Oh, Baby!

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

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

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

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

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

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

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

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

Law & Order: Tax Crimes Unit

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

• Shawanda Nevers — aka Shawanda Hawkins, Shawanda Bryant, and Shawanda Johnson — operated several businesses in New Orleans, including a sports bar and a tax-prep shop. She must have thought her taxes should be as spicy as her cooking. So she whipped up returns giving her clients fake business losses, deductions, and credits. In 2014, the IRS permanently barred her from preparing taxes. But she kept letting les bon temps rouler until CI agents busted her again, fined her $7 million, and sentenced her to seven years of bland prison chow.

• Kelly Sue Reynolds worked as a bookkeeper in North Carolina. Over five years, she embezzled $439,459.97 from her employer, including the money that was supposed to pay their taxes. (That's the mark of a top-notch bookkeeper, right? They can tell you down to the penny how much they stole.) When the IRS came looking for their money, CI agents busted Reynolds' scheme. Now she's counting down two years in the "camp" where Martha Stewart served. It's been called "America's cushiest prison" . . . but Reynolds still gets to learn if orange really is the new black.

• Rick Rizzollo ran a "gentleman's club" in Las Vegas, where he paid employees in cash and filed bogus employment tax returns. (He's a real gentleman himself — he hired teenage strippers, and used a baseball bat to "persuade" customers into signing fraudulent credit card charges.) In 2006, he copped to the employment tax fraud. Then he hid his money to dodge the back taxes and sent $900,000 from selling a second club to an account in the Cook Islands. But CI agents demanded the naked truth, and helped send Rizzollo to 24 months in a place where the "bouncers" don't wear tuxedos.

• Lizzie Mulder (not a CPA) posed as a CPA in California, where she had clients make out checks payable to "Income Tax Payments." Perfectly kosher, right? What clients didn't know was that she had set up a phony account called (wait for it) "Income Tax Payments," under her own name. She used their money for a pricey house, cosmetic surgery, vacations, and an Arabian horse. Lizzie's husband ratted her out to clients, then CI agents joined to "stable" her in a Phoenix prison for five years.

• Monsignor (!) Hien Minh Nguyen was a priest for the San Jose archdiocese and director of the local Vietnamese Catholic Center. Apparently he missed class the day they discussed that whole "poverty" thing in priest school. Nguyen stole cash donations from parishioners and deposited their checks in his personal account, among other sins. CI agents visited him, hoping for a confession, and used his lies and inconsistent answers to build a case that led to $1.9 million in restitution and three years in prison. (He can probably count on a few years in purgatory, too.)

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

Superheroes of Tax

Last weekend, Hollywood made history. Disney's three-hour popcorn epic, Avengers: Endgame sent box-office records scrambling in panic, grossing $350 million here in the U.S. And $330 million in China. And $600 million more in another 43 countries. It's the first movie to top a billion dollars in its opening weekend. Endgame still has a long way to go before it catches Gone With the Wind, which made $3.4 billion in inflation-adjusted dollars. But did Scarlett O'Hara gross a single dollar in action figures, video games, or happy meals?

This isn't going to be one of those stories where we say, "Hey, let's look at taxes in the Marvel Universe!" We have no idea how payroll works in Wakanda. We couldn't tell you the first thing about import duties on Vibranium. And we don't really care if Thanos of Titan is reporting all his income to the proper taxing authorities. (He's not our client!)

Surely, though, there were plenty of tax collectors in the audience swelling this weekend's box-office gross. And they should be as happy as anyone, because they'll be claiming a pretty nice share of it all!

Start with the real stars of the movie. We're talking about the CGI artists who generated over 3,000 visual effects shots. (Director James Cameron's company even created an entirely new facial-capture application called Masquerade specifically for James Brolin to play Thanos.) VFX work is time and labor intensive, so most of that budget goes to the animators, directors, and other technicians who work behind the scenes to make the magic happen. Much of that money, in turn, finds its way into Uncle Sam's pocket, and far faster than it takes Thor to find his way back from Asgar.

Unfortunately, producers were forced to hire pricey people for situations like "dialogue" and "character" where special effects wouldn't cut it. Robert Downey, Jr., who earned just $500,000 for his first Iron Man movie, will take home north of $50 million. Middle-tier stars like Chris Evans, Chris Hemsworth, and Scarlett Johansson earned a reported $15 million each. All of that is taxed as ordinary income, with 37% going to Uncle Sam, 3.8% going to Social Security and Medicare, and 13% going to California.

Disney spent $356 million to make the movie, along with millions more to market and promote it. In Hollywood, the accountants are nearly as creative as the directors and writers, so the studios usually find a way to show a loss. But $1.2 billion in a single weekend may be a little harder to defeat than the usual gross, and if Endgame does show a profit, the studio will pay the usual 21% corporate tax.

At the end of the last Avengers movie, Thanos collected all six of the Infinity Stones and snapped his fingers to wipe out half the Universe's population. (Not a spoiler . . . you've had time!) Google celebrates that moment today with a Thanos "Easter Egg." Just go to Google, type "Thanos" in the search bar, and hit "enter." Then look for the jewel-covered glove, called the Infinity Gauntlet, in the upper-right corner. Click it, and you'll see half the search results magically disappear from the page.

But . . . and we're just spitballing here . . . what if you could "Thanos snap" your fingers and make half your taxes go away? Well, we may not have any Infinity Stones in our pockets. But we do have an ensemble cast of concepts and strategies to put to work to help you pay less. A captive insurance company can be every bit as good as the Power Stone, for the right business, and a charitable remainder trust can be as illuminating as the Soul Stone. So call us after the movie lets out, and take a look at our special effects! 

Pied-a-Terrible!

When it comes to raising revenue, governments usually find it most efficient to follow the immortal advice of bank robber Willie Sutton and go "where the money is." They turn to income, payroll, property, and sales taxes to fund most of their operations. They'll throw in the occasional gas tax or sin tax for fun. Most of the time, those "nuisance taxes" don't amount to much. But that's not always the case.

In 1989, New York state imposed a so-called mansion tax, a flat 1% on home sales of $1 million or more. Now the state has "remodeled" that tax, adding seven new brackets for sales in New York City beginning January 1, 2020. The rate increases to 1.25% on sale amounts from $2-3 million, 1.75% on amounts from $3-5 million, and steps all the way up to 4.15% on amounts over $25 million. Officials expect the new tax to raise $365 million per year, and plan to use it to finance $5 billion in bonds for public transportation.

So far so good, right? Well, for starters, should a tax on million-dollar homes really be called a "mansion" tax in the first place? Maybe that was true when the Empire State first levied it in 1989. But these days, a million bucks isn't even "mansion-adjacent," especially in Manhattan. Right now, you can pay $1,499,000 for a 52nd-floor alcove studio in Hell's Kitchen. (Hell's Kitchen!) There's no separate bedroom, of course. Not even a bathtub! But the bathroom has a very nice marble-lined shower.

Of course, some pads really do qualify as "mansions." Hedge fund manager Ken Griffin just dropped $238 million for a penthouse at 220 Central Park South, an oligarch-friendly tower on "billionaire's row." Griffin's new pad includes 23,000 square feet sprawling over four floors, with 16 bedrooms and more bathrooms than your mansion. It's the most expensive home sale in U.S. history — and Griffin plans to use it as "a place to stay when he's in town" for business. (How's that for "let them eat cake" moments in American history?)

The extra tax would have cost Griffin $7.2 million if he had waited until next year to buy. Sure, that sounds like a lot to you. But Forbes estimates Griffin's net worth at $11.8 billion, meaning it probably wouldn't have stopped the deal. (The place comes unfinished, meaning he'll have to spend tens of millions more before he can unpack his toothbrush!)

Griffin isn't the only plutocrat buying pricey real estate he won't be occupying. So many deep-pocketed foreigners have decided to stash part of their gains in Manhattan condos, without ever moving in, that some high-end buildings stand nearly dark at night. The city even floated a "pied-a-terre" tax for those part-time residents using those condos as safe-deposit boxes without pouring anything else into city goods and services.

Pied-a-terre tax fans pointed out the politically convenient fact that part-time residents don't vote in New York, which makes it easier to pluck them without making them squawk. But ultimately, real estate insiders shot it down as class warfare. They objected that it would be too hard to determine which owners are truly absentee and deserve to get hit with the tax. And they argued, quite reasonably, that out-of-towners buying $5 million condos aren't taking up space on city buses and subways.

We don't care if you live in a mansion, an apartment, or a van down by the river. We're pretty sure you don't want to pay more than your legal fair share. That's where our tax planning service comes in. So call us and see how much you might save. You might free up enough to spend some seriously fun weekends in the city! 

A Song of Fire and Taxes

Sunday night, millions of Game of Thrones fans who waited breathlessly for 20 months finally got rewarded with their next installment what's become the biggest TV show on the planet. Cersei discovered (redacted). Jon Snow learned that .... (sorry, no spoilers here). And that guy with the eye patch and flaming sword probably does great on Tinder. (Seriously, what fair maiden wouldn't swipe right on him?) Last week, we speculated about how taxes work in Game of Thrones and concluded there are two groups of winners, at least as far as taxes are concerned. The first are the governments collecting taxes from the show's creators, cast, and crew. The second are those collecting taxes from tourists visiting the show's spectacular filming locations, like Spain's Alcazar Palace or Gaztelugatxe. (Remarkably, not a typo.) But there's another important lesson worth spending a second week on. (If you're not a fan, don't worry, we're not turning this into the Westerosi Weekly Tax Journal.)

Last week, we speculated about how taxes work in Game of Thrones and concluded there are two groups of winners, at least as far as taxes are concerned. The first are the governments collecting taxes from the show's creators, cast, and crew. The second are those collecting taxes from tourists visiting the show's spectacular filming locations, like Spain's Alcazar Palace or Gaztelugatxe. (Remarkably, not a typo.) But there's another important lesson worth spending a second week on. (If you're not a fan, don't worry, we're not turning this into the Westerosi Weekly Tax Journal.)

But what we can give you is an ever-expanding menu of concepts and strategies to slow or stop the White Walkers of unnecessary taxes. If you want to pay the legal minimum, you need someone who speaks "taxes" as fluently as Danaerys's translator Missandrei, who can say "loophole" in 19 different languages. Are you selling a business and looking at a seven-figure tax bill? We've got the dragonglass for that. Looking to maximize your real estate depreciation deductions? We've got your Valyrian steel. So when you're done watching Thrones, call us to put our wildfire to work! 

Game of Taxes

On April 14, millions of fans will gather around the biggest screen they can find for the start of one final season in Westeros, the setting of George R.R. Martin's epic Game of Thrones. The show, which producers pitched as "The Sopranos in Middle Earth," has leaped from television into the broader culture. In 2013, 241 babies were named "Khaleesi" after the title Danaerys Targaryen takes by marrying the Khal Drogo. UC Berkeley offers a class in "invented languages" featuring Dothraki, which sounds like what you'd get if you mixed Spanish and Arabic and ran it through a wood chipper.

Martin doesn't tell us much about how taxes work in Westeros. And HBO certainly isn't interested in exploring those details — how would they find time between introducing 257 major characters in Season One and killing most of them off in increasingly cringeworthy fashion through the next six seasons? But fortunately for us, the series leaves occasional bread crumbs to help us understand whether the show's tax collectors worship the lord of light or the lord of darkness.

The Iron Throne's principal tax man is Lord Petyr "Littlefinger" Baelish, the King's urbanely oily Master of Coin. (Picture Treasury Secretary Steven Mnuchin, but with chainmail and some super-sketchy side gigs.) Apparently, collecting taxes is just another entrepreneurial opportunity for Littlefinger. In Clash of Kings, Martin writes, "Ten years ago, Jon Arryn had given him a minor sinecure in customs, where Lord Petyr had soon distinguished himself by bringing in three times as much as any of the king's other collectors."

Sadly, Littlefinger's greediest efforts aren't enough to satisfy King Robert Baratheon's lust for wine and tournaments. Baratheon spends down the surplus left by the Targaryens, then borrows millions of golden dragons from the House of Lannister and the Iron Bank of Braavos, Westeros's version of the International Monetary Fund. We don't know how much interest Braavos charges — but if you default, they don't just send swordsell goons to break your legs. They finance a rival power, then collect when the rival overthrows you!

As for those scheming Lannisters, we know "a Lannister always pays his debts." But do Lannisters always pay their taxes? Or do they cleverly avoid them? In Season Three, Lord Tywin Lannister imposes a penny tax on brothels, called "the dwarf's penny," to boost public morals and pay for Joffrey's upcoming wedding. Now, come on . . . is there any idiot in any village in Westeros who doesn't see through that blatant attempt to shift the burden from the 1% to the commoners? Discuss.

In the end, the show's biggest winners may be the real tax collectors across the world. Series creator George R.R. Martin earns a reported $25 million per year from HBO and book royalties. Thrones tourists have pumped millions more into the show's real-life filming locations, including Northern Ireland and Dubrovnik — a Croatian city most fans had never heard of before they saw it standing in for King's Landing. We can assume that all of their governments are happy to collect their share of all those Thrones dollars raining down like flaming arrows.

If you're like most "Thronies," you'd love a dragon of your own to ease your path to the top. (Or do you worry the King would find a way to tax them, too?) Fortunately, you don't need a fire-breathing reptile to keep more of your golden dragons. You just need a plan. So call us when you're ready to escape the King's yoke, and see how glorious a castle you can build with the savings!

Nobody's Perfect

Nobody really likes to pay taxes. It’s no surprise, then, that so many people work so hard to avoid them. As humorist Fran Lebowitz once said, “a dog who thinks he is man’s best friend is a dog who has obviously never met a tax lawyer.” Truly proactive tax professionals like us understand that you don’t just want to know how much you owe. You want us to use the ins and outs of the tax code to help you pay less.

And so this week’s episode of Beat the Tax Man takes us to David Burbach, a municipal swimming pool consultant and designer from warm, sunny Wisconsin. Now you might think that cash-strapped local governments would rather pay for sewer systems or orange barrels than swimming pools. But Burbach is clearly good at his job — he’s designed over 600 pools nationwide.

Naturally, that’s led to some big personal income tax bills. Burbach had also started worrying about legal sharks feasting on his riches if one of his pool designs were to fail.

Burbach’s search for asset protection and tax relief led him to an accountant named George Eldridge, who marketed himself as more than your run-of-the-mill, numbers-in-boxes kind of guy. Eldridge presented himself as a bare-knuckle brawler, gleefully taking on the IRS on his clients’ behalf:

“Are you a Beleaguered American Taxpayer? Is the Grizzly Bear {the IRS} feasting sumptuously in [sic] your money that you have earned by work? * * * Are you ever going to use Rule of Law to stop paying maximum taxes to the Grizzly Bear? Do you have the heart to use Rule of Law through me? * * * What is your decision?”

Burbach is an engineer by training, and he probably would have done more homework if he were buying a used Volkswagen Jetta. But he dove right in and agreed to pay Eldridge $12,000 per month for his protection.

Eldridge set up one corporation to hold Burbach’s business, another to hold his real estate, a third corporation that never seemed to serve any purpose, and a nonprofit corporation to hold Burbach’s collection of historic Ford cars, trucks, and tractors. (The goal was to open a “museum” that would be open from 8AM to 10AM, weather permitting, during summer months, only. Uh, right.) Eldridge also formed a defined benefit pension plan based on “director’s fees” from his corporation.

Now, corporations, nonprofits, and defined benefit pension plans are all perfectly legitimate tax-planning tools. Unfortunately, Eldridge’s follow-through didn’t hold water. For starters, he never even bothered filing Burbach’s taxes! (Eldridge told him that corporations have six years to file.) Burbach’s empty promises led Burbach down a path that might have been funny if he hadn’t wound up in court.

Burbach had to know he was going to get doused with taxes. However, he argued he had reasonably relied on Eldridge’s advice, so he should avoid penalties for Eldridge’s failures. Tax Court Judge Holmes opened his opinion on Burbach’s claim by quoting from Professor Harold Hill of The Music Man. And you can probably guess that quoting a fictional con man isn’t a good sign for the taxpayer.

This week’s story offers all sorts of lessons. But the most important one is something you learned long before you knew about taxes: if it sounds too good to be true, it probably is. So don’t be afraid to challenge us to show you the receipts. You’ll wind up paying less tax and sleeping better, too!

Change of Address

Moving to a new home can mark an exciting transition in life. Maybe you've just gotten married and you're settling into a real house after a series of walkup apartments. Maybe your children are finally out of the house and you're trading four bedrooms and a suburban backyard for lofty downtown sophistication. Maybe you're ready to retire and opt out of snowy winters for good.

Moving is also a monumental pain in the butt. We're not just talking about packing up and sorting through years (decades?) of accumulated stuff. We're talking about the practical details of changing your address with everyone from your bank to your car registration to your family . . . including, of course, your Uncle Sam. If you don't dot your i's and cross your t's, you can wind up in a fair amount of trouble. And so this week's story takes us deep into the weeds of something you wouldn't think the IRS needs to argue about: the all-important "last known address."

Damian and Shayla Gregory moved from Jersey City, NJ to nearby Rutherford on June 30, 2015. For some reason, they filed their 2014 tax return from their old address in Jersey City. Then they won the lottery. Unfortunately, it wasn't the Powerball, it was the audit lottery. And they didn't win the $7,000 per week for life they were hoping for — they won a demand for more tax!

While the IRS was auditing them, the Gregorys filed a power of attorney and extension to file their 2015 return from the new address. Now, you'd think that would be enough to put the IRS "on notice" that they had moved. Sadly, you would be wrong. And so, with the audit over, the IRS sent their demand to the Gregory's old address in Jersey City. (The Post Office returned it as undeliverable.) The Gregorys finally learned about the deficiency three months later. They filed a petition challenging it in Tax Court literally that same day. But the IRS told them no dice.

Naturally, the IRS has miles of red tape governing all of this. 26 CFR §301.6212-2 defines "last known address" as the one that "appears on the taxpayer's most recently filed and properly processed Federal tax return, unless the Internal Revenue Service (IRS) is given clear and concise notification of a different address." Rev. Proc. 2010-16 goes on to list the forms that qualify, and states clearly that the power of attorney and extension don't count. Even the instructions for those forms say you can't use them to change your address. And so the Tax Court ruled for the IRS.

The Gregorys weren't completely off-base asking the IRS for a break. Courts have said that if the IRS knows a taxpayer has moved, they should exercise due diligence to find them, even if they haven't given notice. Having said that, last October the Tax Court ruled the IRS didn't have to sic the bloodhounds on Daniel Sadek, a California subprime lending "mogul" who racked up $25 million in tax deficiencies before fleeing his "last known address" in California to ride out an FBI investigation in Beirut. (Nothing suspicious about that move, right?)

Here's the broader lesson from this week's story. Beating the IRS starts with big-picture strategies like choosing the right business entity, finding the right benefit plans, and taking advantage of code-based savings strategies. But concepts and strategies aren't enough. Implementation is the key to putting them to work, and you can't overlook the details. That's where we comes in. So call us when you're ready to work the system and let us put those strategies to work for you!

AP Fraud

Early on a Tuesday morning, FBI agents fan out across the country to arrest dozens of people in six states on racketeering charges and other offenses. The next Gambino family mob "rollup"? No, it's "Operation Varsity Blues" — the newest celebrity scandal, featuring CEOs and Hollywood stars bribing their children's way into competitive colleges! And, like with most good scandals, there's a tax angle lurking underneath the juicy gossip.

Some of our most successful CEOs never finished college. The list includes Bill Gates, Steve Jobs, Mark Zuckerberg, Russell Simmons, and dozens more. Astonishingly, millions of Americans manage to find happiness and success in life without ever going to college at all! But competition for spots at top schools grows ever more intense (Stanford University's acceptance rate is down to one out of twenty.) That's forced striving students to up their game . . . so is it any surprise their striving helicopter parents are upping their game, too?

This week's story starts with a former teacher named William Singer, who established a college counseling business called "The Key" and a nonprofit called Key Worldwide Foundation. The Key may have been a legitimate-enough service for affluent families who wanted a regular dose of rigging the system. But parents who were willing to pay for VIP-level rigging could make "charitable" contributions to the foundation, which Singer used to bribe test administrators and college coaches. Singer bragged that he had helped 761 families open what he called a "side door" into top schools.

In one case, actress Felicity Huffman shamelessly "donated" $15,000 to Singer's foundation to doctor her daughter's SAT results. (Huffman is currently free on $250,000 bail.) In another, Lori Loughlin, who played Aunt Becky in the critically-acclaimed drama "Fuller House", paid $500,000 to market daughters as rowing team recruits at USC. Of course, neither girl would recognize a scull if you knocked her over the head with it. (Loughlin is free on $1 million bail — bigger bribe = bigger bail.) Both families should probably tell their accountants to expect correspondence from the IRS about those bogus charitable deductions.

Ironically, the Tax Code includes plenty of legitimate breaks for financing college costs. Scholarships and fellowships are generally tax-free. There's the American Opportunity Credit, the Lifetime Learning Credit, and an above-the-line deduction for student loan interest. The problem, of course, is that none of those breaks help you get in to that pricey school in the first place! (You can't even deduct your kids' SAT test-prep fees.)

As for Singer, he's been cooperating with feds since September. He pled guilty just hours after the story broke, and it looks like the Justice Department has all the receipts they need to lock down more convictions. That's typical for federal prosecutors, who don't bring charges until they have a stack of evidence tall enough to stand on and change a light bulb. Coaches and even some of the parents have been fired, too.

So, how hard are you working to get your kids into college? It used to be enough just to schlep them from soccer games to violin lessons to test-prep classes. Now you've got to start committing felonies, too? Are you sure Olde Ivy is really worth it? Fortunately, you don't have to commit any crimes to put smart tax planning to work to pay for it, wherever they go. You just need a plan. So call us when you're ready to ship the kids off to school, and let us help you save enough to throw a party when they graduate!

Batter Up!

Choosing where to live is one of the most important decisions we make on this journey we call life. Do we embrace the familiar comfort of the small town where we grew up, or do we strike off for fame and fortune in the big city? Do we celebrate new advances in home snowblower technology, or do we opt-out of winter entirely on a houseboat in the Keys? Choosing where to put down roots is an intensely emotional choice. But for some of us, it's a tax-planning choice, too.

Bryce Harper is a baseball player who lives in his native Las Vegas. Up until last season, he played right field for the Washington Nationals, where he became the youngest National League MVP ever. He's especially good at hitting home runs on Opening Day, and was the first player to hit five home runs in Opening Day games before age 25. Last year, Harper made $21.65 million for his effort, which means the umpires at the IRS will be rooting for him all season long.

Harper is 26 now, with a new wife and probably a family on the way. Time to come to the mound for some adult financial planning, right? And so, on March 2, Harper signed a 13-year, $330 million contract with the Philadelphia Phillies. It's the biggest free-agent deal in American sports, and works out to $156,695.16 per regular-season game. Remarkably, it wasn't even Harper's highest offer — the Giants offered $312 million over 12 years, while the Dodgers reportedly dangled north of $35 million per year.

But Harper's choice is a great example of tax planning. The California offers Harper let go may have looked more generous than the Philly pitch he swung on. But California beans players with a 13.3% tax on income over $1 million, while Pennsylvania caps its tax at just 3.07%. Think of the Philadelphia pitch as a meatball down the middle, while the California offers were more like hanging sliders.

Harper won't escape California tax entirely. He'll pay whatever "jock tax" applies to income from road games, which means paying the California rates when he visits National League rivals in San Francisco, Los Angeles, and San Diego. But the difference could mean Harper keeps tens of millions more in Philadelphia than in California.

Baseball players aren't the only 1%-ers to consider taxes in their decisions where to work. In 2016, hedge fund manager David Tepper, who earned $6 billion from 2012 to 2015, fled New Jersey for Florida. His move could cost the Garden State hundreds of millions in tax. The Tax Cuts and Jobs Act of 2017, which caps deductions for state and local taxes at just $10,000, has nudged residents of high-tax states like New York and New Jersey to consider sunnier tax climates in Florida, Texas, and Nevada.

And Harper can be glad he's not facing even tougher choice-of-venue questions. For example, the Supreme Court just agreed to decide whether North Carolina can tax the undistributed income of a New York trust based on the beneficiary's residence in North Carolina. Now, that may sound like a boring technical question. (Ok, it is.) But it's the kind of debate that gets the coolest kids in the Tax Club really excited.

The bottom line here is important whether you're at the plate or just watching from the stands. Every financial decision you make has at least some tax consequence. And the choices you make today can produce home runs for season after season. So make the smart choice . . . come to us for a tax plan, and see if we can help you hit it out of the park!

Always in Fashion

She's a long-haired European exotic beauty. She lives a life of glamour and luxury that most of us can only dream of. She has 300,000 followers on Instagram. She's earned $3 million in royalties and endorsements. She's launched fashion lines, and been the subject of two books. Oh, and she has absolutely no idea how much she pays in taxes, and she wouldn't care if she did.

Who is this gorgeous creature? Is she latest supermodel sensation, posing for the Sports Illustrated swimsuit cover on a deserted Croatian beach? Is she Kim Kardashian's newest best friend? Perhaps she's about to star in the next James Bond movie? No, no, and no. Her name is Choupette, and until fashion icon Karl Lagerfeld died last week at age 85, she was his . . . cat. She's also Lagerfeld's heiress, which may make her the richest cat in the history of her species.

Lagerfeld cut an instantly recognizable figure with his trademark white hair, black sunglasses, fingerless gloves, and starched collars. He's credited with breathing life back into France's House of Chanel by revamping their ready-to-wear line after the death of founder Coco Chanel. His efforts earned him a fortune estimated at $200 million. But he died childless, with no partner and no obvious heir. Enter Choupette . . . who gets enough money to pay for all the Little Friskies she can eat for the rest of her life!

Leaving money to pets is more common than you think. It's not a great tax-planning move because bequests to pets — unlike those to spouses or charities — are subject to estate tax, which starts at 40% on amounts over $11.4 million. But plenty of people love their animals more than their families. Michael Jackson left $2 million for his pet chimp Bubbles. And hotel heiress Leona Helmsley, who served 19 months in prison for tax evasion, left $12 million for her dog Trouble. (That's more than some of her grandchildren got!)

Obviously, the money doesn't go to the animals. (Can you imagine standing in line behind a cat trying to use an ATM, or writing a check to pay for groceries?) It goes to a trust, with an actual person controlling the money for the benefit of the animal. In 2016, Minnesota became the last state in the country to authorize pet trusts. Many of those statutes even dispense with the usual "rule against perpetuities" limiting them to 21-year terms, making them appropriate for longer-lived animals like horses or parrots.

Sadly, there's one complication standing in the way of Choupette getting her paws on her inheritance. She lives in France, where pets are property, and can't legally inherit anything themselves. (Has PETA been notified?) They can't even benefit from a trust. So Lagerfeld would have to leave Choupette's money to a nonprofit organization or a trusted friend to take care of her.

And that, in turn, brings up one final question: who inherits Choupette's fortune when she dies? France has the highest inheritance tax in Europe, with rates running up to 60%. And while cats may always land on their feet, they can't hire estate-planning attorneys. (While we're on that topic, does having nine lives mean Choupette gets to pay the tax nine times?)

We realize you haven't earned millions in royalties from licensing your image. But if you had, you'd probably want to keep as much of them as you can. So call us, and discover just how stylish tax planning can be!

And the Oscar Goes To. . . The IRS!

Oscar night is the biggest night in Hollywood. The stars shine just a little bit brighter. The red carpets stretch just a little bit farther. And the bloated egos get just a little bit bloatier, if that's possible. (Here's looking at you, Bradley Cooper.) Ironically, fewer and fewer of us tune in to the actual ceremony. Why give up hours of your life watching celebrities congratulate each other when you could fit a couple of full-length movies in the same length of time?

Nominees for the top five prizes — Best Actor, Best Actress, Best Supporting Actor, Best Supporting Actress, and Best Director — bring an extra guest to the party, in the form of the IRS. It's not because they take home any actual cash. It's because they leave with an "Everyone Wins" swag bag assembled by Distinctive Assets, a product-placement company that's not affiliated with the Academy of Motion Picture Arts & Sciences, but also not afraid to hitch their wagon to Oscar's relentless publicity machine.

Distinctive Assets has never been shy about promoting the value of their bag. In 2016, the collection, which included a 10-day trip to Israel, a 15-day "Walk Japan" tour, a year's worth of Audi rentals, and a 10,000-meal donation to the animal shelter of the donor's choice, crossed the $230,000 line. That sounds like a lot to the average fan. But it may not mean that much to the stars who can make north of $20 million per picture.

Of course, calling the bag a "gift" doesn't actually make it a gift. That's where the IRS comes in. The tax code defines a gift as something you get out of affection or respect. And while the Avaton Luxury Villas Resort in Greece may have really liked watching Christian Bale retreat to an undisclosed location in Vice, the real reason they're comping him a week at the beach is to attract new guests. So . . . the swag bag is taxable income. In fact, Distinctive Assets even sends the nominee a Form 1099 reminding them to report it!

This year's bag includes the usual collection of glamour vacations, including a small-ship cruise to Iceland, the Galapagos, the Amazon, or Costa Rica & Panama. You'll also find the sort of only-in-Hollywood treats you would expect: Coda Signature gift boxes with cannabis-infused hand-painted truffles and chocolate bars, private phobia-relief sessions with the world's #1 phobia expert, a CloSYS "spa kit for your mouth," and a PETA spy pen to help blow the whistle on animal abuse.

But this year, there's no price tag. "A great gift has nothing to do with the retail value," Distinctive Assets founder Lash Fary said in a statement. "For years we have been breaking one of the cardinal rules of gift giving by disclosing the price tag. Instead, we are trying to start a new tradition by simply celebrating the fun and festive nature of this legendary gift bag." (Of course, they'll still be declaring an amount on those 1099s they send next January.)

What if Best Supporting Actor Mahershala Ali doesn't want the tax headaches that come with his goodies? He can always give some to charity. (Does he really need the Blush & Whimsy limited-edition rose gold lipstick?) But he still has to report the value of anything he re-gifts in his income before deducting it as a charitable gift.

Last year, the Academy proposed a new award for Outstanding Achievement in Popular Film. It would be the first new category since Best Animated Feature in 2001. And it gives us hope that, someday, they'll add an Oscar for Best Performance in Tax Planning. Wouldn't that be great? We'll keep you posted and let you know when to look for us on the red carpet!

Don't Worry, No One Will Notice

Would anyone in their right mind sit down from scratch and develop the tax withholding system we have today? The IRS publishes tables telling employers how much to take out of everyone's paycheck, depending on their income, their filing status, and the amount they guesstimate they'll be claiming in deductions and credits. Then, at the end of the year, employees file their actual returns and hope it's the IRS coming out on the short end.

Lots of Americans use the tax withholding system as a piggy bank. Yes, letting the IRS hold your money for a year amounts to giving them an interest-free loan. And no, they won't do the same for you. But with savings accounts paying just a hair over 1% right now, plenty of taxpayers decide the forced discipline is worth more than the interest they give up. 

In 2018, the average refund amounted to $2,782, which is enough to cover some bills, take a nice weekend trip, or maybe redo your family room for big-screen TV nirvana. But one enterprising 29-year-old named Christopher Blanchett found himself in a position to snag a refund worth writing home about. And when you hear his story, you'll realize that sometimes these stories of ours just write themselves.

Two years ago, Blanchett sat down to file his return. He had a W2 from a Sizzling Platter restaurant where he worked in Utah reporting $1,399 in income and zero withholding. And somehow, he had a W2 from a Tampa nursing home showing $17,098 in wages and a million dollars in withholding. But where you or I might have thought, "hmmmm, something looks off," Blanchett smelled opportunity — and he chose not to look his gift horse in the mouth.

So Blanchett chose to file his return with a straight face, based on those W2s. In due time, the IRS sent him a check for $980,000. He took that check and deposited in Sun Trust Bank. Sun Trust suspected fraud (ya think?), froze the funds, and eventually sent the money back to him. So Blanchett took that check and deposited it into a credit union, as one does, "falsely representing that the funds were from the estate of his deceased father."

And what did Blanchett actually do with his new-found wealth? He bought himself a used Lexus RC 350 sport coupe. Now that's not a car to sneeze at. The Wall Street Journal calls it "a capering boulevardier with a soundtrack of cute, kitteny growls." You can get one with all-wheel drive, heated leather seats, and Apple Carplay® integration. But really . . . a Lexus? That seems like an awfully mild play for a seven figure score. (Seriously, you'd think at least part of that windfall would find its way to a Ferrari dealer.)

By that time, the IRS had realized maybe there was a problem with a guy getting back 53 times his income in a refund. Last month, they seized $919,251 that was left in his bank accounts, along with the Lexus. And they're looking to take $809.94 that Blanchett's insurance company refunded him when he canceled the coverage on the Lexus. (Kinda like the Grinch taking the last can of Who Hash, right?) Prosecutors haven't filed charges against Blanchett, at least not yet. But it's a fair bet this story won't end well for him. 

There's no real lesson in today's story, other than don't be a bonehead. But there's a great way to give yourself a nice refund, and you won't risk the IRS showing up with a tow truck and making off with your wheels. That answer, of course, is planning. So call us when you're ready to save, and enjoy the ride!

Champagne Wishes and Caviar Dreams

Just a couple of generations ago, it just wasn't polite to discuss money. We mostly knew who was rich and who wasn't. But it wasn't until about 1984, when crack investigative journalist Robin Leach launched Lifestyles of the Rich and Famous, that Americans began following celebrity houses, cars, and bank accounts with the same gusto as batting averages and quarterback ratings.

Today, of course, everything is different. The Forbes 400, along with local business papers, blow the whistle on executive salaries and net worths for everyone to see. Glassdoor.com lets you see how much your colleague in the next cubicle makes. And Zillow lets you (sometimes literally) peek into your neighbors' houses and see just how much their kitchen remodels added to their value. 

So, with tax season just getting off to a roll, we got to wondering how much tax professionals make? Last week, Forbes magazine dug up some data from the Bureau of Labor Statistics that show the average tax professional isn't rolling in the sort of rock star money everyone expects!

For 2017, the average tax preparers earned $38,730. That's actually less than the U.S. average of $44,564 for a 40-hour workweek. Of course, that figure covers a wide range, with the bottom 10% earning under $20,170 and the top 10% clearing over $81,740. Many tax preparers work seasonally, which drags down the overall average. (Fifteen years ago, "Jeopardy" champion Ken Jennings finally crashed and burned after 74 games when he couldn't name the company whose 70,000 seasonal white-collar employees work only four months per year. The answer? H&R Block.)

Unfortunately for those who do nothing but prepare returns, job prospects aren't especially bright. (And it's not because the taxes themselves are going away.) Technology, which used to help preparers do their job more efficiently, is now threatening to do their jobs for them. That's a real threat to the sort of storefront preparers who just record the history their customers bring them.

For the same period, the country's 1.24 million accountants and auditors, whose broader responsibilities include preparing financial statements and giving actual advice, earned an average of $77,920. The bottom 10% bring in under $43,020 and the top 10% over $122,220. State averages ranged from $95,430 in New York to $59,960 in Mississippi. 

Tax lawyers generally don't prepare many tax returns. They also make considerably more than preparers and accountants, according to the website Salary Expert, pulling in an average of $145,746.

And how do prospects look for the rest of the tax industry? The Wall Street Journal recently published a report on the Tax Cuts and Jobs Act, and reported that, "many of the jobs it is creating, it turns out, are in the tax industry." Firms are fighting for qualified employees. The paper quoted one executive as saying "There's no doubt that the talent wars in tax have definitely heated up." (Can you imagine talent wars in tax!)

So what should we conclude from our nosy snoop through tax salaries? It looks to us like the real news is tax pros who tell you how much you owe earn a decent income — but those who help you pay less are worth more. And in the end, isn't paying less what you really want? So call us when you're ready to save, and see just how valuable we can really be!

Kondomania

America's economy has morphed throughout our history, starting from agricultural to manufacturing to service to technology. Now it seems we're moving towards a celebrity-based economy. The world is full of D-list celebrities competing for attention: third-rate rappers hoping to break through their own noise, random Kardashian cousins, and spurned bachelorettes fighting for one last rose. (If you're ever invited to compete on Dancing With the Stars, you'd better hope you were nice to people on your way up, because you're about to see if they'll be nice to you on your way down.)

America's unlikeliest new celebrity is a Japanese woman named Marie Kondo, who created a mini-empire around The Life Changing Magic of Tidying Up. She's spun the concept into a line of bestselling books, including a graphic novel, and an eight-episode series on Netflix. (No doubt there's a line of designer-branded plastic storage bins headed to a Target near you soon.)

Now, you're probably thinking you've got to squint pretty hard to find a connection between tidying up and taxes. (And you're right . . . cut us some slack, it's not always easy to come up with topics every week!) But once that connection jumps out, you'll wonder why you missed it all these years.

The KonMari method starts with holding a physical object and asking yourself a simple question: does it spark joy? If so, find the right place for it, and enjoy how it adds to your life. If not, respectfully let it go. She suggests you start with clothing, because it's easiest to discard, then move on to books, papers, "komono" (miscellaneous "stuff"), and finish up with sentimental items. Kondo even prescribes how to fold the clothes you keep — nearly a million people have watched a video of her folding socks.

Now, try this with your money — take a look at where it goes. There are plenty of expenses that really do spark joy. A family vacation, a kitchen renovation, or even a night out on the town all bring a smile to your face and make you feel good about yourself and your choices. Even big-ticket bills like your children's college tuition spark joy as you watch them prepare to succeed in life.

But if you're like most of our clients, your biggest single expense is taxes. Does writing those checks (or seeing them deducted from your paycheck) spark joy? Maybe at the local level. Plenty of people vote "yes" on local levies, then gratefully enjoy their schools, parks, and libraries. But very few people find joy in sending up to 40.8% of their income to Washington and watching the people in charge of spending it shut down the government for five weeks because they're more interested in scoring points than solving problems.

Now, the world is full of tax professionals who are happy to take those W2s and 1099s that are starting to clutter up your desk right now, and assemble them into a tax return. They'll tell you how much you owe, which is what you need. But very few of them will tell you how to pay less, which is what you want. To continue the Marie Kondo analogy, they'll help you inventory your closet. And that's important, because you'll need to know where that ugly Christmas sweater is when next year's party rolls around. But they won't help you clean it out. Because, really, ugly sweater?

So, ready to clean up your tax bill? We'll work through your business, your retirement, and your investment portfolio. We'll fold it all into easy-to-pack little balls. You'll love the feeling of zen and you might even see your blood pressure drop. So call us when you're ready and see just how tidy we can help you get!

Piggy Piggy Piggy

On January 1, we switched our calendars from 2018 to 2019. But in China, February 5 is the date for setting off fireworks. This year, we're ushering in the Year of the Pig. The pig is the last animal in the Chinese zodiac — according to one Chinese legend, he overslept for the Jade Emperor's great meeting of the animals in heaven. Men born in the year of the pig are optimistic, gentle, and focused. Women born in the year of the pig are full of excitement, trustworthy, and have good fortune with wealth. (No fortune cookie jokes, please!)

We're 20ish years into the new millennium now. Driverless cars are starting to take to the streets, and Amazon is working on drone deliveries. So you might think naming a year after a barnyard animal is silly. But hey, just in the last month, Chinese scientists planted cotton on the dark side of the moon, while here in the U.S., the government counseled furloughed employees to pick up side gigs babysitting and pawn their kidneys. Who's to say the Chinese aren't on to something?

Naturally, the Year of the Pig got us wondering just how piggy the Peoples' Republic gets with taxes. You'd probably expect them to be pretty high, considering the "Communists" have been running things since Truman was President. But it's been a long time since any real Marxists have been in charge. It turns out that communism is bad for business! (Also, jokes about communism aren't funny if everyone doesn't get them.) So you might be surprised at just how much China's tax system has come to look like ours.

Chinese employers withhold income and social security taxes just like here. Income taxes start at 3% on salaries up to 1,500 yuan/month (about $225) and top out at 45% over 80,000 yuan ($12,000). Social security varies from city to city, with employers generally contributing 33% and employees paying another 11%. If your only income is salary under 10,000 yuan/month, you don't have to file a tax return.

Business owners pay 5-35% on their earnings. (What would Chairman Mao think of that?) Individuals also pay 20% on investment income and capital gains, including real estate sales. Individual tax returns are due on March 31, with extensions granted under special circumstances only. Husbands and wives file individually; there are no joint returns.

Corporations typically pay 25% on their profits. However, the World Bank reported in 2017 that China's total corporate tax burden, including property taxes and value-added taxes, swallows about 68% of profits. And China appears to impose some indirect "taxes" that our Congress would have a hard time passing. For example, Poland and Canada have just arrested executives from telecom giant Huawei for espionage, which suggests the People's Republic is "taxing" companies for more than just cash.

China also imposes a grab bag of value-added taxes, consumption taxes, and property taxes. Then there are "behavioral" taxes that include a vehicle and vessel use tax, a license-plate tax, a slaughter tax, and a banquet tax. (We're pretty sure the poor piglet is jazzed about those last two.) And China is on the forefront of using facial recognition software to monitor citizens, so you've got to imagine they're pretty good at rooting out tax cheats.

Americans celebrate St. Patrick's Day by drinking Guinness, and Cinco de Mayo by drinking Corona. So why don't more of us celebrate Chinese New Year with a Tsingtao or two? Call us any day you're ready to pay less American tax and we'll give you something to celebrate!

Puzzling Questions

Americans love puzzles, games, and brain teasers. Newspapers publish crossword puzzles, word-search puzzles, and word jumbles. Bookstores sell jigsaw puzzles. And airport gift shops stock Sudoku puzzles to pass the hours in the sky. We love puzzles so much that someone found their way to a basement office in Washington where the Department of Bogus Holidays litters our calendars with junk celebrations like National Talk Like Yoda Day (May 21) and National Eat Your Beans Day (July 3), and made it official. And so Tuesday, January 29 will be #NationalPuzzleDay.

Most people think of puzzles as trivial diversions. But planning to avoid taxes is a puzzle, too. And, as the English economist John Maynard Keynes once said, "The avoidance of taxes is the only intellectual pursuit that still carries any reward." So, while tax planning may not be as fun as finishing a crossword puzzle (in ink), we think you'll agree it's far more rewarding.

Consider the basic challenge of choosing how to organize your business. If you operate as a sole proprietor (or an LLC taxed as a sole prop) and earn $200,000, you'll pay self-employment tax on every dime of it. On the bright side, that's $21,836 that gets credited to your Social Security account. Of course, that won't mean much if you don't believe Social Security will still be there for you when you retire. (Rule of thumb: if you're young enough to have tattoos, don't count on it.) 

Now, if you elect to be taxed as an S corporation, and the reasonable compensation for the work you do is $100,000, you could save yourself a sweet $6535 in tax. It's even sweeter than contributing to a retirement plan or buying new equipment for your business because you aren't spending anything to get a deduction. You're just paying employment tax on less income. That doesn't sound like much of a puzzle, right?

But consider this . . . if you want to hire your minor kids to shift income to their lower bracket, now they'll owe FICA they wouldn't if you were still a sole proprietor. Oh, and now you can't use that corporation to cover yourself under a medical expense reimbursement plan. But wait, there's a workaround to that problem. You can just buy a high-deductible health plan and establish a health savings account. Or maybe you could establish another proprietorship, or C corporation, and pay MERP benefits from that business.

Having fun yet? Of course, now your "covered comp" for determining retirement plan contributions will be based on the salary only, not your whole income. If you're used to maximizing a SEP contribution, you'll find yourself saving a whole lot less with the S corp.

Aren't puzzles great? Now, at that point, you could switch from the SEP to a solo or safe harbor 401k, perhaps with a cross-tested profit-sharing contribution. You could even look at a defined benefit pension plan. (Yes, it's the Studebaker of retirement plans, but sometimes it's the right answer). But that raises the question whether you belong in a traditional qualified plan at all — or whether you're better off with a Roth or insurance-based plan.

All of a sudden, that National Puzzle Day that sounded so much fun about seven paragraphs ago is starting to look about as fun as that new Escape Room movie, right? Don't worry . . . when it comes to organizing your business, or any other tax challenge, we're here to find the best solution. We really like these puzzles, and nobody does it better!

Do Androids Dream of Electric Audits?

In 1982, the movie Blade Runner presented a technologically advanced vision of the year 2019. There were flying cop cars. (What grim dystopian movie doesn't feature flying cars?) There was commercial space travel. There were bioengineered androids, known as "replicants," that drove the story. The film even predicted voice-controlled video phones to communicate with our offices!

Today's reality isn't quite so exciting. We've got the voice-activated video phones! But we're not using them to summon flying cars or book trips to the Moon. No, we're using them to waste time checking Facebook, Twitter, and Instagram. We pick up our phone every 12 minutes on average, and spend three hours and 35 minutes per day with our heads buried in our screens. Psychiatrists have even identified "internet addiction disorder" as a "condition for further study."

Well, if you can't beat 'em, join 'em. The IRS manages several Twitter feeds for taxpayers and professionals that are worth following. But now they're looking to get even more involved. We're not talking about auditors posting pictures of their dogs (although we'd totally follow that, too). Instead, they want to investigate whether social media can help them collect taxes.

Current IRS rules generally prohibit employees from using any social media at work. They specifically can't create fake accounts to "friend" you and snoop on your finances. But the IRS knows that people post enormous amounts of information online, information they can use to help with collections. So last month, the IRS issued a request for information and product demonstrations from electronic research vendors. They're hoping to find a vendor who can:

• "Provide a product that is easily explainable in court."

• "Provide real time, customizable reports of publicly available social media information (provided or advertised by businesses), such as new products, current sales, and new locations."

• "Provide reports showing that a taxpayer participated in an online chat room, blog, or forum, and reports showing the chat room or blog conversation threads."

• "Provide available biometric data, such as photos, current address, or changes to marital status."

• "Provide access for at least 25,000 concurrent users."

Show of hands here: who wants any part of the government tracking your profile photos, status alerts, or chat room conversations? The good news is that, at least for now, the IRS would use their new super power for good, not evil. "Such a tool would not be used to search the internet or social media sites for purposes of identifying or initiating new tax audits." Of course, that doesn't mean the IRS won't get more aggressive down the road, using predictive analytics and social media as part of a broader effort to target specific taxpayers for extra attention.

The IRS's move towards harnessing social media is part of a broader movement to put "Big Data" to work for various goals. But data isn't always bad. Here at our firm, we're using it to help clients like you pay less tax. So call us when you're ready to join the future. Someday your savings might pay for your own flying car!

Never Lose Sight of Survival

Movie fans, quick: what do you get when you combine Night of the Living Dead, Deliverance, and The Mist — with just a hint of Sophie's Choice? It probably looks a lot like like Netflix's newest hit, Bird Box. The movie imagines a shattered future where an unknown presence has driven everyone who sees it to suicide, and follows Sandra Bullock and two five-year-old children on a desperate blindfolded gauntlet down a raging river in search of safe haven.

Netflix dropped Bird Box on December 21 — a time when they shrewdly calculated most Americans would be fed up with Elf and Christmas cheer, and grateful for the sweet release of post-apocalyptic chaos. Critics generally said "meh." But that didn't stop the "disappointingly clunky waste of a star-studded cast" from attracting record views. The show has also spawned memes like the #BirdBoxChallenge, where people who wouldn't survive five minutes in a real apocalypse bid for internet fame by posting videos of themselves pulling stupid stunts while blindfolded.

Now, we may be biased here, but we assume that at least of few of those millions of viewers wondered what would happen to income taxes after civilization collapses. (We sure did.) And we know you'll be pleased to discover that our friends at the IRS have planned for that sort of disaster and more!

The first level of IRS emergency preparedness deals with garden-variety disasters like hurricanes and earthquakes. These focus on helping taxpayers manage their obligations until things return to normal. They include predictable tips like taking advantage of paperless recordkeeping for tax files, documenting valuables and equipment, checking fiduciary bonds (to protect yourself if your payroll processor goes bust), and updating emergency plans. They also include policies extending due dates to give taxpayers living in disaster zones time to recover.

But the real action for IRS preppers involves "continuity planning" for existential threats like biological warfare, nuclear winter, or alien invasion. (Aliens from space, not across the border.) Official IRS documents outline several proposals, dating back to the earliest days of the Cold War, to help re-start collections. These include government economists holed up in the usual "undisclosed locations" dispensing cash to restart the economy, deciding when to forget about trying to collect pre-disaster taxes, and probably ditching income taxes altogether in favor of a 20-30% sales tax.

As for our friends at Netflix, word on the street has it that Bird Box producers are readying a sequel called Cat Box, where survivors escape death, not by covering their eyes, but by plugging their noses. (Trust us, you don't want to take on that monster.) And they've created even more buzz now with Bandersnatch, an interactive episode of their Black Mirror series where the bottom border of the screen periodically pops up to let you make choices for the characters and "write your own ending."

But we can't see why Bandersnatch is such a big deal, simply because we've been doing that for years. Just like television dramas follow a basic structure built around plot, characters, and similar elements, so does a life fueled by money. Lots of people want access to your money pool, and for most Americans, the biggest slice goes to government. But no one else is using tax planning to script your financial life, with lower taxes as your central character. That's why you need to call us now, to avoid tax apocalypse with your eyes wide open!

Tiny Violins for Very Large Men

2019 is here, and it's almost time to file your first tax return under the new law. But you probably sat around watching sports all weekend instead of talking taxes, didn't you. (Did Santa bring a new TV?) So, as we ring in the New Year, let's take a look at how the new tax bill affects some of those athletes you've been watching.

Washington sold the Tax Cuts and Jobs Act as "tax simplification." And really, who can't raise a toast to that? Lower rates! Higher standard deductions! A 1040 you can fill out on a postcard! But many taxpayers, especially those in high-tax states like New York and California, can be forgiven if they feel like they woke up with a massive hangover. Deductions for state and local income and property taxes are now capped at $10,000, regardless of income. And employee business deductions are nixed entirely. That's going to be pricey for the Very Large Men we mentioned in the title.

Take 6'8" NBA superstar Lebron James. He's played in Cleveland, where state and local taxes total 7.5%. He's played in tax-free Miami. And now he's playing in Los Angeles, where he pays 13.3%. (13.3% going to California sure sounds like a technical foul.) Under the old rules, he could deduct whatever he actually paid. Now the refs limit him to the same $10,000 as the rookies earning the league minimum. Granted, that minimum is $838,464. But doesn't it make sense to let a guy paying tax on 43 times that amount actually deduct 43 times as much?

Income taxes won't be the only expense to bite King James under the new rules. He owns a $9 million house in his hometown of Akron (where $9 million buys a lot of house), a $21 million house in Brentwood (where $21 million still buys a pretty nice crib), and a $23 million house in Brentwood. (Not a typo.) Property taxes on those homes reach well into six figures, if not seven. But now he'll watch those deductions bounce off the rim and rebound into IRS hands.

Even athletes who play in states with no income tax used to be able to deduct non-employee business expenses: agents' and managers' fees, health club and training expenses, travel expenses, and players' union dues. But now those are gone, too. Agents typically take 10% of a client athlete's salary and endorsement income, which means losing that deduction alone can eliminate the benefit of lower overall rates.

The new law does give LeBron one potentially important break. Charitable deductions used to be capped at 50% of adjusted gross income. The new law raises that limit to 60%. LeBron is famously charitable, especially for educational causes, and may appreciate that change someday.

As for that postcard-sized tax return? Well, yes, the IRS has released a new Form 1040. And yes, you can print it on a postcard. But don't get too excited. They've just stripped out half of the information from the old 1040 and dumped it into six pages of Schedules. Have capital gains to report, or student loan interest to deduct? You'll have to file Schedule 1. Owe AMT? Schedule 2 is just four lines . . . but there goes your postcard. Need to pay self-employment tax? Welcome to Schedule 4. And who wants to report their income where the mailman can see it on its way to the IRS, anyway?

This New Year, millions of Americans will pick cliched resolutions like eating less, exercising more, crying less, or smoking more. (Possibly a typo.) We'd like to suggest something a little more profitable: minimizing the bite that taxes take out of your year. Call us to save, and make 2019 your best year ever!