NEWS & NOTES
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ould anyone in their right mind sit down from scratch and develop the tax withholding system we have today? The IRS publishes tables telling employers how much to take out of everyone's paycheck, depending on their income, their filing status, and the amount they guesstimate they'll be claiming in deductions and credits. Then, at the end of the year, employees file their actual returns and hope it's the IRS coming out on the short end.
Lots of Americans use the tax withholding system as a piggy bank. Yes, letting the IRS hold your money for a year amounts to giving them an interest-free loan. And no, they won't do the same for you. But with savings accounts paying just a hair over 1% right now, plenty of taxpayers decide the forced discipline is worth more than the interest they give up.
In 2018, the average refund amounted to $2,782, which is enough to cover some bills, take a nice weekend trip, or maybe redo your family room for big-screen TV nirvana. But one enterprising 29-year-old named Christopher Blanchett found himself in a position to snag a refund worth writing home about. And when you hear his story, you'll realize that sometimes these stories of ours just write themselves.
Two years ago, Blanchett sat down to file his return. He had a W2 from a Sizzling Platter restaurant where he worked in Utah reporting $1,399 in income and zero withholding. And somehow, he had a W2 from a Tampa nursing home showing $17,098 in wages and a million dollars in withholding. But where you or I might have thought, "hmmmm, something looks off," Blanchett smelled opportunity — and he chose not to look his gift horse in the mouth.
So Blanchett chose to file his return with a straight face, based on those W2s. In due time, the IRS sent him a check for $980,000. He took that check and deposited in Sun Trust Bank. Sun Trust suspected fraud (ya think?), froze the funds, and eventually sent the money back to him. So Blanchett took that check and deposited it into a credit union, as one does, "falsely representing that the funds were from the estate of his deceased father."
And what did Blanchett actually do with his new-found wealth? He bought himself a used Lexus RC 350 sport coupe. Now that's not a car to sneeze at. The Wall Street Journal calls it "a capering boulevardier with a soundtrack of cute, kitteny growls." You can get one with all-wheel drive, heated leather seats, and Apple Carplay® integration. But really . . . a Lexus? That seems like an awfully mild play for a seven figure score. (Seriously, you'd think at least part of that windfall would find its way to a Ferrari dealer.)
By that time, the IRS had realized maybe there was a problem with a guy getting back 53 times his income in a refund. Last month, they seized $919,251 that was left in his bank accounts, along with the Lexus. And they're looking to take $809.94 that Blanchett's insurance company refunded him when he canceled the coverage on the Lexus. (Kinda like the Grinch taking the last can of Who Hash, right?) Prosecutors haven't filed charges against Blanchett, at least not yet. But it's a fair bet this story won't end well for him.
There's no real lesson in today's story, other than don't be a bonehead. But there's a great way to give yourself a nice refund, and you won't risk the IRS showing up with a tow truck and making off with your wheels. That answer, of course, is planning. So call us when you're ready to save, and enjoy the ride!
The problem stems from not knowing what you don't know. And if you've started a small business, it just might be time to start thinking about how to Grow Your Business and Keep More Money. The Right Way!
Just a couple of generations ago, it just wasn't polite to discuss money. We mostly knew who was rich and who wasn't. But it wasn't until about 1984, when crack investigative journalist Robin Leach launched Lifestyles of the Rich and Famous, that Americans began following celebrity houses, cars, and bank accounts with the same gusto as batting averages and quarterback ratings.
Today, of course, everything is different. The Forbes 400, along with local business papers, blow the whistle on executive salaries and net worths for everyone to see. Glassdoor.com lets you see how much your colleague in the next cubicle makes. And Zillow lets you (sometimes literally) peek into your neighbors' houses and see just how much their kitchen remodels added to their value.
So, with tax season just getting off to a roll, we got to wondering how much tax professionals make? Last week, Forbes magazine dug up some data from the Bureau of Labor Statistics that show the average tax professional isn't rolling in the sort of rock star money everyone expects!
For 2017, the average tax preparers earned $38,730. That's actually less than the U.S. average of $44,564 for a 40-hour workweek. Of course, that figure covers a wide range, with the bottom 10% earning under $20,170 and the top 10% clearing over $81,740. Many tax preparers work seasonally, which drags down the overall average. (Fifteen years ago, "Jeopardy" champion Ken Jennings finally crashed and burned after 74 games when he couldn't name the company whose 70,000 seasonal white-collar employees work only four months per year. The answer? H&R Block.)
Unfortunately for those who do nothing but prepare returns, job prospects aren't especially bright. (And it's not because the taxes themselves are going away.) Technology, which used to help preparers do their job more efficiently, is now threatening to do their jobs for them. That's a real threat to the sort of storefront preparers who just record the history their customers bring them.
For the same period, the country's 1.24 million accountants and auditors, whose broader responsibilities include preparing financial statements and giving actual advice, earned an average of $77,920. The bottom 10% bring in under $43,020 and the top 10% over $122,220. State averages ranged from $95,430 in New York to $59,960 in Mississippi.
Tax lawyers generally don't prepare many tax returns. They also make considerably more than preparers and accountants, according to the website Salary Expert, pulling in an average of $145,746.
And how do prospects look for the rest of the tax industry? The Wall Street Journal recently published a report on the Tax Cuts and Jobs Act, and reported that, "many of the jobs it is creating, it turns out, are in the tax industry." Firms are fighting for qualified employees. The paper quoted one executive as saying "There's no doubt that the talent wars in tax have definitely heated up." (Can you imagine talent wars in tax!)
So what should we conclude from our nosy snoop through tax salaries? It looks to us like the real news is tax pros who tell you how much you owe earn a decent income — but those who help you pay less are worth more. And in the end, isn't paying less what you really want? So call us when you're ready to save, and see just how valuable we can really be!
If you own a small business or are self-employed, be sure to attend my workshop "Grow Your Business, Keep More Money". Not only will you learn how to set yourself up for success, you'll be able to learn how you can stop wasting money on taxes you shouldn't be paying!
America's economy has morphed throughout our history, starting from agricultural to manufacturing to service to technology. Now it seems we're moving towards a celebrity-based economy. The world is full of D-list celebrities competing for attention: third-rate rappers hoping to break through their own noise, random Kardashian cousins, and spurned bachelorettes fighting for one last rose. (If you're ever invited to compete on Dancing With the Stars, you'd better hope you were nice to people on your way up, because you're about to see if they'll be nice to you on your way down.)
America's unlikeliest new celebrity is a Japanese woman named Marie Kondo, who created a mini-empire around The Life Changing Magic of Tidying Up. She's spun the concept into a line of bestselling books, including a graphic novel, and an eight-episode series on Netflix. (No doubt there's a line of designer-branded plastic storage bins headed to a Target near you soon.)
Now, you're probably thinking you've got to squint pretty hard to find a connection between tidying up and taxes. (And you're right . . . cut us some slack, it's not always easy to come up with topics every week!) But once that connection jumps out, you'll wonder why you missed it all these years.
The KonMari method starts with holding a physical object and asking yourself a simple question: does it spark joy? If so, find the right place for it, and enjoy how it adds to your life. If not, respectfully let it go. She suggests you start with clothing, because it's easiest to discard, then move on to books, papers, "komono" (miscellaneous "stuff"), and finish up with sentimental items. Kondo even prescribes how to fold the clothes you keep — nearly a million people have watched a video of her folding socks.
Now, try this with your money — take a look at where it goes. There are plenty of expenses that really do spark joy. A family vacation, a kitchen renovation, or even a night out on the town all bring a smile to your face and make you feel good about yourself and your choices. Even big-ticket bills like your children's college tuition spark joy as you watch them prepare to succeed in life.
But if you're like most of our clients, your biggest single expense is taxes. Does writing those checks (or seeing them deducted from your paycheck) spark joy? Maybe at the local level. Plenty of people vote "yes" on local levies, then gratefully enjoy their schools, parks, and libraries. But very few people find joy in sending up to 40.8% of their income to Washington and watching the people in charge of spending it shut down the government for five weeks because they're more interested in scoring points than solving problems.
Now, the world is full of tax professionals who are happy to take those W2s and 1099s that are starting to clutter up your desk right now, and assemble them into a tax return. They'll tell you how much you owe, which is what you need. But very few of them will tell you how to pay less, which is what you want. To continue the Marie Kondo analogy, they'll help you inventory your closet. And that's important, because you'll need to know where that ugly Christmas sweater is when next year's party rolls around. But they won't help you clean it out. Because, really, ugly sweater?
So, ready to clean up your tax bill? We'll work through your business, your retirement, and your investment portfolio. We'll fold it all into easy-to-pack little balls. You'll love the feeling of zen and you might even see your blood pressure drop. So call us when you're ready and see just how tidy we can help you get!
Remember: You can't strategize your taxes with a box of receipts. Learn how to get control of your money and get it to work for you by attending my "Grow Your Business, Keep More Money" workshop. Click HERE for more info. It's FREE!
On January 1, we switched our calendars from 2018 to 2019. But in China, February 5 is the date for setting off fireworks. This year, we're ushering in the Year of the Pig. The pig is the last animal in the Chinese zodiac — according to one Chinese legend, he overslept for the Jade Emperor's great meeting of the animals in heaven. Men born in the year of the pig are optimistic, gentle, and focused. Women born in the year of the pig are full of excitement, trustworthy, and have good fortune with wealth. (No fortune cookie jokes, please!)
We're 20ish years into the new millennium now. Driverless cars are starting to take to the streets, and Amazon is working on drone deliveries. So you might think naming a year after a barnyard animal is silly. But hey, just in the last month, Chinese scientists planted cotton on the dark side of the moon, while here in the U.S., the government counseled furloughed employees to pick up side gigs babysitting and pawn their kidneys. Who's to say the Chinese aren't on to something?
Naturally, the Year of the Pig got us wondering just how piggy the Peoples' Republic gets with taxes. You'd probably expect them to be pretty high, considering the "Communists" have been running things since Truman was President. But it's been a long time since any real Marxists have been in charge. It turns out that communism is bad for business! (Also, jokes about communism aren't funny if everyone doesn't get them.) So you might be surprised at just how much China's tax system has come to look like ours.
Chinese employers withhold income and social security taxes just like here. Income taxes start at 3% on salaries up to 1,500 yuan/month (about $225) and top out at 45% over 80,000 yuan ($12,000). Social security varies from city to city, with employers generally contributing 33% and employees paying another 11%. If your only income is salary under 10,000 yuan/month, you don't have to file a tax return.
Business owners pay 5-35% on their earnings. (What would Chairman Mao think of that?) Individuals also pay 20% on investment income and capital gains, including real estate sales. Individual tax returns are due on March 31, with extensions granted under special circumstances only. Husbands and wives file individually; there are no joint returns.
Corporations typically pay 25% on their profits. However, the World Bank reported in 2017 that China's total corporate tax burden, including property taxes and value-added taxes, swallows about 68% of profits. And China appears to impose some indirect "taxes" that our Congress would have a hard time passing. For example, Poland and Canada have just arrested executives from telecom giant Huawei for espionage, which suggests the People's Republic is "taxing" companies for more than just cash.
China also imposes a grab bag of value-added taxes, consumption taxes, and property taxes. Then there are "behavioral" taxes that include a vehicle and vessel use tax, a license-plate tax, a slaughter tax, and a banquet tax. (We're pretty sure the poor piglet is jazzed about those last two.) And China is on the forefront of using facial recognition software to monitor citizens, so you've got to imagine they're pretty good at rooting out tax cheats.
Americans celebrate St. Patrick's Day by drinking Guinness, and Cinco de Mayo by drinking Corona. So why don't more of us celebrate Chinese New Year with a Tsingtao or two? Call us any day you're ready to pay less American tax and we'll give you something to celebrate!
Remember: You can't strategize your taxes with a box of receipts. Learn how to get control of your money and get it to work for you by attending my "Grow Your Business, Keep More Money" workshop. Click HERE for more info. It's FREE!
Americans love puzzles, games, and brain teasers. Newspapers publish crossword puzzles, word-search puzzles, and word jumbles. Bookstores sell jigsaw puzzles. And airport gift shops stock Sudoku puzzles to pass the hours in the sky. We love puzzles so much that someone found their way to a basement office in Washington where the Department of Bogus Holidays litters our calendars with junk celebrations like National Talk Like Yoda Day (May 21) and National Eat Your Beans Day (July 3), and made it official. And so Tuesday, January 29 will be #NationalPuzzleDay.
Most people think of puzzles as trivial diversions. But planning to avoid taxes is a puzzle, too. And, as the English economist John Maynard Keynes once said, "The avoidance of taxes is the only intellectual pursuit that still carries any reward." So, while tax planning may not be as fun as finishing a crossword puzzle (in ink), we think you'll agree it's far more rewarding.
Consider the basic challenge of choosing how to organize your business. If you operate as a sole proprietor (or an LLC taxed as a sole prop) and earn $200,000, you'll pay self-employment tax on every dime of it. On the bright side, that's $21,836 that gets credited to your Social Security account. Of course, that won't mean much if you don't believe Social Security will still be there for you when you retire. (Rule of thumb: if you're young enough to have tattoos, don't count on it.)
Now, if you elect to be taxed as an S corporation, and the reasonable compensation for the work you do is $100,000, you could save yourself a sweet $6535 in tax. It's even sweeter than contributing to a retirement plan or buying new equipment for your business because you aren't spending anything to get a deduction. You're just paying employment tax on less income. That doesn't sound like much of a puzzle, right?
But consider this . . . if you want to hire your minor kids to shift income to their lower bracket, now they'll owe FICA they wouldn't if you were still a sole proprietor. Oh, and now you can't use that corporation to cover yourself under a medical expense reimbursement plan. But wait, there's a workaround to that problem. You can just buy a high-deductible health plan and establish a health savings account. Or maybe you could establish another proprietorship, or C corporation, and pay MERP benefits from that business.
Having fun yet? Of course, now your "covered comp" for determining retirement plan contributions will be based on the salary only, not your whole income. If you're used to maximizing a SEP contribution, you'll find yourself saving a whole lot less with the S corp.
Aren't puzzles great? Now, at that point, you could switch from the SEP to a solo or safe harbor 401k, perhaps with a cross-tested profit-sharing contribution. You could even look at a defined benefit pension plan. (Yes, it's the Studebaker of retirement plans, but sometimes it's the right answer). But that raises the question whether you belong in a traditional qualified plan at all — or whether you're better off with a Roth or insurance-based plan.
All of a sudden, that National Puzzle Day that sounded so much fun about seven paragraphs ago is starting to look about as fun as that new Escape Room movie, right? Don't worry . . . when it comes to organizing your business, or any other tax challenge, we're here to find the best solution. We really like these puzzles, and nobody does it better!
Is it time to Grow Your Business and Keep More Money? Find out how at my FREE workshop!
2019 is here, and it's almost time to file your first tax return under the new law. But you probably sat around watching sports all weekend instead of talking taxes, didn't you. (Did Santa bring a new TV?) So, as we ring in the New Year, let's take a look at how the new tax bill affects some of those athletes you've been watching.
Washington sold the Tax Cuts and Jobs Act as "tax simplification." And really, who can't raise a toast to that? Lower rates! Higher standard deductions! A 1040 you can fill out on a postcard! But many taxpayers, especially those in high-tax states like New York and California, can be forgiven if they feel like they woke up with a massive hangover. Deductions for state and local income and property taxes are now capped at $10,000, regardless of income. And employee business deductions are nixed entirely. That's going to be pricey for the Very Large Men we mentioned in the title.
Take 6'8" NBA superstar Lebron James. He's played in Cleveland, where state and local taxes total 7.5%. He's played in tax-free Miami. And now he's playing in Los Angeles, where he pays 13.3%. (13.3% going to California sure sounds like a technical foul.) Under the old rules, he could deduct whatever he actually paid. Now the refs limit him to the same $10,000 as the rookies earning the league minimum. Granted, that minimum is $838,464. But doesn't it make sense to let a guy paying tax on 43 times that amount actually deduct 43 times as much?
Income taxes won't be the only expense to bite King James under the new rules. He owns a $9 million house in his hometown of Akron (where $9 million buys a lot of house), a $21 million house in Brentwood (where $21 million still buys a pretty nice crib), and a $23 million house in Brentwood. (Not a typo.) Property taxes on those homes reach well into six figures, if not seven. But now he'll watch those deductions bounce off the rim and rebound into IRS hands.
Even athletes who play in states with no income tax used to be able to deduct non-employee business expenses: agents' and managers' fees, health club and training expenses, travel expenses, and players' union dues. But now those are gone, too. Agents typically take 10% of a client athlete's salary and endorsement income, which means losing that deduction alone can eliminate the benefit of lower overall rates.
The new law does give LeBron one potentially important break. Charitable deductions used to be capped at 50% of adjusted gross income. The new law raises that limit to 60%. LeBron is famously charitable, especially for educational causes, and may appreciate that change someday.
As for that postcard-sized tax return? Well, yes, the IRS has released a new Form 1040. And yes, you can print it on a postcard. But don't get too excited. They've just stripped out half of the information from the old 1040 and dumped it into six pages of Schedules. Have capital gains to report, or student loan interest to deduct? You'll have to file Schedule 1. Owe AMT? Schedule 2 is just four lines . . . but there goes your postcard. Need to pay self-employment tax? Welcome to Schedule 4. And who wants to report their income where the mailman can see it on its way to the IRS, anyway?
This New Year, millions of Americans will pick cliched resolutions like eating less, exercising more, crying less, or smoking more. (Possibly a typo.) We'd like to suggest something a little more profitable: minimizing the bite that taxes take out of your year. Call us to save, and make 2019 your best year ever!
Some of the greatest stories in America reach their dramatic finale in a courtroom. Who doesn't admire Gregory Peck as Atticus Finch standing up to racism in Jim Crow-era Alabama in To Kill A Mockingbird? Who can forget Tom Cruise baiting Jack Nicholson into bellowing out that yes, he did order the Code Red at the end of A Few Good Men? And who can't imagine the smile of relief on O.J. Simpson's face when the jury announced they had found him not guilty? (Good thing he's finally out of jail so he can pick up his search for the real killers!)
Funny thing about those stirring courtroom dramas, though . . . they never involve tax cases. Don't novelists see the conflict inherent in a "battle of the appraisers" debating golf course valuations in a conservation easement case? Can't Hollywood producers tease out the complex dramas underlying a typical multinational transfer pricing dispute? What playwright wouldn't dream of meditating on the cross-salient tankgrenuities raised by "Section 393 transfers" between counter-impactful entities after a Section 754 election? (Relax, we made that last one up. Those aren't even real words.)
But tax questions do occasionally sneak into an actual court. So join us now for this week's story, which begins on the banks of the Ohio River.
Back in 1850, Cincinnati was the sixth-largest city in America, nicknamed "Porkopolis" for the area's meatpacking industry. (Can you imagine the smell?) Today, Cincinnati, along with rivertown rivals like Pittsburgh, St. Louis, and Kansas City, is navigating the transition to a 21st-century economy. But only Cincinnati is the home of professional baseball. And while today's Cincinnati Reds may be a pale shadow of the 1970s "Big Red Machine," fans still flock to the riverfront Great American Ballpark on game day — especially when the team gives away player bobblehead dolls.
That, in turn, brings us to the Titanic struggle that just reached its ninth inning in Ohio Supreme Court: do the Reds have to pay use tax on the value of those bobbleheads? The state tax commissioner argued the team had bought them to give away to fans, in which case the team owed the tax. The Reds responded that they had bought them to resell as part of the overall ticket, in which case they would qualify for the "sale-for-resale" exemption under ORC §5739.01(E). The Board of Tax Appeals called the Reds "out," and demanded $80,000 in back tax.
Naturally, the team challenged the ruling on the field. That's when the replay reviewers at the Court stepped in. Last month, they issued their call. By a 5-2 count, the Justices yanked the commissioner from the mound. Instead, as Chief Justice Fisher wrote, "the unique promotional items were an explicit part of the bargain, along with the right to attend the game, that the fans obtained in exchange for paying the ticket fee." That promise qualified the play as a resale. In the words of longtime radio announcer Marty Brennaman, "This one belongs to the Reds!"
We've said before that every financial choice you make has some tax consequence. This week's story proves that can be true even when you're not making a choice! And while nobody is getting rich by eliminating bobblehead taxes from their life, the lesson remains that proactive planning is the key to paying less. So enjoy the rest of 2018 and have a Happy New Year. And count on us to help you make the most of all your planning opportunities in 2019 and beyond!
These days it seems like every day brings new controversy to further divide Americans: red states squaring off against blue states and partisanship crossing the line into tribalism. And that's just as true with the holidays as with anything else. Is fruitcake really an abomination? Is Die Hard really a Christmas movie? Is Baby It's Cold Outside really a musical #MeToo violation in two-part harmony?
Fortunately, there are still some headlines that can bring us all back together. So this holiday season, we're especially delighted to remind you that A Visit From Saint Nick is a tax-free celebration. Santa won't be leaving a 1099 under your Christmas tree, and there won't be any Form 1040-GIFT to file after the tree comes down.
Taxable income generally includes all income, from whatever sources received. However, the tax code carves out several exceptions to that rule, much like Grandpa carves the drumsticks out of the holiday turkey. A "gift" is something of value, given without expecting anything in return. IRS Publication 525 states that "in most cases, property you receive as a gift, bequest, or inheritance isn't included in your income."
"But what about the milk and cookies?" you might ask. "That's the deal, right? Santa shows up with a bag of presents in exchange for cookies and milk (or maybe bourbon and eggnog). Doesn't that transform the whole occasion into a taxable exchange for value?" To which we might respond, "How did you get to be such a Grinch, anyway?"
"Ok, then, what about the gift tax?" you might challenge us next. Well, for starters, that's a levy on your right to give, not receive. So there's never any tax due to the recipient. You can give up to $15,000 each to as many people in a year as you like. If you're married, you and your spouse can join together to give up to $30,000 to every lucky winner. If you give more than $15,000 to a single recipient in a single year, you'll have to report the excess on Form 709. But even then, you won't owe actual tax until your lifetime taxable gifts exceed $11.18 million.
With those rules in mind, Santa's gotta be awfully generous before Christmas morning turns into a taxable event, even for him. (Granted, a trip to Tiffany's might do the trick.) But there's one last scenario to address — and one last loophole to highlight — before we finish our discussion. That's the Christmas Morning Car, an advertising staple since Lexus launched their "December to Remember" campaign back in 1998. What happens when Santa leaves a shiny new car wrapped in a big red bow in the driveway?
This is the part where we're going to have to shatter some precious childhood illusions. Sorry, boys and girls, but that's not really Santa leaving that Lexus in the driveway. It's just Mom buying the car for Dad, or Dad buying it for Mom. And transfers between spouses are tax-free up to any amount. Which means, once again, that the IRS won't be taking a bite out of your Christmas cheer.
Like everyone else, we wish you the best this holiday time, whether you celebrate Christmas, Hannukah, Kwanzaa, or even Festivus. But we want to offer something a little more tangible. Help us give you the gift of proactive planning. Call us when you're ready to save, and together we'll make the season even brighter!
If you pay attention to financial news, you can't escape hearing about Bitcoin and other cryptocurrencies. Bitcoin is just like country music, Justin Bieber, and pineapple on pizza — people either love it, or hate it, but there's no middle ground. The billionaire Warren Buffet dismisses it as a "mirage," a "Buck Rogers" phenomenon, and "rat poison squared." But legions of fans see it someday replacing government-backed currencies. Odds are good that one of the millennials at your holiday table believes in Bitcoin as hopefully as they used to believe in Santa Claus.
Just as Pinocchio always wanted to be a real boy, Bitcoin wants to be real money. That means accomplishing two goals. First, it has to serve as a store of value. You have to be confident that if you put something in, you'll be able to get the same value out. And second, it has to serve as a medium of exchange. That means you have to be able to use it to pay for things just like you would use cash.
So far, Bitcoin's record in both areas is spotty. If you were one of the unfortunates who jumped into the market a year ago at $17,900, you're probably not feeling the love now that it's collapsed to $4,000. Similarly, if you've tried to use it to pay for gas or groceries, you've probably gotten blank stares from the cashier.
And so, at least until now, Bitcoin and its blockchain-based peers like Ethereum have made news mainly for their wild price fluctuations. But last month, Ohio Treasurer Josh Mandel announced the Buckeye State would become the first to accept Bitcoin for tax payments. For now, the program is limited to business filers, although they can use Bitcoin to pay for any type of tax. However, the state plans to expand the program to individuals down the road. (We're not sure if that will happen before or after Ohio finally gets a decent professional football team.)
Treasurer Mandel, who at age 41 is young enough to consider himself an honorary millennial, is a longtime fan of the currency. But last month's move is part of a broader effort to attract software engineers and tech startups to the state. "We're doing this to plant the flag in Ohio as a national and international leader in blockchain technology," said Mandel.
Ohio has set up a website (of course) at OhioCrypto.com to accept payments. They've engaged a company called Bitpay to process the transactions and convert the coins into cash. The fee for that service is just 1%, which is cheaper than using a credit card.
Will virtual currencies someday break through into the mainstream? At this point, who knows? (We're still waiting for the flying cars we saw on The Jetsons — although Rosie the robot housekeeper is almost here, and you can buy a watch to make video calls with Mr. Spacely for $279). And while Bitcoin itself is grabbing most of the cryptocurrency headlines, it may not be the ultimate winner. (Google wasn't the first online search engine, either.) If recent trends are any guide, Bitcoin will remain a punchline until suddenly, one day, it's not.
Here's the real bottom line of last month's news. The world is changing — and, like it or not, we have to change with it. That's true for tax professionals, too. The Flintstones may have been perfectly happy with someone telling them how much they owe. But the Jetsons want to know how to pay less. That's where we come in — and we're looking forward to helping you through 2019 and beyond!
Wall Streeters have a lot to give thanks for this holiday season. Earnings are up, so bonuses are up. And that, in turn, means taxes are up, too. The New York Post just reported that Wall Street Bankers Are Throwing Excessive Parties To Dodge Taxes. But will the wining and dining actually put money back in their pockets? Or is the tax angle just a convenient excuse to party up a storm on the company tab?
Wall Street culture rewards bankers for results. They generally start out with low fixed salaries, at least as a percentage of their overall pay. Then, around this time of year, the bosses get together to count their profits, and shower producers with whatever bonuses it takes to keep them from jumping ship to the competition. In 2017, Wall Street pay jumped 13% to average $422,500 per head. And one consultant predicts sales and trading pros could see 20% more this year in their stockings.
Here's the problem for all those Masters of the Universe glamming it up in their Manhattan condos. Last year's tax bill cut the top federal rate from 39.6% to 37%. However, it also capped deductions for state and local taxes to a flat $10,000. That's a real punch in the gut for Manhattanites paying 13% to the state and city. Throw in 3.8% more for Medicare, and that brings the total skim up to 54%. That's not as bad as the "one for you, nineteen for me" the Beatles sang about in Taxman. But it's hard to get rich if tax collectors are taking home more than you do!
And so, concludes the Post, "Bankers and traders will be celebrating the prospect of massive, multimillion dollar payouts — and they'll use the mega-expenses of year-end blowouts as write-offs for their inflated tax bills, according to industry sources."
It turns out, though, writing off a pricey dinner isn't a very tasty tax shelter. Let's say you treat yourself and three colleagues to the $795/person "white truffle" extravaganza at Daniel, an Upper East Side mainstay. (Relax, your wine pairings are already included in that price!) $3,200 sounds like a lot to shell out for dinner. But after you deduct 50% and multiply it by the 54% tax you save, Uncle Sam covers $864 of that bill.
Now, $864 might cover the sales tax and tip. But in the end, it's a subsidy, not a savings. Nobody puts money in their pocket by splurging on Florida frog leg mousseline with porcini mushrooms in a white truffle white wine sauce. It's delicious, if you're into that sort of thing, and it looks great in your Instagram feed. But you can't retire on it (unless you're the celebrity chef selling it.) You'd think seven-figure financial wizards would be smart enough to figure that out! (Or maybe they're making so much it doesn't really matter?)
While bankers are out celebrating, they should raise a toast to a different blessing. The law that capped deductions for state and local taxes also eliminated them altogether for business entertainment. But Washington did such a clumsy job writing it that tax pros across the country worried it might have killed writeoffs for meals, too. Last month, the IRS clarified that meals are still deductible, so long as they're not "lavish or extravagant." So you tell us — does $795 for five courses of white truffles pass the test?
Nobody likes paying more tax than they have to, especially when they're paying 54%. But we understand the best tax plans are the ones that help you accomplish financial goals beyond a night out on the town. So call us when you're ready to save, and we'll give you something to celebrate!
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