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J. Barry Watts
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J. Barry Watts is a Tax Strategist & Retirement Designer
J. Barry Watts is a Tax Strategist & Retirement Designer

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Say "No" To the Tax on Chocolate -J.Barry Watts, Tax Strategist & Retirement Designer

December is a busy month for holidays, what with Christmas, Hanukkah, and Kwanzaa all crowding calendars. But there's a lesser-known holiday that falls on December 16 that we don't want you to miss. It's not Ugly Christmas Sweater Day or Free Shipping Day (although those are both fun, too). We're talking, of course, about the obvious celebrations surrounding Chocolate Covered Anything Day. (Look it up!)

Most of us look for foods that are delicious, filling, and healthy. Chocolate-covered pretzels, chocolate-covered potato chips, chocolate-covered bacon, and chocolate-covered chili peppers are all yummy and filling, and — well, as the philosopher-poet Meat Loaf taught us, "Two out of three ain't bad." Think of Chocolate Covered Anything Day as pre-season training for the real binging that comes later in the month. (ABC News reports the average American consumes nearly 7,000 calories on Christmas Day alone.)

Just like the rest of us, tax collectors love chocolate-covered treats, too. They're not savages! But tax collectors have been plying their trade alongside candy makers and pastry chefs, for nearly as long as the rest of us have been enjoying their treats:

The Aztecs, who believed their feathered serpent deity Quetzalcoatl had received chocolate as a gift from the gods, used cocoa beans as actual currency. We're not sure what sort of taxes the Aztecs might have levied on themselves . . . but it had to make it a little easier to pay them in beans!

In 1692, France's King Louis XIV, whose wife loved drinking chocolate, levied one of the first actual cash taxes on the delicacy.

In 1847, a British chocolate company called J.S. Fry & Sons produced the first modern-day chocolate bar. Shortly thereafter, Britain lowered taxes on chocolate to encourage production of the new treats.

In Finland, taxes on chocolates and other sweets will melt away on January 1, 2017. A Finnish financial parliamentary committee decided last year that the taxes violated European Union rules on treating similar products fairly and equitably.

Today's chocolate makers are just as tempted by sweet tax breaks as the rest of us. In 2010, Kraft Foods bought British chocolatier Cadbury in a bittersweet hostile takeover for £11.5 billion ($18.9 billion). Since then, they've left a bad taste in the taxpaying public's mouth by using interest payments on the debt they used to buy the company to avoid paying tax on hundreds of millions of pounds of profits. Even worse, they changed the recipe for Cadbury creme eggs (!) and started selling them in packages of five instead of six (!!).

There's nothing sweet about paying taxes you don't have to pay. That goes for your chocolates, your income, your investments, and anything else. And we're always looking for ways to help accomplish that goal. So think about us while you're dipping a twinkie into chocolate sauce, and call us with your questions!



Seven Concerns and Fears About Retirement
By: J. Barry Watts

The speckled-with-grey-haired executive wearing the rumpled trench coat dropped into the seat beside me at gate B33 of the Pittsburgh airport with a loud “harrumph.”
“You must have had I tiring week,” I said. He replied with a grunt and a long-sigh. “Just think of all the money you made this week,” I offered cheerfully. “Yeah, I can hardly wait to spend it all,” he glumly replied. “But, only five more weeks and I’ll be retired,” he said with an uptick of enthusiasm.

Does Bliss Await on the other Side of a Social Security Check?
The panacea that many have worked toward turns out not to be all lazy morning coffee and 10:00 a.m. tee times followed by libation on the 19th hole for today’s retirees. They are concerned, and that concern erodes their confidence in the future of their retirement and their ability to enjoy what were supposed to be the golden years.
Extensive research with those on the cusp of retirement, and anecdotal conversations with our own retired clients tell us retirees are often plagued by one or many of the worries and concerns that fall into nine different categories.

Seven Concerns and Fears About Retirement
#1. Running Out of Money. The number one fear and concern retirees report is running out of money. In fact, a study conducted by AARP says that two-thirds of retirees fear running out of money more than death! Tennessee Williams was right when he said “You can be young without money, but you can’t be old without it.”
Even the wealthy have this fear. In his work on “Cultivating the Middle Class Millionaire” Russ Alan Prince discovered that among people with a net worth of $1-$10 million, nine out of ten confessed running out of money was a major concern to them.
The fear of running out of money is driven first by the increase in lifespan. In 1970, a retiree could expect to live only 13 years beyond the gold watch. Today, the number is roughly double that. That’s a much longer retirement. In many cases as long as was spent working. Each year of extended longevity is another year of capital that retirees must accumulate in their 401k or IRA if they are going to have enough to last until their final sleep.
According to the Wall Street Journal only one in three retirees have enough in savings and investment to carry them to their 90’s. More retirees are finding themselves having to lean on their children for support during their “golden years.” That’s why there is so much grey hair behind the counter at the “Golden Archs” and at the checkout stand in Walmart.
#2. Increasing Tax Burden. This concern is not only for themselves, but for their families whose future in the middle class is jeopardized by the run-away tax appetite of government at all levels.
IRS data indicates that in 1980, that the top 10% of taxpayers paid 49% of the taxes collected by the federal government. That number has risen steadily so that today, those same top 10% taxpayers fund 71% of the federal government’s bills; a trend which a generation ago caused Ronald Reagan to opine “The taxpayer – that’s someone who works for the federal government but doesn’t have to take a civil service exam.”
#3. The Rising Cost of HealthCare. Fidelity Investments did a study in 2014 that caused them to estimate that the average 65-year-old will spend almost $250,000 on healthcare during retirement. That’s a half-million dollars for a husband and wife---money that most retirees don’t have and will result in an increased burden on the federal government which in turn drives the tax burden on tax-paying citizens even higher.
#4. Cost of Living Inflating Faster Than for the Average Citizen. The Wall Street Journal observes that “Retirees have a much higher inflation rate than the general population, largely due to medical costs.”
It’s widely accepted today that three percent is an appropriate inflation allowance for retirement planning. The problem with that is two-fold: first, retirees spend a disproportionate amount of their income and wealth on healthcare costs; second, healthcare costs are running way ahead of inflation---some say as high as 6-8% per year.
#5. Out-of-Control Federal Deficit and Mounting Debt. Currently, the United States government takes in about a half-trillion dollars more each year than it spends. That overspending is simply added to the federal government’s debt, which sits at about $19 trillion. Oops. That was a second ago. Every second that debt increases by $27,762! Per second!
However, the federal debt doesn’t account unfunded future obligations to pay for military pensions, prescription drugs, civil service pensions, Social Security, and other commitments that all totaled run the government’s duties to some $120 trillion by some estimates. That’s more money than actually exists in the world, today!
#6. Failure to Adequately Transmit Strongly-held Personal Values to the Next Generation. According to Forbes magazine, when asked “What’s most important to pass on to the next generation?” A whopping 71% said “Values and life lessons.”
With the decline of traditional nuclear families, the dispersal of families across ever larger geographic areas, and the diminished influence of a large cadre of grandparents, aunts and uncles, the “values glue” that held families together and transmitted important beliefs to the next generation simply no longer exists for many families.
#7. Keeping the Family Together. Piggy backing on number six above is the concern that families have lost their cohesion. Seventy percent of retirees acknowledged this concern according to Affluent Market Insights. Unfortunately, parents unwittingly contribute to this problem by making inadequate estate plans which leave the children to fight over the family’s wealth when Mom and Dad are gone.
A good estate plan will not only very clearly articulate the parent’s intent for wealth distribution when they die, it might even include incentive trusts that require heirs to accomplish certain benchmarks like graduating from college before they receive their inheritance. In cases where the family dynamic all but assures there will be conflict, a no-contest clause in the estate planning documents which says “anyone objecting to the share of the estate they received will forfeit their right to receive anything from the estate” might be a good idea.
That oughta shut ‘em up.

J. Barry Watts is a Tax Strategist with American Tax Strategies and a Retirement Designer with WealthCare, both firms he founded to help people reduce their tax burden and increase their income in retirement.





400 Cigar Chomping Fat Cats Aren't Enough Anymore

Author F. Scott Fitzgerald, who brought us the Great Gatsby among other well-heeled characters, once said the rich are very different from you and me. To which Fitzgerald's jazz age compatriot Ernest Hemingway sarcastically retorted, "Yes, they have more money." But how much more money do they really have? Nosey parkers want to know!

Every year, the financial snoops at the IRS release a study analyzing the income and the taxes of the top 400 earners in the country. We're not talking ordinary 1%ers here — we're talking card-carrying plutocrats. If you show these people your Hamptons house, they'll raise you their bigger Hamptons house, right on the beach — plus a penthouse in Manhattan plus a ski chalet in Gstaad plus a second beach house in St. Bart's.

Last week, the IRS released their report for 2014, and revealed that the country's 400 fattest cats had gotten 20% fatter. It took $127 million of adjusted gross income to join the top group, up from $100 million in 2013. But that was just the ante — the average income was $318 million, 20% more than the previous year. The 400's total income was $128 billion, which is just a few billion shy of Nevada's Gross Domestic Product.

Where does all that money come gushing in from? It's not salaries and wages (4.47% of the total), interest and dividends (15.13%), or even closely-held businesses (11.6%). You'll have to turn to Schedule D, "Capital Gains and Losses." The average Fortunate 400 filer reported $192 million in gains. This suggests our typical tippy-top earner makes it by selling a business they spent a lifetime growing. As it turns out, 3,262 of the 4,584 Fortunate 400 who have appeared on the list in the last 23 years have made it just once, which reinforces this point.

The numbers going out are just as impressive, too. The group averaged $37 million in charitable contributions (6.9% of the country's total), $22 million in state and local taxes, $5 million in interest, and $11 million in miscellaneous itemized deductions. Sadly, the report doesn't tell us how much they spent on million-dollar watches, diamond-studded dog collars, and other essentials of overfunded lives.

As for taxes, the group's average IRS contribution was $73.5 million, which represents a 23.13% rate. Of course, those are just averages — the study revealed that nine of our super-earners paid less than 10% and 26 more paid less than 15%. (It's probably a good thing their neighbors don't know who they are!)

It's all an early Christmas for data nerds. Now here's the bad news. This year we'll be waving goodbye to our lucky 400 winners. Because of our growing population, the IRS will shift their focus to the country's top 0.001% of taxpayers, or 1,396 returns. "This is a more analytically useful tabulation compared to the top 400 tabulation in that it provides a longitudinally consistent data point relative to the entire percentile distribution," they say. (We told you this was data nerd stuff.)

Here's one last thing the Fortunate 400 have in common. They don't just take a shoebox full of receipts to their accountant on April 14 and say, "What do I owe?" No, these very smart people plan and plan and plan — to ensure they keep every last penny possible. It works for them, and it can work for you. So call us to take advantage of opportunities still remaining in 2016, and let's see what we can do for you!



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Excited my daughter Madison will be home from her study abroad semester very soon. Can't wait to see her beautiful face!

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You are likely to pay higher taxes in retirement than while you were working. -J. Barry Watts, Retirement Designer

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"Each additional 1 percent in fees and other costs reduces an investor’s end return by approximately 17 percent over a twenty year period." - J. Barry Watts


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