Tax Time

[RSteve]

It always benefits me to itemize my taxes. Between charitable deductions, property tax, and medical/dental deductions, I always exceed the standard deduction. The process is a pain, but I save a lot of money. But, this annoys me, no end. An NFL player, whose contract calls for a $45 million dollar paycheck this year, pays no state or federal tax. His father founded a church in Orlando, FL, where he is the senior pastor. The "player" donates a sufficient portion of his annual gross income to his father's church to wipe out any tax liability. In an interview, the "player" has made it clear that upon retirement, he'll become an ordained minister and work with his father at the church. This is all 100% legal and no attempt has been made to hide what I think is a tax dodge.

 

[ftrplt]

Ah, the wonderful US tax code! One taxpayer's charitable deduction is another's "loophole!" One person's losses on their "almond tree farm" is another one's "tax dodge!" Renters feel cheated when homeowners/mortgage holders get to write off mortgage interest!" Those with a paycheck resent those whose main income is from stock dividends and/or capital gains!
Disclosure: back in the 1990's I did tax returns for H&R Block. Today, my son-in-law is a CPA & senior manager for a good-sized accounting firm in the Southeast. We discuss these topics at length when we talk with each other.
The number of options one has to lower their total tax bill is quite large. You just have to have enough (excess) money to accomplish the task!! In Steve's example above, my educated guess is the pro player has a smart, sharp CPA/financial planner! Together, they've setup a plan/program to reduce the players tax liability while maintaining a comfortable lifestyle. The player is going to pay significant taxes to both Uncle Sam and some state (or states). Instead, the planner sets up a series of payments to a charity/ies, creates a foundation funded by the player, or possibly invests in various investments/real estate/partnerships, etc. with significant write offs and/or depreciation. These actions lower the tax bill to zero. The client/player still receives the same amount of remaining income (maybe even more!), but the tax dollars have gone elsewhere.
Not to politicize this...But the above is one reason "soak the rich" seldom works in collecting/raising taxes. FWIW...FTRPLT

 

[Puffy]

Many years ago I knew a CPA fella who worked for a large corporation..His job was to figure out ways his company didn't have to pay taxes.

 

[RSteve]

I guess I'm also somewhat guilty. During the Reagan administration to spur the growth of 'real property", office buildings, etc., a program of rapid line depreciation of real property was instituted. You could depreciate property totally over ten years. (Now, I think it's 3% annually) With a relatively small down payment, I purchased an appraised $million interest in a multi-million dollar downtown Mpls. office complex. I had a mortgage on the investment, but never made a payment. At the end of the ten years, I forfeited my share of the limited partnership. For each of the ten years of my ownership, I was able to depreciate $100,000...10% of the share of the property I owned. Yes, it ultimately went to tax court, but as the property had increased in market value, ten fold, and the "factors" (those who held the first mortgage) were satisfied with the outcome, the court ruled that all was legal. Had I claimed a loss on my initial investment, because of the forfeiture, I could have been charged with tax evasion.
FTRPLT is spot on. "The number of options one has to lower their total tax bill is quite large. You just have to have enough (excess) money to accomplish the task!!"

I should add that in retirement with a small fraction of the income I had when working, I find that my current deductions are a significantly larger share of my gross income than before I retired. I retired at 55. There were several years where I lived primarily off of savings.

 

[RSteve]

...."soak the rich" seldom works in collecting/raising taxes. FWIW...FTRPLT

It's why many in the $millions+ category often have a salary which is a small fraction of their compensation package. They may get a stock purchase option that allows them to purchase shares, held by the company, at a significantly lower current market share price.

 

[Mikem]

I filed on February 12th electronically with no right offs and the straight deductions for two. Only income for my wife and I is our Social Security. I'm still waiting for my refund.

 

[ftrplt]

I filed on February 12th electronically with no right offs and the straight deductions for two. Only income for my wife and I is our Social Security. I'm still waiting for my refund.

Don't hold your breath waiting for the $$ to show up in your bank account!! My son-in-law (the CPA) tells me the IRS is "way behind" as they got started late due to employee shortages plus the Covid mess. Another reason for the 17 May extension date. I/my CPA filed a Form 1040X for our 2019 Fed & state taxes about a year ago! The state got cleared up fairly rapidly; haven't heard from the Feds yet!!!! I just love government programs. They are so efficient and cost effective! FTRPLT

 

[Ranger107]

Simple answer, no deductions, no "write offs", have I benefitted in the past? Yes, but I would gladly give them up in the interest of fairness. Ex. You make 5 million a year, you.pay the tax on 5M. No write offs for people like Romney who owns 5 homes. Or his wife's horse for "therapy". Total BS.

 

[RSteve]

Simple answer, no deductions, no "write offs",

It's almost impossible in the American system. Years ago, one of my friends was the only high risk thoracic surgeons in a largely rural state, traversing hundreds of miles along the Canadian border. Without his own plane, he couldn't get to his patients. His life would have been much easier without the plane and rural practice, plus in a major metro health center he'd have made far more money. I think the plane was a well earned write off.
On the other hand, a well known political figure wrote off $40k for his hair dresser appointments. I'd prefer that deductions such as that be disallowed.

 

[ftrplt]

So many alternate tax "plans" have arisen over the years (The Fair Tax, or The Flat Tax, etc.). Problem is that "special interests" (this includes about everybody!!) wants/lobbies for a "carveout" that benefits them. Years ago, the head of the Senate Tax Committee (from Louisiana, can't remember his name at the moment!) stated that all tax reform proposals presented to him essentially began with "Don't tax you, don't tax me; tax that man behind that tree!" Nobody wants their "ox" gored!! FWIW...FTRPLT

 

[Ranger107]

I agree that it is difficult to determine what is a legitimate deduction, however I do think more thought could be put into the rules governing deductions. An expense that is necessary and part of the functioning of a legitimate business, like the Dr.s airplane seems sensible. But, why should someone like Al Gore get to write off a $100M jet just to jaunt around the country and preach to us about global warming when his carbon footprint is 1000 times larger than the average American. If you can afford a $100M+ jet you can afford to pay the tax on it. Also, if you can afford 4 or 5 homes, like Romney or Bernie Sanders, you don't need a tax deduction for property taxes for more than one. Just a couple of examples. Being in aviation, I saw many very wealthy people writing off aircraft when they were worth millions just because they would lease them to us for a few hours a month. Ex. Dr. Phil, Michael Jordan, Priscilla Presley, and many others. Just sayin.

 

[ftrplt]

I agree that it is difficult to determine what is a legitimate deduction, however I do think more thought could be put into the rules governing deductions. An expense that is necessary and part of the functioning of a legitimate business, like the Dr.s airplane seems sensible. But, why should someone like Al Gore get to write off a $100M jet just to jaunt around the country and preach to us about global warming when his carbon footprint is 1000 times larger than the average American. If you can afford a $100M+ jet you can afford to pay the tax on it. Also, if you can afford 4 or 5 homes, like Romney or Bernie Sanders, you don't need a tax deduction for property taxes for more than one. Just a couple of examples. Being in aviation, I saw many very wealthy people writing off aircraft when they were worth millions just because they would lease them to us for a few hours a month. Ex. Dr. Phil, Michael Jordan, Priscilla Presley, and many others. Just sayin.

Because you are trying to be sensible! But try writing the law that allows the good Dr. to write off his plane, but not the others (and not offend the aviation industry!!). And all those houses, try writing the law so as not to draw the ire of the real estate/home building industry! I do hope you manage to "gore" Gore, however!!! FTRPLT

 

[Ranger107]

That is why our "elected officials" should write laws using a common sense approach rather than catering to special interests. Yes I could do it but I'm too old to run for office. Not allowing an individual like Romney to write off multiple houses should not rankle the real estate people if you keep the deduction for a primary household and limit it to say $15K. Believe me, someone like Kanye or the Kardashians who own multi million dollar homes and have property taxes in the multi thousand range are going to buy what they want regardless of the tax deduction. Same with aircraft. A company that can afford a 75M jet had the money to pay for it. Ex. Amgen in TO CA has 2 G550s at $80 Mil each.

 

[RSteve]

Just in case, some of you are not keeping up with the tax code. The maximum property tax any individual may use as a deduction on their federal tax is $10,000, regardless of whether you own one home or several. Virtually every state allows one homestead credit for a primary residence and one for a vacation or secondary residence.
The federal tax code allows for legitimate business expenses. Under the current law, to be within the law, if one owns a private plane, it's required that they clearly document when the plane is used for business and when for private, non-business matters. If an individual or business purchases a plane, it must pay the appropriate sales tax on the purchase, unless the purchaser is a legitimate 501(c)3 or covered under a similar non-taxable entity. One example an individual may cite is the Houston based televangelist who has multiple aircraft he says are used to travel to other churches. No sales tax.
In discussions such as this, it's imperative to be up to date with the current tax laws.
In the case of the individual taking an annual $40,000 deduction for hair dresser services, that deduction is currently under investigation by both the IRS and State of New York.
Therapy animal deductions fall under medical deductions and must be validated by a licensed health care provider. The deduction has a very prescribed limit and is quite small.

 

[RSteve]

"Don't tax you, don't tax me; tax that man behind that tree!" Nobody wants their "ox" gored!! FWIW...FTRPLT

The corollary must be, "Don't cite the tax code. I only believe what I heard on the radio."