apply to agricultural products. So timber producers, including giants like Office Max, have used it to defer tax on sales of up to $1.47 billion.

Here's hoping you have plenty of toilet paper stocked up to carry you through this crisis. But this is no time to flush your long-term tax plan down the toilet. In fact, tax planning, as part of your financial defense, is more important now than it was just a few short months ago. So count on us to serve as your financial first responder!

What Colorado Needs To Know Now That Tax Day Is July 15 Thanks To The Coronavirus

This article was originally Published in CPR News. https://www.cpr.org/

State and federal authorities recently announced a three-month break for residents to file and pay their taxes. That means most individuals who pay taxes in Colorado can automatically wait until July 15, 2020, to turn their money over to the government.

However, you still might need to make other payments on the regular schedule, including local property taxes. Here’s what you need to know in Colorado.

Federal taxes: July 15 deadline for most people

The deadline for filing and paying federal taxes was moved from April 15 to July 15, 2020, in an executive order from the White House. You don’t need to do anything to request the delay. If you’re expecting a refund, you can still file now and receive it on the usual schedule.

“They do not have to file a tax return or a request for that extension. It’s automatic,” said Larry Stone, CPA, of Stone CPA & Advisors in Frisco.

However, there are some exceptions. Estate and gift taxes are still due as usual, Stone said. So are certain business taxes and forms, such as excise taxes, payroll taxes, partnership returns and various corporation returns.

Businesses, in particular, should still be working on their filings, Stone said. They’ll need their financial documents in order before they apply for the any federal funding that may become available.

“You need to be looking very closely at this,” Stone said.

And if you owe monthly payments on back taxes, you still have to make those on your existing schedule, Stone said. Additionally, any taxes with deadlines outside of April 15 to July 15 are generally due on their usual schedule.

Colorado income tax: July 15 for most people

The deadline for paying state taxes was changed from April 15 to July 15, 2020. Separately, the deadline for filing Colorado state tax documents was changed from April 15 to Oct. 15.

In effect, anyone who owes individual state taxes must pay them by July 15 or face penalties. But you will have a few months longer to file the paperwork if, for example, you are expecting a federal refund.

Even if you’re unable to pay your state tax bill on time, Stone recommends filing your return paperwork as soon as possible. If you miss the Oct. 15 deadline, you will face a large penalty for failing to file, on top of penalties for failing to pay on time.

“Even if you owe them money, file, because you can always make a payment arrangement,” Stone said.

Estimated quarterly taxes: June 15 and July 15

Freelancers and others are supposed to pay quarterly “estimated” taxes for the current year.

For state estimated taxes, the April 15 and June 15 deadlines have both been changed to July 15 for state estimated taxes.

Separately, federal estimated taxes that were due April 15 can be deferred to July 15. However, you’ll also need to make the scheduled June 15 payment for the second quarter.

Local property and sales taxes: It depends

Deadlines for local property taxes have not necessarily changed, but local governments are allowed to delay the initial deadline from late February to April 20. This would only apply to people who opt to pay their property taxes in two halves. Check with your county and city governments. 

Also, keep in mind that many property owners don’t pay their property taxes directly. If you have a mortgage, the mortgage company probably handles that for you.

Local governments also were granted some discretion over sales and use taxes, which are paid by businesses at the state and local levels. 

“The Department of Revenue has stated that they’re in active discussions about extending tax deadlines in property taxes, sales tax, and use tax,” Stone said.

Changes for retirement accounts

The federal changes also have a positive effect for individuals with traditional IRA and Roth IRA retirement accounts. Usually, all contributions for the 2019 year would be due on April 15. But the contribution window has been extended to July 15, Stone said.

That gives people more time to reach their maximum contribution for 2019.

The same change was made for health savings investment accounts, Stone said. His advice to businesses and individuals alike is to review their financial plans now. That includes getting familiar with the new opportunities emerging in the federal stimulus package.

“This is a time when you need to break your routine, look at exactly what you’re doing, and making sure that you’re actually aligning things for your best interest,” he said.

NOT an April Fools Joke

Millions of us who are staying at home in this time of coronavirus are discovering to our dismay just how much the clown car of halfwits, freaks, and grotesques of "reality TV" has taken over our living rooms. The endless parade of bachelors, teen moms, real housewives, and Kardashians have slowly sapped at our dignity. So what if we told you we'd found the most insane reality of all? Something one critic described as "like watching a slow-motion car crash, but only if that car crashed into a jet plane and then both tumbled into an oil tanker"? Would that convince you to finally watch?

And . . . what if we told you it had tigers?

Tiger King is Netflix's newest #1 hit, a true-crime trainwreck featuring Joe Exotic (real name: who cares?). Joe's a gun-toting country singer with two husbands and a mullet you'll swear you recognize from a Billy Ray Cyrus video. But what made him special was owning a private zoo with over 200 tigers. The show follows Joe's descent into madness as he winds up in prison for hiring a hit man to kill Carol Baskin, an animal-rights activist working to outlaw private ownership of tigers and other big cats.

(Ironically, Baskin herself was the prime suspect in the 1997 disappearance of her husband Don. Joe even recorded a music video accusing her of feeding Don to her tigers. We told you this show was insane!)

At this point, you're probably wondering "where's the tax angle?" If we're being honest, it's a stretch. (We decided to write this week's column about the show long before we figured out the tax hook.) But it's worth mentioning that while Joe Exotic may not have a head for style, he does have a fair head for business. Running any business is hard. But running a private zoo is especially hard considering your competitors don't have to worry about paying taxes!

Take the Bronx Zoo, for example. It sits on 265 acres less than six miles from Yankee Stadium. It's owned by the Wildlife Conservation Society, a 501(c)(3) nonprofit. As such, it doesn't pay sales tax or property tax. The Society collects $300+ million per year, including $50+ million in tax-deductible contributions, and manages over $1 billion in assets.

Joe's zoo occupied 16 acres south of Oklahoma City. Joe paid every tax in the book. And while his staff and contractors were happy to accept substandard pay for the thrill of helping the animals, most of the donations it got went straight to feeding the tigers. (Don't ask.)

Joe's for-profit status gave him some advantages — he could do things most zoos couldn't (or wouldn't). He started breeding ligers (offspring of a male lion and female tiger), tigons, liligers, and even a tililiger. (Don't ask.) Tililigers, of course, don't exist in nature. They're the big-cat equivalent of Californium and Nobelium — those manmade additions to the Periodic Table of Elements that exist only for fleeting milliseconds when physicists bombard simpler elements in particle accelerators.

Look, we could go on and on. The meth! The embezzlement! The wiretaps! The presidential run! By now you're either in or you're out. If you're in, park yourself in front of Netflix and buckle up. If not, there's something worthwhile on Masterpiece Theatre. The taxes can wait 'till next week.

Dig This

(Getty Images/iStockphoto)

The Cambridge Dictionary defines "digging your own grave" to mean doing "something that causes you harm, sometimes serious harm." Kids who don't do their homework, politicians who cut popular spending programs, and people who overshare on social media all dig their own grave in one way or another.

It's not every day that someone charges us for the privilege of digging our own grave. But if DePaul Law School Professor Emily Cauble has her way, someday the IRS may ask us to do just that. She's just published a paper in the Harvard Journal on Legislation, arguing it's "Time for a Tax Return Filing Fee." She starts by pointing out that audits are expensive, and some returns are more expensive to audit than others. So, to encourage taxpayers to cover the costs they impose on the tax system with "complex transactions," Congress should impose a filing fee on the ones who are hardest to audit.

Specifically, Cauble would impose a fee on corporations with more than $10 million in assets who file Schedule UTP, the "Uncertain Tax Position Statement." This is a special form you file if you're actually setting aside reserves to cover the bill if the IRS shoots you down. That fee would go up with the number of uncertain positions you take, or the difficulty of auditing those positions.

At first glance, that's not an outrageous idea. Government agencies routinely impose user fees to cover costs for specific services. Want to protect your genius invention? Pay the Patent & Trademark Office a fee ranging from $50 to $10,000. Want to license a new nuclear reactor? Pay the Nuclear Regulatory Commission a fee of up to 33% of the cost of issuing the license. Want the IRS to rule on your position before you file a return? Pay a fee of up to $30,000 for a "letter ruling" giving you the thumbs-up.

But those fees are all voluntary. You don't have to patent an invention, power up a nuclear reactor, or request a letter ruling. Taxes are mandatory, and it just doesn't seem sporting to make you pay extra to red-flag your own return!

Here's another problem. Taxes are famous for starting small and growing out of control. (Sort of like how kittens grow up to be cats.) Back in 1913, rates started at 1% on incomes over $3,000 ($78,000 in today's money), and rose to 7% on incomes over $500,000. That $3,000 threshold meant less than 1% of Americans actually paid any tax at all. Today, of course, nearly everyone with a job pays, and you'd probably laugh if you got away with paying just 7%.

Cauble writes that if her user fee grows, it "could be tied to the amount of certain deductions and credits (other than those disproportionately claimed by lower income individuals) that are not verifiable by third-party reporting." That means no fees for reporting income the IRS can already verify with W2s and 1099s, or for claiming the standard deduction, or for claiming the earned income credit. But we can just picture a new Schedule UFC, "User Fee Calculation," with separate line-items, sub-schedules, and fee amounts for each sole proprietorship, rental property, or K1 you report.

Professor Cauble says herself that "the prospects of Congress adopting such a fee in the current political environment are dim." That's professor-speak for, "this whole paper has been a delightful 46-page academic exercise with no real-world consequence." But in the unlikely event the IRS does start charging you to dig your own grave, count on us to help you make that shovel less expensive!

Overzealous

Four years ago, a consortium of European journalists broke a story based on 11.5 million documents leaked from the Panamanian law firm Mossack Fonseca. The exposé detailed how the firm's clients across the world used offshore shell companies to hide assets and evade taxes. (Remember, tax avoidance = legal; tax evasion = go to jail.) The story, naturally dubbed "the Panama papers," named names and focused new attention on what British author Somerset Maugham dubbed "sunny places for shady people."

When the scandal first broke, Iceland's Prime Minister stepped down after he was exposed as a client. Vladimir Putin's best friend, a concert cellist, faced harsh scrutiny over his billions. (He said they were donations from rich Russians to buy instruments for young musicians. Riiiight.) Hollywood turned it into a movie starring Meryl Streep. But stories like this tend to hit like dropping a rock in a pond. After the first big splash, a series of smaller ripples continue spreading outward. This week's story involves one of those ripples hitting an American courthouse.

Our hero, Dick Gaffey, is a CPA working just outside of Boston. (Well, not for much longer.) His firm's website says, "we work vigorously to lower our clients' taxes, improve their businesses and preserve their estates." That's just marketing hype for most accountants, who spend their days more or less putting numbers in boxes. But Dick really did work vigorously. He went the extra mile, including places where other accountants know not to tread. (You know those old 15th- and 16th-century world maps, where the edges said, "Here Be Dragons"? That's where Gaffey went.)

Gaffey's clients included a colorful gentleman named Harald Joachim von der Goltz, a German-born Guatemalan citizen who lived in the U.S., and thus owed U.S. tax on his worldwide income. Von der Goltz, a banking heir and venture capitalist who fled Guatemala to escape civil war, probably loved his $2.5 million beachfront condo on Key Biscayne. Apparently, though, he didn't love paying the taxes that helped make Florida a safer place to live.

Von der Goltz used Mossack Fonseca to establish a family trust and private foundation controlled through a series of holding companies. That's not illegal, so long as the real owner acknowledges their interest. But von der Goltz claimed his 100-year-old mother was the owner. And Gaffey signed bank documents falsely claiming the foundation wasn't subject to U.S. withholding. Then the story broke. When investigators came sniffing around, von der Goltz sold his condo to his children's trust for $100 and skedaddled. U.S. officials eventually arrested him in London.

Gaffey must have known he was next. He was arrested on December 4, 2019, and trial was scheduled to start on March 6. No doubt he planned to defend himself vigorously. Then von der Goltz pled guilty. Oops. Last week, Gaffey pled guilty to eight felony counts. On June 29, he'll find out how much time he can expect to spend surrounded by "inmates" instead of "clients."

Ask any scientist and they'll tell you the two most common elements in the universe are hydrogen and stupidity. Von der Goltz and Gaffey chose stupidity, and they chose poorly. But you don't have to hide your money to pay less tax. You just need advisors who understand how to use the tax code to your maximum advantage. That's where we come in, and we're looking forward to helping!

Powder With a Chance of Tax Breaks

This time of year, most Americans living in the northern half of the country are dreaming of sunshine. But there's a heartier, usually affluent breed that can't get enough snow. In Vermont, at resorts like Killington and Stowe, Ivy League students spend weekends hitting the slopes by day and donning LL Bean sweaters to sip Irish coffee by fireside in the evening. In Aspen, their parents test their aging knees on the mountain before negotiating deals over dinner at the Hotel Jerome's J-Bar. The ones who can afford it skip the check-in lines at the hotel and buy their own homes.

There's no shortage of ski destinations here in the United States. You can even go skiing in a mall in New Jersey. But the real ballers know the most glamorous slopes are abroad — especially in the European Alps. Places like Gstaad and Zermatt in Switzerland, or Courcheval and Chamonix in France, are where you go to impress your fellow 1%ers. All of them offer suitably high-end real estate for your vacation home dollar. But lately, France is where the action is. Why? It's not because of the mountains, or the snow, or even the apres-ski action. It's because of taxes.

Here's the issue. Most people who buy a ski chalet don't actually use it more than a few weeks a year. Kids are in school, work and clients are calling, and there's a villa in St. Bart's competing for vacation time. That leaves a lot of empty beds that could be filled with people paying for lift tickets, ski lessons, and €30 cocktails. How can governments encourage homeowners to fill those "cold beds" with warm bodies to replace that lost revenue?

In France, they're using taxes to solve the problem. They're refunding the usual 20% value-added tax on purchases of newer homes to buyers who agree to rent them to vacationers. (That effectively cuts the price by one-sixth.) They're also cutting the usual 7% transfer tax to just 2%. And it's working — area real estate agents report 80% of buyers say the tax break factored into their decision. One consultant estimates the rebate has saved its own buyers €15 million.

Of course, you can't just pinkie-swear to list your chalet on AirBnB and call it a day. There's paperwork. You have to commit to renting the property for the next 20 years. You have to hire local managers to provide check-in, breakfast, linen, and room-cleaning services. If you pull it back off the rental market, you have to refund a proportionate share of the tax rebate. France is almost as famous for red tape as it is for red wine, so the bureaucracy is considerable.

Ski chalets aren't the only vacation properties that sit empty most of the year. Yacht buyers can spend a year customizing a hull, finding the right crew, and stocking it with toys like jet skis, only to leave it docked for 11 out of 12 months. While there aren't any tax breaks specifically designed to get yacht owners to charter their boats, here in the U.S. you can deduct the interest you pay to buy your boat as second-home interest, so long as the boat includes sleeping, cooking, and bathing facilities. (This assumes you aren't already deducting a second home somewhere else.)

Which vacation floats your boat: renting on the beach or a renting on the slopes? How about renting your home to your own business for up to two weeks' tax-free income? Call us before you book your ticket and let us help you plan to afford the vacation of your dreams!

If Only They Had An Oscar For This!

Hollywood legend Kirk Douglas, who died last this month, played nearly every role in his career: actor, director, producer, and writer. He was born before the first "talkie" hit theaters. He grew up one of seven children in an impoverished home. Then he worked his way through St. Lawrence University and the American Academy of Dramatic Arts, dated Lauren Bacall, and served as a communications officer on a submarine chaser in World War II before launching one of the most storied careers in film.

Douglas is best known for playing the role of Spartacus, a Thracian slave-turned-gladiator who leads a revolt against the Romans. The rebels wind up trapped by the Romans, who offer them a pardon if only they identify Spartacus. The men all respond shouting "I am Spartacus," with predictably unpleasant results. (Sorry for the spoiler, but the movie did come out in 1960.) The movie won four Oscars, was the studio's biggest moneymaker for a decade, and even helped end the Hollywood blacklist against suspected communist sympathizers.

Douglas left an incredible 60-year legacy of television, film, and stage work. He also changed how Hollywood stars manage their careers, and left a mark on the Los Angeles skyline. He even managed beat the IRS in the process!

Back in Hollywood's Golden Age, stars could make what seemed like a princely $500,000 per year. Not bad, to be sure, but hardly the $20-50 million paychecks today's performers like Robert Downey Jr. take home for Marvel movies. But Douglas wasn't satisfied with just a paycheck. He wanted equity. So, in 1955, he became one of the first actors to establish a production company. With Spartacus, he gave up the paycheck, took 60% of the profit, and wound up with $3 million. The money went into a trust that his wife Anne managed.

Much of that money wound up in real estate, including the land under Marina Del Rey's "Shores" apartments. By 2012, that trust had grown to $80 million. The couple's overall net worth has been estimated as high as $200 million. Not bad for a kid who started out selling snacks to millworkers to feed his six sisters!

If the Douglases pay much in income tax on those assets, it's because they're volunteering. As Kirk's acting drew to a close, his tax-deductible philanthropy took off. The couple have already donated $40 million to fight Alzheimer's and dementia. And they've pledged $50 million more to various organizations. These include his alma mater, his temple, the Kirk Douglas Theatre in Culver City, and Children's Hospital Los Angeles, where he donated a robot that performs surgery. (Of course the robot's name is "Spartacus.")

And so, in Act One, we see Douglas start out as a poor but scrappy kid with a dream. In Act Two, we see him achieve that dream to worldwide acclamation. In Act Three, we see him partner with his wife in a new role, changing the life of his adopted city and its inhabitants forever. Kirk may have won the Oscars — but if the Academy handed out awards for personal financial planning, Anne would have taken home a Lifetime Achievement Award.

Here's the bottom line for everyone who aspires to Kirk and Anne's level of financial success. Kirk's talent and presence got them off to a great start — but Anne's planning and perseverance took them through post-production. The right partner makes all the difference in the world. We can't promise you an Oscar. But we can help protect your success no matter what legacy you choose to leave.

Would You Take This Betts?

Sportsball fans who already miss NFL action have just weeks to wait until baseball throws out the first pitch on March 26. While the Astros cheating scandal dominates baseball news, teams across the league are furiously shuffling rosters in hopes of coming up with the winning lineup.

100 years ago, the Boston Red Sox sold their best player, a pitcher named Babe Ruth who wanted to bat every day. Owner Harry Frazee had run out of patience for Ruth's drinking, gambling, and womanizing, and Ruth's hitting prowess made him too expensive to keep. The Sox spent the next 86 years regretting that deal. Now they're doing it again, sending outfielder Mookie Betts and pitcher Mike Price to the Dodgers. And it's all to keep their billionaire owner from paying the league's Competitive Balance Tax to keep him.

When you hear the phrase "luxury tax," you might think of politicians stumping against income inequality. Baseball's "luxury tax" fights inequality, too. The goal is to keep big-market teams like the New York Yankees or Los Angeles Dodgers from bidding up salaries to corner the market on talent. (Funny how no one worries about the Mets doing it.) 

The process isn't quite as hard as filling out your 1040 — but it's not far off. Start with the average annual value of each player's contract. If that amount tops a specified maximum ($208 million for 2020), the team pays 20% of the excess. If they top it a second year in a row, they pay 30%. Three or more times and it's 50%. Clubs that go over by more than $20 million pay a 12% surtax. If they go over by more than $40 million, they pay an extra 42.5% the first year and 45% for future years. Violators can also lose draft picks. 

Where does that leave Boston? In 2018 their payroll was highest in the league at $239 million. It bought them 108 regular-season victories and a World Series trophy. It also meant $12 million in tax. For 2019, they were highest again at $243.7 million. That cost them $13 million. Mookie Betts was scheduled to make $27 million this year, his last before free agency. His teammate Price was scheduled to make $32 million.

Now, Boston's owner, John Henry, ranks 33rd on Forbes magazine's list of the richest sports team owners. His net worth stands at $2.7 billion. But he must be feeling the same pinch Frazee did a century ago. Take his Florida mansion, for example. Back in 2018, he listed it for sale at $25 million. Now he's marked it down 40% to $15 million, which would cover a dozen or so games' worth of player salaries. (Property taxes are $138,907/year, and it can't be cheap hiring staff to clean the 19 bathrooms.)

So, sending Betts and Price packing drops the roster down to $190 million and solves the luxury tax problem. Of course, solving that tax problem creates a new one. Betts was arguably the team's best fielder in 50 years. Look up "franchise player" in the dictionary, and . . . well, you know the rest. Price was the team's #3 pitcher; last year he went 7-5 with a 4.37 ERA. (Sadly, that's what you get for $32 million today.) Baseball writers are crying foul, accusing Henry of putting profits over winning. Where will the Sox stand at the All-Star Break? Bang the Astros' trash can if you know!

Baseball may be "just a game," but those are real dollars the Sox are paying in tax. Just goes to show, nobody likes paying more than they have to, and you shouldn't either. That's why you need a Golden Glover like us on your team!

Look What's Hiding Here

Everyone understands the concept of a "tax haven" — a delightfully sunny island somewhere in the subtropics, or a cozy European duchy tucked away on a scenic Alpine lake. Perhaps the global rich who take advantage of these safe deposit boxes just want someplace nice to stay when they visit their money. Surely that's why places like Kazakhstan and Burundi struggle to attract their share of global "flight capital." Tucking your money someplace miserable would just be silly when the world offers so many sunnier places for shady people to park their cash.

Except, it turns out not every tax haven lures depositors with sunny beaches, high-rise condos, and Hermès boutiques. In fact, there's a new financial hot spot that's grown from $57 billion to $355 billion in assets in just a single decade. No, there's not a Lamborghini dealer in site. "Dakota" is the name . . . specifically, South Dakota, the Mount Rushmore State. It's a mostly flat, featureless landscape that shares a 383-mile border with North Dakota — a place whose very name suggests such bleak desolation that officials once considered dropping "North" from the name entirely.

(Did you know we even have two Dakotas? Not everyone does!)

Trusts, not taxes, are the main reason South Dakota has become such a go-to spot for foreign money. Keeping your principal safe, it turns out, is sometimes even more important than keeping your income safe from taxes. If you're a Russian potash oligarch worried about Putin seizing your mines, a central African kleptocrat losing sleep over the ethnic minority you've been oppressing for a generation, or el jefe of a middling Columbian cartel, you want to stash your "safe" money someplace where no one can even find it, let alone steal it back.

Let's see . . . Switzerland is too obvious, the Caymans are too cliched, and the Cook Islands are just too far away. Look at this, though — the United States is the only major financial center that's not part of the international "Common Reporting Standard" agreement, so they won't report your U.S. assets back to your homeland!

Having said that, South Dakota trusts offer game-changing tax benefits for American money, too. If you leave your assets to your heirs in a regular trust, anything over about $12 million per person gets whacked by estate taxes at 40% — every generation. Most rich people are rightly terrified at the thought of their wastrel heirs struggling to eke out an existence on just $12 million. South Dakota was the first state to eliminate the common-law "rule against perpetuities," ushering in so-called "dynasty trusts" that never distribute their principal, thus avoiding transfer tax hits forever.

Eliminating that federal estate tax hit isn't the only way South Dakota trusts help rich people keep their assets under wraps. Local legislators have also made South Dakota the only state allowing true perpetual trusts with no state income tax, no tax on capital gains, and no state-level estate tax at all. Finally, South Dakota courts let trust grantors, fiduciaries, and beneficiaries seal filings and orders, in perpetuity, for ultimate privacy.

The lesson here is that you'll never know where the most powerful financial strategies are lurking. That's why we spend so much time looking for them, so we can put them to work for you!

War is Hell. Taxes, Too.

Moviegoers the past few years could be forgiven for thinking comic books had taken over Hollywood. So much of the "sophisticated adult drama" that grownups used to see in theaters has migrated to streaming video, that it seems suburban multiplexes are reserved for Batman, Superman, and their cape-wearing cronies. (Or are you more of a Marvel Cinematic Universe fan?)

Last month, director Sam Mendes released a welcome tale of actual human heroes based on his grandfather's service in World War I. 1917 follows two British soldiers with impossible orders to cross into enemy territory and deliver a message to save 1,600 of their comrades — including one's own brother — from walking into a deadly trap. The film is presented as being shot in a single unbroken take, which some reviewers have said comes across as gimmicky and grandstanding. Still, it's a visual feast, and it's already grabbed the Golden Globe for Best Drama.

Most viewers aren't going to be thinking about taxes when they see 1917. But we don't review movies here, we review taxes. And there is a connection. Before World War I, the income tax was just an experiment, but after the war, it had become the significant revenue source we've all come to know and love.

The Revenue Act of 1913 had dramatically cut average tariffs on imported goods, from 40% to 26% and replaced that lost revenue with a new income tax. Rates started at just one percent on incomes over $3,000 (about $78,000 in today's dollars) and climbed to 7% on incomes over $500,000 ($13 million today, or almost as much as Cincinnati Bengals quarterback Andy Dalton earned leading his team to a 2-14 season).

Those rates may have worked in peacetime. But World War I torpedoed international trade and tariff collections, and joining the war meant Uncle Sam needed cash, pronto. The Revenue Act of 1916 doubled the bottom rate to a whopping 2% and added a new top rate of 15% on incomes above $2 million ($47 million today, or as much as Robert Downey Jr. makes for putting on his Iron Man suit). The 1916 act added an estate tax of 10% on amounts over $5 million. The Revenue Act of 1917 went even further, quadrupling the top rate to 67% and bumping the estate tax rate to 15%.

In fairness, there weren't a lot of people not named Rockefeller making that kind of money. The hedge funds and stock options that create so much of today's eight-figure incomes hadn't been invented. "Motion pictures" were still silent. The NFL didn't even exist, and baseball's highest-paid player, Ty Cobb, made just $20,000 in salary. (Like many athletes, the Georgia Peach made far more on endorsements and investments — in Cobb's case, his early stakes in Coca Cola and General Motors grew to north of $12 million.)

After the war, Washington dropped rates to "just" 25% on incomes over $100,000. At one point, tax filings were even public — you could show up at the local IRS office and check out your boss's return. The result, of course, was the Roaring 20s, an era characterized by jazz, flappers, and bathtub gin. (OK, Prohibition might have had something to do with the quality of the booze.) Then the market crashed, and rates went back up because of the Depression.

Today, it's hard to imagine Congress and the White House mobilizing to quadruple tax rates in a single year. Fortunately, we're not facing a World War forcing us to do it! So if you make it to the theater, enjoy 1917 as an action movie, not a financial planning exercise, and leave the taxes to us!

We're From the IRS and We're Here to Help

Holiday season is drawing to a close, and we hope your celebration was exactly what you hoped for, whether you celebrate Christmas, Hanukkah, Kwanzaa, or Toyotathon. But now it's time to begin anew, with a new year and a new decade. That means resolutions: time to finally start that diet, give up those cancer sticks, or sign up for that newly-deductible gym membership that most people start regretting around Groundhog Day.

You probably don't think of the IRS as being interested in helping you keep your New Year's resolutions. But they do want to keep you healthy so you can keep paying taxes. Three years ago, the IRS sent letters to 3.9 million Americans who had paid fines for not carrying health insurance, suggesting ways to find coverage. At first glance, that seems incongruous — like, say, Quentin Tarantino directing a remake of Little Women. But a team of Treasury economists has discovered that the letters did encourage people to sign up — and saved an estimated 700 lives.

Now, we're not here to debate the merits of mandating health insurance. And we don't have anything to say about the IRS getting all up in your business. (They must think, hey, if Facebook can do it, so can they.) But the story got us wondering, what other ways the IRS could use the information they already have on us to remind us to make our lives better as we open the 2020s? The answers might surprise you!

• If you use your car for business, the IRS knows how old it is and how many miles you drive. (They can't tell how fast you drive, at least not yet, but if you use that State Farm safe driving doohickie that Aaron Rogers advertises, it's only a matter of time.) They can text you helpful reminders when it's time to rotate your tires and get your oil changed. (Just kidding . . . the IRS won't even email you, and they never text. If you get an email purporting to be from the IRS, it's a scam!)

• If you itemize deductions, the IRS knows how generous you are with your charitable dollars. They'd probably be happy to remind you when school fundraisers and ballet company donor drives are approaching. They might even urge you to be just a little more generous!

• Personal exemptions disappeared with the Tax Cuts and Jobs Act of 2017. But the IRS still knows how old your children are (to determine if they qualify for the expanded Child Tax Credit). We're sure they'll be happy to help schedule well-child checkups and six-month teeth cleanings.

• If you own your home, your Form 1098 tells the IRS when you bought it and how much you paid for it. They could help you schedule big-ticket maintenance like a new furnace or roof. (Sadly, those aren't deductible, except for investment properties.)

• IRS computers can match your Social Security number back to when your parents claimed you as a dependent, double-check to make sure they're still filing returns (i.e., still alive), and send you letters reminding you to call Mom more often.

The nightmare scenario, of course, would be if the IRS teamed up with Facebook to put all your data to work. Fortunately, we haven't arrived at that Black Mirror scenario, at least not yet. Right now, we're focused on helping you pay less. But we'll be sure to keep an eye out for helping safeguard your privacy. So welcome to 2020, and be sure to call us if your New Year's resolution involves anything financial!

The Twelve Days of Taxmas

Every year, PNC Bank publishes their "Christmas Price Index" to track the cost of the Twelve Days of Christmas. For 2019, it's a hefty $38,994. (And you thought your holiday spending was out of control!) The index may not be completely accurate — for example, the ten lords-a-leaping are valued using the cost of male ballet dancers, rather than board-certified British lords. As for the eight maids-a-milking, well, "cows not included." But still, it got us wondering . . . what sort of taxes are we looking at on the whole affair?

• Twelve drummers drumming and eleven pipers piping make quite a racket every holiday season. Hiring all that help will stir up a cacophony of FICA taxes!

• Ten lords may look perfectly happy while they're leaping. But surely they must pay a king's ransom in inheritance taxes — after all, they are lords!

• Nine ladies dancing make a lovely sight at Christmas time, especially if they're Rockettes. They also pay a cabaret tax for the privilege of displaying their talent.

• Eight maids-a-milking help make sure we have plenty of tasty eggnog to drink. Good thing so many states offer dairy tax credits to squeeze the cows on to higher holiday production!

• Seven swans-a-swimming? Six geese-a-laying? If we accept the rule of thumb that two birds per acre of pond is a manageable number, then we're looking at some serious property taxes to host our holiday flock!

• Who doesn't want five gold rings under the tree? But selling those rings can be an expensive proposition. Remember, jewelry held for personal use is still subject to 20% tax on long-term capital gains, plus an extra 3.8% "net investment income tax"!

• Four calling birds use a lot of cell phone minutes over twelve days. (They're calling birds, so unlimited texting won't help.) Naturally, that means a 5.82% federal excise tax, plus state and local sales tax too.

• Three French hens add a sophisticated "continental" touch to anyone's holiday festivities. But don't forget the import duties you pay to bring foreign livestock into the country!

• Two turtle doves are famed among bird watchers for forming strong "pair bonds," which makes them a symbol of devoted love. (That's why they're in the song.) Too bad that means they pay that pesky marriage penalty that hits high-income couples who file jointly! (Okay, we know this this one's a stretch. But we've got twelve days of taxes to fill here, so cut us some slack.)

• Nothing says "Christmas" like a partridge in a pear tree. And our tax code is full of juicy incentives for growing pear trees. You can deduct operating expenses associated with your crop; you can depreciate equipment and land improvements you use to manage your groves; and you can even take generous charitable deductions for rights you give up for conservation easements. Why, the tax savings alone should be more than enough to pay for the partridge!

Yes, even Twelve Days of Christmas just means twelve more opportunities for the taxman. So here's wishing you and your family the best this holiday season. We'll be back in 2020 to make sure you pay as little tax as possible, not just during the holidays, but all year long!

All the Tender Sweetness of a Seasick Crocodile

Would you believe that Spotify offers over a million Christmas songs? There’s something for every taste. The best of them, like Placido Domingo and Luciano Pavarotti's magnificent "O Holy Night," are sublime evocations that lift the human spirit. Some, like Mariah Carey's "All I Want for Christmas is You," are banal background noise for department store Santas. And some, like Paul McCartney's "Simply Having a Wonderful Christmas Time," are just a lump of coal in your stocking.

But there's one holiday classic everyone loves, and that's "You're a Mean One, Mr. Grinch." We're talking, of course, about Thurl Ravenscroft's crypt-voiced rendition from the original 1966 animation. Fifty-three years later, the Grinch polls nearly as well as Santa Claus. And in Hollywood, where imitation is the most risk-averse form of flattery, that means cynical studio executives will churn out garbage remakes every few years until the day their hearts grow three sizes.

Remakes rarely delight critics and viewers the same way as the original. (The cover band at the country club Christmas party isn't rockin' around the Christmas tree quite like Brenda Lee, either.) But the 2000 live-action Grinch starring Jim Carrey grossed over $345 million. And last year's animation with Benedict Cumberbatch cleared over half a billion. So it turns out the Scrooges at the IRS and various state tax departments don't care which Grinch steals all those floo floopers and jing tinglers — they just want their share!

Fortunately, the tax code gives moviemakers a 39½-foot pole to keep the IRS at bay. From 2004 through 2016, Section 181 let you write off 100% of specified production costs, as soon as you incurred them, up to a cap of $15 million ($20 million in certain economically distressed areas). To qualify, you had to spend at least 75% of your production costs here in the U.S. The goal was to fight "runaway production," where producers take everything else down to the last can of Who Hash abroad to film. And it worked, by helping domestic productions find financing.

The Tax Cuts and Jobs Act of 2017 makes those same expenses, still called "Section 181 costs," eligible for 100% bonus depreciation under Section 168(k). It also eliminates the previous $15 million cap. However, you can't take your bigger write-off until the film is "placed in service," meaning it's actually released. And you may not get to write it off against your W2. At least the net income from moviemaking is eligible for the new Qualified Business Income deduction. (Even Little Cindy Lou Who knows that where Hollywood accounting is concerned, there's never any "net.")

Uncle Sam isn't the only one who offers tax breaks for film producers. Many states offer incentives to lure productions to their jurisdictions like the Grinch lures his dog Max onto his sleigh. Louisiana has passed California as the most popular location for filming, thanks in part to the Bayou State's generous 40% tax credit on expenses up to $180 million. New York is another film hotbed, with industry titans like Robert DeNiro investing $400 million in a Queens soundstage serving all phases of movie and TV production.

2019 is drawing to a close, and the holidays are here. It's a special time of year, whichever holiday music brings you good cheer. And so, whether you're celebrating from high atop Mt. Crumpet, or somewhere in the village down below, we wish you the very best of the season.

Here's Where the Bodies Are Buried

Between 1983 and 1985, mobster Whitey Bulger whacked three people and buried them under the dirt-floor basement of a house in Boston's working-class "Southie" neighborhood. Bulger, an FBI informant who inspired Jack Nicholson's character in The Departed, vanished after his handler tipped him off that he was looking down the business end of an indictment. Sixteen years later, acting on a tip from a former Miss Iceland, the Feds found him in California. They hauled him back to Boston, convicted him of 11 murders, and shipped him off to prison where (of course) he got whacked himself.

Now that house, nicknamed "the Haunty," is under contract to be sold. (If knowing that a bunch of hardened killers call it "the Haunty" doesn't make you drool, what will?) It's not much to look at — a nondescript two-story row house, built in 1885, with 1,975 square feet on a 5,000-square-foot lot. But Southie isn't the same old Southie anymore — the Boston Globe calls it one of "the city's hottest neighborhoods" — and the buyer should be able to replace it with four bougie townhouses. You know the drill — hot tubs, granite countertops, the works.

The current owner dropped $120,000 for it back in 1985. While we don't know today's sale amount, the most recent asking price was $3.395 million. That sort of gain generally means a nice score for a different crew of Feds at the IRS. Naturally, that got us wondering, what could our sellers do to avoid that hit?

The easiest way to escape tax on that sort of gain is to hold your property until death. At that point, your heirs get what's called a "stepped-up basis" equal to the property's fair market value as of the date of the deceased owner's death. Good news: those rules apply whether you die of natural causes, you're shot in the back of the head (like Bulger victims Arthur "Buckey" Barrett and John McIntyre), or you're strangled (like third victim Deborah Hussey). This works with any sort of appreciated property, not just your house.

Fortunately, though, there are lots of ways to defer or eliminate the tax selling your house, while you're still alive to enjoy your gains. When you sell your primary residence, you can exclude up to $250,000 from your income ($500,000 for joint filers). You can roll your gain into a qualified opportunity fund to delay it until 2026. Or you can use advanced strategies like a charitable remainder trust, a pooled income fund, or coupling an installment sale with a monetizing loan.

The Haunty seller isn't the only one facing tax problems. When Feds finally busted Bulger at his apartment in Santa Monica, they found over $800,000 in cash. No one would believe he paid tax while he was on the lam, which means the IRS is going to want their taste. Illegal income is taxable just like if you went legit. More good news: you can deduct the costs of running most illegal businesses. So, when Whitey buys a shovel to bury the bodies, he can deduct the business-use portion. The Tax Cuts and Jobs Act of 2017 even lets him claim 100% bonus depreciation!

We've worked with clients who make their money all sorts of ways (although none of them have ever made the Most Wanted list). When it comes to paying less tax, we know where the bodies are buried. Call us when you're ready to pay less, and remember, we're here for the rest of your gang, too! 

Gold Star Glitch

On Monday, Veterans Day commemorated those brave and selfless Americans who've served in our military. We honor them with History Channel specials, parades, and one-day-only sales on chicken sandwiches and big-screen TVs. Occasionally, we even let the occasion guilt us into trying to do a better job of taking care of them in more tangible ways.

This week's story involves children of Gold Star families, survivors of soldiers who died in military service. Now, kids aren't usually a profit center. They're noisy. They're sticky. They throw up at the worst possible times. But up until 1986, parents could at least use them as a tax shelter, shifting investments into their name to be taxed at the kids' lower rate. That changed with the Tax Reform Act of 1986 and the new "kiddie tax." Ever since then, minors' unearned income above a certain low threshold ($2,100 in 2017) has been taxed at their parents' rates.

Fast forward to December 20, 2017. Senators are furiously scrawling legislation on the back of cocktail napkins in hopes of passing tax reform in time to escape town for Christmas. (Hearings? We don't need no stinkin' hearings!) Their main goal is to cut corporate rates. But budget rules mean they can't just cut without restoring at least part of that revenue. Those add-backs included twisting the screw on kiddie taxes. The new law hits that income at even higher trust rates, which soar all the way to 37% at just $12,750 of income.

Here's the problem: that new rule isn't just hitting the children of millionaires and billionaires that it was targeting. It's also clobbering children receiving military survivor benefits. Thousands of Gold Star families are facing five-figure tax bills on those checks. That's not a great look for a country already struggling with a broken Veterans Administration and an epidemic of veteran suicides!

The "Gold Star glitch" wasn't the only mistake the Senate made in their late-night draftathon. (It passed at 1:51 AM, waaaaay past most Senators' bedtimes.) There were also provisions eliminating taxes entirely for farmers selling crops to cooperatives (the "grain glitch"), preventing retailers and restaurants from writing off leasehold improvements as fast as Congress intended (the "retail glitch") and creating conflicting start dates for limits on net operating losses (the "NOL effective date glitch"). Oopsies!

The Senate passed a bill in May to fix the Gold Star glitch. But in the House, it got thrown into the broader SECURE Act designed to boost retirement savings. The House passed that bill 417-3, which is a real triumph in a congress that looks more like a UFC octagon than a forum for civilized debate. But back in the Senate, Ted Cruz has held it hostage because it doesn't let parents use Section 529 accounts for homeschooling expenses. Gold Star survivors have lobbied Cruz's office, but gotten nowhere. (In fairness, Cruz isn't the only Senator who seems happy to put grandstanding above problem-solving.)

So here we are, celebrating veterans by mugging their survivors for extra tax on a couple thousand bucks a month of government benefits. It's especially frustrating to us because there's nothing we can do to help avoid it. Fortunately, that's not usually the case. There's almost always a way to pay less. You just need a plan that uses every rule to your benefit, regardless of how late at night it passed!

Welcome to the Desert of the Real

Twenty years ago, sci-fi fans geeked out to a new thriller called The Matrix following a dystopian vein established in Blade Runner, Total Recall, and The Terminator. It starred Keanu Reeves as "Neo" and Laurence Fishburne as "Morpheus": freedom fighters in a world where machines have trapped humanity in a computer-generated dreamscape called the Matrix, to distract their minds while sucking energy from their bodies and brains. (Their allies include another hacker named Trinity, famed for cracking the IRS database, but that's not what brings us here today.)

Early in Act One, Morpheus shows Neo two pills that look like ordinary cold medicine and presents him with a choice. "This is your last chance. After this, there is no turning back. You take the blue pill — the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill — you stay in Wonderland and I show you how deep the rabbit-hole goes." It wouldn't have been much of a movie if Neo had taken the blue pill — fortunately for viewers (and humanity), he picks red and challenges the machines to a future where "anything is possible."

The Matrix established the blue pill and red pill as cultural metaphors for two very different perspectives on the world. The blue pill represents, at its worst, basking in sheeplike submission and accepting an essentially dishonest illusion. The red pill, by contrast, represents the genuine freedom and opportunity that come from accepting harsh but liberating reality. The choice you make has consequences in every aspect of your life — including your taxes and your finances.

In our world, every competent tax professional works within the system. (The occasional crooks who cheat on behalf of their clients make headlines because they're so rare.) Most tax pros work the blue pill side of the line. They passively take the numbers their clients bring them, from their P&L statements, their W-2s, and 1099s. They feed the data into their computers to put the right numbers in the right boxes on the right forms. They do a great job telling clients how much they owe — and for most clients, the blue pill may be all they need.

But some tax pros do things a little differently. They work the red pill side of the line. They don't just take the numbers you give them and run them through "the Matrix" of IRS forms and procedures. They help you structure your business entities, your benefit plans, and perhaps even your investment portfolio to pay the minimum possible tax. They don't just accept the story the IRS writes for them. They work within the system to write you a happier ending.

You may not think choosing a tax advisor is quite as consequential as choosing between the red pill and the blue. But Neo didn't realize he was living in the Matrix, either, not until Morpheus welcomed him to the desert of the real. The good news is, at least as far as taxes are concerned, the red pill doesn't require you to outrun creepy agents of post-apocalyptic artificial intelligence or dodge bullets in a shadowy subway tunnel. It just takes opening your eyes to all the legal, ethical, and moral ways to pay less.

You don't have to be a sci-fi fan to appreciate that sort of success. And you don't have to follow the movies to appreciate the savings we create with the "red pill" approach. Just sit back and enjoy the show. And maybe next time you're feeling philosophical, ask yourself if the tax system we work in is real, or are we just trapped in some sort of twisted virtual reality? 

Pumpkin Spice-Flavored Taxes

October is chock-full of obscure holidays and commemorations. October 3 is National Boyfriend Day. October 15 — the real personal tax filing deadline — is National Grouch Day. (Coincidence? We think not.) October 19 serves up National Seafood Bisque Day (which sounds a lot tastier than October 25, National Greasy Food Day). Then there's October 21, National Clean Your Virtual Desktop Day, which sounds like it was cooked up by the same HR funsters who think "trust falling" into a co-worker's arms is somehow an appropriate thing to do at work. We swear we're not making any of this up.

But none of those can compare to the big orange ball of fun waiting towards the end of the month. We're talking about October 26: National Pumpkin Day. Believe it or not, pumpkins are more than just everyone's favorite gourd — they're responsible for generating millions of tax dollars for government everywhere.

For starters, check out actual pumpkin sales. Americans are expected to spend $377 million on cucurbita pepos to carve into jack o'lanterns in 2019. That means the IRS and state tax departments will harvest millions in income taxes from the farmers who grow them, then millions more in sales taxes from the families who buy them. No wonder all those pumpkins are smiling!

Next up, pumpkin pie: in 2015, Costco alone sold 5.3 million of them at $5.99 each. For those of you who weren't math majors, that's $31.7 million worth of creamy goodness. The high fat content in the crust, along with the egg-based custard filling, make them ideal for freezing until Christmas. So pick up two or three, and consider the extra sales tax a small price to pay for the taste of nostalgia.

And next, there's canned pumpkin pie filling. A couple of years ago, a vicious rumor started making the rounds that the glop you whip into your pie is actually just butternut squash. But Libby's, the Nestle subsidiary that sells $130 million of canned pumpkin filling every year, reports that they're just using a different strain of pumpkin that makes a richer, sweeter puree than regular carving pumpkins. Governments collecting sales on the pies can sigh in relief that they're not abetting a scam.

But while we're on the topic of "Things That Aren't Really Pumpkin for $200, Alex," pies are just the warmup for the real action. Love it or hate it (and there's not a lot of in-between), it's pumpkin spice season. It started as a twee Starbucks gimmick. But today's Pumpkin Spice Industrial Complex has inched its creepy tentacles into everything from candles to kale chips, and donuts to dog treats. Head to your doctor to get a flu shot, and the nurse will probably ask if you want pumpkin spice with that.

Here's the thing. Pumpkin spice — a blend of cinnamon, nutmeg, ginger, cloves, and allspice — started out as something called "pumpkin pie spice" to amp up the sometimes-bland pies. But lazy Americans quickly dropped the "pie" part. And ever since 2004, when Starbucks rolled out their flavored lattes nationwide, pumpkin spice has become a symbol for all things autumn. Americans will gobble $600 million worth of the stuff this fall, putting millions more in tax collectors' pockets.

Now, this whole discussion may sound like a silly exercise. (Ok, it is.) But there's an important lesson lurking under the filling and the whipped cream. Every financial decision you make has at least some tax consequence, even if it's just a trip to the bakery aisle. That's why it's so important to keep us involved before big financial choices, and avoid expensive tax mistakes!