They say that "what goes up must come down." But that's not true when it comes to college costs. U.S. News reports the average private college tuition stood at $16,233 back in 1997-98 — roughly $24,973 in 2017 dollars. But the same tuition today costs $41,727. And that's before pricing in luxuries like, you know, meals, and a place to sleep. In-state college costs are rising even faster as legislatures cut budgets for higher education. That means colleges are increasingly turning to alternate funding sources, including their endowments.
In academia, though, as in so many other parts of our "winner take all" society, there's the 1%, and there's everyone else. America's richest 800 colleges and universities hold over $500 billion in endowments, which sounds like there should be plenty to help supplement tuition and fees. But the top 1% of schools hold over $10 billion each, and 11% of schools hog 74% of those assets. That leaves the Faber Colleges of the world essentially fighting over scraps. ("Knowledge is good.")
Now, the Phi Beta Kappas who write our tax code have turned their green eyeshades towards those mammoth pools of tax-free wealth. Both the House and Senate tax bills working through Congress would impose a 1.4% excise tax on net investment income of private colleges holding more than $250,000 per student. That group includes about 70 schools, including obvious targets like Harvard, Yale, and Princeton. At the same time, the proposal spares public school systems with big endowments like the Universities of Texas ($25.4 billion), Michigan ($9.7 billion), and California ($7.4 billion).
It's true that if any schools have "too much money" (LOL), it's the top-shelf Ivies. Harvard's endowment started in 1638 with £779 and 400 books. Over the next 379 years, it's grown to over $37 billion (and 16 million books), leading critics to call it a hedge fund with a university attached. In 2015 that fund grew by just 5.8%, compared to rival Yale's 11.5%. But Harvard Management Company paid its chief executive a whopping $14.9 million, with his deputy taking home $11.6 million. (And you thought college football coaches were overpaid!)
Academic endowments have grown so large that they're starting to use some of the same tax strategies as the richest individuals. The New York Times recently exposed how colleges use offshore entities to boost earnings, including "blocker corporations" that let them avoid tax on debt-financed "unrelated business taxable income." (Trust us, those UBTI rules are even more boring and technical than they sound.)
But naturally, academics are irate at the proposal, rolling up their leather-patched tweed sleeves and prepping for a (genteel) fight. "Endowments support substantial student aid and student service programs, and provide funding for instruction, research, and for building and maintaining classrooms, labs, libraries, and other facilities," said the Association of American Universities. At Princeton (the #1 target with $2.5 million per student), undergraduates from families earning under $56,000 pay no tuition, room, or board, while those from families earning under $160,000 pay no tuition.
Here's the good news. You don't have to be an Ivy League university — or even have an Ivy League education — to save big on your tax bill. You just need a proactive plan. So call us when you're ready for some real-world lessons on how to pay less!
April 15 hasn't always been the national exercise in self-flagellation that it is today. Up until the 1940s, you could just waltz into your local IRS office and they would do your taxes for you. But those days have long since passed. You're still welcome to do it yourself, if you need more stress in your life. But how will you know if you're paying too much? Even software like TurboTax can't guarantee you'll get it right. If you don't know how to use it, the program just helps you make the same expensive mistakes faster than when you made them with paper and pencils.
If you're like most Americans, you just throw up your hands and call a pro. That begs a new question: who to call? Certified Public Accountants and Enrolled Agents have traditionally dominated the field. But up until 2010, anyone with a pencil could call himself a tax preparer. (Most of them use computers now — but, surprisingly, not all. Hey, some people still carry flip phones, too.) That seems like an obvious vacuum in today's regulatory environment, considering that in most places, you need a license just to catch a fish. And we all know bureaucracy abhors a vacuum.
In 2009, the IRS decided to do something. After a series of public forums and comments, they launched the Registered Tax Return Preparer (RTRP) program. The new rules required preparers to: 1) sign up for a Preparer Tax Identification Number, 2) pass a 2.5 hour test, and 3) complete 15 hours of continuing education per year. Naturally, the IRS charged a fee for the program, which started at $64.25 per year. And they based their authority to do it all on an obscure 1884 law regulating representatives of civil war soldiers looking for compensation for dead horses.
Everyone was happy with the RTRP, except the people subject to the new rules (and maybe those long-dead horses). Preparers felt like they were being forced to take a test to prove they could do something they had done, in some cases, for decades. So three of them sued to shut down the program. And they won — the court agreed that the 1884 law didn't give the IRS authority to regulate an industry that didn't even exist when it was passed. (Oops.)
The IRS suspended the RTRP program. But they kept charging the PTIN fees, even though the program the fees were supposed to finance had ended. So, one year later, a different group of preparers filed another suit to recover those fees.
Once again, the court ruled in their favor. This June, the court decided that PTINs aren't a "service or thing of value" justifying a fee. The IRS can't charge fees for PTINs, "because this would be equivalent to imposing a regulatory licensing scheme and the IRS does not have such regulatory authority." (Don't hold your breath waiting for Congress to give it to them.) And yes, the IRS has to give back all the PTIN fees they've collected. That was $175 million when the plaintiffs filed their complaint; but it could be as high as $300 million now.
Chalk one up for the good guys, right? Well, sure. But here's the real lesson: most tax preparers, credentialed or not, focus on putting the "right" numbers in the "right" boxes on the "right" forms. They do a great job of telling you how much you owe — but nothing about how to pay less. And that has everything to do with attitude, not credentials. So call us when you're ready to save — and remember, we're here for your family, friends, and colleagues, too!
Every year, PNC Bank publishes their "Christmas Price Index" to track the cost of the Twelve Days of Christmas. For 2017, it's a hefty $157,558. (And you thought your holiday spending was out of control!) The index may not be completely accurate — for example, the ten lords-a-leaping are valued using the cost of male ballet dancers, rather than actual lords, and the eight maids-a-milking don't include eight actual cows. But still, it got us wondering . . . what sort of taxes are we looking at on the whole affair?
Your kids and grandkids have finally finished eating their Halloween candy, which means that the real holidays are right around the corner. But before you sit down to open presents, December 16th marked the 244th anniversary of an important holiday in tax history — a pop-up costume ball in Boston Harbor called the Boston Tea Party.
From 1698 through 1767, Britain's Parliament passed a series of laws giving the East India Company a monopoly on the British tea trade, forcing the colonies to buy their tea from British wholesalers, and slapping hefty taxes on it all. But Dutch traders, who paid no tax, could sell their tea for less, costing the East India Company a fortune. (If you remember Miami Vice in the 1980s, try picturing a colonial-era Crockett and Tubbs, dressed in fly white buckskins, chasing Dutch bootleggers in a sleek Italian brigantine.)
In 1767, Parliament passed the Indemnity Act to lower the tax on tea to compete with the Dutch. (Earl Gray was just three years old, so he didn't vote.) But they needed a "payfor" to make up the lost revenue, so they brewed up the Townshend Acts taxing colonial imports, including tea. (Hmmmm . . . sounds like the sort of horse-trading today's Congress is up to right now with the Tax Cuts and Jobs Act.) Five years later, the Indemnity Act expired, and everyone was back where they started. (Sort of like what happened in 2013 when the Bush tax cuts expired . . . . )
The Tea Act of 1773 brought things to a head. The new law actually lowered the price of tea to undercut the smugglers. But the colonists still hated Parliament taxing them without their consent. They hated how England used those taxes to pay colonial governors and judges, thus insulating them from local influence. And that's where things stood in November, 1773, as the tea ship Dartmouth sailed into a Boston Harbor steeped in resentment and controversy.
British law required the shipper to unload and pay the tax within 20 days. But colonists, who gathered by the thousands, were determined to prevent that. On the night of December 16, the final deadline, a group of 30 to 130 of them boarded the Dartmouth and two more ships. A few of them sported elaborate Mohawk warrior costumes to hide their faces and show their loyalty to American identity. They spent three hours dumping 342 chests of tea into the water. The next day, future President John Adams wrote in his diary:
"There is a Dignity, a Majesty, a Sublimity, in this last Effort of the Patriots, that I greatly admire . . . . This Destruction of the Tea is so bold, so daring, so firm, intrepid and inflexible, and it must have so important Consequences, and so lasting, that I cant but consider it as an Epocha in History."
The Tea Party set all sorts of consequences in motion besides the obvious "American Revolution" thing. (Does that remind you of Taylor Swift's song, "We Are Never Ever Getting Back Together"?) If you're a coffee drinker, for example, you should know that coffee first became popular here as an alternative to "unpatriotic" tea. (Sort of like renaming french fries "freedom fries" during the Second Iraq War . . . . )
244 years later, we still resent paying taxes we don't have to pay. The good news is, you don't have to don a Mohawk headdress and row out into the middle of the harbor for three hours of creative vandalism to pay less. You just need a plan. So call us when you're ready to save, and let us give you something to celebrate!
Two hundred and forty one years ago, we declared our independence from Mother England — over taxes, of course. But here on our side of the pond, we've never completely lost our affection for all things British. We applauded as the Queen celebrated her 70th wedding anniversary. Netflix fans who just finished binge-watching Stranger Things are eagerly awaiting Season Two of The Crown. And now we've learned that Prince Harry and his longtime girlfriend, actress Meghan Markle, are getting married in May.
Now, Harry may be just fifth in line for the throne, and about to be bumped down to sixth when Princess Kate gives birth to her third child next spring. But a royal wedding is still a Very Big Deal. There's going to be lots of work to keep the couple knackered out for months to come. That includes a guest list, a gown, and flowers. And of course there will tax questions, too.
Here's the issue: Markle isn't a Brit. She's a Yank. Buckingham Palace has already announced that Markle will become a British citizen, which involves passing a test with questions like "What did the Statute of Rhuddlan in 1284 lay the basis for?" and, "Who or what is Vindolanda"? But that transition will certainly complicate her finances, and possibly the rest of the royal family's, whether she says cheerio to her American citizenship or not.
Giving up her U.S. passport would be a simple but possibly pricey proposition. There's no magic to it: you make an appointment at the nearest embassy, sign some forms, and take an Oath of Renunciation. There's a $2,350 fee to process the paperwork, but that's low enough that she could probably add it to her wedding registry and count on a generous Member of Parliament, or maybe a lesser Marchioness, pick it up for her.
The real problem with expatriating is the bloody exit tax. If your net worth is over $2 million, or your average annual income for the five years before you leave tops $162,000, you'll owe tax on any appreciated assets you own, calculated as if you had sold them on the day you leave. That could make it frightfully expensive to move into a palace!
Things get more complicated if Markle keeps her U.S. citizenship. She'll still owe U.S. tax on her worldwide income. And she can't hide foreign holdings from the IRS. If she keeps more than $300,000 in assets abroad, she'll have to file Form 8938 reporting them. (And, really, what's the point of being "Her Royal Highness Princess Henry of Wales" if she's not going to have more than $300,000 in assets?)
If Her Royal Yankee Highness hold anything jointly with Harry, those U.S. filings could reveal assets the Crown prefers keeping confidential. We know that Harry inherited half of his mother, Princess Diana's £21.5 million estate (roughly $28.5 million), and he shares a £3.5 million allowance with his brother. But the royals work hard to keep the bulk of their finances private. The recent "Paradise Papers" leak revealed that Harry's grandmum the Queen benefits from investments the Duchy of Lancaster holds in the Cayman Islands and Bermuda.
You probably thought that marrying a royal would solve your financial problems, not create new ones. But life is full of surprises, even for princesses. So let us propose a jolly good solution: a plan for paying the legal minimum, no matter who you marry! Call us when you're ready to save, and take a few quid to treat the queen to a cuppa!
In today's new Gilded Age, Americans are constantly vying to one-up each other. You show up at your high-school reunion in a new Mercedes E-Class; then your classmate pulls up in a Maserati Quattroporte. (Some would call it a $50,000 car with a $50,000 hood ornament, but still, it's a Maserati.) You show off a picture of your 42-foot sloop; your neighbor whips out his phone to show off his 62-foot schooner. You show up in Davos in your new GII; your business rival flies in on a GIV. When will it all end?
The IRS isn't generally interested in financing your conspicuous consumption. (Not unless you drive that Maserati to work, in which case, trust us, you'll want to choose the "actual expense" method for calculating your deduction.) But there's a new toy that some of capitalism's winners are showing off, and this one comes with some beautiful tax breaks. We're talking, of course, about a private art museum.
Rich art collectors have always taken fat tax breaks for donating art. The Association of Art Museum Directors estimates that 90% of the collections held by major museums were gifted by individual donors. This is an especially good way to avoid tax on capital gains. Let's say you bought a minor Cezanne or an early de Kooning 30 years ago for $100,000. Now the painting is worth $3 million. If you give it to your local art museum, you can deduct the full $3 million fair market value!
Of course, there are rules in place to frame the deduction to make sure you don't abuse the privilege. If the value is more than $5,000, you'll need a qualified appraisal. Your deduction is limited to 50% of your adjusted gross income, although you can carry forward any excess for up to five years if you can't use it all in a single brushstroke. And the IRS maintains an Art Advisory Board to review appraisals.
But museums can't always give your donation the same care and attention you would give it. New York's Metropolitan Museum of Art includes over two million pieces. It's easy to imagine your donation winding up somewhere back in storage, like the Ark of the Covenant in the last scene of Raiders of the Lost Ark. That's where the private museum comes in. There's really not much to it. Just set up a private foundation to hold the collection and operate the facility, then stuff it full with your art. Now you've got your deduction and control over your collection.
Who sets up one of these private museums? Peter Brant Jr. is the son of a billionaire paper magnate who married supermodel Stephanie Seymour. In 2010, he opened the Brant Foundation Art Center, conveniently down the street from his Greenwich estate and next door to his polo club. In Potomac, MD, Mitchell Rales, founder of the Danaher Corporation, opened the Glenstone Museum across the duck pond from his house.
Plenty of public museums, including New York's Frick Museum, Philadelphia's Barnes Foundation, and Washington's Phillips Museum all started life as private collections. But critics have argued that, while the new breed of private museum meets the letter of the law, it may not always meet the spirit.
We realize your art collection might not include more than the dogs playing poker hiding in your basement rec room. But that doesn't mean you can't canvass the tax code for the same tax-planning strategies that major collectors use to structure their private museums. Just call us for a plan, and we'll see if we can make beautiful art with your finances.
We've all got an image in our minds of who uses "offshore tax havens" to host their business. Let's say you're a junior-varsity Russian oligarch. You've spent a lifetime looting your country's resources like an all-you-can-steal buffet, and now it's time to take some of your chipskis off the table. You buy a flat in London's posh Mayfair, or maybe a condo overlooking New York's Central Park. Then you stash the rest of your rubles in some sunny flyspeck of an island like Bermuda or the Caymans, where Putin's goons can't steal them back.
But most people who do business offshore aren't crooked billionaires. They're perfectly legitimate multinational corporations, business owners, and investors just like us. If you've worn shoes from Nike, made calls on an iPhone, or downloaded music from Sheryl Crow, you've even done business with them!
Last month, the investigative journalists who brought us 2016's Panama Papers dropped Season Two of their effort to expose how the global 1% use international entities to structure their wealth. The "Paradise Papers" include 13.4 million electronic documents, mostly gleaned through a "data security incident" from the Bermuda-based law firm of Appleby Spurling Hunter. And one of the names that those intrepid detectives uncovered was Paul David Hewson, originally from Dublin's middle-class Finglas suburb.
Of course, you probably know Hewson better by his stage name, Bono. (His U2 bandmates dubbed him Bono Vox, meaning "good voice," in high school.) Now, Bono's made hundreds of millions of dollars in his career. But he's also hobnobbed with the Dalai Lama and been nominated for a Nobel Peace Prize. He's hardly the sort of guy you'd expect to be moving money in mysterious ways. So what's the deal? Here's how the BBC lays it out:
"Bono owned a share in the Ausra shopping center located in the Lithuanian city of Utena via his stake in a company called Nude Estates, based in Malta. In 2007, Nude Estates bought the mall via a company they incorporated in Lithuania called UAB Nude Estates 2. In 2012, Nude Estates Malta Ltd. transferred the ownership of both Nude Estates 2 and the mall to a new offshore company, Nude Estates 1, based on the English island of Guernsey. Both Malta and Guernsey are low-tax jurisdictions, though foreign investors pay a five percent tax on company profits in Malta, while they pay no tax in Guernsey."
There you have it. Even paying 5% tax in Malta, they still hadn't found what they were looking for. So Nude Estates tripped through the waters with Bono's money for the rattle and hum of tax-free Guernsey. Bono himself seemed taken aback by the disclosure. He said he would be distressed if "anything less than exemplary" was done with his name anywhere near it. And he said, "I take this stuff very seriously. I have campaigned for the beneficial ownership of offshore companies to be made transparent. Indeed this is why my name is on documents rather than in a trust."
Here in the U.S, we're subject to tax on all our worldwide income, no matter where it's earned. That means that moving investments offshore doesn't convey any sort of automatic tax benefit, with or without you. Fortunately, the same internal revenue code that taxes us on foreign income offers countless strategies to minimize or avoid that tax. All you really need is a plan. So call us when you desire to save, and let's see if we can rescue enough wasted tax dollars to send you someplace where the streets have no name!
The streaming video service Netflix has earned a reputation for providing quality content like Narcos, Orange is the New Black, and The Queen. But Netflix has also upended how millions of people consume television. How have they done that? By dropping an entire season's worth of a series all at once, letting you "Netflix and chill" with a single episode or binge for an entire weekend. (What kind of savage network would make viewers wait an entire week between episodes of their favorite show? HBO, that's who.)
Netflix's latest hit, which dropped its second season last month, is Stranger Things, a love letter to the classic horror, sci-fi, and fantasy films of the 1980s. The show features a pack of bike-riding preteen friends from sleepy Hawkins, Indiana, who team up with the local sheriff and a mysterious paranormal girl named Eleven. Together, the motley crew fights to save the world from a parallel universe that connects through the super-secret "Hawkins National Laboratory."
Most Stranger Things viewers love the show's music and movie references. Naturally, it makes us nostalgic for 1980s taxes. (Have we told you we need to get out more often?) So, for all you "Upside Down" fans, let's take a walk down memory lane and see what taxes looked like when it was "morning in America":
Former President Jimmy Carter once called our tax code "a disgrace to the human race," and there's really not a lot to like about it. There's at least some consolation, though, in the fact that we're all stuck with the same maddening rules. If you and your spouse file jointly, and your ordinary taxable income is $100,000, you'll pay the same amount as any other joint filers reporting the same $100,000 in ordinary taxable income.
That's not always the case with state and local taxes, though. If you're big enough, and you're willing to flex a little muscle, you can find someplace willing to court you like royalty. Most cities are more than happy to trade away a bit of property tax on a corporate headquarters in exchange for the payroll taxes, income taxes, and sales taxes they can levy on the people who work there, along with the economic development that comes with new jobs. Other places are willing to offer flat-out bribes in the form of tax credits.
And that brings us to this week's story . . . Amazon.com started life in 1994 as an online bookseller. Since then, though, it's grown to become the largest online retailer in the world. For four glorious hours this July 29, founder Jeff Bezos was the richest man on the planet. (The company reported disappointing earnings at the end of that day's trading, and Bezos's stock tanked $6 billion overnight. Must have been nice while it lasted!) If you're reading these words, you've bought something from Amazon, and you're probably one of its 80+ million Prime members.
In September, Amazon announced plans to drop $5 billion on a second headquarters equal to their current home in Seattle, code-named HQ2. They want to locate the new facility in a metropolitan area of at least a million people, within 45 minutes of an international airport, with a highly educated workforce.
The lucky winner will get up to 8 million square feet of new space and up to 50,000 new jobs paying an average of $100,000 per year. But the benefit of the new headquarters will ripple throughout the winning town's economy. Those 50,000 employees will all need places to live — pushing property values up an estimated 2%. They'll need places to eat, drink, and shop. Amazon reports that every dollar they currently invest in their current headquarters generates $1.40 for Seattle's economy overall.
Naturally, every city in America wants in. By October 18, 238 municipalities had submitted their bribes bids, from 54 states, provinces, districts, and territories across North America. Seriously, winning HQ2 is the closest thing any city will ever come to winning the Powerball.
New Jersey has offered $7 billion in tax rebates if Amazon picks Newark. Pennsylvania has offered up to $1 billion in breaks, with Philadelphia throwing in $2 billion more over the next 10 years. (That's a lot of cheese steaks!) Several cities went even further to stand out from the crowd. Tucson, AZ sent a 21-foot-tall cactus. The Mayor of Charlotte, NC declared October 18 to be "#CLTisPrimeDay." And the town of Stonecrest Georgia offered to rename itself Amazon.
We realize you don't have enough muscle to negotiate your own tax rate. The good news is, you may not have to. Remember that tax code that Jimmy Carter called a disgrace to the human race? It's got 70,000 pages full of deductions, credits, loopholes, and strategies that you can use to pay less. So call us for a plan, and see how much we can deliver!
We live in an unfortunate era of disunity. Cultural divides, racial divides, religious divides, and political divides are threatening to tear America apart. Every so often, though, someone comes along to unite us all in a great primal scream of rage. Remember "Pharma bro" Martin Shkreli, who bought the company that manufactures the prescription Daraprim, then jacked the price from $13.50 to $750 per pill? We really do need more people like him to unite us against a common enemy.
Rick Smith probably never imagined his company would become one of those uniters. But up until a few weeks ago, he was CEO of Equifax, the credit-reporting bureau that got hacked and waited six weeks to reveal it. By that time, intruders had made off with critically sensitive information on 143 million Americans. Was the hacker just some pimply Russian teenager living in his babushka's basement? An international gang of cyber-thieves? We may never know. But that 143 million figure certainly includes thousands of our friends at the IRS, who may not look kindly on the millions of dollars Smith earned leading up to the leak.
Smith's abrupt resignation means he'll walk away with only a pro-rated portion of his $1.45 million salary for 2017. He'll also lose his performance bonus, which could have been another $3 million. Of course, he would have paid the IRS 43.4% of those amounts anyway. But Smith can afford to shrug off losing the cash comp. That's because, like with most top executives at publicly-traded companies, the real action is in the stock. In fact, Smith has taken home 633,427 shares of Equifax stock, worth roughly $60 million, just since the start of 2016. Here's how it works:
Usually when CEOs leave unexpectedly, they put out a lame excuse like "leaving to spend more time with family." In Smith's case, that might actually be true — his family is going to need a lot of help recovering their stolen identities following the breach! But hey, let's be fair here — it's not like everyone in America hates him. The class-action lawyers must be drooling at the thought of suing his company into the ground.
Smith's story illustrates one of the most important lessons in tax planning. How you make your money is just as important as how much you make. So let us help you with a plan for making the most of your income — and hopefully you aren't hacking into anyone else's server to make it!