Aloha!

Aloha!

Coronavirus has millions of Americans rethinking where they choose to live, especially crowded cities. Back in February and March, New Yorkers led the charge, fleeing the petri dish that Manhattan had become to vacation homes in places like the Hamptons and Martha's Vineyard. Silicon Valley tech-bros are gazing longingly across the Pacific to New Zealand. Few of the urban expats have returned, and many are surprised to find they prefer the pace and community of rural life to waiting hours for a table at the newest see-and-be-seen bistro or club. But where to settle for good?

If you're on Team Tropical, you should know that Hawaii County, encompassing the entire "Big Island" of Hawaii, is giving mainlanders even more incentive to make the island paradise their full-time home. While the county just raised tax on vacation and investment properties to $11.10 per $1,000 of taxable value up to $2 million, plus $13.60 per $1,000 above that amount, full-time residents will pay just $6.15 per $1,000, no matter how much their homes are worth. If you ever really "needed" an excuse to call Hawaii home, could this be it?

Property tax on a million-dollar home averages $10,800 in the United States. But Hawaii has the lowest average property tax rate in the country, and the bill on that same million-dollar home would cost you just $2,880 in Honolulu County. Now imagine shelling out $23,580 on the same million-dollar home in Essex County, New Jersey — without the gentle breezes, perfect beaches, or 'illima papa bushes with their beautiful yellow flowers!

Unfortunately, while Hawaii has the lowest property tax rate, it also has the highest property values. According to Zillow.com, Hawaii's median home value is $636,541. (If you're looking for more affordable digs, consider taking a country road to "wild, wonderful" West Virginia, where the median house costs just $108,236.) Hawaii also imposes a transfer tax when you sell your home, ranging from $0.10 per $100 of value on the low end to $1.10 per $100 for homes over $10 million.

Hawaii also has one of the highest state income taxes in the country, with a top rate of 11% kicking in on income over $200,000 (singles) or $400,000 (joint filers).

Property taxes in general pinch harder since passage of the Tax Cuts and Jobs Act of 2017. Until then, you could deduct an unlimited amount of state and local income and property tax, so long as you itemized deductions. The IRS even helpfully provided safe harbor sales tax amounts you could deduct if you lived in a state like Texas or Florida with no income tax. The new law caps that deduction at just $10,000.

And sometimes, unique properties just mean unique property tax bills. Fox News heir Lachlan Murdoch just bought "Chartwell," the instantly-recognizable Clampett mansion from the Beverly Hillbillies. (Ironically, it's set in Bel Air.) He'll pay $1.3 million in annual tax on his new pad. Of course, he'll get 25,000 square feet with 18 bedrooms, 24 baths, and a 12,500-bottle wine cellar set on 10 acres with a "see-ment pond" out back — so don't feel too sorry for him. (Everyone in L.A. knows that Beverly Hills proper is where the poor rich people live.)

Coronavirus is likely to inspire all sorts of changes in your life. And many of those changes will involve taxes. So be sure to bring us into those discussions. Remember that today's trend towards virtual work means we can continue to serve your needs no matter where you move!

Be the Ball

Forty years ago this weekend, Orion Pictures released a comedy producers pitched as "Animal House on a golf course." The movie featured a scrappy bunch of misfit locals battling a group of rich snobs played by ad-libbing comedy legends. And while reviews were underwhelming, it went on to gross $40 million and claim a place in movie legend. Odds are good that if you grew up in the 80s, or anywhere near a golf course, there's someone you know who can't make it through the day without quoting from Caddyshack.

Naturally, that got us wondering . . . how can we spin this anniversary into a story about taxes? None of the characters in the movie mention a word about them, and none of the thespian geniuses playing them have gotten into any real-world tax trouble. Never fear — we'll just look at the real world tax planning opportunities the snobs and the slobs would have enjoyed in the summer of 1980. (We think it's a peach!)

Back then, the top federal rate was 70% on singles like Ty Webb earning over $107,700, or joint filers like Judge Smails and his loofah-loving wife earning over $215,400 (about $670,000 in today's dollars). President Jimmy Carter had dismissed the tax system as a "disgrace to the human race" — a low-grade dog food of loopholes, shelters, and preferences that left few people actually paying that much. Republican challenger Ronald Reagan promised to drive rates down to 50%. Once in office, in an incredible Cinderella story, he spearheaded efforts to simplify the entire code.

In 1980, business owners like Al Czervik could still deduct 100% of what they spent hosting guests at Bushwood Country Club, including meals and drinks, greens fees, naked lady tees, and even the lowly caddies. (The world needs ditch diggers, too.) In 1986, Washington sliced the deduction for business meals in half and eliminated writeoffs entirely for "goodwill meals" without a specific business purpose. Three years ago, the Tax Cuts and Jobs Act of 2017 scratched deductions for "entertainment" expenses like greens fees entirely, telling golfers they'll get nothing and like it.

The movie's greatest scene raises profound questions over Section 83 rules governing noncash compensation. Bill Murray shares a memory of getting stiffed on a tip by the Dalai Lama: "'there won't be any money, but when you die, on your deathbed, you will receive total consciousness.' So I got that goin' for me, which is nice." Naturally, cash tips are taxable, even from the Himalayas. But how do you give the IRS a share of total consciousness? How do you value it? Is it subject to the "income in respect of a decedent" rules? Is it includible in his taxable estate?

(Fun fact 1: in 2014, when Caddyshack director Harold Ramis died, the White House issued a statement offering prayers and hope that he "received total consciousness." Fun fact 2: in 2016, the real Dalai Lama confessed to Fox News reporter Bret Baier that he's never seen the movie, doesn't play golf, and is not, in fact, a "big hitter.")

The Zen philosopher Basho once wrote, "a flute with no holes, is not a flute. A doughnut with no hole, is a danish." He was a funny guy. We think a financial plan that isn't built around taxes is a bowl of Cap'n Crunch with no milk. It might taste good, but it'll tear up the roof of your mouth. Call us to tee up the savings you deserve!

CHOW DOWN

One of the delights of living in America is the variety of local delicacies that different places champion as their own. Maine's lobster rolls serve up a briny mouthful of golden summer tucked into a lightly-toasted bun. Wisconsin is home to amazing cheeses: milk's bid for immortality. Nashville's hot chicken dresses up ordinary poultry in a peacock's bright plumage. And Cincinnati's Greek-style chili, a thin gravy flavored with cinnamon and chocolate, sounds repulsive at first, until you taste it, close your eyes, lick your lips, and realize you've just touched the void.

  But no city's local specialty enjoys more fame than Philadelphia's cheese steak. Granted, the word "steak" is doing a lot of work here — it's usually just a thin shaving of top round. But brown it on a griddle, scramble it with a spatula, smother it with Cheez Whiz and onions ("wiz wit"), and cover it with a hoagie roll . . . mmmm, now it's a beloved working-class feast for those salt-of-the-earth Philly denizens who inspire the nickname, "City of Brotherly Love."

  Back in 2003, presidential candidate John Kerry embarrassed himself on a campaign stop when he asked for Swiss on his at Pat's King of Steaks, a South Philly institution. But Pat's crosstown rival, Tony Lucidonio — owner of the The Original Tony Luke's — shares something in common with the Republicans who elected Kerry's rival George W. Bush as President. He doesn't like paying taxes. Last week, the Justice Department indicted him and his son Nicholas on charges of tax evasion, conspiracy to defraud the IRS, and aiding and assisting in filing false tax returns.

According to the indictment, from 2006-2016, Tony and Nicholas kept two sets of books to hide $8 million of top-line income. (They didn't even tell their accountant.) As if that wasn't enough, they cooked up a scheme to commit employment tax fraud by paying staff partly "under the table," without withholding the proper taxes and paying them over to the IRS.

  The allegation goes on to dish up the news that after a dispute with a second son, Tony Luke Jr., the pair amended their previous phony returns to report higher sales — but added new phony "cost of goods sold" expenses to avoid actually paying more tax. (Tony Jr., who has become the public face of the company, operates a dozen franchised locations as far away as Texas and Bahrain, but was not named in the indictment.)

  Those are some meaty charges the IRS is serving up. Tony Sr. and Nicholas are looking at spending years in a place that doesn't serve cheese steaks at all. Specifically, they're facing five years each for the conspiracy and tax evasion, plus three years more for each of the 19 false returns. That's a lot of bland prison chow!

  Naturally, their attorneys have issued the usual cheesy defense on behalf of their clients: they "look forward to defending themselves in court," blah blah blah, and they'll "continue to serve their faithful clientele." But hey, it's not like the clientele can't find cheesesteaks anywhere else — after all, they are in Philadelphia. (And since when does anyone really "look forward" to defending themselves against criminal charges, anyway?)

The sad part is, there's always a better recipe for paying less tax than cheating. That's where we come in. We don't just sell the sizzle, we deliver the steak. So call us to trim the fat from your tax bill, and enjoy some tasty savings!

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.

Beware of Criminals in (Supposedly) IRS Clothing

This article was originally Published in COLORADO SOCIETY OF CPAS. https://www.cocpa.org/covid-19/

ALERT: Beware of Criminals in (Supposedly) IRS Clothing  

Scams already are underway to defraud individuals slated to receive payments resulting   from passage of the CARES Act, the Coronavirus Aid, Relief, and Economic Security Act.   Because the intention is, as much as possible, to issue payments via direct deposit and use   tax information from 2019 or 2018, phishing is happening via phone calls, text messages,   and e-mails - not only to individual citizens but also through a large uptick in preparers   being targeted. Remind your clients, employers, colleagues, friends, and family: The IRS will   not call, text, or email you to verify banking information for stimulus payments .  

The messaging includes variations such as "in order to receive your/your client's stimulus   payment via direct deposit, we need you to confirm the banking information." The   information may be sought via telephone or directing victims to click on a link to a website   where they enter their banking information.   

In addition, the Colorado Department of Revenue (CDOR) has been advised to watch for:   

• Increase in phishing schemes from criminals looking to gather information. These may come through call centers pretending to be the taxpayer and phishing   emails designed to look like they are coming from agency executives to gather large   sets of taxpayer or employee data.  

• Increase in phishing schemes in other state agencies which hold data that would   be valuable to assist a criminal in gathering additional personal information that can   help them file returns and/or get stimulus payments.    

The extension period for filing returns and paying taxes also provides an opportunity for   criminals to take advantage of identity theft because there's an expanded time frame   before the real taxpayer files. It's now a balance between encouraging people to file by the   due date if they can and watching for criminals who will use that window to their advantage   to file fraudulent returns.  

Expect to see an increase in fraudulent zero balance returns if it's determined people who   don't normally file need to file a return to receive the stimulus payment. The possibility of   criminals filing returns with a low balance due also is likely so that they have a filing record   that can be used to allow them access to stimulus funds. A small balance due is worth it for a larger stimulus payment.  

Go to https://www.consumer.ftc.gov/blog/2020/03/checks-government to see the Federal   Trade Commission information on checks from the government.  

Last week, a COCPA member called about whether CDOR has a “discovery department”   because a friend had received a call asking for Personally Identifiable Information (PII) from   someone with that department. Again, don’t provide PII under such circumstances.

To stay informed, go to www.cocpa.org/COVID-19 for news, updates, and resources,   including the AICPA state-by-state tax filing guide. We are monitoring developments closely   and updating the information as it changes.  

What We Know  

Accounting services are considered “critical services” and therefore exempted from Gov.  Jared Polis’s Updated Executive Order 20 24, Section 7. Financial and Professional   Institutions, Including: Banks and credit institutions; Insurance and payroll; Services related   to financial markets; Professional services, such as legal, title companies, or accounting   services, real estate appraisals and transactions.  

You are strongly encouraged to follow the stay at home order as much as possible,   nonetheless, and implement social distancing, staggered work schedules, and   telecommuting.  

We await details on implementation of the CARES Act, the Families First Coronavirus   Response Act, applying for assistance through the Colorado SBA Disaster Relief Fund, and a   host of related items. Thank you for your patience.   

Mark your calendar for April 9, How to Navigate the Bear Market: The COVID-19 Crisis ,   with COCPA author/instructor Mark J. Smith, and April 10, for Don Farmer’s update   on the tax implications of the new legislation . Details will be coming to you shortly.  

The Colorado State Board of Accountancy has adopted the National Association of State   Boards of Accountancy (NASBA) recommendations for extending Notices to Schedule (NTS)   and extending the 18-month period to complete the Uniform CPA Examination to   September 30, 2020. What’s NEW: The AICPA, Prometric, and NASBA have extended the   June 10, 2020, testing window for the Uniform CPA Examination to June 30 .  

As a COCPA member, you can post general questions on the CONNECT Open Forum at   cocpa.org/connect and by using the chat feature at www.cocpa.org . You also can call us at   303-773-2877 or 800-523-9082. Though the physical office is closed, we’re here for you,   today, tomorrow, and into this uncertain future, no matter what.   

Reach me directly by email at mary@copa.org . Take care, and stay healthy,  

Mary E. Medley, CEO  

Tax Updates: Payment and Filing Deadline Extensions

Tax Due Date for Individuals

Federal:

Automatically extended April 15 due date to July 15 for Individuals filing their taxes. No form is required for this extension.

Extensions are required to file after July 15 and prior to the final due date of October 15. Request for extension form is required – Form 4868 Request for automatic extension by July 15.

What does not qualify for Federal automatic extensions:

Among other things – estate and gift taxes, excise taxes, information returns such as 1099 forms, and payroll taxes. Although Congress is considering a payroll tax deferral. Tax items that do not have April 15 deadline, such as partnership and S corporation tax returns do not qualify for the extension.

Colorado:

All income tax returns that were required to be filed by April 15, 2020 are granted an automatic six-month extension and are due on or before October 15, 2020.

Tax Payments

Federal:

Tax payments due on April 15, 2020 are deferred to July 15,2020 regardless of amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as self-employment taxes.

Note: This deferral does not apply to payment for the periods before April 15 and after July 15th.

Your 2nd Quarter Estimated payments are due on June 15th. Which means your 1st Quarter estimated payments are due after your 2nd quarter estimated payments.

Colorado:

The deadline for estimated payments has been extended for the 2020 tax year. The penalties for estimated payments are also waived until July 15, 2020. The extension and these waivers do not apply to payments due pursuant to a notice of deficiency, notice of final determination, demand for payment, installment agreement, closing agreement, or other agreement or requirement to pay.

Further assistance may be forthcoming about extending tax deadlines for property tax, sales tax and use tax.

Deferred Retirement Accounts:

Individual Traditional and Roth IRA deadline for making contributions have been changed to July 15th.

Health Saving Investment Accounts:

The deadline for making Health Saving Investment Account contribution has also been changed to July 15

IRS Taxpayer Assistance Centers:

IRS Taxpayer Assistance Centers are temporarily closed, they continue to process tax returns, issue refunds and assist taxpayers to greatest extent possible.

Colorado Department of Revenue is not taking visitors until April 18. They continue to work and process tax returns and issue refunds.

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!

Flavor of Money

When talented musicians join forces, they epitomize Aristotle's maxim: "the whole is greater than the sum of its parts." Collaboration is the essence of music, and even the most technically proficient soloists benefit from an ensemble framing and highlighting their skills. You can't whistle a symphony. It takes a whole orchestra to play it.  

This Nov. 20, 2014, file photo shows rapper Flavor Flav, whose real name is William Jonathan Drayton Jr., at the 15th annual Latin Grammy Awards in Las Vegas. (Photo by Al Powers/Invision/AP, File)

It's always sad when your favorite band breaks up or loses a key player, especially for non-artistic reasons. The Beatles broke up, in part, because John insisted on dragging Yoko everywhere he went. The Grateful Dead fired keyboardist Keith Godchaux because he did too many drugs. (Really.) And last week, rappers Public Enemy fired their flamboyant clock-wearing co-founder and hype man Flavor Flav.  

The move leaves Flav at a crossroads. He and bandmate Chuck D have worked together since 1985 — an eternity for artists. He's starred in VH1's Flavor of Love, put out solo albums, and licensed his name to a couple of ill-fated chicken restaurants. It's hard to picture him settling into one of those Florida "55+" communities, buying a golf cart, and binge-watching cable news until the doctor calls with a bad biopsy. Yet he faces the same financial challenges as any other corporate castoff looking down the barrel of an unexpected early retirement:

• Where will he roll his 401(k)? Don't scoff at the notion of a band sponsoring a retirement plan — years ago, the Grateful Dead gave their employees retirement plans, health benefits, educational trusts for their children, and profit-sharing bonuses for tour revenue and song royalties. Way back in 1984, they gave their bookkeeper paid maternity time for as long as she wanted it.

• Should he convert his qualified money into a Roth? Low-income years offer great opportunities to eliminate future taxes and required minimum distributions. Flav's income will probably be down while he ramps up new projects, so now might be perfect for this strategic move.

• When should he start taking Social Security? He's 60, which makes him eligible in just two years. But if he keeps working while he draws benefits before ordinary retirement age, he'll lose $1 in income for every $3 in earned income above a specified threshold (currently $18,240).

• Where will he find health insurance until he's eligible for Medicare at age 65? Family coverage won't be cheap at his age. Which would be more tax-efficient for unreimbursed expenses, a health savings account or a medical expense reimbursement plan?

Flav's comical fashion sense surely doesn't float everyone's boat. But he deserves credit for fighting the power. He never abandoned his youthful style, even when the AARP solicitations started landing in his mail. Could his trademark clocks (he owns over 100) actually be tax-deductible? The general rule for uniforms and work clothes is you can write them off if they're "not suitable for ordinary street wear." Would you go for it?  

Us Magazine is famous for their weekly photo roundup: "Celebrities — They're Just Like Us." And of course it's more fun watching Mark Wahlberg work off a sackful of Wahlburgers than watching Flav make beneficiary elections on his IRA rollover. But that sort of planning pays off big time in the long run. So call us for help with those choices before the clock runs out!

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.

"I'd Trade It All for A Little More"

The French newspaper Le Monde called it "the robbery of the century." So what was it? A Mission Impossible-style crew of balaclava-wearing acrobats bypassing sophisticated alarms to burgle a museum or gallery? Or maybe it looked like one of those "Oceans" movies: a crack team of hardened specialists tunneling deep underneath a casino or bank vault to blow the final hole at 5pm on Friday and spend a leisurely weekend looting stacks of bullion and currency?  

Museums and banks may look like inviting targets. But if you want to make real robbery history, think bigger. As the playwright Bertolt Brecht once wrote, "Bank robbery is an initiative of amateurs. True professionals establish a bank." And so the heist we're talking about this week involves a years-long history of bankers, lawyers, and investors looting billions of dollars from a dozen European treasuries.

In today's economy, the brightest minds dream of inventing the next breakthrough technology. But there's a smaller group, nerdier and more devious, who dream of inventing tax shelters. Why risk failure investing in unknown technology when you can find a government-guaranteed gravy pipeline directly into your account?

The scheme involved a dividend arbitrage strategy called "CumEx" trading, named for the Latin phrase meaning "with-without." In most cases, traders bought and sold shares in a way that let them claim refunds on dividend tax withholdings they hadn't actually paid. In others, they took advantage of creative paperwork to exploit a loophole letting more than one person own the same share at the same time. (Schrödinger's stock?) Either way, the result was two refunds for one stock.

That sounds like an obvious party foul. But there weren't any laws specifically prohibiting it. Traders took that as their green light to siphon $60 billion out of various governments. This wasn't ordinary tax fraud. They weren't just evading tax on their income — they were taking refunds for taxes they had never paid. In 2017, a German clerk noticed a $60 million claim from a New Jersey pension fund covering just one guy and blew the whistle. (Spoiler alert: the guy wouldn't talk when the New York Times showed up at his door.)

Now, German prosecutors are pursuing 56 separate cases and targeting over 400 suspects, including the lawyers who issued high-priced opinions blessing the fraud. Hanno Berger, a former German auditor who crossed over to the dark side before fleeing to Switzerland, told his legal associates, "Whoever has a problem with the fact that because of our work there are fewer kindergartens being built, here's the door." A lot of people who never saw incarceration in their future need to start getting ready for 3-5 years of being picked last for the prison kickball team.

Are you wondering why those same traders didn't target Uncle Sam? Simple — we shut down dividend arbitrage back in 2008. That's worth noting for skeptics who think our patchwork system of government agencies and self-regulatory organizations is like putting Cookie Monster in charge of the Monster's Commission on Excellence in Nutrition.

Most Americans try to think of taxes as something you file with the government and forget about for the rest of the year. But the CumEx scandal reminds us that taxes are central to every investment decision you make. Our tax planning service helps you make tax-efficient decisions, and our Tax Operating System® helps you implement them for maximum advantage. Don't miss out on the savings!

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!

"Retirement is Not in My Vocabulary"

Betty White has been pursuing Hollywood since her 20s. (Getty)

Most people who were born on January 17, 1922, have long since passed away. Of those who are still alive, few are still working in any capacity. And only one of them is still going strong after 80 years in show business. Her name is Betty White. And last week, the actress, animal rights activist, and vodka fan, who considers herself "the luckiest old broad on two feet," celebrated her 98th birthday. And when you're blessed to enjoy 98 healthy years on the planet, you navigate a lot of tax rules over that time.

When Betty was born in 1922, the country was just returning to "normalcy" after World War I. The Revenue Act of 1922 had just dropped the top rate from 73% to 58% on income over $200,000 (about $3 million in today's dollars). Oil titans and robber barons were the ones paying those top rates, not athletes or entertainers.  

Betty launched her career just months after graduating from high school in 1939, singing on an experimental TV channel. By then, we had lifted ourselves out of the worst of the Great Depression. There were 33 tax brackets, starting at 4% on the first $4,000. The top rate was a robust 79%; however, it didn't kick in until your income topped $5 million (just north of $90 million today). Most people earning up to the equivalent of about $900,000 actually paid less than they do now.  

When World War II arrived, Betty joined the American Women's Volunteer Services and entertained troops before they shipped off. In 1949 she was back on TV, and in 1951 won her first Emmy nomination. (She lost to Gertrude Berg . . . yes, that Gertrude Berg.) By that point, the war and recovery had forced taxes considerably higher, with a 91% top rate on incomes over $200,000 ($2 million today).  

After spending most of the 60s haunting game show panels, in 1973 Betty joined the Mary Tyler Moore Shows as "man-hungry" Sue Ann Nivens. She called the role the highlight of her career and won two more Emmys. The top tax rate had fallen to "just" 70%, kicking in on income over $200,000 ($1,150,000 today). But the average six-figure earner paid 29-33%, taking advantage of tax-free municipal bonds, preferential treatment for capital gains, and a whole new universe of tax shelters in real estate, oil & gas, cattle farming, and locomotive leasing. (Sound familiar?)  

In 1985, Betty scored her second smash hit as Rose Nylund — "not the brightest nickel in the drawer" — on The Golden Girls. While she was racking up eight Emmy nominations for her work, Washington was working in a genuinely bipartisan way to reform what everyone admitted had become an out-of-control tax system. The result was the Tax Reform Act of 1986, which still frames how we pay. (If you're a millennial, try Googling the word "bipartisan" — seriously, it'll blow your mind.)  

In 2010, the 88-year-old Betty appeared with the 89-year-old Abe Vigoda in a classic Snickers ad. Betty credits that commercial for yet another career reboot. She certainly doesn't need the money — her net worth has been estimated at $75 million. She's focused now on animal rights, and once told Ad Age magazine, "The whole reason I work so much is so I can pay for all those animals. So, to have all these opportunities is just wonderful." Clearly her charitable deductions are most important now.

You may not live to be as old as Betty White or win as many Emmys. But your life, your finances, and your taxes will evolve over time just like hers. That's where we come in, to help you navigate those changes with as much grace and good humor as Betty. Here's to 98!

Careful What You Wish For

It's 2020, and yet in today's Disneyfied America, little girls still dream of becoming princesses. Really, what's not to like about it? You get all the pomp and circumstance of the royal court without the inconvenient stress of actually running the country. You get to show off the crown jewels. You even get to lead the paparazzi everywhere you go, so they can compete to make snarky comments about your dress or snap a pic of you picking your nose.

Actress Meghan Markle got to live the dream when she married Prince Harry to become Her Royal Highness, the Duchess of Sussex. Apparently, though, princessing is a lot like Season Three of The Crown — it overpromises and underdelivers. Now she and Harry are giving up their "Royal Highness" titles, vacating the palace to become working blokes, and planning to spend more time in North America. Next stop, Canada: out with the Royal Philharmonic, polo and high tea, in with Nickelback, hockey, and poutine.

Naturally, the big move means big changes for the couple's finances. People like us spilled gallons of ink writing about how Megan's marriage would affect her taxes. So now that the Sussexes have announced "Megxit," you get to spend hours reading about them all over again. Spoiler alert: they're still going to be a royal pain in the arse.

The couple have been drawing 95% of their state income — estimated at around $2.5 million per year — from Prince Charles's Duchy of Cornwall income. They draw a few more quid from the tax-free Sovereign Grant, which the government pays the Queen for royal family operations. They also earn income from their own assets, estimated at $25 million for Harry (built on inheritances from the Queen Mum and Princess Di), and $5 million for Meghan (built on her acting career). The move will mean giving up their Sovereign Grant income, and possibly the Duchy as well.

So, off to work they go! Fortunately, they're expected to command six-figure speaking fees. As a U.S. citizen, Meghan will keep paying U.S. tax no matter where in the world she speaks. However, if she spends more than six months abroad, she can exclude $107,600 of foreign income from her U.S. tax. That may sound like a lot to us — but for a princess, it barely covers the ladies' maid and gas for the Bentley.

Meghan also needs to consider state taxes. (You probably thought princesses are too pretty to worry about that.) They were still deductible when she left, but now that deduction is capped at $10,000 per year (£7,665). She's already moved her company, Frim Fram Inc., from California to Delaware, where she'll avoid the Golden State's 8.84% corporate tax.

Harry remains a Brit, which gives him more ways to plan where he lives and works. His British income is taxed at 45% on anything over £150,000. If he spends enough time in Canada, he'll pay 33% on his Canadian income over $214,368. But if he spends too much time here, in the United States, everything becomes subject to our tax. (Don't get too used to the California sun!)

We realize you aren't making room in your family budget for tiaras and scepters. But you don't have to be a royal to take advantage of planning to pay less tax. That's where we come in. So count on us to help, without shipping you off to Canada!