Taxation for the Other Guy’s Representation
Our United States of America was forged in the flame of tax protest. As early as 1750, our Founding Fathers objected that taxation without representation is tyranny. In 1776, the Declaration of Independence condemned King George III for assenting to Parliament’s laws that “impose Taxes on us without our Consent.” So is it any surprise the anti-tax movement that gained steam after the 2008 recession took its name from the patriots who dumped a shipload of tea into Boston Harbor rather than pay the Townshend Act duties?
In the two centuries since we traded “God Save the Queen” for “Hail to the Chief,” the U.K. has become one of our closest allies. But we Yanks still chafe at paying British taxes. Most recently, the Mayor of London says our diplomats owe £7 million in “congestion charges” on their vehicles in Central London. But our Embassy considers that a tax, argues that our diplomats are immune, and refuses to pay.
It’s ironic, then, that that same Mayor is protesting an American tax on the sale of his London home.
Alexander Boris de Pfeffel Johnson was educated at Eton and Oxford. (Where else does a Brit with a name like “Alexander Boris de Pfeffel” go to school?) He began his career as a reporter, columnist, and editor for The Times, the Daily Telegraph, and the Spectator. He then turned his sights towards politics, serving as Member of Parliament for the constituency of Henley and rising to Shadow Minister for Higher Education. He’s served as Mayor since 2008, and there’s even talk of him succeeding Prime Minister David Cameron as head of the Conservative Party.
So why on earth would Johnson attract attention from tax authorities on our side of the pond? Well, he was born in New York City, when his English father was studying on a Harkness Fellowship, and lived there until age 5. This means he holds dual American and United Kingdom citizenship. And that, in turn, makes him subject to U.S. tax on all his worldwide income, wherever earned.
Back in 1999, Johnson and his wife paid £470,000 for a house on Furlong Road in the London suburb of Islington. (That’s about $750,000 at today’s exchange rate.) Since then, London real estate prices have shot through the roof, and in 2009, they sold the house for a £730,000 profit. Her Majesty’s Revenue and Customs doesn’t tax home sale gains, but the IRS taxes anything above a $500,000 allowance. The bottom line on Johnson’s gain is a six-figure tax bill in either currency.
Naturally, Johnson is unamused. An NPR correspondent recently asked him point-blank if he would pay, and he literally sputtered: “No, is the answer. I think, it’s absolutely outrageous. Why should I? I think, you know, I’m not a — I, you know, I haven’t lived in the United States for, you know, well, since I was 5 years old.”
That may not be the only tax issue lurking in Johnson’s past. He earns £144,000 per year as Mayor, plus another £250,000 as columnist for the Telegraph. Theoretically, he should be paying U.S. tax on everything above a “foreign earned income exclusion” of about £62,000. No word on whether he’s been paying all these years, or whether our friends at the IRS want to confront that sticky wicket.
So, 239 years after “the shot heard ’round the world” launched the American Experiment, tax collectors on both sides of the Atlantic think it’s jolly good sport to reach into each other’s pockets. The good news is, no matter where you’re paying, if you want to pay less, you just need a plan. If you don’t already have that plan, call us both, while there’s still time to save in 2014!
In The Headlines
Starbucks Unveils Plan to Lure Consumers Who Shop Online
Starbucks Corp, aiming to give cooling U.S. traffic a jolt, has announced it will add beer, wine, and evening snacks to thousands of domestic cafes, widen lunch offerings and roll out mobile ordering. Such efforts are part of the world’s biggest coffee chain’s plan to broaden its appeal as a destination with consumers who are spending more time shopping online rather than in malls and Main Street stores.
The company said it would lay out its five-year plans to double U.S. food revenue to over $4 billion by expanding food choices, particularly during lunch hours. Starbucks plans to reap about $1 billion in new sales from the addition of evening menus, including beer, wine and food, at nearly 3,000 of its 11,900 cafes in the United States.
The company is also planning the launch of a new mobile ordering and payment system that it says will make getting a coffee fix even more convenient. That same technology will underpin deliveries in select U.S. markets next year. Additionally, in coming months, it will debut express stores, coffee trucks and upscale “reserve” shops, which will offer premium specialized coffee sourced from small farms.
Starbucks’ U.S.-dominated Americas unit had a traffic gain of 1% in the latest quarter, versus the 5% jump in the year-earlier period. An increase in sales of food, such as croissants and breakfast sandwiches, has helped offset slowing traffic in the last three quarters.
Chief Executive Howard Schultz in January warned that a “seismic” shift to online shopping was taking a bite out of traffic to U.S. brick-and-mortar stores. That, executives said, contributed to a moderate slowdown in traffic in December 2013.
Traffic in its stores softened earlier this year than last and the weakness is expected to continue through the holiday season, said Steven Barr, who leads PwC’s U.S. retail and consumer practice.
The chain, which has 21,000 shops worldwide serving 70 million customers weekly, forecast fiscal 2019 revenue of nearly $30 billion, up from $16 billion in the fiscal 2014 ended Sept. 28. Plans for the Asia-Pacific region include doubling its cafes in China to over 3,000 by 2019.
Black Friday, Cyber Monday – Who Cares?
If the weekend surrounding Black Friday is really the important economic indicator it is made out to be, there may be trouble coming. Total spending over the weekend dropped 11% from a year earlier, according to the National Retail Federation (NRF). Fewer people shopped than did last year and the decline encompassed both physical stores and websites. Those who did make purchases during the long weekend spent less money.
No matter what happens in the final counting, though, there is reason to question the mystical importance of the Thanksgiving holiday weekend. This is the second consecutive year that Thanksgiving weekend retail sales have dropped, according to the NRF. Last year was not a disaster in the final analysis—overall holiday season sales rose 3.1% from a year earlier—and the weak-looking Black Friday weekend has not prompted a revision of the NRF’s forecast for a 4.1% increase in total holiday sales this year.
In fact, NRF data call into question Thanksgiving weekend’s worthiness as a bellwether for holiday sales. The overall number has gone up even when Thanksgiving weekend sales dropped in five of the last eight years. At times the lack of correlation between the two figures has been pretty dramatic. In 2008, for example, holiday sales fell 4.4% after a 7%% increase in Thanksgiving weekend sales.
What is going on? In part, Black Friday as it is generally presented in the media is becoming obsolete. Given the attention devoted to people camping out at stores like Best Buy and Walmart on Thanksgiving night, you might think this is an activity gaining in popularity. Yet in-store sales on Thanksgiving weekend have been dropping for the better part of a decade, according to the NRF.
This has been more than replaced by online spending, which now accounts for more than 40% of Thanksgiving weekend shopping, up from less than 25% in 2006. But Black Friday succeeded because it served a specific purpose. Retailers could draw people into their stores with big discounts on a day when many people were not working anyway. When it comes to online shopping and its increasing share of total sales, the Friday after Thanksgiving seems pretty arbitrary.
Cyber Monday will remain the biggest online shopping day this year, according to Adobe Systems. But there is no real magic behind this day, either. It just happens to be the day retailers offer big discounts on their websites. Next year, however, Adobe expects Black Friday to eclipse Cyber Monday as the biggest online shopping day. Retailers are also offering discounts earlier in November to get to people before they are saturated, says Tamara Gaffney, an analyst with Adobe. The hook to lure shoppers is not important. Just pick a day and declare it a holiday. “It does seem consumers are willing to buy earlier if they think they’re getting the best deals,” says Gaffney. “It’s been all Black Friday since Nov. 3 or 4.”
As online shopping increases in importance, holiday purchases are likely to flatten out during the last two months of the year, says Alan Rifkin, a retail analyst at Barclays. There will be bigger days than others, but the idea that a few frenzied hours after Thanksgiving will give us a window into our country’s economic well-being has outlived its usefulness. “People are clearly shifting the way in which they shop,” says Rifkin. “I would caution against putting significant credence in any number from one, two, or even four days.”
Citations
1. http://for.tn/1FUmcxJ – Fortune
2. http://buswk.co/1A4lcoP – BusinessWeek
The Good News Is . . .
• Job creation surged in November, with the U.S. economy adding 321,000 positions though the unemployment rate held steady at 5.8%, according to a government report. Economists were expecting 230,000 new nonfarm payrolls jobs. The reported job creation number for October was revised higher to 243,000 jobs. September’s number was also raised, from 256,000 to 271,000. Professional and business services led the way, with 86,000 new positions. Retail also saw 50,000 new hires heading into the holiday shopping season, and bars and restaurants added 27,000 positions.
• Campbell Soup Company, a global manufacturer and marketer of high-quality foods, simple meals, baked snacks, and healthy beverages, reported earnings of $0.74 per share, an increase of 12.1% over year-ago earnings of $0.66. The firm’s earnings topped the consensus estimate of analysts by $0.02. The company reported revenues of $4.3 billion, an increase of 4.2%. Management attributed the company’s results to strong sales growth in its U.S. Simple Meals and Global Baking and Snacking divisions.
• The British insurer Aviva said that it had finalized an agreement to acquire its rival Friends Life in an all-share deal worth about $8.8 billion that would create Britain’s largest life insurer. The deal would create a combined life insurance and asset management business worth $32.4 billion. Friends Life shareholders would own about 26% of the combined company, which would have around 16 million customers.
Citations
1. http://1.usa.gov/1gck641 – Bureau of Labor Statistics
2. http://www.cnbc.com/id/18080780/ – CNBC
3. http://bit.ly/1w1memj – Campbell Soup Co.
4. http://nyti.ms/12P5Ha6 – NY Times Dealbook
Planning Tips
Giving Wisely To Charities
The holiday season is the time of year when many Americans make their biggest donations to charities. About 95% of households donate to charities, averaging about $3,000 per household contribution, according to the National Philanthropic Trust. Charitable giving is one of the top financial priorities of many individuals and families, along with saving for retirement and college. But when you give, you should be certain that the charity is not a scam and that the contribution will have the greatest impact. Below are some tips to help make sure you are choosing a charity wisely.
Believe in the mission – First, find a charity whose mission you believe in. If it is a local nonprofit or a national organization with programs in your community, you can volunteer your time or go in person to see some of the programming in action. Check out the company’s website as well as independent reviews and evaluations.
Know who you are giving to – Be sure the organization you are making a donation to is a legitimate, reputable charity. Verify that it is a tax-exempt organization registered with the Internal Revenue Service by reviewing its Form 990.
Determine how your donation will be used – GuideStar, CharityNavigator, and CharityWatch are a few websites that will give you an overview of an organization’s financial health and budget breakdown. The typical charity spends 75% of its budget on programs, according to CharityNavigator. Look for nonprofits that hit or come close to that benchmark. The rest of a typical charity’s budget goes to administrative costs (15%) and fundraising (10%). CharityWatch delves a bit deeper into an organization’s fundraising and other accounting practices, including how much is spent to raise each $100 of funds that are collected.
Ask questions – Be sure to assess the impact of the charity’s work. GiveWell does in-depth research on programs that it determines have had the most impact on people’s lives and then suggests a handful of charities it deems best at delivering these programs. It also suggests questions that you should ask a charity to evaluate whether the organization is actually “doing good” and having a measurable effect.
Use a donor-advised fund – If you don’t have time to do the research and can’t decide which charity to choose, you can still make a tax-deductible charitable contribution to a donor-advised fund. It’s like a charitable savings account. You can contribute to the fund as often as you would like and recommend grants to your favorite charity when you are ready. A number of investment firms, including Vanguard, Charles Schwab and Fidelity, offer donor-advised funds.
Citations
1. http://bit.ly/1w1mgdR – Charity Navigator
2. http://bit.ly/1wLjjzH – ProPublica
3. http://www.cnbc.com/id/102224321 – CNBC
4. http://onforb.es/1q9u5NT – Forbes
5. http://bit.ly/12xFvzQ – National Philanthropic Trust
6. http://bit.ly/1yqEXER – The Chronicle of Philanthropy
