Americans, set your phasers to envy. Doug Stives, a CPA from New Jersey is The Most Tax-Efficient Man in America, according to the Wall Street Journal.
Stives didn't just finish his taxes early. He wrung the tax code dry, penny by penny, with parsimonious business deductions and luxurious benefits as a college professor. Laura Saunders explains Stives' two-step plan:
-- First, he left his accounting firm and became a professor, tapping into a
broad array of tax-free employee benefits including: $40,000 a year in tax-free benefits, 401(k) contributions, discounted health plans for Mr. Stives and his wife, plus
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-- Second, he formed his own small business, Doug Stives LLC, to which he attributes expenses ranging from multi-thousand dollar skiing trips to $6 hot dog purchases. "In general, people who are employees and have side businesses are often in the best position to maximize the tax code's benefits, say experts," Saunders explains.
The upshot is that Stives takes home 90% of his earlier pay despite earning only 75% of his partner salary.
Is Dough Stives a genius? Nah, he's just a savvy self-employed guy who knows the law, says Jim Nunns, a senior fellow at the Tax Policy Center.
"I didn't see anything there that was surprising in this article," Nunns told me. "[Stives] knows the rules and how to follow them. It's actually pretty common to know that the self-employed partner can [write off] lots of expenses."
MIXING BUSINESS AND PLEASURE
Most employees enjoy a clear line between work and life. For most of us, a working lunch with a business colleague can be expensed, while a drive to the supermarket cannot. But for the self-employed, the line between life and work is gray and fluid because you're the boss. Did you get dinner with a friend and discuss him freelancing for your business? That's a business dinner! Write it off. Did you drop off a gift basket to a client on the way to driving your kids to school? Hey, you can write off the whole trip's gas miles.
They say, "don't mix business with pleasure." But mixing business with a little bit of pleasure is exactly what helps folks like Stives beat the tax code. For example, the law allows you to work for three days of an 11-day trip to write off the airfare, Saunders reports. So Stives chooses vacation destinations like Hawaii for his seminars. "Most people can't arrange their business trips so that the expenses are deductible," Nunns says, "but [Stives] is following the rules."
"If you're self-employed and you're selling your services, you're in a position where a range of expenses become deductible," he said.
BUT WAIT, THERE'S MORE!
You don't have to be a magician of deductions or a self-employed guru to take advantage of our tax law. You simply have to own an enormous sum of money.
Although the U.S. tax code is clearly progressive -- the top 20% pays the IRS significantly more cents on each earned dollar than the bottom twenty percent -- the richest Americans, the Investor Class, enjoy a number of built-in advantages. First, the wealthiest Americans earn a higher portion of their income as dividends and capital gains, which are taxed at a lower rate than regular income. Second, money buys access to the smartest accountants and tax attorneys, who have scoured the labyrinthine tax code for the best nooks and crannies to shelter income. Third, the collective wisdom of the Investor Class has amassed a menagerie of strategies to dodge the IRS, as documented by BusinessWeek's Jesse Drucker.
Presenting the "Estate Tax Curveball":
A wealthy parent with millions invested in the stock market wants to leave future earnings to his kids and avoid the estate tax on those earnings.
1. The parent sets up a Grantor Retained Annuity Trust, or GRAT, listing the kids as beneficiaries.
2. The parent contributes, say, $100 million to the GRAT. Under the terms of the GRAT, the amount contributed to the trust, plus interest, must be fully returned to the parent over a predetermined period.
3. Whatever return the money earns in excess of the interest rate--the IRS currently requires 3 percent--remains in the trust and gets passed on to the heirs free of estate and gift taxes forever.
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