Interestingly that was the Kanye West Boasts Massive Refund as reported by MarketWatch on their web site on 10/29/19. Now some people may think that it’s a ploy or that there’s no way that could happen and he’s got it wrong based upon the source, Kanye West. However the statement was made by him with James Corden of The Late Late Show on CBS, during a segment of Airplane Karaoke. This segment was different than his usual carpool karaoke where he and various celebrities do car rides with sing-a-longs, along with various small talk banter to get the celebrity more relaxed and open-up.
Well getting back to that tax refund, West made statements that he had to thank God for his blessings, because he states he made $115 million in 2018, $35 million in debt, but he got a $68 million refund. Now again without doing a full-scale review of the myriad of tax shelters, corporations, as well as potential losses from prior years carried forward, the question is how can this happen? Well let’s look at some scenarios:
- Have your deductions and exemptions been considered and utilized to benefit your business? A standard deduction for 2018 for a single person is $12,000, head of household is $18,000, and married filing jointly is $24,000. Unfortunately, if you don’t have enough itemized deductions to surpass these baselines, then it stops there. However, if you have enough legitimate deductions to surpass those benchmarks, then you have a leg up on getting a better return.
- Tax credits versus tax deductions. The Earned Income Credit, Child and Dependent Care Credit, American Opportunity Credit, and energy-saving home improvements are not always reviewed, considered, nor planned for during the year until it may be too late. You know you’re going to have to plan for a vacation, a job transfer, a child’s college. There’s no valid reason to not plan for your taxes too.
- Retirement, student loans, and healthcare expenses. Maximum the investment, pay it off ASAP, and keep them to a minimum. So many people put off retirement contributions, and you don’t get dollar for dollar when it comes to filing your taxes, however at least you do get something. The student loan interest only allows you a $2,500 deduction, so unless you’re itemizing, that’s money that you don’t put towards your potential refund. Healthcare expenses don’t start counting until you’ve spent at least 10% of your Adjusted Gross Income (AGI), so if your AGI is $50,000, that means you need to spend at least $10,000 first and then anything above that gets applied towards your numbers ONLY if you itemize.
Now no one likely remotely come close to making $115 million as Kanye West states he made in a year however you should understand that you need to think about how much did he pay into the IRS? No, you can’t get a refund if you didn’t work or pay any federal withholding in the first place, and that’s a key element of what’s missing from that statement. Yes, if he paid a significant amount of taxes in 2018, which it’s unlikely he didn’t, but it’s unlikely he received 100% of what he paid in. But residing in California has its own set of tax headaches. In the end, only those who choose to not file legitimate tax returns actually don’t pay taxes.
Dwayne J. Briscoe