Fifty years ago, a dairy farmer named Max Yasgur thought it would be a rockin' idea to rent his field to a bunch of kids who wanted to throw a concert. From August 15-17, 400,000 hippies, peaceniks, and plain old music fans converged on the scene. If you're a 60s fan, Woodstock represents the high point of that era, a giddy celebration of peace, love, and good vibrations. If you're a hung-up Mr. Normal, you might dismiss it as three days of mud-soaked filth, drugs, and public nudity. And while Woodstock Nation may not have managed to save the world, they managed to leave quite a legacy!
Woodstock Ventures hoped 200,000 fans would pay $6-18 for passes — about $41-124 in today's dollars. (By contrast, tickets to this year's Lollapalooza started at $340 and ran to $4,200.) In the end, organizers grossed $1.8 million, suggesting state and local tax collectors shared a groovy $108,000 in sales taxes (3% for the state and 3% for New York City, where most of the tickets were sold).
Sadly for the squares at the IRS, there was nothing left over for them to tax. It wound up costing $3.1 million to rent the farm, book the performers, and charter the helicopters to lift the musicians over the stalled traffic. At the height of the crush, some acts were demanding twice their usual fee to perform — in cash. The Woodstock documentary, edited in part by then-unknown Martin Scorsese, helped start recouping those losses. But it took until Ronald Reagan (!) was president to finally break even — an irony that shouldn't be lost on counterculture fans.
As the unticketed hordes grew closer, organizers realized there would be no way turn them back, so they declared it a free festival. The crowds turned Yasgur's farm into the third-largest city in New York, and even created their own sharing-based economy. We're talking, of course, about the pop-up pharmacies dispensing various psychoactive adventures, including the brown acid that emcee Chip Monck famously warned was "not specifically too good." Sadly for New York authorities, we suspect none of those unregulated commodity traders bothered filing Forms DTF-17 or ST-101.
Fun fact: members of the Hog Farm commune, led by Hugh Romney (aka "Wavy Gravy") were running a free kitchen on the premises. On Saturday morning, they served "breakfast in bed for 400,000 people" and introduced the hippies to a brand-new food called "granola" [gru-noh luh]. This has nothing to do with taxes, but it'll impress your friends when the topic of Woodstock comes up over the next few days.
Today, Yasgur's farm is still finessing taxes like Jimi Hendrix shredded the national anthem. That's because it's owned by the nonprofit Bethel Woods Center for the Arts, home to a 15,000-seat amphitheater and museum. Local sales tax collectors still take a piece of ticketing and merchandise. But income tax collectors are no-shows (just like concert no-shows Joni Mitchell, the Doors, and others). And while property taxes in Sullivan County generally range from $25-65 per thousand of assessed value, the center's nonprofit status takes 800 acres off the property tax rolls.
Today's music festivals, like Coachella and Burning Man, all try to recapture a bit of that Woodstock magic. Sadly for the fans, the acts are a bit more corporate, the facilities are a bit cleaner, and even the drugs are a bit tamer. (Legal marijuana . . . where's the rebellion in that?) So for this week we'll leave you with a pipeful of gentle hippie sentiments, and hope you enjoy the rest of your summer. Next month after Labor Day, official tax planning season starts, so get ready to save!
Everybody needs money. That's why they call it money. Maybe that's why the heist movie is still a Hollywood staple. It's been a while since we thrilled to classics like Heat, or Oceans 11, or The Sting. But who can resist the heist film's enticing promise: the coolest crew coming together to take the ultimate shortcut to the American Dream, the one huge payday that means never working again?
They say Washington is Hollywood for ugly people, so it shouldn't surprise you that Washington likes a good heist, too. Except, in Washington, the thieves aren't eyeing priceless art, jewels, or stacks of bearer bonds. (Why do bearer bonds even exist other than to get stolen in heist movies, anyway?) In Washington, they're after your money — and they're tiptoeing as carefully after it as the stealthiest cat burglar.
On May 12, the House voted 417-3 to pass the "Setting Every Community Up for Retirement Enhancement" (SECURE) Act. (Someone on the Government Office Acronym Team worked overtime on that.) Now, "SECURE Act" probably conjures up images of happy seniors sipping lemonade on the porch, watching the grandchildren frolic in the sprinkler. And the bill includes a grab-bag of provisions designed to keep Grampy and Nona smiling, like adding annuity options to defined contribution plans and pushing back the required minimum distribution age from 70½ to 72.
But the bill sneaks in one move that even Danny Ocean would admire. Under current law, your nonspousal beneficiaries can keep your retirement accounts on life support, even after your death, for as long as their own life expectancy. It's called a "Stretch IRA," and it can mean decades of extra tax-deferred compounding. The SECURE Act forces them to take everything out — and of course pay tax on it — over just 10 years. Maybe they should have called that provision the Hidden Efforts Imposing Stealth Taxes (HEIST) Act!
The SECURE Act won't just make your beneficiaries pay tax faster. It's probably going to make them cough up more. That's because they'll have to pile those forced distributions on top of their regular income. Imagine a six-figure executive or professional inheriting a significant IRA. The extra cash could easily push them into higher tax brackets at both the federal and state levels.
Had enough? It gets worse. Right now we're enjoying the lowest tax rates in a generation, thanks to the Tax Cuts and Jobs Act of 2017. But those rates are scheduled to self-destruct after 2025, making SECURE Act distributions even pricier. (While we're at it, if your grandchildren are heading to college, the extra cash could blow up their FAFSAs, too.)
Right now, the Act is stalled in the Senate. Texas Senator Ted Cruz, who's never been afraid to irritate his colleagues if it means scoring brownie points with his base, is the roadblock. He's holding it hostage because it doesn't let families raid their kids' 529 accounts to pay for home schooling costs. It's almost a shame . . . in today's Congress, a 417-3 agreement is more precious than the Monet Pierce Brosnan targets in The Thomas Crown Affair. Still, the Capitol Hill Bandits will probably wind up taking down the score.
The greatest trick the devil ever pulled was convincing the world he didn't exist. And just like that, your money's gone. Good thing you've got us to keep an eye on Congress. So call us whether Washington gets away with this one or not — either way, we'll have your plan!
Showtime's hit series Billions invites us into the gilded life of Bobby "Axe" Axelrod, a working-class kid from Yonkers who makes his billions running a hedge fund. The camera teases us almost erotically with the spoils of his success: the $63 million Hamptons house he buys on a whim, the his-and-hers private jets he and his wife take when just one jet isn't enough, and the helicopter that drops his sons off at Little League practice. Axe is a guy who loves every dime he spends, and he isn't afraid to let us watch him spend it.
Of course, the full story is a little darker. (We're talking Showtime, not the Hallmark Channel.) Axe is so shady you could throw a picnic under him. His portfolio strategies include bagmen, blackmail, and bribery (and those are just the ones that start with "B"). His plots and schemes are so deep and layered they could teach philosophy. Axe gives millions in charity to museums and 911 first responders. But behind the scenes, he's evidence of Balzac's epigraph that behind every great fortune, there's a great crime.
Axe has his fingers in lots of different pies. (Note to self: don't eat the pie.) He makes plenty of enemies, wheeling and dealing his way through four seasons of Billions. But there's a new threat lurking on his horizon, and it's the sort of thing Bobby should spot from miles away. We're talking about politicians looking to raise revenue without targeting the actual masses of voters who get them elected. How do they do that? They skip "income" entirely and head straight to net worth.
Massachusetts Senator Elizabeth Warren is the highest-profile legislator floating this sort of wealth tax. Her "Ultra-Millionaire tax" takes 2% of their assets above $50 million and 3% over a billion. Warren estimates her plan would raise $2.75 trillion over 10 years. Best of all, it hits just 75,000 registered voters. (Sadly for Warren, they're also the registered voters with the most money to hire lobbyists to fight back.)
Of course, it's easy to propose that sort of flashy new tax. It's harder to collect it. Who wants to fill out a form telling the IRS everything they own? (Oh, did I forget that second Swiss bank account?) What price do you use for assets that fluctuate, like stocks? What about illiquid assets like real estate, closely-held businesses, and art? How would Axe value his yacht, his cars, and his motorcycles? And who's going to pay for the auditors to make sure he does the math right on his wealth tax return?
As for the tax itself, three percent might not sound like much. But when you're a billionaire, it adds up fast, especially if you're getting mugged for it every year. Amazon founder Jeff Bezos has $158 billion, which would make his tax $4.74 billion. Stroking that check would have to hurt, even for him!
Warren isn't the only high-profile American who says we should tax the rich like we mean it. Last month, a group of card-carrying plutocrats including Abigail Disney, Facebook founder Chris Hughes, and Hyatt heiress Liesel Pritzker Simmons signed an open letter urging every 2020 presidential candidate to back Warren's plan. And polling shows that a surprising 60% of voters support it. (We're guessing the other 40% think someday they'll be that rich, too.)
Warren's wealth tax isn't going anywhere soon. It might not even be constitutional. But it's starting a conversation, at a time when Washington is looking harder than usual for sneaky new ways to pay the bills. So, while it may not be on Bobby Axelrod's radar, it's on ours. We'll let you know when it's time to start hiding your helicopter and pawning your jets!
Sunday night, millions of Game of Thrones fans who waited breathlessly for 20 months finally got rewarded with their next installment of what's become the biggest TV show on the planet. Cersei discovered (redacted). Jon Snow learned that .... (sorry, no spoilers here). And that guy with the eye patch and flaming sword probably does great on Tinder. (Seriously, what fair maiden wouldn't swipe right on him?)
Last week, we speculated about how taxes work in Game of Thrones and concluded there are two groups of winners, at least as far as taxes are concerned. The first are the governments collecting taxes from the show's creators, cast, and crew. The second are those collecting taxes from tourists visiting the show's spectacular filming locations, like Spain's Alcazar Palace or Gaztelugatxe. (Remarkably, not a typo.) But there's another important lesson worth spending a second week on. (If you're not a fan, don't worry, we're not turning this into the Westerosi Weekly Tax Journal.)
Thrones creator George R.R. Martin modeled his fictional Seven Kingdoms after England during the Wars of the Roses. So taxes probably work in conventionally feudal ways. Smallfolk kick up to their lords in the form of currency, crops, or labor. The lords kick up a share to the great houses, and the houses kick up a share to the crown. If it all sounds like something out of "a certain Italian-American subculture," it should — remember, Thrones producers originally pitched their epic as "the Sopranos in Middle Earth."
But can taxes alone be enough to sustain a group of squabbling kingdoms against a more existential threat? Martin's characters spent seven seasons fighting amongst each other to make it to this week's premier. (Well, at least the few dozen who survived the first 67-episode slugfest of death.) Now they're facing a common enemy from the north. The Army of the Dead has lain low for thousands of years. Now they're marching south, and the night is dark and full of terrors. A man wants to know, how do you kill an army of soldiers who are already dead? (This isn't going to end well, is it?)
The Westerosis are going to need everything they can find to battle those enemies. They know that Valyrian steel, dragonglass, and actual fire-breathing dragons can destroy White Walkers. They've also got wildfire, the deadly green liquid that can engulf an entire navy or a portion of an ancient stone city with the spark from a single candle. We don't know for sure if wildfire kills the undead, but it certainly can't be good for them.
Are you one of those fans who likes guessing what comes next? (Who's going to sit on the Iron Throne when the series closes forever on May 19? Danaerys? Arya? Hot Pie?) If so, you've probably guessed we're using all of this to draw a metaphor. Taxes are like the White Walkers, advancing from the north to slow down your financial progress. And if you're like Jon Snow, you know nothing about strategies to pay less. You don't have Valeyrian steel, dragon glass, or wildfire.
But what we can give you is an ever-expanding menu of concepts and strategies to slow or stop the White Walkers of unnecessary taxes. If you want to pay the legal minimum, you need someone who speaks "taxes" as fluently as Danaerys's translator Missandrei, who can say "loophole" in 19 different languages. Are you selling a business and looking at a seven-figure tax bill? We've got the dragonglass for that. Looking to maximize your real estate depreciation deductions? We've got your Valyrian steel. So when you're done watching Thrones, call us to put our wildfire to work!
Learn more about how to get your business finances in order so you too can keep taxes at bay and maybe even learn how to grow your business a bit as well.
On April 14, millions of fans will gather around the biggest screen they can find for the start of one final season in Westeros, the setting of George R.R. Martin's epic Game of Thrones. The show, which producers pitched as "The Sopranos in Middle Earth," has leaped from television into the broader culture. In 2013, 241 babies were named "Khaleesi" after the title Danaerys Targaryen takes by marrying the Khal Drogo. UC Berkeley offers a class in "invented languages" featuring Dothraki, which sounds like what you'd get if you mixed Spanish and Arabic and ran it through a wood chipper.
Martin doesn't tell us much about how taxes work in Westeros. And HBO certainly isn't interested in exploring those details — how would they find time between introducing 257 major characters in Season One and killing most of them off in increasingly cringeworthy fashion through the next six seasons? But fortunately for us, the series leaves occasional bread crumbs to help us understand whether the show's tax collectors worship the lord of light or the lord of darkness.
The Iron Throne's principal tax man is Lord Petyr "Littlefinger" Baelish, the King's urbanely oily Master of Coin. (Picture Treasury Secretary Steven Mnuchin, but with chainmail and some super-sketchy side gigs.) Apparently, collecting taxes is just another entrepreneurial opportunity for Littlefinger. In Clash of Kings, Martin writes, "Ten years ago, Jon Arryn had given him a minor sinecure in customs, where Lord Petyr had soon distinguished himself by bringing in three times as much as any of the king's other collectors."
Sadly, Littlefinger's greediest efforts aren't enough to satisfy King Robert Baratheon's lust for wine and tournaments. Baratheon spends down the surplus left by the Targaryens, then borrows millions of golden dragons from the House of Lannister and the Iron Bank of Braavos, Westeros's version of the International Monetary Fund. We don't know how much interest Braavos charges — but if you default, they don't just send swordsell goons to break your legs. They finance a rival power, then collect when the rival overthrows you!
As for those scheming Lannisters, we know "a Lannister always pays his debts." But do Lannisters always pay their taxes? Or do they cleverly avoid them? In Season Three, Lord Tywin Lannister imposes a penny tax on brothels, called "the dwarf's penny," to boost public morals and pay for Joffrey's upcoming wedding. Now, come on . . . is there any idiot in any village in Westeros who doesn't see through that blatant attempt to shift the burden from the 1% to the commoners? Discuss.
In the end, the show's biggest winners may be the real tax collectors across the world. Series creator George R.R. Martin earns a reported $25 million per year from HBO and book royalties. Thrones tourists have pumped millions more into the show's real-life filming locations, including Northern Ireland and Dubrovnik — a Croatian city most fans had never heard of before they saw it standing in for King's Landing. We can assume that all of their governments are happy to collect their share of all those Thrones dollars raining down like flaming arrows.
If you're like most "Thronies," you'd love a dragon of your own to ease your path to the top. (Or do you worry the King would find a way to tax them, too?) Fortunately, you don't need a fire-breathing reptile to keep more of your golden dragons. You just need a plan. So call us when you're ready to escape the King's yoke, and see how glorious a castle you can build with the savings!
Next workshop: Saturday April 27th!
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!
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Learn about the 5 Things You Forgot About That Are Costing You Money
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.