IT'S ABOUT TO BE APRIL again, tax fans, and if you aren't sitting on a beach in the Bahamas, with your spouse set up in a Subchapter S corporation, your kids in a Clifford Trust and your Keogh rolled into a Swiss annuity, you might as well throw in the sponge.
In case you somehow forgot, Congress passed two blockbuster new tax laws in the past two years, unleashing an orgy of new confusions on the tax forms and a fresh avalanche of advice on how to dive for cover without going to jail.
The J.K. Lasser Institute's Your Income Tax (Simon and Schuster, $5.95, tax deductible), that Gibraltar of tax guides, is with us again in its 46th edition --328 rock-solid pages of explanations, examples, summaries of court cases, and mathematical tables that range from the Expected Return of a One-Annuitant Annuity to the Redemption Value of U.S. Series E Savings Bonds since 1941. No Safeway checkout-line thriller has more shocks per page; no IRS auditor at 12th and E is more steely-eyed about the rules. Read it and weep. From the same irreproachable source come four smaller (but still $5.95 each) paperbacks, suitable for study on the bus: How You Can Profit from the New Tax Laws; 101 Plans to Pay Less Taxes; All You Should Know About IRA, Keogh and Other Retirement Plans and Smart Money Management, which weave and blend together like the Synoptic Gospels and translate murky financial jargon into thoughts a plain person can relate to. Hang the expense. I'd buy them all.
But that's only the start of your homework. A shelf- load of sobering new advice is waiting in the wings, and no matter what tax gambits the authors propose, they all make you realize that if you don't pull up your socks and get yourself some long-range tax-reducing fiscal arrangements and start planning today for an orderly, tax- reducing exit from this world into the next, you can wind up in a soup kitchen and leave your loved ones sleeping on the grates. Just keeping tidy records and a shoebox full of receipts and availing yourself of every tax deduction the law allows is no longer enough to keep you afloat. In the words of former IRS attorney B. Ray Anderson, in How to Save 50% or More on Your Income Tax--Legally (Macmillan, $14.95): "If you saw a slow moving steamroller coming toward you, would you get out of the way? Well, taxation is that steamroller, and if you stay where you are you'll get squashed."
To wait for Congress to bail you out is "economic suicide," he adds. They're the folks who gave us ERTA and TEFRA, two years running, back to back. ERTA is the Economic Recovery Tax Act of 1981, the largest tax reduction in history, which sounded great until it led to "bracket creep," which occurs when inflation causes your pay to go up, which shoves you into a higher tax bracket, which forces you to pay more in taxes than you gained in raises. In any case, ERTA was soon succeeded by TEFRA, the Tax Equity and Fiscal Responsibility Act of 1982, which not only wipes out a lot of ERTA's tax breaks, but tightens up on deductions, institutes a tip reporting system that is terrorizing waiters and and authorizes a 10-percent withholding tax on interest and dividend payments that is giving the bankers fits. By Anderson's count, the only two breaks TEFRA grants the taxpayers are (1) allowing Keogh plans to equal corporate retirement plans, and (2) letting you recover attorney's fees up to $25,000 in civil tax cases, if you can show that the government's position was unreasonable. And P.S.: There's now a $50 fine if you fail to reveal your Social Security number (up from $5 before TEFRA) . . . In addition to which, House Ways and Means Committee chairman Dan Rostenkowski says he wants to repeal all the tax reductions scheduled from next January on, to keep our trillion-dollar deficit from getting any worse.
Against these odds, are any of the new tax advice books worth their price? In diverse and sometimes preposterous ways, yes--if only for what they reveal of the chutzpah and ingenuity it takes to outwit the IRS.
For B. Ray Anderson (How to Save 50% or More. . .), to be a wage earner puts you in the "taxpaying class." Your only real hope is to incorporate yourself, start a business, a family partnership, move abroad, anything. "Get your own tax game plan working." Otherwise you're a sitting duck, and the steamroller is headed your way. A single individual with $50,000 in taxable income pays $14,738 in tax; a corporation pays $8,250.
For inspiration, he cites the case of George Stone, a heavily taxed wage-earner, who incorporated himself out of his predicament, in spades. He entered an "arm's length" contract with his former employer to furnish nonexclusive consulting services for his former salary and benefits. He took a $48,000 salary and made a pension contribution of $40,000 and for 1982 pays $6,597 in taxes, a savings of 71 percent over 1981. What he paid Anderson's tax firm to set up the ploy is not revealed, but it would be deductible.
Or take the case of the ophthalmologist, "unhappy" over his $51,448 federal tax bill in 1981. Anderson's strategists had him set up a professional corporation to run the medical side of his practice and "clone" a second corporation to fit prescription glasses, in which his five children could own stock. He then gifted his equipment to a trust set up for his children and rented it back, which became a tax deduction for his professional corporation, as did the defined benefit pension he set up for himself and eligible workers in his companies--all of which reduced his 1982 tax bite to $12,270. Anderson calls this "aggressive structuring."
In the beginning of Prosper Through Tax Planning (Coward, McCann & Geoghegan, $17.95) Robert Buechner, a Cincinnatiitax lawyer, claims that "you will become so excited about the tax-planning opportunities available to you that you will be both happy and proud to continue to report every last penny of income."
The excitement fades a bit when you discover once again that if your main income source is a paycheck, you're licked before you start. For the big tax breaks you've got to get into interest-free loans to your children, or a 10-years-and-a-day irrevocable Clifford Trust (named for the court case that won IRS approval for the plan) or a slightly more flexible Crummey Trust.
All these maneuvers assume that you have enough extra money to part with big lumps of it for long periods without having to sell your tooth fillings or queue up in a free clinic when you're sick. It helps, Buechner writes, if you own a fully-depreciated office building, say, that you can turn over to the Clifford Trust and rent it back from the trust if you need the space for your office. For even better tax breaks, of course, you should own your own business. In case you're tempted, Buechner supplies a long appendix with comparative tax tables and sample trust agreements, as well as a profit-sharing plan and an SEC warning about pitfalls in oil, gas and coal investments.
Mark Skousen is not talking about reducing your taxes in Tax Free (Simon and Schuster, $12.95). He's talking about not paying taxes at all. "Welcome to the exciting world of tax exemption!" he writes. This is "not a tax-protest measure," but "a powerful conceptual tool . . ."
Much of the exciting world of tax exemption is familiar--fringe benefits, charities, municipal bonds, living abroad. (The Nobel prize is also tax-free, if you should happen to win that, and so are awards won in lawsuits.) You can also start your own tax-exempt church, and IRS Publication 517 tells you how to do it. You can escape from taxes, it turns out, if you're willing to pay the price, and Skousen has assembled a breathtaking array of techniques.
But before you move to Monaco, or plot a secret trust in the Bahamas, you owe yourself a cruise through the Big Tax Shelter with Charles Plotnick and Stephan Leimberg (Die Rich, Coward, McCann & Geoghegan, $17.95) as your guides. As they cheerfully point out, "death doesn't get worse every time Congress meets," and you should "reap the benefits that make the American capitalistic system a golden opportunity for those willing to attempt to understand it and to work within its framework." To that end they furnish detailed instructions to help you chart an orderly course on the downhill slope of life, taking advantage of retirement plans, donations, trusts and dozens of other detours-- topped off by a carefully executed will--to reduce the tax on your estate.
By this time you realize, if you're still alive, that Robert Garber's The Only Tax Book You'll Ever Need (Harmony, $14.95) is not the only tax book you'll ever need. But Andrew Tobias, author of The Only Investment Guide You'll Ever Need, calls it "a good and useful book," and it is. Garber is a tax partner in a New York law firm, and long association has given him a feeling for the tax code that borders on affection. If you understand the "buried logic" behind the government's grab for your money, he argues, you'll be better equipped to hang on to what you've got. So he escorts you on a lucid and good-humored tour of tax country-- the 2,000-page tax code ("The Code"), the Treasury regulations ("the regs"), the weekly Internal Revenue Bulletin, the loose-leaf tax reporting services, lectures and seminars that have made our tax system one of the wonders of the world and led tax administrators from 134 countries to journey here to see how its miracles are achieved.
To illuminate tax concepts, he assembles a raffish cast of hypothetical taxpayers, from Percy Flage, who achieves a long-term capital gain on his incentive stock options, to Fran Tichleigh, who executes a dazzling year-end "calendar spread," a tax ploy related to "married puts" and "straddles," in case you were afraid to ask.
Julian Block, a former IRS agent and a familiar name on the tax circuit, has added a new edition of Tax Saving (Chilton, $8.95) to the season's festive texts. It abounds in homey details about the IRS mind at work, as he ranges from middle-income tax shelters to estate planning, using the colorful adventures of real taxpayers to help light the way. He offers wise counsel on everything from how to endure an audit to keeping a gambling diary if you play the horses, and a no-nonsense Q and A helps guide you through this year's return. (Q. I'm bisexual. Does that mean I can claim an extra exemption? A. Not unless you are also over 65 and blind.)
I suppose I ought to add that there is also The 1982 IRS Coloring Book (Dial, $5.95). The trouble is, as my neighbor, Harry the tax-preparer, says: Taxes really aren't very funny.