Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Monday, January 30, 2012

Lessons From Romney's Tax Return

Images-5I recently blogged about how Mitt Romney overpaid on his tax return.  As I mentioned though, he still managed to only pay 14% of his $21.6 million income. The Wall Street Journal explores some of the lessons that we can learn from Romney’s tax return:

  • Capital gains can provide powerful tax benefits being taxed at a top rate of only 15%.
  • Get good tax help.
  • Avoid salary, wages and tips as much as you can. These categories are taxed up to 35% and are subject to payroll taxes.
  • Muni-bond interest is not everything. Many wealthy individuals look to these for tax-free income, but how beneficial these investments are depends on what your state’s flat tax rate is.
  • Go for qualified dividends because they can only be taxed up to 15%. A dividend is qualified if it is from a stock held at least two months and “paid by any domestic corporation or most corporations.”
  • If you have a “Schedule C” business, it may not be the best to claim a home-office deduction. These can raise red flags to the IRS or come back to haunt taxpayers for later tax-exclusions.
  • Long-term capital gains are the best way to generate income. Capital gains have a lower tax rate and they are malleable. You can choose when to take a gain or a loss and use the losses to offset gains so that a tax isn’t due.
  • Know the score on itemized deductions. Tax-wise charitable contributions and noncash gifts are smart moves here.
  • Capital gains and dividends can trigger the AMT. Long-term capital gains and qualified dividends are not subject to the alternative minimum tax.
  • Think twice about small benefits requiring large tax-prep efforts. Sometimes the tax-prep fees will exceed the return.
  • Offshore investments can save onshore taxes. Investments held offshore in “blocker corporations” can allow taxpayers to pay less tax than they would for the same investment onshore.

See Laura Saunders, What You Can Learn From Mitt’s Tax Return, The Wall Street Journal, Jan. 28, 2012. 

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this to my attention.


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