Tax Break

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?

Why, you ask, does the IRS need to specify what is a roof? It matters for accounting purposes.

In December, the IRS issued new rules to clarify the difference between a business expense that is a repair and tax-deductible and one that is an improvement but not deductible right away.

Essential tax and accounting reading: Contrasting tax plans from Obama and Romney, unequal tax payments, dividend tax hike, and more

A Rick Santorum campaign video screens at Mitt Romney's South Carolina primary rally, January 21, 2012. REUTERS/Brian Snyder

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

* Obama, Romney offer contrasting tax plans. Zachary Goldfarb and Philip Rucker – The Washington Post. President Barack Obama and Republican presidential contender Mitt Romney offered competing proposals for how the government should tax citizens and companies, previewing the ideological clash over taxes that is likely to be at the forefront of the general-election campaign. Obama released a long-awaited plan to overhaul the country’s corporate tax code that plays directly to his base, following his call this month for significant tax hikes on the wealthiest Americans. A short time later Romney unveiled a series of deep cuts in personal and corporate income tax rates, the kind of reductions that have become a tenet of Republican economic thinking. The former Massachusetts governor proposed reducing the rates for individual taxpayers by a fifth, meaning that the highest earners would pay a top rate of 28 percent, compared with 35 percent today. He also suggested taxing corporate profits at a rate of 25 percent. Link

* Obama urges corporate tax cut, closing loopholes. Kim Dixon and Rachelle Younglai – Reuters. President Obama made an opening offer in what could be a long negotiation with corporate America on Wednesday, putting forward his first detailed plan to cut the corporate tax rate. Though it has little chance of becoming law in an election year with Congress paralyzed over fiscal issues, the plan shows Obama’s intent to favor domestic over offshore manufacturing and to broaden the tax base by closing corporate tax loopholes. Of the 30 companies that make up the Dow Jones industrial average, 19 told shareholders that their effective tax rate for their 2011 fiscal years (mostly ending Dec. 31) was lower than Obama’s proposed new tax rate. Link

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  

Tax and Accounting Calendar

Mary Schapiro, Chairman of the Securities and Exchange Commission REUTERS/Yuri Gripas

Some events in the week ahead:

Tuesday, February 21

The Taxpayer Advocacy Panel Small Business/Self-Employed Decreasing Non-Filers Project Committee telephonic open meeting, 10 a.m. EST.

Tuesday, February 21 – Thursday, February 23

The Tax Executives Institute will sponsor a three-day seminar in San Diego, California, on audits, appeals and tax controversies, covering topics including winning at appeals, international tax controversy and building an effective transfer pricing case. Sheldon M. Kay, deputy chief of IRS Appeals, will be the Tuesday luncheon speaker.

Tax loss harvesting: how and why to do it

In a groundbreaking 1998 behavioral economics study,  Berkeley professor Terrance Odean found that as a group, investors tend to hold on to their losers, hoping for a rebound, and instead sell their winners.

That’s often a bad idea, and not just because losers may keep descending. Hanging onto those losers also keeps you from taking advantage of some smart tax planning.

In this video, Reuters Personal Finance Editor Lauren Young explains how to lock in your investment losers to reduce what you owe Uncle Sam.

Who’s the poorest of the presidential candidates?

Rick Santorum addresses the Detroit Economic Club, February 16, 2012. REUTERS/Rebecca Cook

One thing Rick Santorum’s tax returns, released late on Wednesday, made clear: None of the leading presidential candidates fits into the 99 percent of the populist Occupy Wall Street movement.

Santorum told Politico he isn’t rich. “I don’t have wealth,” he said.

Essential tax and accounting reading: Santorum’s tax returns, progress on payroll taxes, Wegelin, and more

Republican presidential candidate Rick Santorum speaking at a rally in Tacoma, Washington REUTERS/Anthony Bolante

The top tax and accounting headlines from Reuters and other sources.

* Santorum reports four years of tax returns. Samuel Jacobs – Reuters. Republican U.S. presidential candidate Rick Santorum released tax returns on Wednesday showing he and his wife earned around $1 million annually in the last few years. Santorum issued returns for the last four years, the most of the current Republican candidates who have tried to outdo each other in showing transparency about their taxes. The former Pennsylvania senator and his wife earned $659,000 in 2007, $952,000 in 2008, $1.1 million in 2009 and about $923,000 in 2010, according to the tax returns posted online by the Politico news organization. Link

* Lawmakers finalize payroll-tax agreement. Naftali Bendavid and Siobhan Hughes – The Wall Street Journal. Congressional negotiators working on a deal to extend jobless benefits and a payroll-tax cut say they have come to a deal, paving the way for a vote before the policies expire at the end of the month. A tentative deal outlined earlier this week would extend the tax break, which reduces workers’ payroll taxes to 4.2 percent from 6.2 percent, until year-end. It would also renew expiring jobless benefits but cut the maximum number of weeks. And it would adjust the Medicare payment system to avoid a 27 percent drop in physicians’ fees. Under a last-minute deal, only new government employees will be subject to pension-contribution increases. The Senate’s three Republican negotiators will not back the package, a Senate aide said. That does not undermine the agreement, but it could potentially pose complications for House Republicans, who will take a tough vote without the backing of some key counterparts in the Senate. Rank-and-file GOP lawmakers already dislike the package because lawmakers did not find a way to offset the cost of extending cuts to the payroll tax. Link

Who pays no income taxes?

Who pays no federal income taxes?

Republicans grabbed onto a headline number last year from a respected tax policy group noting that nearly 50 percent of Americans pay no income taxes.

The statistics from the Tax Policy Center (TPC) came up again Wednesday at a hearing of the House tax-writing Ways and Means Committee, as lawmakers grilled Treasury Secretary Timothy Geithner about President Obama’s tax proposals.

“Mr. Secretary, you know the facts: the bottom half of earners in this country pay no federal income taxes,” Dave Camp, the panel chairman,  a  Republican, said.

Essential tax and accounting news: “dozens” of corporate tax breaks in play, private equity taxation debated around the world, and Swiss banks’ new model

U.S. Treasury Secretary Timothy Geithner testifies before the Senate Finance Committee, February 14, 2012. REUTERS/Yuri Gripas

The top tax and accounting headlines from Reuters and other sources:

* Tentative deal reached to preserve cut in payroll tax. Jennifer Steinhauer – The New York Times. Members of a House-Senate committee charged with extending a payroll tax reduction and providing added unemployment benefits reached a tentative agreement Tuesday evening, with Republicans and Democrats claiming a degree of political victory in a fight with significant election-year implications. One day after House Republican leaders said they would offer a bill to extend the $100 billion payroll tax rollback for millions of working Americans without requiring spending cuts to pay for it, the Congressional negotiators struck a broader deal that would also extend unemployment benefits and prevent a large cut in reimbursements to doctors who accept Medicare. A vote on the measure would most likely happen by Friday. But senior aides warned that negotiators still had to sign off formally on the agreement and that obstacles could surface given the long-running tensions over the measure. Link

* Obama plan would end dozens of business tax breaks-Geithner. Kim Dixon and Rachelle Younglai – Reuters. The Obama administration’s corporate tax reform plan would end “dozens and dozens” of tax breaks, Treasury Secretary Timothy Geithner said on Tuesday as he defended the White House’s election-year call for higher taxes on the wealthy. Within days, the administration intends to unveil a blueprint aimed at eliminating inequities in the corporate tax system and lowering the top rate. Companies, which pay wildly different levels of taxes, are clamoring for a cut in the corporate tax rate – which tops out at 35 percent – but disagree about how to strip out preferences that benefit selected industries. Geithner spoke before the Senate Finance Committee a day after President Barack Obama unveiled a $3.8 trillion budget-and-tax proposal that called for aggressive government spending to boost the economy and higher taxes on the rich. Link