Tax Break

Tax clips from the Web: Mitt’s millions, cost basis and more

Mitt Romney taxesTax season looms! Indeed, for many, it already has begun. Here are some of the best stories on taxes that you might have missed elsewhere on the Web.

Mitt’s millions raise a fundamental tax question

Call it the dawn of the debate over carried interest and why it may be taxed differently in the future. The primary question that has emerged from the ruckus over Mitt Romney’s finances, which Kay Bell asks in her tax blog don’tmesswithtaxes, is whether capital gains should be taxed at a lower rate than normal income. There are arguments on either side. One is that  investments help build the U.S. economy, so tax breaks may be justified. On the other side is an argument that Warren Buffett was famous for making in the Op/Ed pages of the New York Times last August in which he asked why capital gains tax breaks should result in a billionaire paying an effectively lower tax rate than his middle-income staff.

Cost basis exploration

Forbes’ blogger Kelly Philips Erb weighs in with “Got Stock? Cost Basis Rules May Impact Taxes,” a good read if you have income from investing in stocks. This year investors need to know about changes to “cost basis” rules from the IRS. The department made changes partly to ensure that investors pay enough tax on gains from their stocks last year. Now stock brokers are required for the first time to provide the cost basis amounts to their clients in time for filing, and send a new form to the IRS. Investors still have responsibility for reporting all transactions that resulted in stock gains, of course, so whether the process will become more complicated remains to be seen.

Quick Links

Thinking about getting some help with your filing? The IRS has regulations in place to prevent people from going to “unscrupulous” tax preparers. Taxabletalk.com explains them in a handy video here.

And finally, e-filing tax returns is quickly becoming the norm.

Governors call for tax cuts in 2012 despite uncertainty

New Jersey's Chris Christie wants tax cuts

In December, hopeful children around the world mailed in their requests to Santa Claus. Now it’s January, and governors across the country are standing before citizens and legislatures using State of the State addresses to lay out their wishes for the coming year. Top of the list, with a few notable exceptions, are tax cuts.

State revenues have climbed from 2009 and 2010 lows, largely on increasing individual income tax receipts. Still, that recovery is seen as tenuous due to a generally tepid economy and concerns that pivotal federal funding to the states could be on the cutting block as the country struggles with its growing debt and deficit.

Governors of a few states, including New York and Missouri, are not calling for cuts but say their states can avoid increasing taxes by relying on shrinking government and other moves to balance their budgets.

Tax and accounting this week

Some notable events in tax and accounting during the week ahead:

Tuesday

    Republican president candidate Mitt Romney to release his tax returns, which he has said will show a tax rate of around 15 percent, likely kept low by the tax treatment afforded private equity compensation like that he earned at Bain Capital before entering politics. The Government Accounting Standards Board to meet in Norwalk, Connecticut. President Barack Obama will give his State of the Union speech to Congress and is expected to repeat calls for higher taxes on the wealthy and tax breaks to bring American manufacturing jobs home.

Wednesday

    Financial Accounting Standards Board open board meeting in Norwalk, Connecticut.

Thursday

    The Senate Permanent Subcommittee on Investigations will hold a hearing on the IRS permitting mutual funds to directly invest in commodities despite statutory restrictions.

Thursday and Friday

How well do states monitor the impact of corporate tax breaks?

The first study of how well states assess the performance of companies receiving taxpayer subsidies came out on Wednesday. The picture it paints is not a pretty one for taxpayers.

The good news in “Money-Back Guarantees for Taxpayers is that 215 of 238 state subsidy programs require some form of reporting on whether performance promises are met, while 23 do not. The programs are usually meant to create jobs or help states to retain them.

The bad news is that of the 215 programs with performance reporting requirements, 67 or nearly a third, do not require any verification of assertions that jobs were created or retained, or that some other promised action was taken.

Pay into pension, get boost to earnings

Companies are going to have to contribute some serious money to shore up their lilting pension plans this year, but there’s a silver lining: higher earnings.

In a Dec. 7 analysis, UBS analysts spell out how contributing to the company plan could handsomely help the bottom line.

It has a lot to do with the peculiarities of pension accounting.

As UBS accounting expert Janet Pegg wrote in the report,  companies that sponsor pension plans mostly don’t use current market results when determining how much their plans cost them in a certain year.  Instead they use an “expected long-term rate of return”  to calculate how their investments did.

Impact of Obama Jobs Panel’s Tax Advice Likely Limited

President Barack Obama’s corporate “Jobs Council,” a who’s who of corporate titans including General Electric chairman Jeff Immelt and luminaries from American Express and Facebook said in a report on Tuesday they recommended  . . .  cutting corporate tax rates.

Perhaps unsurprising, given the vast majority of the panel are corporate officers — also on the committee are union umbrella AFL-CIO president Richard Trumka, and Roger Ferguson, chief executive of TIAA-CREF, one of the biggest providers of U.S. pension funds — but also unlikely to  have much impact, despite the big names behind it.

The council called on lawmakers and the president to begin work “immediately” on corporate tax reform.

The tax code ‘ambiguous’? Supreme Court to decide

A $6 million tax bill landed before the Supreme Court on Tuesday, leaving the justices to determine the will of Congress and the high court’s own decisions from more than 50 years ago. (See the Reuters  preview here.)

The case centers on a law from 1954 in which Congress granted the Internal Revenue Service an extended statute of limitations to ferret out tax cheats when the taxpayer “omits from gross income” more than 25 percent of his or her tax liability.

The tax shelter at issue – known as Son of Boss transaction – claimed fake tax losses, or an “overstatement of basis.”