Gimme Shelter - Rock and Roll & Tax Planning

Sunday night's Grammy Awards ceremony illuminated two sides of today's music industry. On stage, British soul singer Adele cleaned up big time, winning Album of the Year, Record of the Year, and Song of the Year. On the darker side, the night was filled with tributes to fallen angel Whitney Houston, who died Saturday after years of backstage struggles with drugs and alcohol.

When you think of your favorite musician, you probably don't think about a third side — taxes. But you might be surprised to learn just how much influence tax laws have over the music we listen to every day.
Rock-and-roll fans know "Gimme Shelter" as one of the Rolling Stones' all-time classics — the opening cut on their 1969 album Let it Bleed, and a dark, brooding meditation on the war and violence that seemed to characterize that era. Surprisingly, it turns out that "Gimme Shelter" describes the band's philosophy on taxes, too.

The Stones' troubles with the tax man go back nearly as far as their troubles with the police. Back in 1968, with bandmates Mick Jagger, Keith Richards, and Brian Jones facing drug charges, reports surfaced that they had also failed to observe tax laws. As Jagger reported at the time, "So after working for eight years I discovered at the end that nobody had ever paid my taxes and I owed a fortune. So then you have to leave the country. So I said &@#& it, and left the country." The "World's Greatest Rock and Roll Band" literally skipped town, with guitarist Richards renting the Villa Nellcote in Villefranche-sur-Mer on the French Cote D'Azur, where they wound up recording their critically-acclaimed double album, Exile on Main Street.

That lesson scarred them, and the Stones vowed not to repeat that mistake. Jagger put his London School of Economics studies to work, and hooked up with some top-notch financial advisors. They eventually set up a series of Dutch corporations and trusts which helped the band pay just 1.6% in tax over the last 20 years. More recently, they established a pair of private Dutch foundations to avoid estate taxes at their deaths.

"The whole business thing is predicated a lot on the tax laws," guitarist Keith Richards told Fortune Magazine (with a Marlboro in one hand and a vodka and juice in the other). "It's why we rehearse in Canada and not in the U.S. A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it. Whether to sit on it or not. We left England because we'd be paying 98 cents on the dollar. We left, and they lost out. No taxes at all." It's worth mentioning at this point that Richards makes his primary residence in unglamorous but relatively low-taxed Weston, Connecticut.

The Rolling Stones were just the first of many artists to flee the United Kingdom to avoid taxes. Folk singer Cat Stevens left around the same time, moving first to Brazil, where his album Foreigner refers to his move. In 1978, rockers Pink Floyd spent three years outside the country to avoid tax. Glam-rocker David Bowie moved to Switzerland in 1976 (before becoming the first musician to securitize future royalties in the form of a bond offering). British singers Rod Stewart and Tom Jones both moved to Los Angeles to avoid British Prime Minister Harold Wilson's 83% top tax rate. Even fictional musicians have taken extraordinary steps to avoid tax — in The Restaurant at the End of the Universe, British author Douglas Adams created the galactically-famous rocker Hotblack Desiato, who was "spending a year dead for tax purposes."

Our job, of course, is to help you pay the minimum legal tax. And we think proactive planning beats fleeing the country. So call us when you're ready to pay less. We're here for you, and your bandmates too! 

Ed Lloyd & Associates, PLLC • Charlotte NC CPA Firm

Tax Reduction, Preparation, Accounting & Wealth Management Services 

call 704-544-7600
Please visit ELCPA.com today!

A decade or more ago, the Super Bowl had become a bit of a joke. Fans looked forward to watching the commercials, sure. But the actual game itself had become a dreary series of lopsided blowouts. Super Bowl XXIV was perhaps the worst offender, with the San Francisco 49ers pounding the Denver Broncos, 55-10, in a game that wasn't nearly as close as that score suggested!

More recently, the game has been more competitive and more entertaining. The NFC champion New York Giants reached this year's "big dance" by defeating the 49ers, 20-17, in a game that came down to the final play — in a Cinderella playoff run that followed a middling regular season. The AFC champion New England Patriots made it by beating the Baltimore Ravens, 23-20, in a game that came down to the final play. That set up Sunday's contest, when the Giants defeated the Patriots, 21-17, in yet another game that came down to the final play.

Sunday's game proved the truth of the old cliche that "offense sells tickets, but defense wins games." Patriots coach Bill Belichick gambled by actually letting Giants running back Ahmad Bradshaw score in the final minute in hopes of keeping precious time on the clock. That gamble succeeded in giving quarterback Tom Brady 57 seconds to engineer a last-minute drive — but ultimately failed when Brady's desperate final heave to tight end Rob Gronkowski fell harmlessly to the ground.

That same cliche about defense winning games applies to your finances as well — especially when it comes to tax planning. If you want to put real money in your pocket, you've got two choices:

• Financial offense means making more money. (As Charlie Sheen would say, "duh.") But that's not always easy, especially in a tough economy like today's. You can invest all sorts of time efforts into growing your business or your income, only to see them sail wide right like a missed field goal.
• Financial defense means spending less money. That's often easier than making more. And when it comes to spending less, it makes sense to focus on the big expenses. For most affluent Americans, that means taxes, rushing you like the Giants' backfield. Maybe you can save 15% or more on car insurance by switching to GEICO. But in the long run, how much can that really do for you?

Financial defense is important enough that some financial moves which look like offense are actually defense in disguise. Wall Street is buzzing about Facebook's upcoming initial public offering, wondering if the company can really be worth $100 billion. But the company is raising "only" $10 billion in cash. And Facebook doesn't need the money. They're "engineering a liquidity event," in large part so founder Mark Zuckerberg can pay his own taxes! (We'll talk more about this as we get closer to the actual offering.)

It's easy to think of us as just "tax people" and focus on the forms we file for that April 15 deadline (April 17 this year, for you procrastinators). But focusing on just compliance misses the value you get from proactive tax planning, and misses the total value we offer as your financial "defensive coordinator." So call us when you're ready to "call an audible" and play real financial defense. We promise not to let the IRS just walk the ball across the goal line!

Ed Lloyd & Associates, PLLC • Charlotte NC CPA Firm

Tax Reduction, Preparation, Accounting & Wealth Management Services 

call 704-544-7600
Please visit ELCPA.com today!

Romney Hot Seat

Last fall, billionaire Warren Buffett ignited a firestorm in the tax world when he revealed that he paid just 17.4% in tax — a lower rate than his own secretary — on his $39.8 million taxable income. The revelation sparked conversation across the country, and even inspired President Obama to propose a "Warren Buffett" rule imposing a special tax on income above $1 million per year.



Last week, Presidential candidate Mitt Romney made similar headlines when he released his taxes. The returns weighed in at 547 pages, and included some items, like "Form 8261: Return By a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund," that most tax professionals never encounter in a lifetime. (Trust us when we tell you this stuff is every bit as exciting as it sounds.) Romney's not quite in Buffett's financial league — his 2010 taxable income was a "mere" $17.1 million. But Romney's actual tax rate was a similarly low 17.6%.

We're not here to take sides on Romney himself, his campaign, or the tax system that makes his 17% rate possible. But Romney's return illustrates a crucial lesson about your taxes, too — namely, that when it comes to paying less, how you make your money is even more important than how much money you make.

Romney's income is more than high enough to put him in the top 35% bracket. That 35% applies to "ordinary" income like wages and salaries, business income, and "passive" income from certain investments. But Mitt made "only" $6.3 million in ordinary income. Most of his income derives from other sources, taxed at lower rates:

• Long-Term Capital Gains: Tax on long-term capital gains is capped at 15%, no matter how much gain you report. For 2010, Romney drew over half his income from such gains. This included $7.4 million in "carried interest," related to his work at Bain Capital, and taxed as long-term capital gain. If that income had been taxed at ordinary rates, he would have paid an extra $1.5 million. If it had been subject to employment tax, like salary, the government would have collected another $214,600.
• Qualified Dividends: Tax on qualified dividends is also capped at 15%, regardless of how much income you report. Romney reported $3.3 million in qualified dividends for 2010. It's worth pointing out that the only dividends "qualifying" for this rate are those that have already been taxed at corporate rates ranging from 15-35%.
• Tax-Free Municipal Bonds: Muni bonds are a traditional tax shelter for taxpayers in Romney's "1%" category. But Romney's home state of Massachusetts imposes a flat 5.3% tax, which makes munis less attractive compared to taxable bonds, for those with stratospheric income. So Romney reported just $557 in muni bond income for 2010.

If Romney winds up carrying the GOP flag in 2012, his taxes will be a campaign issue. But it's important to remember that, while some are criticizing him as the face of a system gone wrong, no one is actually accusing him of doing anything wrong under the law. In fact, Romney appears to have foregone some legitimate opportunities (like potential home office deductions for his speaking and director's fee income) to pay even less.


Judge Learned Hand famously wrote that "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury." (And with a name like Learned Hand, well, you just have to believe him.) We're here to help you arrange your affairs so that your taxes are as low as possible — and do so in a way to survive scrutiny even if you decide to run for office. And remember, we're here for your friends, family, and running mates, too!

Ed Lloyd & Associates, PLLC • Charlotte NC CPA Firm

Tax Planing, Preparation and Accounting Services 

call 704-544-7600
Please visit ELCPA.com today!