Can You Imagine the Smell?

Last year's Tax Cuts and Jobs Act added a new red light. Specifically, it capped deductions for state and local tax deductions at $10,000 per year. That's an obvious blow to the states that reach the deepest into their residents' pockets. In New York, for example, one-third of taxpayers claimed the deduction, averaging more than $20,000. In Alabama, just one-fourth claimed it, averaging just $6,000.

Of course, human nature being what it is, we don't always want to stop at those red lights. So society has developed an entire profession, called "the law," dedicated to finding ways around them. (Even Pope Francis, when he announced the church's opposition to capital punishment, left exceptions for people who drive the speed limit in the left-hand lane or bring Popeye's fried chicken on an airplane.) 

Of course, our friends back in the Home Office in Washington aren't stupid. Last week, the Treasury Department issued proposed regulations effectively eliminating charitable deductions for gifts tied to state tax credits. But will that be the end of the story? Not if the states have their way, and they're sure to take the Treasury to court. Round and round it goes . . . and now you know why tax lawyers drive Jaguars!

IRS Scuttles Tax Breaks for Pirate Victims

It\'s 1715 in the Caribbean and the Golden Age of Piracy is at its peak. The War of Spanish Succession is over, and thousands of privateers are left without gainful employment. From bases hidden away in the Bahamas, buccaneers like \"Calico\" Jack Rackham, \"Black Sam\" Bellamy, and \"Black Bart\" Roberts gather those sailors under new commands to terrorize the seas. (Edward Teach, better known as Blackbeard, ties burning fuses into his hair to look more fearsome.) While there are never more than a few thousand pirates active at any given time, their legend will live on for centuries. What do you call a pirate with two arms, two legs, and two eyes? Rookie! Historians generally agree that the Golden Age of piracy \"walked the plank\" by 1730. At that point, European nations could deploy their navies to protect merchants, rather than fight each other. But pirates never fully disappeared. And our federal tax code â?? which some foes attack as its own form of piracy â?? may be making recovery even harder for the victims. (We all know auditors wear suits and skirts to the office. But don\'t you think at least a few of them would rather raise revenue by donning a pirate sash, grabbing a cutlass, and swinging from the nearest yardarm?) Does it strike you as odd that the \"Pirates of the Caribbean\" DVD comes with anti-piracy warnings? Last month, the nonprofit group Oceans Beyond Piracy released their 2017 State of Maritime Piracy report. They found 71 pirate attacks in the Caribbean â?? a staggering 163% increase over 2016. 59% involved robberies on yachts, while the rest involved commercial vessels. There were 40 robberies, 17 failed attacks, 13 armed robberies, and 1 hijacking attempt. The pirates made off with $692,000 worth of ship stores and equipment and $257,000 worth of personal effects. Sadly, the report doesn\'t tell us how much of that loot wound up buried in wooden chests or identified on maps with \"X\" marking the spot. Why do pirates read playboy? For the arrrticles! The tax code has always allowed itemized deductions for personal casualty losses, including shipwrecks. However, the Tax Cuts and Jobs Act of 2017 limits those losses to casualties resulting from federally-declared disasters. The new law doesn\'t change the theft-loss rules. But it essentially doubled the standard deductions, which should cut the percentage of taxpayers who itemize from about a third to about a tenth. (Of course, taxpayers who can afford a yacht large enough to attract a pirate\'s attention probably aren\'t suffering from a shortage of tax breaks!) How do pirates talk to each other? With an Aye Phone! Here\'s the good news, matey. You don\'t have to settle for letting the scallywags at the IRS take more of your doubloons than the law allows. And you don\'t need a man-of-war to stop them. You just need a plan! So call us when you\'re ready to pay less, and let us help you make your treasure grow!

Trump's new Tax Code? Are Real Estate Investors screwed?

Is the new tax code going to help or hurt real estate investors? I've heard mix reports on whether we are screwed or not. Larry Stone, CPA will tell us what to expect, and it may not be what you think. Listen to Larry as he tells us what we need to do as investors and if we can take advantage of this bill!

https://icorockies.com/real-estate-investing-podcast/071-trumps-new-tax-code-screwed/

Resolutions We'd Like to See

2014 is here, and it's time for New Years' resolutions. Americans across the country are pledging to lose weight, quit smoking, exercise, and find new jobs. Some of them will succeed, others will lose faith before the first snowmelt. (Want to make a fortune? Open a gym that turns into a sports bar on February 1!) So we thought we would take this opportunity to suggest some resolutions to the folks who determine how much tax we pay.

• Congress: Put the Tax Code on a diet. According to one count, our tax code runs nearly 4 million words. That's four times the words in all the Harry Potter books put together, with none of the magic and wizardry. (You may think we work a version of the "obliteration charm" when we save you thousands in tax, but we assure you there's nothing supernatural involved.) We say it's high time to put the Tax Code on a diet — and if that doesn't work, try bypass surgery. We can raise just as much money for the government without dragging down the economy the way the tax code does.

The problem, of course, is that there's no agreement in Washington to accomplish anything so ambitious. Our current Congress is widely considered to be the least productive in history, at least if you consider "bills passed" to be the right measure of productivity. House Speaker John Boehner has said that Congress should be measured by how many bills they repeal — if he's serious, maybe he can start with nightmares like the Alternative Minimum Tax, the Earned Income Tax Credit, and the passive activity loss rules.

Back in 1986, Ronald Reagan cited the following language from the tax code (defining private foundations, if you're curious), to help make his case for comprehensive tax reform: "For purposes of paragraph (3), an organization described in paragraph (2) shall be deemed to include an organization described in section 501(c)(4), (5), or (6) which would be described in paragraph (2) if it were an organization described in section 501(c)(3)." Congress has passed a dozen "tax simplification" laws since then, and the language Reagan cited still remains. (Congress must have spent their time working on the really confusing stuff!)

• IRS: Focus on customer service. Fighting IRS red tape makes a trip to the DMV look like a stay at a five-star hotel. The average hold time to speak to someone at the agency rose to 17 minutes in 2012, but the percentage of callers who actually get help fell to 68%. Mail is even slower — nearly half their correspondence takes more than 6½ weeks to answer. No private-sector business would accept those kinds of results.

The problem here is that the IRS simply has an impossible job. They don't make the tax laws, but get blamed for them just the same. They don't get the budget they need to do their job, but get blamed for falling down on it just the same. (For Fiscal 2011, the IRS collected $2.52 trillion in tax with a budget of just $11.8 billion, which makes a pretty phenomenal return on investment of 214:1.) Few members of Congress want to be known for giving the IRS more money. But funding for basic technology and customer service shouldn't be nearly as hard a case to make as funding for more aggressive enforcement.

As for us, we're resolving to bring you even better, more proactive tax advice. That process starts with a comprehensive plan to take advantage of every deduction, credit, and strategy you legally deserve. If you don't already have one, maybe you should make getting one your resolution for 2014!

Can You Keep A Secret?

Benjamin Franklin famously said that "three may keep a secret, if two of them are dead." And that was before the National Security Agency and other government agencies could track your phone calls, browsing history and even your driving habits. Keeping secrets is especially hard in politics — just ask Carlos Danger or Client Number Nine! But now a couple of Senators think they've found a way to rewrite the entire tax code behind closed doors. What could possibly go wrong?

Senate Finance Committee chair Max Baucus (D-MT) wants to pass a tax reform bill before he leaves office at the end of next year. He and ranking minority member Orrin Hatch (R-UT) recognize that the actual rate you pay doesn't matter much if you use special preferences and loopholes to avoid reporting taxable income in the first place. So they've boldly decided to start with a "blank slate," wiping out a trillion dollars' worth of deductions, credits, loopholes, and strategies off the books. Then their colleagues can propose adding back goodies like tax-free health benefits, education credits, and tax-deductible charitable contributions and justify why they belong in the new Code.

Sounds great in theory, right? The problem, of course, is that tax reform is an intensely political process. K Street lobbyists circle Washington like Predator drones, waiting to fire on any member who dares challenge their clients' pet interests. Any senator who proposes dropping the mortgage-interest deduction, for example, guarantees immediate fire from any group that benefits from home ownership. (This includes obvious constituencies like banks, builders, and real estate agents, but also less-obvious folks like Home Depot, Martha Stewart, and Bob Vila). So, Baucus and Hatch came up with a plan to cover their colleagues' vulnerable rear ends from the inevitable backlash. How likely do you think it is to work?

• They'll start by giving each Senator's written proposal a unique identifying number, a confidential seal, and a special encryption. Then they'll archive the files on a special password-protected server and keep paper copies in locked safes. (Of course, there's no guarantee that hackers won't come along and leak the files all over the internet.)

• Only Senators Baucus and Hatch, along with 10 handpicked staffers, can get their curious little fingers on the proposals. (If Ben Franklin didn't think three could keep a secret, what do you think he would make of a dozen? Might as well just splash the proposals on the front page of Politico! And what happens when those 10 staffers inevitably leave "the Hill" for well-paid lobbying gigs of their own?)

• The National Archive will keep the proposals under seal until December 31, 2064. (The goal, obviously, is to protect them until all of the current members have left office. But with Senators serving longer and longer terms, there's no guarantee it will happen. South Carolina's Strom Thurmond took office shortly after the Civil War and served until long after his hair had turned the color of Tang.)

• Finally, Harry Potter will cover each proposal with an invisibility cloak until He-Who-Must-Not-Be-Named is defeated. (Ok, we admit we just made that one up. But it's about the only idea with any chance of success.)

Here at our office, we understand the real secret to paying less tax isn't a secret at all — it's proactive tax planning. That's why we don't just settle for helping you record history — we help you write it, with a complete menu of court-tested, IRS-approved strategies. Come to us for a plan, and you won't need to wait for Congress to act!