taxes

Let's face it: even the best accountant in the world leaves the high net worth community paying more taxes than you would like. You drop all kinds of cash to the IRS every year, and it sucks. It really does. So, do you want to send that government body more?

That's the question Orlando banker Jeff Ramsey is asking.

He has organized a cigar dinner at Foxwoods in Connecticut to help rescue the house currently (and perhaps temporarily) owned by Jim Thorpe and his wife, Carol. Thorpe, once a pro golfer, won't be able to join you at the dinner ... because he's in prison after "losing a two-year legal battle with the IRS."

The dinner will include silent and traditional auctions to fill the financial void left in Thorpe's life by the IRS.

For $200, you can head up to Foxwoods on June 21, 2010, smoke a few cigars and dine with other civic-minded aficionados who are eager to give Thorpe a hand. For another $1,500, you can play in the ProAm golf course the next day.

Note: This is indirect IRS support. Your money will not go directly to the government agency.

The Peterson Automotive Museum in Los Angeles (the very same that recently loaned Conan O'Brien that infamous Bugatti Veyron) is facing a bill from the city for parking fees and taxes in excess of $121,000 and counting.

The bill has nothing to do with where the museum keeps their collection, but instead is based on museum customers using an adjoining parking garage. The city charges lots and garages 10% of the parking fees they get for every vehicle, but since the museum is a nonprofit (and thus exempt from regular city business taxes) they thought they didn't owe the tax. The bill is for parking fees collected between 2004 - 2007 and the museum says that over the last six years they've written more than one letter in regards to the debt and never gotten a response from the city, until this most recent (and even more inflated) bill. As it stands now city councilman Tom LaBonge is working with the city attorney, the finance office, and the Petersen Museum to work out a solution.

Even if you don't have pets, you've likely noticed how much more people are spending on their companion animals, and I don't just mean the vet, food, leashes, and litter. I'm talking about all the extras, such as carry bags, clothing, parties, day spas, etc. We've even mentioned on this site a number of expensive items you can purchase to indulge yourself, I mean, your pets. In fact, The American Pet Products Association reports that 2009 spending on pets hovers around $45.4 billion.

That said, no one is twisting pet owners' arms to buy all this stuff. But pet owners will be happy to know that they may get some relief from their day-to-day pet expenses in the form of the HAPPY [Humanity and Pets Partnered Through the Years] Act, a bill before Congress that would allow pet owners a tax deduction of up to $3,500 per person for pet care, including veterinary expenses. The bill, introduced by Rep. Thaddeus McCotter (R-Mich.), defines a pet as "a legally owned, domesticated, live animal," which covers dogs, cats and an assortment of other creatures.

When I mentioned the act to my family, I said, "I guess I'll need to prove I have pets, such as bringing a vet bill to the accountant." And they pointed out to me that years ago, no one had to prove they had children, and my parents even told me about some people they heard about who claimed to have children just for the deduction. (Now newborns leave the hospital as tax-paying citizens, complete with a Social Security number.)

USA Today has a good article on the HAPPY Act.

For Nicolas Cage the internet seems to full of some good news and some bad news today. First the bad, TMZ has documents that show that Nicolas Cage's current total owed to the IRS is now a steep $6,257,005. But here's the good, he may have finally unloaded his Bel-Air Tudor home. The home which once belonged to singer Tom Jones and to Dean Martin was for sale for as high as $35 million back in 2006. A sealed bid auction was scheduled for September 24 with the minimum opening offer set at $9.95 million. The MLS now has the home as "looking for backup" which means an offer has been made, and hopefully will stick. Cage paid around $6.5 million for the home in 1998. Cage also recently sold his New York City apartment which had been listed at $9.75 million.



He still has four homes on the market in the U.S.:
His Las Vegas home is listed at $9.49 million.


His Rhode Island home sits at $12 million.


One of his New Orleans homes is listed for $3.45 million.


The other, the haunted LaLaurie mansion is still listed for $3.55 million.

This is not a church, but the owner tried to claim it was to avoid paying real estate taxes. The Chicago Tribune's Elite Street column brings in the story of a home in Lake Bluff, Illinois owned by a banker who tried to duck out of around $80,000 in property taxes because he said that parishioners had congregated in his home so that his disabled wife could worship without leaving the house. Neighbors debunked that claim, telling the Tribune they never saw services held at the mansion. Over the summer an independent state administrative law judge for the Illinois Department of Revenue reversed the ruling leaving the banker liable for the tax bill. Now the property has hit the market. The Armenian Church of Lake Bluff is now for sale for $12.5 million, a hefty rise over the $3 million paid for the property in 2004.

The five-acre property is listed through Michael Realty & Associates and has 265 feet of private beach with elevator lifts to the beach. Listing pics are tiny but they show an exercise room, a barbershop with a mural, indoor pool, home theater, and a 12-car heated garage. The property was renovated with a 15,000 square foot addition in 2005. The master suite has a private wet bar, walk-in his and her closets and outdoor balconies overlooking Lake Michigan and an indoor private balcony overlooking indoor pool. The first floor great room has vaulted ceilings with four rain sensored skylights, a full formal dining room with attached butler pantry, with warming drawers and dishwasher, along with fireplace and wet bar. There does not appear to be a chapel.

Add Connecticut to the list of states with major budget issues -- a club with a growing membership lately. Instead of just taxing the rich to help make ends meet, Governor M. Jodi Rell has decided to split hairs and tax the living rich while providing tax breaks to the rich who have passed on. Her budget plan includes a proposal to increase the personal income tax rate from 5% to 6.5% for those earning $500,000 or more per year and for joint filers earning $1 million or more. On the flip-side this plan would eliminate the inheritance tax which is rather appealing to those with ample funds to pass onto their heirs. This applies to estates worth $2 million or more. The Legislature will be bickering over the details -- what is your take on it?

Could the wealthiest people in the U.S. really giving be giving up their citizenship to save money on taxes? Wealth Bulletin has a report that says that some wealthy Americans who live abroad are so determined to shed the yoke of American taxation that they are willing to surrender their U.S. passports. The U.S. tax laws require those living outside the U.S. to continue to pay taxes on worldwide income no matter where they live.

Those who do choose to leave will be subject to something known as the exit tax. The exit tax affects both US citizens who expatriate and long-term US permanent residents who give up their green cards which they have held for eight of the last 15 years. Those who qualify for the exit tax have a net worth of over $2 million and an average net U.S. income tax liability of greater than $139,000 for the five year period prior to expatriation. Those who want to leave pay a one-time tax on gains over $600,000. Isla Offshore Advisor has more of the salient details including the fact that the tax is due 90 days after giving up your citizenship. Right now, when just about everyone's net worth is lower it is seeming like an opportune time for many to take the leap.

Wealth Bulletin quotes Jay Krause, a partner at private-client specialist law firm Withers who says he's seen a rise in those interested in expatriation lately. This number may increase in the wake of a crackdown on clients of UBS AG. The Wall Street Journal reports that lawyers representing UBS clients think that the bank will reveal names associated with 5,000 to 10,000 accounts.

Wealth Bulletin paints a dramatic picture in which the ultra-wealthy elude possible taxes by staying on their yachts and cruising outside coastal waters. Just how many of these yacht-borne rich renegades are there? It is estimated that there could be a few thousand of them keeping trillions of dollars away from global tax authorities. Those who decide to pay the U.S. exit tax would then become former U.S. citizens and would be able to travel to the U.S. without facing more taxes. Around 90 people gave up their citizenship in the first half of 2009 so lets not call this a mass exodus yet.

[Thanks, Ben!]

In Florida, yacht abandonment and repossessions are on the rise but wealthy boat owners may soon get a bit of tax relief. The Miami Herald reports that state legislators are considering a tax break on boats and planes. A bill currently moving through the Florida legislature called the Aviation and Maritime Full Employment Act would cap the sales tax on boats and planes at $25,000.

It is hoped that the bill would stimulate the economy by creating jobs. Currently many rich people avoid the sales tax by buying their expensive planes and yachts elsewhere and storing them in other states or registering them in the Cayman Islands and other places. These actions cost the state not just tax revenue but it makes it less likely that the owner will buy other related services in Florida. The Herald quotes Republican Representative Tom Grady who says: "Someone might want to beat up the rich. I don't. Anybody with capital to invest in the state of Florida, where jobs can be created, I want them here. I want their money here."

Others are saying the tax break is outrageous especially at a time when the state is contemplating raising the price of licenses and other fees that would affect a broader swath of the population. The cap could cost the the state $8.1 million annually and local government could lose $1.1 million. No number for the potential economic gain from the new bill has been forecast.

The City of Boston just can't seem to make up its mind. Back in December, officials were mulling an absolute smoking ban that likely would have led to the closure of several cigar-related businesses (such as Cigar Masters on Boylston St.). Now, the city sees tobacco as a way to bring some new cash into ol' Beantown's coffers – up to $13 million annually, actually. The tax increase would cover loose tobacco, small cigars and smokeless tobacco.

Having tapped the cigarette well dry with a recent tax increase from $1 a pack to $2.51 last July, the lawmakers have had to hunt elsewhere. Officials, with bizarre logic, believe that the cigarette tax has led price-sensitive teenagers to consume other forms of tobacco. Yet, there has been no report of an outbreak hoodlums smoking White Owls at Copley.

While this measure does not affect the luxury cigar market directly, the underlying thinking may signal future legislative ambition. Cigarettes, long the preferred tobacco product to tax, will eventually lose their value as a source of tax revenue, particularly if they are taxed out of existence. While the stated ambition of the proposed Massachusetts measure is to price tobacco out of the reach of minors, it also suggests that alternative sources of tobacco tax may be necessary.

We've seen this thinking in action with the SCHIP. The states may follow.

Worried about the future of your right to enjoy cigars? Join the Cigar Rights of America.

The SCHIP takes effect next week, and cigar smokers everywhere are dreading Wednesday. We've seen it coming, and I'm sure a few committed, deep-pocketed smokers have been stocking up to lock in discounts now. For the rest of us, though, there's no choice but to bite the bullet. And, in some places, that bullet is flying faster than in others.

Employees at the 16 Tocacco Depot stores, for example, have been rushing around to put new prices on various tobacco products, even though we still have nearly a week left. Fred Hoyland, who runs the show at that chain, says that some of the manufactures have raised their prices early – weeks in advance, even – in a play to beat the bargain hunters to the tax punch. Hoyland calls this "keep[ing] the market and inventory stable."

So, all your planning was probably for nothing. The house always wins ...

In 2007, the island of Sardinia put luxury taxes in place that affected second homes, private yachts and aircraft. There's a new governor on the Italian island and as part of his budget he is proposing doing away with the tax on mooring luxury yachts and landing private aircraft. Opponents said the taxes scared away the rich who came to stay on the island and hurt tourism.

One person delighting in the potential change is Italy's freespending Prime Minister Silvio Berlusconi. Berlusconi, who handpicked the new governor, Ugo Cappellacci to run against the previous governor Renato Soru, just happens to own a vacation home on Sardinia.

President Obama wants to create jobs, yet he isn't too worried about some that already exist. Miami's cigar manufacturers are watching April 1, 2009 with grave concern. The new State Children's Health Insurance Plan (SCHIP) takes effect on that date, resulting in a 900 percent tax increase on every cigar made in the United States – or imported here.

What's at stake?

For Miami, it's the many people responsible for rolling 75 percent of the 272 million cigars rolled in this country. Manufacturers and retailers alike are bracing themselves. A tax that takes the surcharge on hecho a mano sticks from 4 cents to 40.26 cents is cause for alarm.

So, as my sergeant used to say, "Smoke if you got 'em." At this rate, you may not have 'em much longer ... or at least not as many.

Let the madness begin! Following grumblings across the country, more municipalities are starting to jump on the sin tax bandwagon ... and they're targeting us. Maryland, for example, is looking to use tax increases on tobacco (as well as alcohol and payroll) to fund health insurance via the state.

In a bout of much-welcomed civil disobedience, Davidus Cigars in Frederick and Urbana, Maryland, offers a message to his customers on its website: "CAUTION, you are about to enter the government shakedown zone."

The Maryland bill would kick the tax on cigars from 15 percent of the manufacturer's price to 90 percent. Of course, these are not the percentages that consumers would see (as a result of retailer markups), but the impact would be noticeable. Meanwhile, the cigarette tax would increase by 37.5 percent to $2.75. The State of Maryland expects these measures to generate $28 million in tax revenue.

Retailers, of course, are bleak. Davidus owner David Castro believes that the 90 percent tax rate would put him out of business. Proponents of the new expense for cigar smokers are dreaming more optimistic, claiming that cigar industry folks are "Chicken Little crying wolf."

Across the border in Pennsylvania, Governor Ed Rendell's 2009 budget would add another 36 cents per ounce to the tax on loose tobacco and the same amount for every 10 cigars. The tax on cigarettes would move from $1.35 to $1.45.

My colleague, Jared, highlighted Forbes' Richest 400 this past September including billionaires Bill Gates, Warren Buffett and Michael Bloomberg. Now, Forbes has released interesting information about this elite group's tax responsibilities. It seems even though the top 400 make the most money they are not paying the highest percentage of taxes. The following numbers are based on the IRS' 2006 figures and the IRS' ranking of the top 400 (although there is a lot of overlap between the Forbes' 400 and the IRS' 400):

• The Top 400 only paid an average of 17% of federal income tax
• 17% is the lowest tax bite in the fifteen-year period of this group's IRS statistics
• In contrast, the top 5% pay an average of 21% of federal income tax and the top 1% pay an average of 23%!

You can read more of the financial details here but that synopsis just goes to show...its good to be at the top.

In a highly-anticipated overhaul, the IRS has successfully revised its rules for charities filing taxes. Form 990 will now require charities to disclose employee salaries greater than $150,000 and will also ask organizations to report "key employees" who control a 10% or greater portion of the charity's activities. The changes will arguably make many charities more transparent and therefore easier to research on behalf of potential donors.

Guidestar.org, the non-profit data kings, will use this new information to provide more comprehensive analysis of the non-profits in its database, all in the attempt to encourage charitable giving by providing individual donors (and their estate planners) with the facts they need.