12-17-2012
http://finance.yahoo.com/news/5-egregious-tax-loopholes-benefit-080033155.html
5 egregious tax loopholes that benefit the rich
A tax loophole isn't illegal. It just seems that the person benefiting from the loophole often is following the letter of the tax law, but not the spirit of the law.
Similarly, there are many tax deductions that appear to provide disproportionate tax benefits to a select few.
Capital gains tax rate
The current 15 percent capital gains tax rate for most investors and zero percent rate for lower income taxpayers are part of the much ballyhooed George W. Bush-era tax cuts.
Ordinary taxpayers pay tax on their earnings at ordinary income tax rates up to 35 percent. The really rich, however, are different from you and me in that they tend to make most of their money via investments instead of standard paychecks -- meaning most of their money is taxed at 15 percent.
And it's a huge reason why the wealthy, such as financier Warren Buffett, are able to pay substantially lower overall tax rates. Buffett's oft-repeated confession that his tax rate is lower than his secretary's sparked the latest political debate on the fairness of low tax rates on investment profits.
Second-home mortgage interest deduction
Those who own a ski chalet in Aspen, Colo., an ocean-view getaway along Miami's South Beach or a pied-a-terre in New York City in which to rest after a late Broadway opening night usually are rich. And they get to write off the interest on those expensive second homes as an itemized deduction, for mortgage debt as high as $1 million.
Even more amazing, owners of luxury yachts can deduct mortgage interest on loans they took out to buy their mini-Queen Marys. That's right: The Internal Revenue Code says a boat can be considered a home as long as it has sleeping quarters, a kitchen and a toilet.
The home designation rules also mean that recreational vehicles could qualify as residences, providing owners of those luxury buses an added tax deduction, too.
Carried interest special tax treatment
Remember the controversy over the low tax rates that Republican ex-presidential candidate and former Massachusetts Gov. Mitt Romney paid? Part of the reason was because of his capital gains on investments.
Managers of most private equity funds get a percentage of the net gains as a management fee. This payment is known as carried interest, and here's the beautiful part for the fund manager: Carried interest is not taxed like the regular interest most taxpayers get on regular savings accounts. It's taxed as a capital gain.
That means while regular interest received by most taxpayers on their savings accounts is taxed at rates that could go up to 35 percent, folks who get carried interest payments owe a current top rate of 15 percent on that special interest.
Tax break for offshoring US jobs
The ability to save on corporate taxes by shipping operations overseas is one of the most vilified corporate tax breaks.
Yes, companies can expense the costs of relocating abroad.
When U.S. unemployment is high, a tax break that rewards the elimination of more U.S. jobs seems like a really bad idea.
Will these and other individual and corporate tax loopholes, deductions or, as the federal government calls them, tax expenditures, be eliminated or even tweaked a bit? It's not likely. All are quite popular among the groups that receive tax savings from them. And they are the same folks who tend to contribute generously to political campaigns.
http://finance.yahoo.com/news/5-egregious-tax-loopholes-benefit-080033155.html
5 egregious tax loopholes that benefit the rich
A tax loophole isn't illegal. It just seems that the person benefiting from the loophole often is following the letter of the tax law, but not the spirit of the law.
Similarly, there are many tax deductions that appear to provide disproportionate tax benefits to a select few.
Capital gains tax rate
The current 15 percent capital gains tax rate for most investors and zero percent rate for lower income taxpayers are part of the much ballyhooed George W. Bush-era tax cuts.
Ordinary taxpayers pay tax on their earnings at ordinary income tax rates up to 35 percent. The really rich, however, are different from you and me in that they tend to make most of their money via investments instead of standard paychecks -- meaning most of their money is taxed at 15 percent.
And it's a huge reason why the wealthy, such as financier Warren Buffett, are able to pay substantially lower overall tax rates. Buffett's oft-repeated confession that his tax rate is lower than his secretary's sparked the latest political debate on the fairness of low tax rates on investment profits.
Second-home mortgage interest deduction
Those who own a ski chalet in Aspen, Colo., an ocean-view getaway along Miami's South Beach or a pied-a-terre in New York City in which to rest after a late Broadway opening night usually are rich. And they get to write off the interest on those expensive second homes as an itemized deduction, for mortgage debt as high as $1 million.
Even more amazing, owners of luxury yachts can deduct mortgage interest on loans they took out to buy their mini-Queen Marys. That's right: The Internal Revenue Code says a boat can be considered a home as long as it has sleeping quarters, a kitchen and a toilet.
The home designation rules also mean that recreational vehicles could qualify as residences, providing owners of those luxury buses an added tax deduction, too.
Carried interest special tax treatment
Remember the controversy over the low tax rates that Republican ex-presidential candidate and former Massachusetts Gov. Mitt Romney paid? Part of the reason was because of his capital gains on investments.
Managers of most private equity funds get a percentage of the net gains as a management fee. This payment is known as carried interest, and here's the beautiful part for the fund manager: Carried interest is not taxed like the regular interest most taxpayers get on regular savings accounts. It's taxed as a capital gain.
That means while regular interest received by most taxpayers on their savings accounts is taxed at rates that could go up to 35 percent, folks who get carried interest payments owe a current top rate of 15 percent on that special interest.
Tax break for offshoring US jobs
The ability to save on corporate taxes by shipping operations overseas is one of the most vilified corporate tax breaks.
Yes, companies can expense the costs of relocating abroad.
When U.S. unemployment is high, a tax break that rewards the elimination of more U.S. jobs seems like a really bad idea.
Will these and other individual and corporate tax loopholes, deductions or, as the federal government calls them, tax expenditures, be eliminated or even tweaked a bit? It's not likely. All are quite popular among the groups that receive tax savings from them. And they are the same folks who tend to contribute generously to political campaigns.
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