Loopholes

The New York Yankees and Boston Red Sox met for the first time on May 7th, 1903. Strictly speaking, the contest was between the Boston Americans and New York Highlanders, both teams wouldn’t rebrand to their current nicknames until 1908 and 1923 respectively. The game was a foreshadow of the bitter rivalry that would develop between the clubs over the next 100 years, as it featured a bench clearing fight.

Six years prior to that game, the Universities of Michigan, and Ohio State, met for their first football game. Michigan cruised to a 34-0 victory on their home field. The bitterness between the schools continued to simmer due largely to Michigan’s dominance in the series. It took over 20 years until Ohio State first won the game in 1919.

Leonardo da Vinci and Michelangelo are widely considered two of the greatest painters to ever live. In 1503, the city of Florence came up with a plan to see once and for all, who was the best. They commissioned both da Vinci and Michelangelo to paint battle scenes, on opposite walls of the same room in the Palazzo Vecchio. While da Vinci was eventually able to paint a small portion of his wall, both men were too frustrated at being in the same room as each other to finish their work. They retired from the work leaving just their chalk sketches on the wall.

As intense as the hatred may be between Boston and New York, Michigan and Ohio State, and Michelangelo and da Vinci, all pale in comparison to history’s greatest rivalry. A rivalry which spanned over 700 years. A rivalry which included 30 different wars, dozens of monarchs, and a century long armed conflict. While Modern France and England are close allies, their past tells an entirely different story.

Constant conflicts required constant streams of money to enable the monarchs to arm their soldiers. This demand for gold fueled some of the strangest and most unique taxes ever seen. If there is one thing you can be certain of when it comes to taxes, whenever governments impose new taxes on their citizens, those citizens will find new and innovative ways of avoiding those taxes.

In 1660 England implemented a tax on hearths. Brick hearths in homes for either fireplaces or cooking stoves were subject to a tax of two shillings per year for each hearth. The new tax was widely hated by the public as the enforcement of the tax involved constables entering homes, to count hearths. Citizens who could not afford the tax quickly took to bricking over their hearths so as to lower the number, or simply bribing the constables to overlook their homes.

In 1696 England initiated a system of taxes based on the number of windows in a home. Importantly, the tax was paid by the resident of the home, not the owner. Caring little for the effects on the property value, renters all over London began boarding up and bricking over windows as fast as they could. The effects of this ill-advised tax are still evident throughout the city with filled in window frames still visible.

In the 1700’s England decided to tax bricks. Builders soon realized that the tax was charged on a per brick basis. Like the window tax, this effort is still visible in London. You can make a fairly accurate estimate as to when a building was contracted based on the size of bricks, as builders began using larger and larger bricks to lower the tax burden.

1709 saw the creation of the candle tax. Whereon candlemakers paid tax on each candle they made. Additionally, citizens were forbidden from making their own candles unless they had a license. To avoid the tax citizens began making rushlights instead. Rushlights are made by soaking the dried pit of the rush plant in fat or grease.

In 1712 the crown put a tax on printed wallpaper. Those in the wallpaper industry quickly adapted however and began hanging plain wallpaper in homes, then hiring painters to add designs after it was installed.

Hats were the next item to be taxed in 1784. Hat makers immediately started calling their creations any but “hats” until eventually the crown was forced to change the tax to a tax on “headgear” in 1804.

The English government has a storied history of instituting new taxes. The citizens they are attempting to tax have an even more impressive history of finding ways to avoid paying. One could make the argument that this spirit of avoiding taxes plays a large role in the foundation of our country. The outcry over the Stamp Act helped fuel the revolutionary fires which eventually led to the colonies breaking away from England.

Somewhere along the way however, we as citizens became complacent. Taxes imposed on hard goods were replaced by taxes on income, and taxpayers found fewer and fewer ways to lower their bill. Eventually most taxpayers simply gave up.

Boarding up your windows won’t help. Making your own candles can’t lower your tax bill. Strategically timing your charitable contributions can. Paying your January mortgage payment a few days early can. Using the right type of retirement account can. Selling investments for losses can. All these options (and many more) fall under the umbrella of what we call tax planning. It’s not illegal, and it’s not unethical. It’s simply the process of knowing ALL of the rules when it comes to incomes taxes and using those rules to your advantage.

Let me be clear, I am not advocating for anyone to lie on their taxes or fudge their numbers. What I am advocating for, is making sure that you don’t pay the IRS a penny more than you must.