If you’re an Olympic gymnast and you fail to do all of the moves in a compulsory routine, you’re subject to a mandatory deduction. Does the same thing apply to tax deductions?
Those thoughts were going through my head on Tuesday night watching the gold medal-winning U.S. women’s gymnastics team. And it reminded me of Mitt Romney’s comments to ABC News on Sunday when asked if he had ever paid less than a 13.9 percent tax rate, “I'm happy to go back and look, but my view is I’ve paid all the taxes required by law," he said. "From time to time, I’ve been audited, as happens I think to other citizens as well, and the accounting firm which prepares my taxes has done a very thorough and complete job paying taxes as legally due. I don’t pay more than are legally due, and frankly if I had paid more than are legally due, I don’t think I’d be qualified to become President. I’d think people would want me to follow the law and pay only what the Tax Code requires.”
While Romney and his accountants may consider every tax break to be a mandatory deduction, the fact is that they appear to have done some aggressive tax planning to lower his tax bill. His use of offshore bank accounts may be perfectly legal, along with deductions for losses on his wife’s Olympics-competing horse and the use of an IRA worth between $20.7 million and $101.6 million. But it is questionable whether Romney needed to take all the deductions he claimed, and his refusal to release tax returns from before 2010 has been raising a lot of eyebrows.
Senate Majority Leader Harry Reid, D-Nev., told the Huffington Post that a Bain Capital investor informed him that Romney hadn’t paid taxes for 10 years. That may be hard to swallow, and even Reid admitted he couldn’t vouch for whether or not the allegation was true. He also did not provide the name of the investor. But the comment only adds to the mounting pressure on Romney to release his tax returns to disprove the rampant speculation over his murky finances.
The issue of encouraging clients to take aggressive tax deductions is affecting the tax profession as well. The IRS has stepped up its enforcement and is going after tax preparers who inflate deductions. The agency is also planning to set up an online database that will be publicly accessible so clients can know if their tax preparers have properly registered with the agency and passed a competency examination. The IRS long ago made the decision to crack down on tax shelters and forced Big Four accounting firms to pay stiff penalties for marketing lucrative tax shelters to clients.
However, it is really up to Congress to make substantial reforms in the Tax Code, resolving issues such as how carried interest should be taxed for private equity firm partners and why it should be taxed at lower capital gains rates rather than ordinary income rates. Lobbying by the financial industry has helped keep capital gains tax rates low, but shifted more of the tax burden to wage earners. The November election will likely decide what happens with future tax rates and tax reform plans.
Deductions may be mandatory in Olympic competitions when you miss a move on the balance beam or take a few extra steps after you’ve somersaulted over the pommel horse. But it’s really up to the client and their tax preparer when to take tax deductions and how far to take them.
6 Comments
As a tax preparer I have an obligation to the client to prepare the return in compliance with the law. If there is a deduction the client is entitled to by law I must bring that deduction to their attention. The client can bypass the deduction but they would be a fool to do so. Deductions are entered into the law by Congress as a benefit to their constitutions who supported them. If the law should be changed them address the complaint to Congress and allow them to make the change. Do not demonize the person taking a deduction they are allowed to by law. This seems to be a position of envy that someone else is allowed a deduction that you are not entitled to.
Posted by: Sandy620 | August 2, 2012 3:03 PM
Report this Comment
Why don't you just work on the Obama campaign?
Let's imagine I visit my accountant and he or she tells me "you can take this deduction, the law allows, but I don't feel it's socially acceptable so let's not do it."
While Romney and his accountants may consider every tax break to be a mandatory deduction, the fact is that they appear to have done some aggressive tax planning to lower his tax bill.
If he hasn't released his tax returns how can you determine if his planning was aggressive?
The inference in your article is that Romney appears to be doing something wrong by following the law.
Your logic escapes me.
Posted by: sbaskin | August 2, 2012 1:35 PM
Report this Comment
Sounds as if most of the delusion is in the previous 3 comments. The IRS Pub 17 and others instruct the taxpayer to take all legal deductions in order to "minimize" their taxes.
Why do you have a problem with that --- could it be wealth envy?
Do you not agressively look for deductions that will be in the favor of your clients? Or, do you just advise them to take the minimal deductions so that you won't need to assist them in an audit?
How about your own tax returns -- were all your charity deductions covered by the required paper?? Do you have any IRA accounts -- like maybe GE, Apple, Microsoft, etc that use "Off Shore Banking"? Must be nice to be so Lilly Clean that you can throw rocks at others!
Maybe you should be asking to see documents from the sitting president that are sealed as a "National Security" issue rather than worrying about Romney's tax returns.
No, I'm not a gun toting, right wing nut. I'm just tired of people questioning things that will make no difference in an era when we NEED to make a difference.
OldNavy
Posted by: oldnavy | August 2, 2012 11:13 AM
Report this Comment
For starters, I'd like to see the Romneys justify a $77,000 deduction for their dressage horse. How is dressage ever a profitable business? Is prize money ever awarded or do stud fees generate money? Perhaps it just comes down to that the accounting firm told them they can take a business loss for three years. Total sham. Mitt will of course deny everything.
Posted by: janek51 | August 2, 2012 10:52 AM
Report this Comment
Anybody who considers Romney's actions with regard to his income taxes to be somehow due to the complexities of the supposed 74,000 pages of the Tax Code is seriously delusional.
Romney has been running for president for the last 8 plus years, and should have known his taxes would be looked at for "Pete's sake".
There is nothing in those 74,000 pages that says you have to take advantage of each and every deduction, nor arrange your financial matters as to take advantage of each and every deduction possible.
It is simply either a delusional attitude on his part, or at least an incredibly elitist attitude, to presume that in order to be President you not only need the funds to run (not a problem, obviously), but to have an image that would not portray you as one of the two alternative attitudinal visages.
This is an incredible fail on his part, and should not be blamed on either his advisers or the Tax Code.
Posted by: Schrambo | August 1, 2012 5:12 PM
Report this Comment
"While Romney and his accountants may consider every tax break to be a mandatory deduction, the fact is that they appear to have done some aggressive tax planning to lower his tax bill."
Rumor or fact? Senator Reid's statement about what he was told by a Bain investor also fall into the "just a rumour category."
Let is hope that our legislators will dedicate serious efforts to cleaning up the 74,000 pages of the tax code so we don't have to depend on the tax courts to interpret the uninterpretable.
Posted by: RogerC | August 1, 2012 8:09 AM
Report this Comment
Add Your Comments...
Already Registered?
If you have already registered to Accounting Today, please use the form below to login. When completed you will immeditely be directed to post a comment.
Not Registered?
You must be registered to post a comment.