On May 14, the Supreme Court struck down the Professional and Amateur Sports Betting Act that had made Las Vegas the only state where bettors could gamble on college and professional sports. (Sorry, wrestling fans, no betting for you. Spoiler alert — the matches are fixed.) Imagine how much louder your neighborhood sports pub will get when the obnoxious drunk at the end of the bar who won't stop jabbering about his fantasy team is actually putting his money where his mouth is!
Dozens of states are expected to legalize betting within the next few years. Naturally, there will be winners and losers. The American Gaming Association estimated that legal sports betting will generate up to $26.6 billion of economic activity and 152,000 jobs. Walmart and Target will make millions from fans converting their winnings into giant TVs. Even a few old-school backroom bookies will manage to hang on — they can offer credit, so they don't have to start kneecapping until some poor loser fails to pay.
But there's one group we can count on to win big no matter who else loses, and that's the federal, state, and local tax collectors sharing the juice from the new action.
Gambling winnings are taxable just like any other income. The IRS doesn't care who wins or loses; they just want their share. Winnings are taxable as ordinary income — you don't pay any more if your favorite quarterback connects with a Hail Mary than you do for hitting blackjack at the casino. The biggest winners can even find their good luck pushing them into higher tax brackets.
Gambling losses are deductible, but only if you itemize (which eliminates about 90% of taxpayers), and only up to whatever amount of actual winnings you report. That means that if at the end of the year, you're in the black, you'll owe tax on your winnings — but if you're in the red, there's no deduction for your loss. That gives Uncle Sam the perfect "heads I win, tails I don't lose" proposition. (Odds are good that whoever said the only way to win at gambling is to be the house never saw how the IRS rigged the game!)
Of course, the IRS won't be the only tax collector profiting from this cash explosion. State treasuries, which generally start with federal adjusted gross income or taxable income for their own collections, will also share the bounty. State and local governments may impose their taxes directly on gambling activities as well. And they'll collect even more in sales and liquor taxes from bettors flocking to sports books and other venues.
There's one more quasi-tax worth considering here. Sports leagues like the NFL and NBA are pushing to collect an "integrity fee" equal to 1% of the total amount bet. (Sports books generally collect a 10% commission on winning bets, so 1% of the amount bet equals about 20% of their gross revenue.) The leagues say this compensates them for their intellectual property rights in statistics used in betting. But critics say the integrity fee is more like just a simple shakedown: "Nice place you got here . . . it would be a shame if anything happened to it!"
Here's a proposition I bet you'll like. Bring me your taxes and challenge me to help you pay less. You literally can't lose. Call me today and see how much you're losing — you can't win if you don't play! Wanna Play?
Early on Saturday morning, 29 million Americans woke up to take a break from school shootings, Russian collusion, and partisan gridlock to watch a California woman achieve a rare fantasy. The woman in question watched the sun rise as plain old Meghan Markle. But by the time it had set, she had become Her Royal Highness Meghan, Duchess of Sussex. (When she's in Scotland, she's the Countess of Dumbarton. In Ireland, she's the first Baroness of Kilkeel. What did your grandmother-in-law give you on your wedding day?)
Lots of Americans grow up wanting to become a princess. Some of them spend years acting like it's already true. (The best of this breed used to wind up embarrassing their families and everyone else they know on MTV's My Super Sweet Sixteen.) But, throwing aside concepts like social mobility and "intergenerational earnings elasticity," once an American girl picks her parents, it's pretty much game over.
Now Meghan's parents can debate whether they lost a daughter or gained a son. And the royal wedding fans at the IRS can debate whether they lost a taxpayer — or gained a whole new source of revenue!
Markle will become a British citizen, which won't put anything in IRS pockets. The real issue is whether she keeps her U.S. citizenship, too. If so, she'll be subject to U.S. tax on her worldwide income, including anything she reports with Prince Harry. And if she keeps more than $300,000 in assets abroad, she'll have to file Form 8938 reporting them. That may not sit well with the Queen, who recently saw some Cayman Islands holdings owned by her Duchy of Lancaster estate revealed in the 2017 "Paradise papers" leak.
Last year's Tax Cuts and Jobs Act could make things even harder for the new princess. The new law caps deductions for state and local income and property taxes at $10,000 per year. That could make keeping a pied-a-terre back home a bit pricier. It eliminates deductions for foreign property taxes paid on real estate she buys outside the U.S. It even limits deductions for capital gains taxes paid on foreign property sales to $10,000. Fortunately, she can still take a foreign tax credit for those amounts.
If Her Royal Highness chooses instead to give up her U.S. citizenship, she'll have to fill out some paperwork, take an Oath of Renunciation, and pay a $2,350 expatriation fee (the highest in the world). It's easy enough that 6,800 people did it in 2017, mostly to quit paying U.S. taxes. The IRS helpfully publishes a list ratting them out by name every quarter.
But there's a catch, and it's a big one. If the princess's net worth is over $2 million (which it probably is), or her annual tax for the five years before she leaves was more than $162,000 (which it probably was), she'll owe tax on any appreciated assets she owns, calculated as if she had sold them on the day she leaves. There's a $680,000 exemption . . . but the whole thing still sounds like a royal headache!
Prince Harry may be off the market, but if you're still hoping to marry royalty, don't give up hope! Vanity Fair magazine just introduced the 12 most eligible royals in a post-Harry world. The list includes Harry's cousin Princess Beatrice, Princess Sirivannavari Nariratana of Thailand, and Kgosi Leruo Motolegi of the Royal Bafokeng Nation in South Africa. Just remember to call us before you walk down the aisle. And remember, we're here for the rest of your court, too! Schedule your tax analysis today! Schedule NOW
On May 2, fire broke out at the Meridian Magnesium Products of America plant in Eaton Rapids, Michigan. The factory supplies components to Audi, BMW, Daimler, Fiat, GM, Tesla, Jaguar and Mercedes. But their most important product may be the die-cut radiator "front bolster" supports in Ford's F-150 pickup. Workers pressure-feed molten magnesium into a mold, then rapidly cool it like Jell-O. And Meridian is the only factory that does it. No bolster, no truck. The fire has forced Ford to shut down production of the truck completely while they scramble to come up with the part.
The F-150 may look like just another pickup truck rumbling down America's fast-crumbling roads. It's not. It's been the best-selling vehicle in the entire country since M.A.S.H was on primetime and the most profitable vehicle of all time. The average truck sells for $47,000 and you can pay north of $70,000 for a fully-loaded Limited SuperCrew model. Celebrity drivers include Walmart founder Sam Walton, actors John Goodman and Dwayne "the Rock" Johnson, Michael Jackson's son Prince, and even singer Lady Gaga.
So, shutting down production is a big big deal. But we're not here to talk about about the downsides of just-in-time manufacturing, cascading supply chain failures, or black swan events. We want to know what the IRS and other tax collectors think about this sort of manufacturing mishap!
Ford has already laid of 7,600 employees. Idled employees will qualify for unemployment insurance benefits, which are taxable because they replace wages that would have been taxable. The United Auto Workers also provides members with taxable supplemental pay after a certain point. So the IRS likely won't see much loss on the employee side.
What about Ford itself? The company recently decided to scrap production of that quaint product we used to call "cars" (other than the iconic Mustang) in favor of trucks and SUVs. Ford has already sold 300,000 F-150s this year, at an average profit of $10,000. One Wall Street analyst recently calculated the "enterprise value" of Ford's truck business at $20 per share. That's a neat trick, considering the whole company's stock is just $11 per share.
Right now, Ford has an 84-day supply of trucks waiting for buyers. But Meridian says it could take 120 days to get their plant back to normal. You don't have to be a math major to see the problem. Losing just one week of F-150 sales could cost the company $175 million in profits. And that, in turn, suggests that with the current corporate rate at 21%, the IRS could miss out on over $35 million in tax.
Or would it really? It turns out that Ford is carrying billions of dollars in net operating losses on their books. They use those losses from previous years to offset their current income. In 2013, they even paid their CEO more than they paid the IRS. (Alan Mulalley took home $23.2 million, and Ford snagged a $19 million refund.) So if the factory fire really does cost Ford millions, the tax hit may not show up in Uncle Sam's pocket for years.
Nobody plans on a freak accident taking out production of a key part. That's why you buy insurance. But there's nothing unexpected or surprising about tax bills. You know the IRS wants a share of your production. So call us when you're ready to plan for that, and be sure to keep a fire extinguisher handy!
Baseball is back in swing, and several teams have already made it clear that they won't be contending for playoff berths. The Cincinnati Reds are leading that sorry pack, the first team to lose 20 games in the season. But the Orioles, White Sox, and Rangers are all nipping at their heels. If any of them are serious about winning this year, it might be time to take a look at signing some free agents. Find an unhappy veteran, steal him away with a big salary and signing bonus, and maybe you'll be at .500 by the All-Star break!
Big corporations with thousands of employees generally prefer playing "Hometown Hero," so long as it suits their business goals. But corporations can play "Free Agent" too. They can even pocket fat signing bonuses when they do it, in the form of rich tax breaks in their new hometowns.
AllianceBernstein is an investment manager supervising $550 billion in assets for institutions, individuals, and mutual fund shareholders. (We're not sure why they spell it as just one word; maybe they just couldn't afford the space.) You'd expect to find that kind of firm in Manhattan. And you'd be right — their current headquarters is a blandly intimidating black-glass slab in midtown. (Fun facts: it's the building Gwen Stacy falls from in the crane scene in Spider Man 3, and it's the office for the fictional law firm in Michael Clayton.)
But life in the big city, including taxes, is pricey. So AllianceBernstein declared free agency to find a new home. Last week, they announced they had picked their new team. They'll be moving 1,050 jobs, including the CEO, legal, marketing, and IT staff, to fast-growing Nashville. (Traders and portfolio managers stay on Wall Street.) Of course they cited lower taxes as a prime reason for their choice.
So how is Tennessee stepping up to the plate? They just passed a new law implementing a "single factor sales apportionment" formula (don't ask) for publicly-traded financial asset managers whose physical presence in the state is larger than their customer base. That new law could add as much as 2% to AllianceBernstein's gross margins. Tennessee also dangles a $5,000/employee "Super Jobs Tax Credit" to companies who create 100 or more new jobs in the state.
Staffers moving from the Big Apple to Music City can certainly expect some culture shock. They'll miss the bright lights, Broadway shows, and Michelin-starred restaurants of Manhattan. (They'll miss the Yankees and Mets, too.) But they'll get to sample Nashville's "Music Row" entertainment scene. And who knows, maybe they'll fall in love with Nashville-style hot fried chicken, a local specialty breaded with spicy cayenne pepper paste and served on slices of white bread with pickle chips. (Then again, maybe they won't.)
But we can be sure that Nashville's newest residents will love their tax savings, too. Tennessee has no state income tax and is phasing out its investment tax. Property taxes are lower than in New York. And housing dollars stretch a lot farther in Nashville, even for those who glam it up in nearby Franklin (the "Greenwich" of Nashville) with the country music superstars. No matter how good the corned beef is back at the Carnegie Deli, it can't hold a candle to the tax-savings "W" AllianceBernstein picks up by going free agent.
What about you? Have you tried Nashville-style hot chicken? Are you a fan or not? Either way, we're pretty sure you'd appreciate a recipe for tasty tax breaks. That's where we come in, of course. So call us if your mouth is watering for savings and we'll see what we can serve you!
Fall is Planning Season
John Leidy, EA
DIY Books Coach
It was the third day of the very first income tax course when I realized that it will become my mission to help people understand their taxes better to be able to make better decisions and STOP wasting money on taxes they should not have to pay.