A Different Kind of Black Friday Savings

November 27, 2012

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!)

Waiting ’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!