Teach Your Children Well

"If you are truly serious about preparing your child for the future, don't teach him to subtract — teach him to deduct."

Fran Lebowitz

Here in the United States, we spend about $1.3 trillion on education, including early childhood programs, K-12th grade, the whole college-industrial complex, and adult learning and continuing education. This is obviously crucial for training the next generation of Americans to lead and make responsible choices. But how much of that $1.3 trillion do we spend on the sort of truly practical wisdom that makes the day-to-day challenges of life easier to navigate? For example — how much do we teach our children about the taxes they're going to spend the rest of their life paying?

  "Make sure you pay your taxes, otherwise you can get in a lot of trouble."

Richard M. Nixon

 Most kids don't think much about taxes except as something their parents grumble about, until they get their first paycheck and wonder "who the heck is FICA?" But signing up for that first part-time job is like swiping right on the IRS, expecting a fling but getting a lifelong relationship. The average American pays six figures in taxes over the course of their lifetime. But you aren't raising your kids to be "average," are you? No, your kids are going to pay way more than that. What should you teach them about it? What do you wish your parents had taught you?

"From a tax point of view, you're better off raising horses or cattle than children."

Former U.S. Representative Patricia Schroeder

Probably the most important thing to teach them is that taxes aren't something that "just happens" to them every April 15. Children grow up to become voters, and the choices they make on Election Day can have a lot to do with how much they pay. Children also should learn that taxes can be something they plan — they shouldn't just wait until April 15 for their accountant to tell them how much they owe when they have the chance to work with us to learn how to pay less. They ought to learn that cheating is foolish, especially when there are so many legal ways to pay less.

"Just because you have a briefcase full of cash doesn't mean you're out to cheat the government."

Pete Rose

Raising smart, successful children is rarely easy. You can outsource reading, writing, and 'rithmetic to your local schools. But there's no AP class in practical finance — no semester-long program that covers how health insurance works, or how to navigate the world of office politics, or how to get over a broken heart. (Compared to those things, taxes are easy!) But like it or not, your kids will be paying them forever, so you might as well set them up to do it with the right attitude!

"If you get up early, work late, and pay your taxes, you will get ahead — if you strike oil."

J. Paul Getty

That Fine Line Between Genius and Insanity

Writing a weekly tax column probably looks like effortless fun. But it's not always easy mining comedy gold from the Internal Revenue Code. Believe it or not, sometimes, taxes just aren't funny. When you see us trying to jam a tax angle into something like, say, National Feta Cheese Day, you'll know it was a slow week in Taxland and we had to scrounge through our "Weird Holidays" calendar to find something to cover.

Sometimes, though, the tax gods offer up a story that practically writes itself — like this week's tale from the always-popular "Rich People Behaving Badly" genre.

At first glance, John McAfee looks like your basic Silicon Valley entrepreneur. His McAfee anti-virus software, the first commercial anti-virus program, earned him a $100 million fortune. But he got bored and left the company in 1994, and the Great Recession wiped out nearly all of his riches. He's spent the last 20 years carpet-bombing the market with a series of cryptocurrency- and cybersecurity-themed ventures. Like many of his fellow tech bros, he identifies politically as a libertarian, and he ran for the Libertarian party's 2016 and 2020 presidential nominations.

As brilliant as McAfee may be in business, though, when it comes to the rest of his life, he is, for want of a more decorous term, bonkers. He lived for several years with a harem of teenage girlfriends on an island compound off the coast of of Belize, which he was forced to flee after his neighbor was found shot, execution-style. (Nothing good ever happens in a "compound.") He's racked up an enviable collection of arrests for immigration, drug, and gun charges in Belize, Guatemala, the Dominican Republic, and Tennessee. Clearly he's a man who chafes at being told what to do.

Something else McAfee doesn't like is paying his taxes. Last year, he bragged on Twitter: "I have not paid taxes for eight years. I have not filed returns. Every year I tell the IRS 'I am not filing a return, I have no intention of doing so, come and find me.'" Well, as your mom told you, be careful what you ask for. In June, the IRS indicted him for hiding millions in income from promoting cybercurrency, consulting, speaking, and selling his life story for a documentary. And just last week, they arrested him in Spain, where he's now behind bars awaiting extradition.

Spanish prison seems surprisingly chill for a guy who once could have wallpapered his house with money. As he told his followers: "I am having a fascinating time. Spanish prison is not that bad. We can wear whatever clothes we want. We can smoke and socialize. It’s like the Hilton without turn down service. My cell mate is an ambassador's drug dealer, I wish I would have known him before. The prison yard is full of murderers but mostly nice people. I spend most of my time with my back to the wall."

Now McAfee says money is a curse. He's facing 30 years in a place with no ocean breezes and no girlfriends. What's more, the SEC is suing him for failing to disclose that he was paid millions to hawk cybercurrencies on Twitter. He's had a good run — but at age 75, it looks like he'll spend the rest of his life fighting the law.

We know you don't like paying taxes either. But you don't have to risk life on the lam to avoid them. So we've programmed our computers with a sophisticated algorithm of court-tested, IRS-approved strategies for paying less legally. We're sure you'll appreciate enjoying them from the comfort of your own home. So call us now while there's still time to save for 2020!

Food Court

Food Court 

Back before Covid-19 shuttered theaters, courtroom dramas were a cinema staple. In Twelve Angry Men, Henry Fonda shines as Juror 8, trying to convince his fellow jurors the case they were considering wasn't so clear-cut. In A Few Good Men, Tom Cruise proves he could handle the truth while baiting Jack Nicholson into admitting he ordered the Code Red. And in the 1992 true-crime documentary My Cousin Vinny, Judge Haller rules that only a car with positraction limited-slip differential could have made the tire marks left at the scene of the crime.

Tax disputes generally don't wind up in court or (aside from The Untouchables) make it to Hollywood. But tax cases still make headlines and change lives. This summer, for example, in a case touching on questions of religious freedom and tax policy, the Supreme Court ruled in Espinoza v. Montana Department of Revenue that parents could use state tax credits to help pay for religious schools for their children.

Sometimes, though, tax cases rise on less yeasty issues. To wit: last week, Ireland's Supreme Court ruled that the bread in Subway sandwiches isn't really "bread." It's not even "food"! That decision will cost Subway enough in tax to justify arguing the case through four levels of appeals.

Here's the issue. Subway's Irish franchisee paid a 9.2% value-added tax (VAT) on the sandwiches they sold in 2004-2005. (A VAT is a consumption tax levied on the price of a product at each stage of production, distribution, or sale.) In 2006, they applied for a refund, arguing the bread in their sandwiches is a "staple" product and thus exempt from the tax. You would think that by now, the dispute is as stale as 14-year-old bread. But hey, it's 2020, so why shouldn't the Emerald Isle's highest court take a bite at the case?

Irish law states that to qualify as "bread," the sugar content can't exceed 2% of the weight of the flour included in the dough. Subway's, though, weighs in at about 10%. The sugar isn't there to sweeten the loaves — it locks in freshness and keeps the loaves moist. Still, as the mellifluously-named Judge Donal O'Donnell wrote in his 51-page opinion, that alone is enough to qualify the product as "confection" rather than "food" under the Second Schedule of the Value Added Tax Act of 1972.

This isn't the first time courts have cooked up opinions over "food" or "not food." In 2008, a London High Court ruled that Pringles — which are baked from dough containing just 42% real spuds — don't qualify as "potato crisps," and thus aren't subject to a 17.5% VAT. That same year, the European Court of Justice ordered the British government to refund Marks & Spencer Group £3.5 million in VAT they had paid on chocolate tea cakes the government had misclassified as "biscuits."

With any luck, the Irish ruling will inspire more courts to shift their gaze to crusty culinary questions. Finally: what's the right way to eat an Oreo — scrape the cream off first, or pop it all in your mouth at once? Are Keebler cookies really baked by elves? Is putting pineapple on pizza a stroke of genius or a cry for help? What does Justice Sotomayor think about ketchup on a hot dog — and will she let her personal opinion interfere with her judgment?

Taxes on sandwiches probably don't take a big slice out of your wallet (unless you own the store that sells them). But this week's story illustrates yet again how taxes affect every financial choice you make, even if it's just ham versus roast beef. Our job is to save enough dough to pay for as many foot longs as you can eat!

Hairy Tax Questions

Sunday night, the New York Times released a bombshell story analyzing 18 years of what they characterized as Donald Trump's "tax return information." We're not going to touch the substance of the article — that's what Twitter and Facebook are for. But one specific deduction stuck out like an unruly cowlick, and we couldn't help but say a few words.

Donald Trump has probably taken more grief for his hair than for anything else about him. He doesn't seem to have enjoyed a good hair day since his salad days partying at New York's Studio 54. His former fixer, Michael Cohen, claims it's a result of botched hair implant surgery back in the 1980s. (Of course, Michael Cohen is also currently serving out a three-year prison sentence in home confinement, so you'll be forgiven for taking his words with more than a pinch of salt.)

And yet, Trump's tax returns indicate he deducted $70,000 for hair styling while appearing on The Apprentice. Leaving aside the question of whether he got his money's worth, the issues seem simple. Does hair styling count as an "ordinary and necessary" cost of carrying on that particular trade or business activity? And if so, is $70,000 a reasonable amount to deduct?

It's well-established that uniforms and work clothes are deductible, unless they're suitable for ordinary street wear. Under that same logic, makeup and hair styling costs are deductible if they're incurred specifically for work-related photo shoots, performances, or similar occasions. But you can't write off the cost of your street makeup just because you also wear it for work. And you can't deduct the cost of a haircut that you're just going to wear after your appearance.

As for the $70,000, Trump appeared in 96 episodes of The Apprentice, and each of those episodes was filmed over multiple days. That means a lot of time in the stylist's chair. Suddenly $70,000 isn't such a stretch. Trump isn't the only politician to drop serious coin on his hair: Bill Clinton famously paid $200 for a haircut on Hair Force One (see what we did?), and John Edwards used campaign contributions to pay for two $400 trims at a salon off Beverly Hills' famed Rodeo Drive. Of course, we don't know that either of those men tried to deduct those cuts.

The Tax Court offers a less optimistic perspective. From 2005-2008, Anietra Hamper, an anchor at Columbus Ohio's NBC4, wrote off $167,356 for a variety of expenses, "including manicures, teeth whitening, gym fees, sportswear, bedding, cotton bikini underwear and thongs she insisted were necessary to do her job." The Court ruled that the cost of maintaining an attractive appearance is a personal expense, even though her employer required her to maintain a neat, professional, and conservative appearance (and apparently to avoid panty lines).

Having said all that, it appears that Trump can deduct the cost of his on-set hair styling: shampoos, blowouts, and lots and lots of product. So much product. As is so often the case, if this is a scandal, the scandal lies in what's legal. The statute of limitations for the IRS to audit that particular expense has long since passed. And even if they were to trim that deduction, he would simply owe the tax plus interest. There's nothing criminally fraudulent about Trump's accountants resolving a judgment call in his own favor (although there might be about that combover).

Voting has already started for the 2020 presidential election. We urge you to make your voice heard at the ballot box. We'll be here, no matter who wins, to help your taxes keep looking as neat and trim as possible!

You Can Run, But....

The world of law enforcement lost a pioneer last week with the death of Gerald Shur. As a young prosecutor targeting what one member described as "a certain Italian-American subculture," he realized his informants would be more likely to testify on Monday morning if they weren't afraid of winding up dead on Monday afternoon. Shur's insight led to the birth of the U.S. Marshals Witness Security Program, better known as Witness Protection. He wrote the manual on the program, decided who to accept, and took credit for helping jail over 10,000 card-carrying bad guys.

Today, the program counts more than 8,600 witnesses — mostly criminals — as "alumni." According to their website, "No Witness Security Program participant, following program guidelines, has been harmed or killed while under the active protection of the U.S. Marshals Service." Of course, some witnesses literally can't get with the program. Mobster Henry Hill, for example, immortalized in Martin Scorsese's Goodfellas, indiscreetly posed for newspaper photos while operating a horse-drawn carriage business on Cincinnati's Fountain Square. (So much for living like a schnook.)

Tax cheats typically wear suits instead of stripes. They commit their crimes with the stroke of a pen or the click of a mouse instead of knives or guns. But confidentiality can be just as valuable to help the IRS catch white-collar offenders, too — even though it's not quite so cloak-and-dagger.

The IRS naturally encourages whistleblowers to rat out their partners in crime. There's even a form for reporting tax cheats: Form 3949-A. The IRS gets tens of thousands of reports every year, and investigates about 5% of them. Section C of that form lets you choose whether or not to identify yourself.

The Tax Court sometimes lets whistleblowers proceed anonymously if they can show that the danger in cooperating (like when the target is mobbed up) outweighs the public's right to know their identity. There's a whole series of cases with names like Whistleblower 15628-16W v. Commissioner splitting those hairs. (In that case, the Court let a whistleblower alleging $3 billion in fraud provide information anonymously, but ruled that if he wound up collecting a potential billion-dollar bounty, that might change.)

Code Section 7623 requires the IRS to reward informants with 15-30% of whatever they collect in certain cases. (File Form 211 to apply.) Typically they pay out $50-100 million in rewards per year. Bradley Birkenfeld was a Swiss banker helping clients avoid tax on hidden accounts when he blew the whistle on his employer. He wound up serving 40 months in a federal penitentiary for his part in the scheme, but went on to claim a $104 million bounty. (That's a tradeoff a lot of people would be happy to make.)

Sadly, disappearing into witness protection won't help you outrun your tax bill. U.S. Marshals give you a new Social Security number, which you'll use to keep filing returns. The program used to be legendarily generous — Jimmy "the Weasel" Fratianno's wife got breast implants, a facelift, and dental work. But today's fugitives can expect about $60,000 in "getting started" money and six months' of allowance until it's back to work. (Maybe that's why about 20% of witnesses keep committing crimes after going underground.)

There's no "lesson" in this week's story — no grand strategy to help you if you choose a life of crime, then decide the only way to "retire" is to rat out a bigger crook. Just take comfort in knowing that whatever fresh horrors the rest of 2020 may bring, you'll finish the year with the same name as you started!

The More Things Changeth . . .

Living as we doth in this age of Technologie, 'its easy to believest that many Things we take for granted are new. 1,000 years ago, there was naught Internet. No reality Television. ("Tiger King" meant somethinge quyte different.) And a "Hybrid" was a Cart powered by an Ox and a Mule. But verily, some of the Packages that amusest us most today go back to the Sands of Spell. Doth thee likest paying thy Taxes? Nay, sir. Fie, a pox on the Tax Collector! And thus we find ne'er-do-wells cheating on Taxes to be part of the oldest Chronicles.

In the Year of Our Lord 2019, "metal detectorists" combing the Grounde in England's Chew Valley south of Bristol unearthed a Trove of 2,528 Coines dating back to the 11th Century. About half came from the Reign of Harold Godwinson, last of England's Anglo-Saxon Kings, who ruled for just 281 Days until losing his Lyfe fighting Norman invaders in the Battle of Hastings. The rest date to the Reigne of William the Conqueror, great-great-great-grandson of víkingr King Rollo, who successfully rebooted the family Traditione of Raiding and Pillaging.

Back then, the Coines were probably worth about 500 Sheepe in value. Today, they could be worth £5 million. Under current English law, if the Avon Coroner declares them to be "Treasure," the Finder must offer to sell them to a Museum at a Pryce set by the British Museum's Treasure Valuation Committee, and the Finders and the Landowners will split the Proceedes.

Verily, many of the Coines are special. Some are of a Designe not previously known to exist. Others include Runes that reveal how Norman and Anglo-Saxon cultures collided. And three of them are of a Type called by Collectors "Mules," or blends of different Faces. Two of those depicteth the Visages of William the Conqueror on the Obverse, and Harold Godwinson on the Reverse. The third presents William on the Obverse and Edward the Confessor on the Reverse.

Why, preye tell, would such a Thinge arouse Attraction? Well, the "Moneyers" who maken those Coines had to pay Taxes to procure updated Dies. Using old Dies to cast "Mules" avoideth the Tax, meaning more Coines for the Moneyer and fewer for the King. Ah, there's the rub!

We can assumeth William would not have fancied losing so much as a Farthing of Revenue to the Escheteur. Legend holds that when first he asked for the Hand of his Wyfe, Matilda of Flanders, she refused. This caused him to tackleth her in the Street and pull her off her Horse by her Braides. (Apparently, Consente was naught such a thinge in olde Normandy.)

That's not the only reason to assumeth the Coines betray Allegaunce of Cheating. The British Museum belïefes the Coines were buried to preserve Wealth and Riches in 1067 or 1068, when Fighting was still going on. But at that Spell, the Cayman Islands hast not yet been discovered, nor asset protection Trusts invented. Even Mattresses were stuffed with unyielding Strawe, Woole, Hair, or Rags. This left a Hole in the Grownde as the best hiding Place.

Two Lessons there be in this Tale of Tender and Treachery. First, Taxes causeth greet Peyne and Distresse. Second, Cheating will someday come to Light, even æfter 952 Yeares. So affix thine Seal to a Letter, and write us (or just wait until E-Maile is invented) and preye we helpest thou pay less!

California Dreamin'

California Dreamin'

After World War II, a generation of returning veterans turned California into America's golden dream. Industries like shipbuilding and aerospace created thousands of good jobs. California engineers and educators built world-class roads and universities. California vineyards started producing world-class wines. And throughout the rest of the country, young men wished "they all could be California girls."

Today that dream is turning dark. Crushing real estate prices, choked freeways, and struggling schools are draining the fabled quality of life. Winemakers are contemplating which varietals pair best with wildfires and mudslides. Problems that used to squeeze families out to more-distant suburbs are pushing them to leave the state entirely. New York has Little Italy. Miami has Little Havana. How long will it be before we see Little Californias full of Golden State refugees in cities like Denver, Phoenix, and Dallas?

Naturally, taxes play a part in the exodus. California already has the highest state income tax in the country, at 13.3% on income over $1 million. Legislators have introduced a bill hiking that rate to 16.8% on income over $5.9 million, retroactive to January 1 of this year. California disallows all sorts of federal tax breaks like qualified business income, bonus depreciation, and first-year expensing over $25,000. Those rates are even more painful now that the federal deduction for state tax is capped at $10,000.

Now California is eyeing an entirely new tax — on net worth instead of income. Think of it as a property tax, except on everything else you own. Senators Elizabeth Warren and Bernie Sanders made wealth taxes centerpieces of their presidential runs. Warren's "Ultra-Millionaire tax" would have taken 2% of assets over $50 million and 3% over a billion. Best of all, it would have hit just 75,000 registered voters. (Sadly for Warren and her plan, those are the ones with the most money to hire lobbyists to fight the tax.)

Of course, collecting the tax would be a different matter. At what point do you value assets that fluctuate, like stocks? What about illiquid assets like real estate, closely-held businesses, and intellectual property? How do you value yachts, cars, and art? What are "three points on the back end" worth when everyone in Hollywood knows "there's no net"? And who's going to pay for the auditors to make sure the billionaires do the math right on their new wealth tax forms?

Those problems haven't stopped a different group of lawmakers from introducing an "Extreme Wealth Tax" that would give California the first state-level wealth tax. Their proposal starts at 0.4% of net worth over $30 million. That may not sound like much to get excited about. But for a guy like Facebook's Mark Zuckerberg, with a net worth of $98 billion, that would mean a $400 million shakedown.

The bill's sponsors say their tax would nick just 30,400 residents and raise $7.5 billion for the state's general fund. But will the people who already have very nice houses in places like Hawaii, Nevada, and Montana put up with that abuse? New York has floated a similar proposal, but Governor Cuomo shot it down, fearing it would chase even more Wall Street Masters of the Universe to tax-free Florida. (And the weather is nicer in Palm Beach, too.)

Federal, state, and local governments are going trillions into the hole right now to fight Covid. We should expect to see all sorts of new taxes hitting the table: value-added taxes, carbon taxes, financial transaction taxes, and more. We're keeping an eye out for all of them to help you pay the least!

Fannie Mae Duncan – A Colorado entrepreneur, philanthropist and activist

Jazz greats from all over the country travelled to Colorado Springs to play at the Cotton Club (1947 – 1975) at the invitation of Fannie Mae Duncan. She was a strong woman who took a stand to provide Colorado Springs with the first integrated night club. Recognized by the Colorado Women’s Hall of Fame in 2012, Rocky Mountain PBS produced a documentary on her life. Although she has passed away, her spirit lives on today in the Everybody Welcome Festival (named for the words she posted in the window of her nightclub).

Fannie Mae’s motto was “Accept all people, show them equal respect, and always remember to make everybody welcome” – https://www.csindy.com/coloradosprings/why-fannie-mae-duncan-deserves-recognition/Content?oid=7602187. Life for her wasn’t always easy. Born in Oklahoma to a poor farming family, Fannie Mae moved to Colorado Springs in 1918. She worked as maid, soda-jerk, waitress and cook. Through it all, she dreamed. Her dream was to create a space where soldiers could bring their wives, many of whom were from other countries- a dream which would come true but only when she took a stand to make it happen.

The challenges were great. First, she and her husband (as most entrepreneurs do) had to raise the funds to purchase the building and create the facility. Jazz at that time was mostly played by black musicians. To Fannie Mae’s surprise, she found that the musicians had to drive to Denver to stay overnight after a performance, because the local hotels or lodges in Colorado Springs did not serve African-Americans. Fannie Mae’s solution was to buy a historic mansion to provide lodging for the performers and other visitors. But that was not all, she had to battle with the police.

Fannie Mae at her Cotton Club

Like Fats Waller’s song called “Ain’t Misbehaving”, Fannie Mae had run-ins with the law. The Cotton Club (in Colorado Springs) was opened to all no matter their race or color. When Police Chief Irvin “Dad” Bruce told her to “stop mixin’ colors”, she would not back down, and continued to allow whites into her club. She stated that denying white people access to her club went against our constitution. Fannie Mae took a stand for what she believed, and her rights do so.

Whether Fannie Mae was supporting our soldiers in war by opening a United Service Organization (USO) club, contributing to the growth of our culture with jazz, or finding new celebrities to entertain such as Flip Wilson (Comedian) who first joked at her Cotton Club, she took a stand for her beliefs and the things she valued. And of course, she took a stand to foster racial integration in America. Her most important stand was for her family.

You don’t have to be a successful entrepreneur or leader in racial integration to take a stand. You can take a stand for your family and loved ones and what you believe in, like Fannie Mae, to achieve your American Dream. Make sure that you eliminate speculating and gambling from your investments, and see them grow, using the scientific proven method of Nobel Prize winning Dr. Harry Markowitz and Dr. Eugene Fama.

Too often, the finances for the family are left for the husband to decide, while the woman stands by her man or partner. Although “Stand By Your Man” is a famous country song by Tammy Wynettte (wife of George Jones), it should not be a directive for managing the family investments. Men tend to let their emotions and ego rule their decision making. Our experience is that women tend to focus more on what is important for the family and the family relationships. Follow the path of Fannie Mae in taking a stand for what is important to you. Learn about the academic method of investing and how it could change your future.

~Whitney Smith, Stone Advisors

Images Courtesy of Colorado Women’s Hall of Fame

Stone Advisors is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. We look forward to assisting you in obtaining this information so that you can realize your American Dreams – just call us at 970-668-0772 to learn about our monthly educational opportunities.

What Are the Odds?

Coronavirus has upended nearly every aspect of American life, including of course sports. First was the chaos of interrupting leagues mid-season with no idea when, or if, they would ever return. Next was the oddity of playing games in arenas filled with cardboard cutouts of fans and their dogs. Now we have the crime against humanity of the Philadelphia Flyers playing the Tampa Bay Lightning in Toronto — in August.

What's a sports-starved fan to do when he can't go down to the park to root for his favorite team? Well, he can still place a bet on the game. But the IRS has just taken steps to make that pleasure a little harder for those enjoying the newest way to bet on the action.

Today's sports books feature slick websites, mobile apps, and electronic cash transfers. But underneath that glitz, they work pretty much just like the Mob, except without the pinkie rings. You make your bet, plus a 10% "vigorish," to win even money. You give the points, or take the over, just like you would with Vinnie down at the corner bar. Online sports books pay an excise tax of 0.25% of the total amount wagered if the bets are legal in the state where they're accepted, and 2.0% if they're not. (Vinnie doesn't pay the tax, but he won't pass along the savings, either.)

Fantasy sports contests, by contrast, don't take bets on teams. You pay an entry fee to create your own roster by cherry-picking players from across the league, then bet on their individual performances. What Red Sox fan wouldn't love betting on Mitch Moreland's bat without worrying about the team's minor-league pitching? It's the sports-betting equivalent of trading derivatives on Wall Street. (Just don't forget that if it was derivatives, in the form of mortgage-backed bonds, that cratered the global economy in 2007-2008.)

Last month, the IRS General Counsel issued an opinion holding that daily fantasy sports (DFS) operators like FanDuel and DraftKings should pay that same excise tax on those entry fees. Now, a quarter of a percent may not sound like much of a lift. But remember, it applies to the whole wager. Most DFS operators structure their prize pools to pay out around 85% to winners. Then they pay their own expenses out of the remaining 15% rake. So, while twenty-five cents out of a $100 bet isn't much — two bits out of a fifteen-buck rake adds up fast!

Last month's memo doesn't mean wiseguys with baseball bats are heading out to start collecting — at least, not yet. General Counsel Memoranda are formal legal opinions from the Counsel's office responding to internal IRS inquiries. But they don't have the same binding force as statute or regulations. DraftKings hasn't said anything about the memo. FanDuel has already said they look forward to working with the IRS to resolve the issue.

Of course, the IRS hits the jackpot on your winnings, too. If they total more than $600, your DFS operator will even issue a 1099. If you lose, it's been unclear up until now whether fantasies sports losses are gambling losses (in which case you can deduct them against other gambling wins), or hobby losses (in which case you're out of luck). But if the IRS is going to tax entry fees as "wagers," it seems only sporting to treat losses the same.

We're pretty sure you're not interested in gambling when it comes to your taxes. So come to us for the edge you need. Proactive planning is the consensus pick for paying less, and we can make you the favorite against the IRS!

Bloody Complicated

Bloody Complicated

In 2004, Stephanie Meyer sparked a bona fide cultural phenomenon with her debut novel, Twilight, recounting the romance between 17-year-old schoolgirl Bella Swan and 109-year-old "vegetarian" vampire Edward Cullen. (He only drinks animal blood, not human.) The story spawned four books, five movies (because you've gotta double up that final book to sell more tickets and popcorn), and billions in revenue. If you were a teenage girl at any time during those years, or know someone who was, you went through a Twilight phase.

Last week, Meyer released a long-awaited fifth volume, Midnight Sun, retelling the original story from Cullen's point of view. While it's too soon to know if the book launches a new generation of twi-hards, we can be sure that millions across the country will eagerly return to Forks, Washington for the Twilight renaissance. If movie studios can churn out a new Batman every year, surely there's room when theaters re-open for more of Twilight's vampire clans and werewolf packs.

We realize that when you hear the word "vampire," you probably don't think "taxes." But we do. (It's either a sickness, or a gift — really, who the heck knows in 2020 anyway?) But the books raise enough tax questions to fill an entire law school exam. So pace yourself, and stay hydrated:

• Carlisle Cullen, patriarch of Edward's clan, turns him into a vampire in 1918 during the Spanish Flu. (Edward may not have been paying much — the 4% bracket didn't kick in until the equivalent of about $85,000 in today's dollars.) But turning him into a vampire by definition means raising him back from the dead. So should Edward even be filing a return in the first place? Or is anything a vampire earns "income in respect of a decedent," and better reported on Form 1041 for estates and trusts?

• Bella and Edward get married in the fourth book, Breaking Dawn, on August 13. That means on December 31 they become eligible to file jointly. But can they, really, if Edward is undead?

• Should Bella file an estate tax return when Edward turns her into a vampire after she dies in childbirth?

• Vampires live a long, long time. That makes getting rich easy: the only thing more potent than vampire venom is compound interest. In fact, Forbes placed Edward's mentor Carlisle first on its list of the 15 richest fictional characters, beating Jed Clampett, Tony Stark, Richie Rich, and even Scrooge McDuck. Carlisle's $34.5 billion fortune is built on 370 years of mostly tax-advantaged growth. (His adopted daughter Alice can see the future, which we imagine helped avoid buying Theranos, the blood-testing startup that turned out to be a scam.)

• In the books, Edward Cullen has his own supernatural ability: mind-reading. Would he please tell us whether Washington is going to raise taxes next year so we know whether to contribute to traditional or Roth retirement accounts?

If you're a Twilight fan, enjoy the new book — and don't worry about taxes. We're pretty sure we've never worked with a real vampire before, but in the unlikely event that you get bitten, by all means tell us so we can help you work through these complicated questions! (Unless, of course, telling us means you have to kill us, in which case never mind.

Looking For a Lake House?

A century ago, New York's richest families didn't summer in the Hamptons. (Yes, this is a story about people who use "summer" as a verb, with a straight face.) Back then, clans like the Rockefellers, Morgans, and Huntingtons headed upstate to the "Great Camps" of the Adirondacks, a constellation of compounds overlooking the area's forested lakes. The camps generally revolved around a grand log mansion and collection of outbuildings — calling them "cabins" is like calling Newport's mansions mere "cottages." Many of them are National Historic Landmarks.

Now, the greatest of those remaining camps has hit the market. "Whitney Park" sprawls over 36,000 acres with 22 lakes — the largest privately-held property in the state. The driveway from the gatehouse to the main house starts in one area code and finishes in another. (Bonkers, right?) When you finally get there, you'll find 17 bedrooms and 11 baths spread over four buildings, plus a two-story boathouse for hosting dances. It can be yours for just $5,000/acre, or $180 million. And thanks to a quirk in the tax code, the seller will keep millions more of those proceeds.

William C. Whitney, who served as Grover Cleveland's Secretary of the Navy, assembled 80,000 acres that included Whitney Park for $1.50/acre in 1897. 51,000 of those acres eventually passed to his grandson, Cornelius "Sonny" Vanderbilt Whitney. (Don't let the Vanderbilt name fool you — the real money came from the Whitneys.) When Sonny died in 1992, he left it to his fourth wife Marylou. When she died last year at age 93, she left it to her third husband, John Hendrickson, now 55.

Here's where taxes come in. If any of Camp Whitney's owners had ever sold it, they would have owed tax on the difference between the "basis," or purchase price, and sale price. However, each time the owner died, the property's basis "stepped up" to its fair market value as of the date of death. In short, dying rather than selling wiped out any taxes the heirs would have owed. Those haircuts today include a 20% capital gains tax, 3.8% net investment income tax, and an 8.82% state tax.

Stepped-up basis lets Hendrickson avoid tax on every dime of gain through Marylou's death last July. In fact, if he shows the current economy has lowered its value since then, he can even claim a loss. (And we did the math: appreciating from $1.50/acre in 1897 to $5,000/acre in 2020 works out to 6.82%/year.)

We couldn't help but notice that Marylou was already married to her second husband by the time her third was born. But Hendrickson is no gold-digging lightweight. In 1997, Marylou sold another 14,700 acres to the state of New York, which operates it as the William C. Whitney Wilderness Area. Governor Pataki had offered $7 million. But Hendrickson's hardball threat to develop 40 shoreline estates terrorized the local Sierra Club and pressured the state into raising the price to $17.1 million.

(Having said that, a reporter once asked Hendrickson what he would do if someone mistook Marylou for his mother. "I'd say 'I hope she spanks me,'" was his reply.)

Stepped up basis is the dirty little secret behind a lot of family fortunes. You'll do well to consider that in your own planning. For example, none of your gains in a traditional IRA will ever qualify. But that's where we come in. We aren't not just interested in telling you how much you owe. We want to help you use smart strategies like stepped-up basis to pay less. And you don't need to own 36,000 acres to benefit. So call us!

Mom Totally Knows Best

In 1914, Woodrow Wilson signed a proclamation designating the second Sunday in May as Mother's Day. Ever since then, Americans have spent that day destroying Mom's kitchen in the name of breakfast in bed, tramping through her garden in the name of bringing her flowers, and making up for the phone calls and compliments they overlook the other 364 days. While coronavirus, quarantines, and social distancing made this year's holiday a bit less festive, it was still a welcome break from 2020's usual grimness for mothers, families, and even tax collectors.

The National Retail Federation estimates consumers spent over $26 billion on Mother's Day this year, for an average of $205 per person celebrating. Greeting cards, flowers, gift cards, and brunch and dinner were the most popular gifts. (Coronavirus means less for brunch and dinner this year, although it won't dry up entirely — Mom still loves carryout.) But housewares, books, and electronics are gaining ground, too.

All that spending means a billion or two in sales taxes. Combined state and local rates average as low as 5.43% in Wyoming all the way up to 9.53% in Tennessee, and tend to be higher in states with no income tax. Restaurants and retailers will also pay income tax on their holiday profits, and their employees will pay tax on their wages. With stay-at-home orders driving the economy into a medically-induced coma, governments are starving for revenue, and they'll be grateful to collect every penny they can get.

As for our friends at the IRS, they're in charge of administering an internal revenue code that's full of tax breaks for moms (child tax credits), single moms (head of household status), stay-at-home moms (spousal IRA contributions), and working moms (dependent care credits). Of course, that last one raises the question, what mom doesn't work? (You can actually make her breakfast any Sunday of the year!)

And here's a specific tax-planning tip for moms who love chocolate. (And if she doesn't, what's wrong with her?) Twelve states, including California, Michigan, Ohio, and Pennsylvania, exempt chocolate from sales tax as a grocery item. Some states also exempt food-producing plants, which makes a tomato plant or an avocado tree a good choice for a mom with a green thumb. (Just make sure it's not a plant that attracts murder hornets. Seriously, 2020 . . . you're drunk. Go home.)

Mother's Day also gives you the chance to reflect on all that wisdom and common sense Mom gave you. If you're like a lot of people, the older you get, the smarter she gets. This year especially, you can appreciate some of that advice she's been giving you since she let you ride Scooby Doo at the carnival all by yourself. Wash your hands — check. Cover your mouth when you cough — double-check. Clean your room — now that you're spending all day at home, it's even more important than ever!

Mom also wants you to be careful with your money. That's why she gave you a piggy bank when you were five years old. She'll cry if she finds out you're wasting money on taxes you don't have to pay. Or maybe she'll be mad. Either way, that's where we come in. This year, honor Mom with a tax plan that lasts longer than flowers and shows her you really listened and learned.

Fraud & Bling: Atlanta

Maurice Fayne, did you think you would get away with it? Did you think styling yourself "Arkansas Mo" on a show like VH1's "Love & Hip Hop: Atlanta" made you the kind of guy who can pull a con on the down low? When you borrowed $2,045,800 from the Paycheck Protection Program, did you really think you could squander it all on bling? Were you amazed at how fast the FBI could swoop in to arrest you for bank fraud? Any second thoughts? Are you already wishing you could go back to D-list obscurity?

What made you decide to reach out for that sweet sweet PPP cash? Did you read about it in the Wall Street Journal? (Do you think we'd believe you if you said yes?) Did you laugh out loud at the irony of submitting your application on April 15 when the rest of us are paying our taxes?

How did you convince the bank and the SBA that your trucking company, which has one truck, actually has 107 employees and a monthly payroll of $1,490,200? How did you come up with those numbers, anyway? Did you try to guesstimate what a company with 107 employees might pay them in a month? Or did you just pull it out of your armpit and call it good?

Were you shocked and stunned when the bank actually gave you the $2 million? Was your shopping list already right there in front of you? Or did you think, "Wow, what do I do now?" Were you worried the bank would catch their mistake and take the money back?

Should we be impressed you lit the first $1.5 million on fire so fast? Who were you trying to impress with a Rolex, a diamond bracelet, and a 5.73 carat diamond ring? What was your plan for paying it back? Did you miss the word "loan" on the application? Or were you thinking you'd just won the coronavirus lottery?

Does your lawyer really expect us to believe you were just "confused" about that statement where you certified that you would use the money to "retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments"? More importantly, do you expect a jury to believe it? Why not just plead guilty and save us all the embarrassment of a trial?

Were you shooting for "Dad of the Year" when you used $40,000 to catch up on your back child support? What kind of man get gets $40,000 behind on child support in the first place? Are you some kind of monster? Shouldn't you put something away to cover your kid's future therapy?

Why was there $9,400 in your pocket when the Feds arrested you?

  Why did you lease a Rolls-Royce Wraith? Has it ever occurred to you that if you had to lease it, maybe you can't afford it? Are you embarrassed you didn't even have time to get real license plates before the Feds seized it? When they asked if you used any of the PPP money on the new ride, did you that think "kinda, sorta, not really" was the answer they were looking for?

Do you know this is the first time we've ever written this column about someone whose only connection to "taxes" is "ripping off taxpayers"? Do you think our readers have even noticed? Or are they just having too much fun laughing at you to care?

Can you tell your baby mama you won't need your diamonds in jail?

When Does 1918 + 1968 = 2020?

In China, it's a curse to say "may you live in interesting times." If that's so, 2020 is surely cursed. It all started with coronavirus in January or thereabouts. April brought the murder hornets to Washington State. (They might still be only in Washington, but they're murder hornets.) And last week brought news that yet another unarmed African-American man died in police custody, sparking unrest across the country. You can't be faulted for thinking the two smartest men in the universe right now are the Space-X astronauts who literally left the planet on Saturday afternoon.

With all of that grim fare getting grimmer, it's good to know there's some lighter news to put a smile on our faces. Last week we saw one we knew we had to cover: a singer selling a piece of her soul for the bargain price of $10 million (or best offer) as part of a sale of her artwork at a gallery in Los Angeles.

Claire Elise Boucher — better known as Grimes — isn't afraid to march to the beat of a different drummer. She and her boyfriend, tech entrepreneur Elon Musk, just changed the spelling of their newborn baby boy's name to X Æ A-Xii (pronounced "Ex-Eye Eye," of course) because the state of California churlishly wouldn't let them go with first-choice X Æ A-12. (It seems they don't allow numerals). But her offer to sell her soul raises so many tax questions we don't even know where to start.

For starters, what exactly is a soul, and how should that sale be taxed? It's certainly not a tangible asset like a business, real estate, or a Picasso. Tax professionals are mainly looking for guidance from Section 197, which governs self-created intangibles like goodwill. Her soul might also resemble intellectual property, like patents, trademarks, and logos. Sadly for Grimes, she can't have any basis in the asset, which means she'll owe tax on her entire $10 million.

How will Grimes' buyer treat her soul? Surely they'll want to depreciate their investment. But how long do you depreciate something like a soul with no useful life? Would that make it nondepreciable like land? (Don't get caught up in the technicalities here. We're just riffing.)

Grimes may be the first celebrity to offer her soul for sale, especially at such a high price. But soul-selling has a long, distinguished history. In Christopher Marlowe's tragic play Doctor Faustus, the title character strikes a deal (in blood, no less) with the devil: 24 years of life to command the demon Mephistopheles as his servant and use magic, in exchange for his soul and eternal damnation at the end. That transaction, of course, is covered by Section 83, which governs property transferred in connection with services.

Tax treatment changes again if you gamble your soul. In Charlie Daniels classic barn-burner, "The Devil Went Down to Georgia," the Devil tells Johnny: "I'll bet a fiddle of gold against your soul, 'cause I think I'm better than you." Hell breaks loose in Georgia and Johnny wins, or it wouldn't be much of a song. Gambling wins are taxable, of course. But odds are poor that the Devil issued a W-2G, which is required for bets that pay $600 if the winnings are more than 300 times the original wager. And we can assume the unsophisticated Johnny neglected to report his win on his own return.

Here's hoping Grimes is getting smart tax-planning advice before she sells. You should do the same any time you sell a business, real estate, or any other big-ticket item. You don't want to turn 2020 from the biggest payday of your life into the biggest tax bill of your life. (Did we mention the murder hornets?)

"Reality" Bites

In the world of football, one family stands out among the rest: the Mannings. In tennis, it's the Williamses. And on television, it's the Kardashians, Jenners, and various C-list and D-list orbiters that make up the First Family of Reality TV. What many viewers don't realize is that the Kardashians aren't just a family, they're a konglomerate. Matriarch Kris Jenner doesn't just have a talent for making headlines, she has a talent for monetizing it. It turns out, though, that she's not above using a little financial "enhancement" to make herself look even better.

Back in 2014, the supermarket tabloids that none of us confess to paging through at the checkout were speculating that youngest daughter Kylie Jenner was using lip-filler injections. After denying the story for a year, she finally 'fessed up. But instead of apologizing, she doubled down, launching her own cosmetics line and selling her first 15,000 liner-and-lipstick kits in less than a minute on Instagram. That foray eventually grew into Kylie Cosmetics, a real-deal company. Why squander all that social media influence selling someone else's stuff when you can pitch your own?

By that point, the family was looking to move Kylie's face from the tabloids to Forbes. Her publicists showed reporters a 2016 tax return reporting $307 million in top-line revenue for the company and $110 million in profits for the 19-year-old founder. In July 2018, Kylie got her cover, ranking #27 on their list of self-made women with a net worth of $900 million, on track to become the youngest self-made billionaire ever (if you count "slipstreaming along in the wake of the Kardashian PR machine" as "self-made").

Turns out her success was as fake as those teenage lips. In January, Jenner sold 51% of her company to the publicly-traded cosmetics giant Coty, Inc. for $600 million. And now Coty's SEC filings reveal the lips without the filler. Kylie's revenue for the 12 months before the sale was just $125 million — barely one-third what her 2016 tax return claimed. The skincare line her reps bragged had sold $100 million in a month and a half was really "on track" to do just $25 million in its first year.

What gives? Did sales just collapse before Coty bought it? Or did the Jenners lie about it and tell their accountants to draft fake tax returns to show the reporters in a financial equivalent of a brow lift or tummy tuck? Last month, Forbes stated bluntly that "it's clear that Kylie's camp has been lying." Now, the magazine says, "a more realistic accounting of her personal fortune puts it at just under $900 million." (As if that's something to be ashamed of, right?) In a possible case of karma striking back, Coty stock has dropped 60% since the deal was announced.

Here's the thing about tax returns. You can put any numbers you want in the boxes. Use them to impress your parents, your in-laws, Forbes, or your dog. But they don't mean anything until you file them. That's why the bank that holds your mortgage made you sign Form 4506-T with your application, so they could verify your numbers directly with the IRS.

We left a message for a Mr. Pinocchio at the publicist's office, but he didn't call back. Kylie's flaks told Forbes that accusations they falsified tax returns are "absolutely false." (Well, they would, wouldn't they?)

You're probably not interested in using your taxes to convince anyone you're a billionaire. You just want to pay less. We'll give you the strategies you need to do just that, without putting lipstick on any pigs!

Bigfoot

This week's story takes us to Verkhoyansk, a frozen flyspeck of a town with 1,300 shivering souls deep inside Siberia, six miles from the Arctic Circle. The local delicacy is a version of a Russian favorite called pelmeni: minced reindeer fat rolled in a thin dough, seasoned with horseradish and deep-fried on a stick. (Editor's note: not entirely true.) The town's main claim to fame is its record winter cold, with temperatures dropping as low as -90 Fahrenheit. Tripadvisor.com rates the local Pole of Cold Museum as the town's #1 attraction. (#1 out of 1, to be precise.)

Last weekend, Verkhoyansk made headlines when the temperature soared the other direction to 100.4 degrees, the hottest ever recorded in the Arctic. Children splashed in local ponds to cool off — and who can blame them, considering how far they probably are from the nearest central air conditioning. Environmentalists cite the heat wave as more reason to reduce humanity's "carbon footprint" — the total amount of greenhouse gas emissions caused by an individual, event, organization, service, or product.

The whole thing got us to thinking: since carbon footprint is such a helpful concept for understanding the impact of our activity on our physical environment, could "tax footprint" be just as useful for understanding the impact of our financial activity on our tax bill?

It turns out that "tax footprint" really just describes the concept of taxable income — the amount of income on which you pay tax. The higher that footprint, the higher your bill. And just as environmentalists identify ways to reduce carbon footprint (use more renewable energy sources, travel more efficiently, and eat less meat), we focus our tax-planning efforts in four areas:

• Timing-based strategies, like traditional IRA and qualified plan contributions, involve deferring tax on that particular "footprint" to later years, when your tax rate is hopefully lower. Conventional wisdom usually recommends taking that sure thing every day and twice on Sunday, whether you need it or not. (Of course, sometimes that conventional wisdom means paying more tax down the road!)

• Shifting-based strategies, like family business gift-leaseback arrangements, involve shifting part of your tax footprint to lower-bracket family members who pay less on the same footprint. Think of this as the tax equivalent of driving your hipster daughter's Prius instead of your usual SUV.

• Code-based strategies involve finding the tax code's opportunities to convert income that would otherwise wind up in your tax footprint into nontaxable forms, like medical expense reimbursement plan benefits. They also involve opportunities to avoid tax when you sell big-ticket assets like investment real estate or a business, and charitable gifts that let you keep valuable strings on your gift. (Think of this as ditching the Prius for a Vespa or a bicycle.)

• Finally, product-based strategies, like tax-efficient stock portfolios and cash value life insurance, involve positioning your investments where their return misses your tax footprint entirely.

Our job, then, is to help you reach your financial goals with the smallest tax footprint possible, both today and tomorrow. This includes managing your footprint through predictable changes (such as transitioning from work income to retirement income) as well as tax "climate emergencies" like higher future rates, which many expect in the wake of trillions of new spending for coronavirus relief. We can't control the climate, or the weather, but we can make sure you don't go out into the Arctic heat without sunscreen!

Tax-Free Ninjas

Colleges looking to compete for students have added new fields like cybersecurity, political campaign management, and even beer fermentation. (That last one seems a bit indulgent, given how many college students pursue rigorous self-study programs in malt beverages with no promise of academic credit at all.) Perhaps it shouldn't surprise you, then, that a Japanese man has earned the first-ever master's degree in Ninja Studies after two years studying the history, traditions, and fighting techniques of Japan's legendary stealthy soldiers at Mei University's International Ninja Research Center.

Ninjas date back as far as the 12th century, but reached their zenith during the Sengoku period from 1467-1615. This was a chaotic era, with a series of weak emperors nominally pretending to rule the country but various daimyo, or samurai warlords, fighting for real power. The ninja hired themselves out as stealth soldiers and mercenaries to the daimyo, especially for operations forbidden by the code of honor. Naturally, that got us to wondering (because we clearly don't get out enough), what sort of taxes did those ninjas pay?

A quick visit with Mr. Google reveals that taxes in feudal Japan were based on rice. In fact, taxpayers delivered their share at every level of government in the form of grain, and much of Japan's transportation infrastructure developed specifically to get those taxes delivered. Typically, farmers paid about 40% of their crop in taxes, regardless of the price at the time (which created its own problems in times of inflation). Villages paid tax as a unit, with the head of the village deciding how much each individual farmer paid.

Naturally, some villages went the extra mile to pay less. They plied visiting tax assessors with alcohol and showered them with gifts for lighter loads. Farmers even faced a planning choice similar to today's decision between traditional IRAs and 401(k)s (that let you take your tax break today) or Roth accounts (that let you save it until you take your money out). They could choose to be assessed annually (kemi). Or they could choose every five years (jomen), which meant less time dealing with crooked tax collectors, at the risk of crop failures leaving them short.

Actual ninjas were farmers themselves, typically born into ninja families and trained from childhood. As they grew older and more experienced, they hired themselves out to daimyo. It's likely they paid no tax on the income from the spying, the sabotage (mainly arson), and the assassinations they carried out. As we've seen, taxes in Sengoku and Edo Japan weren't based on earned income. And even if there had been such levies, the ninjas' paymasters were the same lords who were responsible for collecting rice-based taxes from everyone else.

Today the ninja live on mainly in myth. There's no evidence they ever dressed in the all-black garb you see them wearing in popular depictions — they dressed like ordinary peasants to blend in with everyone else. If they really could make themselves invisible or walk on water, those secrets are lost to us. (And really, if you could make yourself invisible, wouldn't it be worth paying a little extra tax to get away with it?)

But the ninja tradition lives on in a surprising corner of the world, and that's tax planning. One professional association for tax-planning professionals even urges graduates of its flagship "Green Light Academy" program to style themselves as "tax ninjas" to attract clients. (That's us.) So let us put our skills to work for you, and see how much grain we can save!

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!