Last week marked the celebration of our most uniquely American holiday. No, silly, we’re not talking about Thanksgiving. We’re talking about Black Friday, our national homage to consumerism, conspicuous consumption, and all things capitalist. Walmart and other “big box” retailers pounded a final nail in Thanksgiving’s coffin, opening at 8PM that night so shoppers could skip out on the pumpkin pie to save a couple hundred bucks on a flat-screen TV.

And this year, Walmart founder Sam Walton’s heirs, who still own 48% of the company, have taken a lesson from their own shoppers. Only, the Waltons aren’t just saving hundreds. They’ve found a way to save millions, just by accelerating a regularly-scheduled dividend payment from January 2 to December 27. (Apparently, they think “everyday low prices” applies to their tax bills, too!)

Under current law, tax on dividends is capped at just 15%. The Walmart dividend will be 39.75 cents/share, and the Waltons own approximately 1.6 billion shares. That means the family’s payout will be $636 million, and their federal income tax bill on that payout will be a hefty $95.4 million.

If Walmart waits until January 1 to make the payment, though, taxes could go up — possibly way up. That’s because the so-called “Bush tax cuts,” in effect since 2003, expire. At that point, dividends lose their special protection, and the top rate jumps to 39.6%. Congress and the White House have both said they want to extend the current rates for most taxpayers. But if they can’t come to some agreement to the contrary, the Waltons will pay an extra $156 million in tax on their dividend. (A recent CNN poll shows that two-thirds of Americans expect Washington officials to act like “spoiled children” rather than “responsible adults” during those upcoming negotiations, so the Waltons better cross their fingers!)

Waiting ’til January 1 would also make the Walton heirs subject to the new “Unearned Income Medicare Contribution” of 3.8%. (This is a special tax on investment income for taxpayers making over $200,000, or $250,000 for joint filers.) That would bring the effective tax rate on the January 2nd payment all the way up to 43.4%, and bring the Waltons’ final tax bill up to a whopping $276 million. Ouch!

Walmart is hardly the only company accelerating dividends to beat the tax hike. One financial data firm estimates that 109 public companies will issue special dividend payments before January 1, more than three times as many as in recent years. Those special payments will actually be enough to give the IRS a significant spike in 2012 tax revenue. The New York Times reported last week that two recent studies show that companies where board members own a large percentage of company shares are likeliest to make this move. The three Walton family members who serve on the company’s board of directors recused themselves from last week’s vote, but a company spokesman confirmed the company did make the decision because of uncertainty over taxes.

It may be too late to take advantage of Black Friday shopping specials at Walmart. But it’s assuredly not too late to take advantage of Black Friday planning for taxes! Tax planning is the key to paying the legal minimum, especially with the “fiscal cliff” looming on the horizon. And a good tax plan can pay for a holiday season full of gifts and fun. So call us if you don’t already have a plan, and let us show you what we can do. We’re sure you’ll give thanks for the savings!

In recent months, we have seen a growing number of celebrities on TV promoting reverse mortgages.  In today’s economy, many retirees are faced with mounting debt and inadequate incomes.  For many, their home is their most valuable, and perhaps only, asset, but it is also their home and they really don’t want to sell it.

An option is the “reverse mortgage,” which allows homeowners to borrow against the equity they have built up over the years.  The loan is not due until the homeowner passes away or moves out of the home.  If the homeowner dies, the heirs can pay off the debt by selling the house, and any remaining equity goes to them.  If at that time the loan balance is equal to or more than the value of the home, the repayment amount is limited to the home’s worth.

To be eligible for this loan, the borrower must be at least 62 years of age and have equity in the home.  The loan amount will depend on factors such as the borrower’s age, the value of the home, interest rates and the amount of equity built up.  The borrower has the option of taking the loan as a lump sum, a line of credit or as fixed monthly payments.  In addition, the money can be used for any purpose, without restrictions imposed.

Reverse mortgages are considered loan advances and not income, so the amount received is not taxable. The interest accrued on a reverse mortgage is not deductible until it is actually paid, which in most cases is when the loan is fully paid off. The interest deduction may also be limited by the general home mortgage deduction rules.

A reverse mortgage can help provide financial security to many seniors so that they can live a comfortable life.  But individuals are cautioned to explore other alternatives as well before entering into a reverse mortgage. It may be a solution for some, but not necessarily a panacea for all.  If you are struggling with your finances, carefully explore your options, including the possibility of a reverse mortgage.

It is probably prudent to contact this office to determine if a reverse mortgage is your best course of action before making a final commitment.

Filmmaker George Lucas has been a Hollywood success since 1973, when he spent just $775,000 to produce American Graffiti — then watched it go on to gross over $200 million. Lucas has influenced a generation of filmmakers and films, as director (19 titles), producer (67 titles), writer (81 titles), and even an actor (he played an uncredited “Alien on TV Monitor” in the first Men in Black). Of course, he’ll always be best known as creator of the Star Wars series, which popularized the “space opera” genre for a galaxy of fans.

Last month, Lucas announced that he’s selling his production company, Lucasfilms, to The Walt Disney Company for $4.05 billion in cash and stock. And it should hardly come as a surprise ending that he found a way to beat the IRS that’s almost as powerful as launching a proton torpedo down the Death Star’s exhaust port.

How did he do it? Elaborate special effects? Computer-generated imaging? Nope. He did it just by selling now, in 2012.

We have no idea how the evil Empire collected taxes a long time ago, in a galaxy far, far away. (We suspect that R2D2 kept awesome records in case he was audited; Darth Vader hid his money on Endor, a forest moon bearing a striking resemblance to the Cayman Islands; and Chewbacca never bothered to file at all.) But here in the U.S., gains from the sale of a business are treated as capital gains and subject to tax up to 15%. Lucas is taking half of his proceeds in Disney stock, so that part escapes tax for now. (He’ll pay if he sells those Disney shares sometime down the road.) But that still leaves up to $2 billion in fully taxable cash gains. And that means up to $300 million in tax for Uncle Sam.

At least, that’s how it works this year. On January 1, the Empire strikes back, when those Bush-era rates expire. Unless Washington gives us a new hope, that capital gains rate jumps to 20%. President Obama has said he wants to extend the current rates for income under $200,000 ($250,000 for joint filers), and the Senate has passed a bill to do just that. But if the 20% Clinton capital gains rate returns, at least for guys in Lucas’s bracket, selling in 2013 could have cost him up to $100 million more in immediate tax. That’s at least enough to recondition a Millenium Falcon or two!

January 1 also marks the start of a new phantom menace, the “Unearned Income Medicare Contribution,” on investment income, including capital gains, for those earning above that same $200,000 threshold. The new Medicare tax is “just” 3.8% — but 3.8% of $2 billion is still a hefty $76 million.

The sale also represents smart estate planning for Lucas, who is 68. While generations of fans hope to see him shepherd the final three Star Wars films to the theatre, the sale will spare his heirs the challenge of managing his affairs at his death. Lucas has already announced plans to donate the bulk of his estate to educational charities, and the gifts he’s already made, including $175 million to his alma mater University of Southern California, will surely ease the tax bite on that transfer.

Selling a business is one of the toughest productions any entrepreneur directs. Making the most of that opportunity takes bits of Luke Skywalker’s drive, Han Solo’s skill, and Obi-Wan Kenobi’s wisdom. And keeping the most of your proceeds takes the right tax advice. That’s why we’re here — to give you a plan to keep the most of your legacy. And remember, we’re here for your family, friends, and colleagues, too. May the Force be with you!

The history of American business is littered with companies that crash and burn. Sometimes they fly so high they attract attention from antitrust regulators. That’s what happened with John D. Rockefeller’s Standard Oil, which grew so big that a federal judge ordered it broken into pieces. Sometimes poor management or fraud are the culprit, like when energy giant Enron imploded. And sometimes technology overtakes a company, like when Henry Ford put the buggy whip manufacturers out of business.

Last week, another corporate stalwart threw in the towel. You’ve heard the sad news. Hostess Brands — maker of Wonder Bread, Ding Dongs, Ho Ho’s, Sno Balls, and the pop-culture icon Twinkies — filed for bankruptcy in January. But last week, citing a strike by members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, the company announced they would wind down their operations and liquidate their assets. The move leaves over 18,000 Americans jobless just as holiday baking season moves into high gear.

Foodies and gourmets reacted immediately to the devastating news. Shoppers across the country are quickly emptying shelves of Hostess goodies. An enterprising class of baked-goods arbitrageurs have even taken to the internet, offering Twinkies on Ebay and Craigslist for $100 or more per box. (On the brighter side, dieters throughout the land are giving thanks this week that one more temptation is disappearing from their tables!)

But what about the IRS? How will the tax man make out in Hostess’s bankruptcy? Will he enjoy a delicious creamy filling? Or will he have to settle for stale crumbs?

When debtors like Hostess go out of business, the bankruptcy court supervises liquidating the debtor’s property and distributing the proceeds to creditors. Hostess has plenty to sell, including 40 bakeries, 400 retail locations, and thousands of trucks and trailers. Once those assets are liquidated, claims will be paid according to specific priority rules, starting with 1st-priority domestic support obligations, 2nd-priority administrative expenses, 4th-priority employee wages, and so forth.

Uncle Sam rarely loses income taxes in corporate bankruptcies. That makes sense because companies that can’t pay their bills aren’t likely to owe much income tax to start with. But even unprofitable companies like Hostess still make the tax man happy. Consider the property taxes they owe on those bakeries and retail locations, the sales taxes they collect on every Ding Dong, and the payroll taxes they withhold on those 18,000 employees’ wages. The bankruptcy rules acknowledge these debts by treating “pre-petition” taxes a debtor incurs before filing as an 8th-priority, and “post-petition” taxes a debtor incurs after filing as a 2nd-priority administrative expense.

The good news here, at least for those of us not watching our weight, is that Twinkies might not be quite past their final expiration date. Popular consumer brands are worth big money in today’s crowded marketplace. Hostess should be able to sell the Twinkies name and recipe to a rival like Kellogg (owner of Sara Lee) or Mexico’s Grupo Bimbo (owner of Entenmann’s). So odds are strong that Twinkies will someday appear back on your grocer’s shelf. (Rumour has it that Twinkies are pumped so full of preservatives that they have no expiration date, which makes them as likely to survive a nuclear holocaust as the cockroaches. We’d hate to see them taken down by a simple bit of financial trouble!)

Our job, of course, is to help you manage your business and your finances to avoid the same fate as Hostess. We understand that planning is the key to minimizing the tax man’s share of your Twinkie, and we’re here to give you the plan that’s right for you. But time is running out to plan for 2012, and many of the best tax breaks go stale on December 31. So don’t wait to call us for your plan!