Smart TaxesSmart Taxes

The GOP candidate's 13.9% rate draws attention to a tax break for investment execs that taxes profits at the capital gains rate of 15% rather than the regular rate of up to 35%.

By MSN Money Partner Jan 24, 2012 3:32PM

This post is by David J. Lynch and Steven Sloan of Bloomberg. release of former Massachusetts Gov. Mitt Romney’s 2010 tax return may inflame the controversy over the tax code’s treatment of some of the nation’s richest individuals.


Romney, who made a fortune of as much as $250 million in the private equity industry, paid an effective tax rate of 13.9% on income of $21.6 million in 2010. That compares with the 35% top marginal tax rate.


The Obama administration and congressional Democrats are seeking to benefit from debate over the so-called carried interest provision, which provides a relative handful of investment executives with preferential tax rates. President Barack Obama views the tax break as a "loophole" that is "just not fair," White House Press Secretary Jay Carney said last week.


At issue is the U.S. tax code’s treatment of carried interest, or the share of profits that partners in private equity firms, hedge funds and real estate developments receive as the bulk of their compensation. That income is taxed at the 15% capital gains rate rather than at ordinary income rates of as much as 35%, although many tax specialists say it represents compensation for labor.


Pay attention to your 1099 forms, because the IRS does. Even if you don't get a form, you still have to report the income.

By MSN Money Partner Jan 24, 2012 11:55AM

This post is from Robert W. Wood at tax item everyone pays attention to is the Form W-2 employees will receive this month. It reports how much employees were paid in 2011 and how much tax was taken out.  You must include a copy with your tax return when you file.


It's surprising how many people don't appreciate that Forms 1099 are equally important. Maybe more important. You don't file them with your return, but the Internal Revenue Service gets a copy of every one. And IRS computers are whirring to match each dollar with your Social Security Number.


It's time for them to arrive, and you should keep a keen eye on every one so your tax return is accurate. Every year the IRS sends millions of tax notices based on matching 1099s asking for more money. Every other notice or audit activity is tiny by comparison.


In general, businesses issue 1099s if they pay someone $600 or more during the year. Although there are many 1099 varieties and many special rules, Form 1099-MISC (.pdf form) is most common. Businesses send out Forms 1099 to payees by Jan. 31 for the prior year. They then have until the end of February to send copies of all those 1099s to the IRS.


The GOP candidate classified millions as profits, not regular compensation, avoiding tens of thousands in Medicare tax. The IRS has won court challenges of this common tactic.

By MSN Money Partner Jan 23, 2012 2:56PM

This post is by Janet Novack of House Speaker Newt Gingrich avoided tens of thousands of dollars in Medicare payroll taxes in 2010 by using a technique the Internal Revenue Service has consistently and successfully challenged.


Republican presidential candidate Gingrich and his wife, Callista, treated only $444,327 of what they got from Gingrich Holdings and Gingrich Productions as compensation to them, while reporting a whopping $2.4 million of their earnings from these corporations as profits or dividends. Medicare taxes are levied at a rate of 2.9% on an unlimited amount of compensation and self-employment income (say, from a consulting contract, speeches or a book) but not on profits from a business.


"It appears that he is not paying his fair share of Medicare tax," Robert E. McKenzie, a partner in the Chicago law firm of Arnstein & Lehr concluded, in an email to Forbes, after reviewing Gingrich's 2010 tax return.


McKenzie, a past chairman of the Employment Tax Committee of the American Bar Association Tax Section and a member of the IRS Advisory Council, added: "There are a multitude of cases where the IRS has successfully challenged the improper tax strategy of this candidate and his accountants. Service businesses are only allowed to distribute a fair return on investment from an S corp. as profits exempt from Medicare taxes. The remainder of profits must be paid as salary subject to a 2.9% Medicare tax levy."


Romney favors the orthodox GOP approach of lowering tax rates and overhauling the corporate tax system. Gingrich's plan is more radical and much more difficult to achieve.

By MSN Money Partner Jan 20, 2012 6:41PM
This post is by John D. McKinnon of The Wall Street Journal. Carolina's roller-coaster primary could help influence more than the GOP presidential nominee -- it could play a big role in determining the direction of Republican policy on taxes for 2012 and beyond.


Just as much of the focus narrows to two candidates, Mitt Romney and Newt Gingrich, the race also offers voters sharply contrasting approaches to tax policy, one that is familiar to Republicans and more achievable, the other newer and farther-reaching.


Romney appears to be sticking with GOP orthodoxy that calls for extending Bush-era tax rates while working toward lowering the top tax rates for corporations and individuals to 25% from the current 35%. That aligns him closely with congressional Republicans. He favors eliminating investment taxes for middle-class filers, including couples with incomes under $200,000, and ending the estate tax. Romney's plan envisions a long-term corporate-tax overhaul that includes a reduction of tax breaks, though he has offered few specifics.


Like other GOP candidates, the former Massachusetts governor also favors rolling back some tax increases passed under President Barack Obama, such as a new levy on investment income to help offset a health-care overhaul.


By contrast, Gingrich, the former House speaker, has embraced more radical changes to the tax code. He would offer taxpayers a choice of the current system or a flat-tax system with a 15% rate and a $12,000 exemption for each individual. The flat-tax system would have elements of a consumption tax, according to tax experts, by exempting investment income. It also would reduce the corporate tax rate to 12.5% and get rid of many deductions, though not the mortgage-interest deduction.


The previous exemption of the first $2,400 in unemployment benefits from federal tax is over. Job-search costs, training for a new job and relocation expenses may be deductible.

By MSN Money Partner Jan 20, 2012 12:52PM

This post is by Carole Feldman of The Associated Press.


The jobless rate is dipping, but millions of people are still out of work. That could have implications when they file their income tax returns.


Collecting unemployment insurance benefits? All that you received in 2011 is taxed as income. Unless you requested that federal taxes be withheld, you could be in for a big surprise when you calculate taxes owed.


"People tend to believe unemployment benefits are still not taxable," said Bob Meighan, a vice president at TurboTax. That was the case in 2009, for the first $2,400 in unemployment benefits. But that provision was not renewed by Congress.


If it's any consolation, you may find yourself in a lower tax bracket because of reduced income, even counting the unemployment benefits. And you might also be eligible for tax breaks that you didn't qualify for before.


Start by contacting your employer. If that doesn't work, call the IRS. Even if you never get the form, you still have to file on time.

By Teresa Mears Jan 19, 2012 7:48PM

You may be ready to file your federal and state income tax returns, but you can't do it until you receive all your documents.


For those who are employees, the most important document is the W-2, Wage and Tax Statement, which lists your income for the past year and the amount of taxes withhold. If you're filing a paper return, you must attach the W-2s from each employer, and if you're filing your return electronically, you need the information from the form.


Employers have until Jan. 31 to mail your W-2. If you haven't seen yours by early February, you should take steps to track it down. You need one from each employer.


Candidates want to eliminate or cut taxes on long-term capital gains, already taxed at a lower rate than wages. That would benefit primarily wealthy investors, such as Romney.

By MSN Money Partner Jan 19, 2012 2:14PM

This post is by Janet Novack of the furor over Mitt Romney’s none-too-surprising disclosure that his effective federal income tax rate is “closer to the 15% rate” than the top 35% levied on salary income, one point needs to be made: If Romney’s Republican rivals had their way, he’d pay a lot less.


Centimillionaire and former Massachusetts Governor Romney pays such a low rate because most of his income (with the exception of some hefty speaking fees) comes in the form of long-term capital gains and corporate dividends, which are currently taxed at an historically low top rate of 15%. Yet Romney, who made his fortune at private equity firm Bain Capital, is the only one of the Republicans taking the stage to debate in South Carolina Thursday who hasn’t proposed lowering the current 15% rate even further for rich investors.


Former House Speaker Newt Gingrich, Rep. Ron Paul of Texas and Texas Gov. Rick Perry (before he dropped out of the race) all want to eliminate all taxes on long-term capital gains, while former Pennsylvania Sen. Rick Santorum would reduce the top tax rate to 12%. Gingrich and Perry would also eliminate taxes on corporate dividends, while Santorum would reduce the rate to 12% on that income source, too.


Ths IRS processes electronic returns faster. Options include tax software, an accountant or, if you meet income guidelines, a free service.

By MSN Money Partner Jan 18, 2012 6:56PM

This post is by Kay Bell for've decided it's finally time to take that big technological tax step. This year, you're e-filing your taxes.


You definitely won't be alone. For the last several years, the number of taxpayers electronically filing their returns has increased.


Not surprisingly, e-filing comes in two waves: early filers, who generally are getting tax money back and like the speed e-filing offers in getting the refund process going, and taxpayers who wait until just before the tax deadline to hit the "enter" key.


In addition to the appeal of more precise time control over your 1040's delivery, electronic filing offers several more attractions. In most cases, the computer filing programs have all the forms you'll need and they are regularly updated. That's important because Congress often makes last-minute changes to tax laws that delay publication of forms. By using software, you'll get the current and correct filing material sooner.


You're also taken step-by-step through the filing process. The electronic calculators make fewer mistakes, as long as you enter the correct numbers.


The most appealing e-filing advantage: Your return is processed by the Internal Revenue Service sooner. The IRS says turnaround on an e-filed return is generally less than two weeks. That speed is especially welcome if you're expecting a refund, which the agency says it can get to you in around 10 days if you e-file and have the refund directly deposited.




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