Tax Break

Taxes and a second home

Tax wrinkles of owning a second home, a video breakdown with Reuters’ Personal Fiance editor Lauren Young. YouTube Preview Image

Corporate state taxes vary widely, depend on industry, location and longevity, study finds

On Wednesday, the Tax Foundation came out with a study on the tax rates different types of businesses face in different states.

Broadly speaking, the foundation found that corporate taxation practices vary widely not only from state to state, but even from one business to another within any one state, and even between businesses in the same line of work in the same state depending on the age of their facilities, with newer locations getting sizable tax breaks and incentives.

“Until you see the data in black and white, these are just perceptions” of differences, Scott Hodge, president of the Tax Foundation, a think-tank that generally  favors lower tax rates for corporations, told me.

Essential tax and accounting reading: Barclay’s tax schemes, GM’s tax break, Swiss compromise, and a 75 percent French tax

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Swiss lawmakers set for tax plan vote. Katherina Bart – Reuters. Swiss lawmakers are set to back a tax proposal with the United States on Wednesday in a move which could pave the way for Switzerland to settle a U.S. probe into Swiss banks and hidden offshore accounts. The lower house will vote on a proposal clarifying how Switzerland would hand over data on Americans suspected of dodging taxes at home. The proposal, which passed the upper house in December, seeks to backstop an expected deal over U.S. probes into 11 banks including Credit Suisse and Julius Baer. Link

* French front-runner pledges 75 percent tax bracket. Gabriele Parussini – The Wall Street Journal. French presidential front-runner François Hollande said taxpayers earning over 1 million euros ($1.34 million)a year would be subjected to a special 75 percent tax bracket should he be elected, underscoring heightened interest across Europe in raising taxes on the wealthiest individuals. Speaking on French television late Monday, the Socialist candidate lamented the “considerable increase” in French corporate executives’ pay, which he put at €2 million a year on average. His proposal caused an uproar in the ruling UMP party, and surprised even Hollande’s own advisers. President Nicolas Sarkozy pointed to the “appalling amateurism” of his opponent’s proposals. Link

* Barclays’ tax plans clash with sentiment. Megan Murphy, Sharlene Goff and Vanessa Houlder – The Financial Times. Has Barclays’ attempt to avoid more than 500 million pounds ($791.93 million) in UK tax dealt a lasting blow to the bank’s nascent efforts to put better citizenship at the heart of a new feel-good corporate agenda? The British Revenue & Customs’ announcement that it has closed down two “highly abusive” schemes designed by the bank has thrust Barclays’ tax practices back into the spotlight, at a time when the bank is trying to rebuild its reputation with politicians and the public. Barclays’ insiders say they are genuinely shocked by the government’s announcement, emphasising that both schemes had been signed off by the bank’s professional advisers and were voluntarily disclosed. Link

Democrats peg Buffett rule to expiration of Bush tax cuts

Democrats are hoping to peg their White House-proposed thirty percent tax on millionaires to major end-of-the- year fiscal deadlines — including the expiration of tax cuts for all Americans. They hope that will box Republicans into a corner.

Known as the Buffett rule, named for the billionaire investor who famously complained that his tax rate is lower than that of his secretary, the proposal has virtually no chance of moving on its own with Republicans in control of the U.S. House of Representatives and Democrats with only a razor-thin majority in the Senate.

Democrats hope that the looming expiration of tax cuts for all individuals enacted by former Republican president George W. Bush will motivate them. Plus polls show many Americans back raising taxes on the rich.

Essential tax and accounting reading: Pushing a U.S. tax overhaul, Germans volunteering to sort out Greek taxes, Santorum’s plan, and more

U.S. Republican presidential candidate Rick Santorum addresses supporters during a campaign stop in Michigan. REUTERS/Rebecca Cook

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Tangled tax code primed for pruning. John McKinnon – The Wall Street Journal. President Barack Obama’s business-tax-overhaul plan underscores the growing likelihood of a serious effort to revamp the nation’s much-criticized tax system, no matter who wins the White House. The question now isn’t whether a tax rewrite will happen, but how far it will go, and whether it will stop at business rules or also extend to individuals. Increasingly the answer appears to be that the entire tax code, all 70,000 pages, could be in play. Powerful dynamics are reducing the significance of partisan differences. One is the expiration of Bush tax breaks at the end of 2012. A broad tax overhaul could give each party a way to break the cycle of short-term tax extensions that is frustrating businesses and individuals. Another is the government’s grim fiscal situation. Many Democrats and even some Republicans see a streamlined tax system as a way to generate more revenue. Link

* Plans for US manufacturing may yield more votes than jobs. Andy Sullivan – Reuters. U.S. factories are hiring again, and Democratic President Barack Obama and some of his Republican rivals are pitching tax breaks to fuel a rebound in manufacturing and help rebuild a battered middle class. Economists on the left and the right say promises to bring back factory work may yield more votes than jobs. Industry experts say the United States is long past the days when steel mills, auto plants and machine shops boosted millions of unskilled Americans into the middle class. Economists say the middle class would benefit more from efforts to boost the economy as a whole, rather than a particular sector such as manufacturing. Link 

Essential reading: Romney to explain tax plan, AIG to take tax breaks, rising stakes for Japan’s sales tax, and gas taxes drop

Window shopping in Tokyo's Ginza district REUTERS/Toru Hanai

Welcome to the top tax and accounting headlines from Reuters and other sources.

•    Romney narrows the gap on Santorum. Richard McGregor in Washington and Anna Fifield in Mesa, Arizona – Financial Times. Republican presidential hopeful Mitt Romney will outline his tax plans in a speech in Detroit on Friday that has been moved from a ballroom in the city convention center to Ford Field, home of Detroit’s football Lions, to accommodate an expected large crowd. It’s his first detailed outline of the economic and tax plan he would take into the November election and it comes four days before the Michigan and Arizona primaries. Link

•    Giving tax edge to manufacturing carries risks. Kathleen Madigan – The Wall Street Journal. The U.S. tax code is a mess. Favoring one sector over others will only make it messier. U.S. President Barack Obama and GOP candidate Rick Santorum recently released proposals that would give manufacturing enterprises a tax break. Santorum advocates factories pay no federal income tax at all. The goal is to make manufacturing a contributor of economic growth and a provider of middle-class paying jobs. The unintended consequences, however, are likely to be businesses gaming the system for a cheaper tax rate and a government policy that values some jobs over ones that are needed more. While certain employees, companies and regions will benefit, the U.S. economy as a whole is unlikely to be better off from the proposed tax changes. Link

•    AIG profit surges on tax benefit. Erik Holm and Serena Ng – The Wall Street Journal. American International Group Inc. reported profit of $19.8 billion in the fourth quarter, thanks to a large tax benefit the bailed-out insurer booked after predicting it can keep generating profits in coming years. AIG recognized $17.7 billion in tax benefits in the last three months of 2011. AIG’s tax boost came about from the reversal of write-downs it had taken to lower the value of its deferred-tax assets, which are unused tax credits and deductions that can be used to defray future tax bills. The insurer had taken those write-downs starting in 2008, when it suffered huge losses during the financial crisis. What changed, AIG said, is that it expects to report sustainable future profits that will enable it to use its deferred tax assets after all. Link

Marriages end, but taxes are forever

A couple may have split, but that’s no reason to send more than necessary to Uncle Sam, explains Reuters personal finance editor Lauren Young. In this video she walks through the question: who should take the kids as a tax deduction? YouTube Preview Image

What is a roof? The IRS needs to know

Actor Paul Newman (L) and Elizabeth Taylor are shown in this undated publicity photograph from their 1958 film "Cat On A Hot Tin Roof." REUTERS/Handout (UNITED STATES)

“Maggie ‘the Cat’: You know what I feel like? I feel all the time like a cat on a hot tin roof.  (from Tennessee Williams, “Cat on a Hot Tin Roof”)

The Internal Revenue Service has its own problem with roofs these days. An IRS employee in Atlanta sent a letter last week to his own agency asking what exactly qualifies as a roof. Shingles? A waterproof cover?

Romney’s 2010 IRS return flags complex tax strategies

U.S. Republican presidential candidate Mitt Romney. REUTERS/Laura Segall

Republican presidential candidate Mitt Romney’s release of his 2010 tax return offers a rare glimpse at two sophisticated tax transactions which the U.S. Internal Revenue Service requires that taxpayers disclose for investments driven by tax considerations.

Like thousands of other Americans’ returns, Romney’s included special attachments flagging “reportable transactions” to the IRS. Known as Form 8886s, the attachments showed that these foreign currency and contingent swap transactions were undertaken by one Bain Capital fund and three Goldman Sachs funds in which blind trusts for the assets of Romney and his wife Ann have invested several million dollars.

Under disclosure rules strengthened in 2002 to grapple with rising tax evasion by Americans, the IRS requires taxpayers to disclose transactions that it has banned or warned it may challenge as improper.

Essential tax and accounting reading: Obama and rival offer tax plans, UK considers a mansion tax, and more

 

Welcome to the top tax and accounting headlines from Reuters and other sources.

 * Obama to propose corporate tax rate of 28 percent. Kim Dixon – Reuters. The Obama administration will propose cutting the top tax rate for corporations to 28 percent, and pay for it by eliminating dozens of tax loopholes companies now use to lower their rates, a senior administration official said. Most analysts doubt that the convoluted tax system could be revamped by a deeply divided Congress in an election year, but the announcement is certain to fuel debate in the run-up to November’s elections. The plan, over a year in the making, is President Barack Obama’s first official foray into reform of the tax code, which most experts believe badly needs a revamp after years of being loaded up with special provisions. The centerpiece is a cut in the top corporate rate – now at 35 percent, among the highest in the industrialized world. That will appeal to businesses, which gripe that the current U.S. rate puts them at a competitive disadvantage. Controversy will erupt when officials lay out which “loopholes” they want to cut. The proposal makes a special carve-out for manufacturing – cutting that tax rate to 25 percent – and proposes a minimum tax on profits earned in low tax countries. Link 

* Romney says wants ‘flatter, simpler’ tax system. Steve Holland – Reuters. Battling to come back in Michigan, Republican Mitt Romney said on Tuesday he wants a tax system that is flatter and simpler as he laid the groundwork for a major economic address coming up in days. Romney is expected to release an updated tax plan on Wednesday ahead of the Republican candidates’ debate in Phoenix. “I want to see taxes flatter, and fairer and simpler, because I want our tax policies to encourage growth,” Romney said on Tuesday. Link

* Heralding end of ‘dark times,’ Christie offers budget that is bigger and cuts taxes. Kate Zernike – The New York Times. After two years of enforcing austerity, Gov. Chris Christie argued on Tuesday that New Jersey could afford to have it all, presenting a budget he said would cut income taxes by 10 percent at the same time it gave money to schools, provided for the poor and met the state’s pension obligations. The governor proclaimed that “we have left the dark times” as he proposed a $32 billion budget, a 3.7 percent increase over last year’s spending. While still less than the budget of 2008, when the economy faltered, it would be the largest of his tenure. Democrats argued that the income tax cut, which would be phased in over three years, was aimed more at presidential primary voters in Iowa than wallets in New Jersey. Link