Today is Tax Day. As the clock ticks down to our annual April tax deadline and midnight approaches like a public execution, the cost of government is much on the public mind. And nothing has united American interest across the political spectrum more than the announcement this month that General Electric earned over $14 billion last year worldwide while paying nothing in U.S. taxes.
The Huffington Post railed against this anomaly. So did the Cato Institute and The New York Times. Donald Trump explained it to Bill O'Reilly on Fox News. White House Press Secretary Jay Carney was hard-pressed to do the same. Taxpayers, left, right and center want to know just how this happened.
The answers are complex and would take more than just one short op-ed to explain. Perhaps more than even a book. They involve a lot of things like accelerated depreciation and special credits obtained by intense lobbying efforts and well-nuanced advice by some of the nation's best (and best paid) tax attorneys. Not to mention keeping a lot of money and activity "offshore" in useful tax havens.
The American body politic endures a tax system so intricate that even a well-informed taxpayer cannot be sure that they’ve arrived at the right number when it comes to taxes due. So how does the middle-American taxpayer best achieve that "GE result"?
For the dreamers among us, a simplified and fairer tax system, is one solution, though unlikely and certainly not to be had soon. Lingering in the minds of most taxpayers, especially small businesses that pay most of the taxes and make up most of America’s payrolls, is the fear that they’ve left some money on the table with the IRS. GE, Boeing and other major corporations seem to know secrets hidden from mere mortals.
But the truth is, people should not be most outraged that some companies have managed to legally reduce their taxes; they should be horrified that they’ve failed to take advantage of the same opportunities. With a tax system as complex as America’s today, the missing link for most people is good advice.
In today’s financial system, attorneys, accountants and financial advisors willing to spend their time and energy attending and studying at mind-numbing seminars in order to learn those tricks for our use are a true necessity. Those who do not fall asleep or escape to the golf courses can help us apply the same provisions open to GE and gain legitimate tax reduction. Tax benefits need not just be for the "big dogs." A smaller "dog" with agility and intentionality can do well.
Cutting someone’s tax bill begins with an analysis of their financial situation. "One size fits all" does not serve most people well. However complex may be the effort, the cost-benefit analysis shows it will be worth it.
For example: how many otherwise smart folks, preparing their returns at the office or at home this week know what it was that “Joe the Plumber” was worried about when he met candidate Obama on his driveway two years ago? As a small business owner, Joe knew that changes Obama might make in the tax code could be the difference between paying 15 to more than 50 percent to Uncle Sam.
With skilled financial advice, an operator of a small business who takes the time to organize well can reduce effective tax rate by half or more. Someone who uses their home to prepare plans, moves, calls and even tax returns can save thousands each year, just by being intentional about it. A physician or manufacturer or entrepreneur can lower taxes significantly over the long haul by finding and following a prescription of planned finances to pay for life’s expenses with tax advantaged vehicles customized from an alphabet soup of possibilities.
As our knowledge and complexity has evolved as humans, we’ve moved from dispensing home remedies to becoming physicians and specialists, from weekend car tinkers to skilled auto mechanics and engineers. We understand that complicated systems require special skills. The lesson to learn from GE is that expertise makes a difference.
When it comes to taxes, DIY (Do It Yourself) doesn’t pay.
Former IRS attorney Gary Dettloff helped organize and establish the Taxpayers Advocate’s Office while in government service, and today consults on tax and strategic planning issues nationwide and overseas. Michael Hamrick, MBA, is Managing Partner with Waterford Risk Management, LLC., and Partner with Those Tax Guys, LLC.