Everyone mentioned in this post is wrong. And probably the one who is most wrong is the one who at first blush seems to be the most right.
[Non-political post. Taking no sides. For my own enjoyment, I’m an equal opportunity basher, bashing both sides equally and simultaneously. In this post as in other posts, I refer to the Affordable Care Act as Obamacare because if I didn’t, no one would know what I was talking about. Obamacare is like like Frigadaire or Xerox, it has officially entered the mainstream lexicon.]
The Obamacare Penalty went into effect this year … for businesses but not for individuals. (Under Obamacare there is a penalty for not buying health insurance.) The individual penalty was put off to next year (2015), but the business penalty goes into effect this year … 2014. Although the government can’t collect the penalty except from overpayments you may inadvertently make when you pay other taxes. (Completely convoluted.)
All this has been in the news pretty regularly for months so anyone who is interested already knows this. But this simple fact seems to have evaded the muddle headed people who are trying to run our country … think tanks, government officials, reporters, talking heads … you know the ones I’m talking about. These are the people who recognize that if we don’t live in DC or NYC or perhaps SF, we aren’t smart enough to take care of ourselves so they take it upon themselves to make sure the government regulates and polices most of the things we do in and with our lives … right down to the light bulbs we can use. Or … if a fish is endangered, we have to do without drinking water. All good and wonderful things in theory, but difficult to live with.
Some people feel safer knowing these all knowing people are looking out for us. I personally find it complicates the hell out of things. But rather than grind my teeth, and being by nature an optimistic person, I look for levity where I can find it. And lo and behold, I found it right smack dab in the middle of the Obamacare debacle.
Matt Drudge, owner of the Drudge Report, tweeted that he had paid his Obamacare penalty with his estimated income tax payment. This stirred up a slew of denials from everyone from the White House to the Newspapers to talking heads, all making fun of Drudge who they claimed didn’t understand the individual mandate had been postponed until next year. You may have seen articles about this. Of course, as you might expect, Drudge was right. All the experts and talking heads were wrong. Here’s an explanation of the whole brouhaha.
But … is Matt Drudge just as wrong in his own way as his critics were?
In my opinion … yes. More so actually.
Matt Drudge has a very profitable business … the Drudge Report … the value of which is hundreds of millions of dollars and the business generates $15 to $20 million dollars of revenues a year … with three employees. Not a big overhead.
But the article says he’s filing as a sole proprietor. Which is the stupidest thing he could do … in my opinion. This is not a stupid person … but If he wanted to pay the most tax possible, if he wanted to set a record for paying taxes … he’s found the way … and as a side benefit, he’s facing a giant audit risk. We follow this kind of stuff … we know what we’re doing … we monitor what the IRS is auditing and this is number one … schedule C. In fact, I’m astonished he hasn’t already been audited. Or perhaps he has and he’s keeping it to himself.
So what’s going on? Is he doing this for some kind of political statement?, or for some other well-thought-out reason? or is it pure incompetence?
I vote for incompetence.
Here’s why …
The simplist reason is generally the right reason … and, in addition … here are three examples of incompetence that will surprise you … at least they surprised me … but incompetence always surprises me …
I have recently been doing some pro-bono work for some people in the Silicon Valley with significant stock options that could be worth tens of millions of dollars. Stock option planning is a pretty complicated thing, but you would think that attorneys in the Silicon Valley or nearby San Francisco would know all about stock options backwards and forwards. After all, Facebook, Twitter, Apple & Google; companies famous for stock options; are all in the neighborhood. But these people couldn’t find a professional who knew how to advise them locally in San Francisco (one guy said… “I don’t know. Let’s google it up.”) so they came half way across the country to our practice headquartered in rural Colorado to get what should be mundane advice. In one case in particular, nothing that should have been done had been done, so the entire deal had to be unraveled and redone. Fortunately, everyone was agreeable, including the company.
In complete disclosure … we have a national practice with clients in 46 states and these people heard about us from another highly valued client.
Another case … A few years ago one of the big 4 accounting firms, a household name in my household, was penalized a hundred million dollars for giving people like Steve Jobs and companies like Apple bad advice on stock options. Remember when there was some talk about Steve Jobs being prosecuted? That’s what that was all about. Google up Steve Jobs Stock Options.
A local instance … a local client decided to do some estate tax planning to take advantage of the low estate taxes that were scheduled to increase in 2013. They put together the best local estate attorneys and the best from upvalley (what we call Vail and Aspen). And they screwed it up. Not completely, not intentionally, but we’re estimating the heirs will have to pay $800,000 more tax than if it hadn’t been screwed up. And no one is talking. Other than to say, “they have liability insurance”. And none of them caught it, we caught it. And we don’t even do estate work. But I was directed to go through the motions as if it was done right. Which is perfectly legal. But completely meaningless … or …
I’ve seen a ton of incompetence.
If there’s a lesson here, this is it … it isn’t what you know, it’s how you think. Knowledge and credentialism – MBAs, CPAs, Attorneys, etc. – may be overrated. And I say that as an educated Mensan who’s accumulated a ton of knowledge over the years. I’m basically dissing on myself. But it isn’t the knowledge that makes a professional great, it’s the way he (or she) thinks.
And at Ellis … that’s what we concentrate on.
bizztrategy @ Ellis CPA 