Tax Break

Commissioner of Internal Revenue Doug Shulman REUTERS/Hyungwon Kang

Remember the budget? Not the one President Barack Obama introduced last month. But the budget for fiscal 2012 – the year we’re in right now?

Don’t feel bad if you forgot. Obama signed the bill two days before Christmas, the same day that he signed the highly-politicized, media-frenzied payroll tax cut extension.

On March 6, the Congressional Research Service published a nice coda report detailing where the money will be spent through Sept. 30 2012.

Overall agency spending is down just $277 million to $44.41 billion from fiscal 2011 levels.

But the IRS’s budget was cut 2.5 percent. Enforcement, which makes up the bulk of IRS spending, was slashed 3.5 percent.

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?

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?

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

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.

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.

A recent study on the effect of taxes on sugary beverages is bound to give the soda industry’s lobbyists a headache.

Professor Annette Nellen, who teaches at San Jose State University and blogs at 21 Century Taxation, wrote last week about a new study on the link between a soda tax and lower diabetes rates. The report said:

Over a ten year period (2010-2020), the penny-per-ounce tax could reduce new cases of diabetes by 2.6%, as many as 95,000 coronary heart events, 8,000 strokes, and 26,000 premature deaths.

Internal Revenue Service office near Times Square in New York.

Most Americans believe strongly that it’s a civic duty to pay their “fair share” in taxes, that cheating on taxes is wrong and that cheaters should be held accountable, said a survey from the U.S. Internal Revenue Service’s Oversight Board released on Monday.

Created by Congress in 1998 to keep an eye on the IRS, the oversight board does its survey annually. This year’s is consistent with past results showing strong support for the tax obligations of citizenship and low tolerance for those who shirk it.

Despite chatter on the political fringes about taxes being a form of theft, 96 percent of those surveyed said they completely or mostly agreed that  ”it is every American’s civic duty to pay their fair share of taxes.”

Tax 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.