We're From the IRS and We're Here to Help

Holiday season is drawing to a close, and we hope your celebration was exactly what you hoped for, whether you celebrate Christmas, Hanukkah, Kwanzaa, or Toyotathon. But now it's time to begin anew, with a new year and a new decade. That means resolutions: time to finally start that diet, give up those cancer sticks, or sign up for that newly-deductible gym membership that most people start regretting around Groundhog Day.

You probably don't think of the IRS as being interested in helping you keep your New Year's resolutions. But they do want to keep you healthy so you can keep paying taxes. Three years ago, the IRS sent letters to 3.9 million Americans who had paid fines for not carrying health insurance, suggesting ways to find coverage. At first glance, that seems incongruous — like, say, Quentin Tarantino directing a remake of Little Women. But a team of Treasury economists has discovered that the letters did encourage people to sign up — and saved an estimated 700 lives.

Now, we're not here to debate the merits of mandating health insurance. And we don't have anything to say about the IRS getting all up in your business. (They must think, hey, if Facebook can do it, so can they.) But the story got us wondering, what other ways the IRS could use the information they already have on us to remind us to make our lives better as we open the 2020s? The answers might surprise you!

• If you use your car for business, the IRS knows how old it is and how many miles you drive. (They can't tell how fast you drive, at least not yet, but if you use that State Farm safe driving doohickie that Aaron Rogers advertises, it's only a matter of time.) They can text you helpful reminders when it's time to rotate your tires and get your oil changed. (Just kidding . . . the IRS won't even email you, and they never text. If you get an email purporting to be from the IRS, it's a scam!)

• If you itemize deductions, the IRS knows how generous you are with your charitable dollars. They'd probably be happy to remind you when school fundraisers and ballet company donor drives are approaching. They might even urge you to be just a little more generous!

• Personal exemptions disappeared with the Tax Cuts and Jobs Act of 2017. But the IRS still knows how old your children are (to determine if they qualify for the expanded Child Tax Credit). We're sure they'll be happy to help schedule well-child checkups and six-month teeth cleanings.

• If you own your home, your Form 1098 tells the IRS when you bought it and how much you paid for it. They could help you schedule big-ticket maintenance like a new furnace or roof. (Sadly, those aren't deductible, except for investment properties.)

• IRS computers can match your Social Security number back to when your parents claimed you as a dependent, double-check to make sure they're still filing returns (i.e., still alive), and send you letters reminding you to call Mom more often.

The nightmare scenario, of course, would be if the IRS teamed up with Facebook to put all your data to work. Fortunately, we haven't arrived at that Black Mirror scenario, at least not yet. Right now, we're focused on helping you pay less. But we'll be sure to keep an eye out for helping safeguard your privacy. So welcome to 2020, and be sure to call us if your New Year's resolution involves anything financial!

Tiny Violins for Very Large Men

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!