Last week marked the celebration of our most uniquely American
holiday. No, silly, we're not talking about Thanksgiving. We're talking
about Black Friday, our national homage to consumerism, conspicuous
consumption, and all things capitalist. Walmart and other "big box"
retailers pounded a final nail in Thanksgiving's coffin, opening at 8PM
that night so shoppers could skip out on the pumpkin pie to save a
couple hundred bucks on a flat-screen TV.
And this year,
Walmart founder Sam Walton's heirs, who still own 48% of the company,
have taken a lesson from their own shoppers. Only, the Waltons aren't
just saving hundreds. They've found a way to save millions, just by
accelerating a regularly-scheduled dividend payment from January 2 to
December 27. (Apparently, they think "everyday low prices" applies to
their tax bills, too!)
Under current law, tax on dividends is
capped at just 15%. The Walmart dividend will be 39.75 cents/share, and
the Waltons own approximately 1.6 billion shares. That means the
family's payout will be $636 million, and their federal income tax bill
on that payout will be a hefty $95.4 million.
If Walmart waits until January 1 to make the payment, though, taxes could go up -- possibly way
up. That's because the so-called "Bush tax cuts," in effect since 2003,
expire. At that point, dividends lose their special protection, and the
top rate jumps to 39.6%. Congress and the White House have both said
they want to extend the current rates for most taxpayers. But if they
can't come to some agreement to the contrary, the Waltons will pay an
extra $156 million in tax on their dividend. (A recent CNN poll
shows that two-thirds of Americans expect Washington officials to act
like "spoiled children" rather than "responsible adults" during those
upcoming negotiations, so the Waltons better cross their fingers!)
'til January 1 would also make the Walton heirs subject to the new
"Unearned Income Medicare Contribution" of 3.8%. (This is a special tax
on investment income for taxpayers making over $200,000, or $250,000 for
joint filers.) That would bring the effective tax rate on the January
2nd payment all the way up to 43.4%, and bring the Waltons' final tax
bill up to a whopping $276 million. Ouch!
Walmart is hardly
the only company accelerating dividends to beat the tax hike. One
financial data firm estimates that 109 public companies will issue
special dividend payments before January 1, more than three times as
many as in recent years. Those special payments will actually be enough
to give the IRS a significant spike in 2012 tax revenue. The New York Times
reported last week that two recent studies show that companies where
board members own a large percentage of company shares are likeliest to
make this move. The three Walton family members who serve on the
company's board of directors recused themselves from last week's vote,
but a company spokesman confirmed the company did make the decision because of uncertainty over taxes.
It may be too late to take advantage of Black Friday shopping specials at Walmart. But it's assuredly not too late to take advantage of Black Friday planning for taxes! Tax planning is the key to paying the legal minimum, especially with the "fiscal cliff" looming on the horizon. And a good tax plan can pay for a holiday season full of gifts and fun. So call us if you don't already have a plan, and let us show you what we can do. We're sure you'll give thanks for the savings!
Kenneth Hoffman counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday between 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.
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