So, did you enjoy paying your taxes by yesterday’s deadline? Whether you did or you didn’t, you’ll want to check this out:
That’s how Mitt Romney pays a lower tax rate than most people.
Would you like to know how much Romney paid this years in taxes? Maybe you will — but not right away, because he took an extension on his taxes. This is almost surely not because his taxes weren’t done — after all, Romney had to pay the taxes by yesterday’s deadline (or else pay a penalty) and he has people for the “doing them” part. It’s very likely a political calculation. The returns will, I predict, be released before the November election (so as to blunt their impact), but he’s going to find the perfect time to release them so that they’ll get the least notice and be “old news” before anyone talks about them on a normal news day.
My guess for when Romney’s 2011 will be released? Roughly 1:45 p.m. Pacific Time on Friday, May 25 — the day that people depart for Memorial Day weekend. You don’t get any more news-dumpy than that between now and the Republican Convention.
Unfortunately, if it happens then I won’t be able to claim to be precognitive — just cynical about Mitt.
Everyone pays the same capital gains tax rate on capital gains. How is that unfair?
Not when they are stored in off-shore accounts. Romney wins again.
BTW: Please, Please watch the video…FORGOT THAT PART. Romney wins again!
WRONG…If he realizes the gain, it does not matter if the investments are in off-shore accounts or not. If it is subject to US taxation, it is subject to US tax. If it is not subject to US taxation it is not…
Is this like that quote that “the grandeur of the law is that the rich and poor alike are barred from sleeping under bridges”?
Income derived from investment should not be taxed at a rate lower than income derived from labor. That’s how it’s unfair.
Greg…are you advocating that the 0% (yes, ZERO) capital gain and qualified dividend tax rate for a married couple with taxable income of $69K (2011) is unfair? OK…I can see how that may be unfair however I don’t think it should necessarily get eliminated.
Explain to me why you think that a married couple that earns $69K entirely through investments deserves to pay 0% on it while a married couple that earns $69K entirely through labor will pay a substantially higher amount. (You’ll know the precise tax rate without looking it up; I don’t.)
Now, let’s ask what class these two imagined married couples will likely belong to — and ask whether that compounds the unfairness.
I will try to tackle a few items in this one post…this is complicated stuff and I have an advantage of knowing how the tax law works in this area (not bragging, just fact) compared to most people…
1. The $69K is Taxable Income…Adj Gross Income less Itemized Deductions/Exemptions. This means that someone who makes $200K and has $150K of deductions for whatever reason (yes, it happens) will be in that bracket. It also means more appropriately, someone who makes $90K and has $30K of deductions (more common) will not be taxed on their LT Cap Gains and Qual Div (I will now call this “investment income”, but does not include interest income).
2. The $69K thresh-hold does not all have to be investment income. It can be $1K of investment income, $100K of wages, and $32K of deductions/exemptions.
3. The standard marginal tax rate on a married couple who has between $17K and $69K of taxable income in 2011 is 15%. For the next dollar taxed above $69K, the marginal rate is 25%.
OK, now the argument (mine only) on why 0% for those who are in the regular 15% or lower tax bracket (i.e. married up to $69K): The US gov’t wants to encourage savings and investment. The gov’t encourages many different behaviors through the tax code including retirement savings, muni bond investing, college savings, having kids, buying a home with debt, going to college, paying for daycare, donating to charity, etc…Investing in corporations and long-term assets is another tax favored item of the gov’t. The lower investment income tax rate is 20% lower for those in the top brackets (35% versus 15%). The gov’t did not feel it would be appropriate to only allow those in the highest brackets to get the advantage. So, they also decreased the tax rate for those in the lowest 2 brackets. This encourages investment income.
I will give you a real life example…Elderly couple has $200K investment type assets that pays 4% per year or $8K. They have some taxable Soc Sec and other retirement income that totals $60K per year (including their pension money). This person would have taxable income, but the gov’t says that the $8K that this couple has is essentially tax free. This tax break saves the couple about $1200 per year…that is real money for someone who needs it.
In terms of what class my real life example of an elderly couple who had saved $200K over their lifetime and has a pension that pays them $60K per year is in versus the married couple that earns $70K per year working are in…although I am not a “class designation” expert, I would have to imagine that both of them are probably lower middle class.
Covered a lot in the above, so hopefully makes sense and did not miss something.
TJ, what percentage of the population in Orange County do you classify as “lower middle class”?
What percentage do you estimate uses a standard deduction?
I think that your perspective, while honest, may be somewhat slanted by your experience.
Unfortunately Greg I have no idea on %’s. I also have no idea what the middle class really is when it comes to taxation and I don’t know what % would itemize versus take standard deduction. I self admittedly not an expert on class designation.
I will say that if someone lives in CA (a high tax state) and owns a home (property taxes), they are very likely to itemize. Those who are over age 65 are less likely to itemize even if they own a home due to the additional standard deduction available. Those who are borrowing to buy their home are pretty much almost guaranteed to itemize (mortgage interest and ppty tax). Mormons are probably also more likely to itemize because of their increased likelihood of tithing to the church.
If someone does not own a home (either outright or borrowing to own) and makes under $100K, they are quite possibly taking the standard deduction. Obviously, someone who makes $50K per year is even more likely to take standard.
Yes, my experience probably slants my perspective. I presume that yours probably does also- as does most who have a heartbeat. Although, I do have a talent for being able to argue from both sides of the fence which can be very beneficial professionally. My view point can also tell you that there are many many people who have been blessed to have a high taxable income and pay a lot of income tax…a lot higher than most.
Greg- You are totally wrong by saying that he took an extension even though his tax were done. I can pretty much guarantee that all of the information that he needs to file his tax return have not been received by him and his advisers (i.e. CPA). He, as well as a lot of high net worth individuals and business owners, will receive K1’s from various sources. A company issues a K1 to its owners if the company is a partnership, LLC, S Corporation. Trusts also issue K1’s. Often those companies also have investments in others. It would be quite rare for an investor, or even a lot of small business owners, to have all of their K1’s in time to adequately prepare their tax return by the original due (April 17th this year).
IMO, the only way that he would meet your Memorial Day prediction would not be because he is trying to bury it with the dead news weekend but instead because he is pushing to get everything done quickly. I for one would be surprised if he meets the Memorial Day weekend prediction. Remember, he is waiting on final information on his K1’s which they don’t have to be given to him until September. He has 3 Goldman Sachs Hedge Funds which is quite possible that they are invested in many many businesses…Like I said, if he releases early, it would be because he is pushing to get them done ASAP instead of trying to stall.
From my review of his 2010 tax return, he filed it on October 15 2011 which is the extended due date. A Big 4 CPA firm prepared the return. I highly doubt that the return just sits around for 6 months waiting for signatures. His return is likely not like yours or mine. His is over 200 pages long (just federal). He has direct investments in at least 7 trusts and 4 partnerships, 2 Schedule C’s, Those 11 K1’s that he receives likely have many K1’s in the investments that they have and are waiting on right now. Ugh…it gets complicated and for you to imply that he is withholding his completed tax return for political reasons, seems to be quite irresponsible or uninformed on how the tax system works.
For sure he was able to estimate his tax liability and make the payment on tax day to avoid penalties and interest. He probably will be receiving K1’s throughout the summer and possibly right up until the Sept 15th deadline for companies and trusts to have their taxes completed. It would be highly irresponsible of him to file his return without complete information. In fact, he probably paid substantially more with his extension that his actual 2011 tax liability. This is likely true b/c his very well informed tax advisers have him pay in estimates and he probably paid at least his 1Q estimate and possibly even his 2Q estimate in with that same extension payment in order to give him a safe cushion just in case some of those K1’s come in higher than expected.
So what you’re saying is that this K1 issue is yet another break investors get that the rest of us don’t get?
Not at all…how is waiting for information so you know exactly what your total tax is a “break”? Please explain…
Name the information that non-investors get to wait for until September before filing.
see response below…sorry, did not reply to your response, but instead posted another.
Pardon my imprecision: I meant to say that his tax liability has already been calculated for purposes of paying by April 17, as you note, although it may be amended. He could release that figure today if he wanted to.
He won’t do it, of course. The Friday before Memorial Day remains my guess. What’s yours?
That is the thing…his tax liability was only estimated based on the best information that they have. It is imprecise and unknown. He likely overpaid his tax extension payment in order to pay in at least 1st quarter taxes and maybe even 2nd quarter too. This is very common in order to give a cushion just in case the K1 income is higher than expected. I have seen estimates that are WAY WAY off and leaves everyone scratching their heads (actually banging their heads and screaming at their computers). The figure that he would release would only be a guestimate of which most advisers would suggest to not release anything until it was final. Again, this is complicated, I know. How do you think the general public would react to someone explaining this all…I can just imagine.
My guess…as soon as he receives the final K1 from all of his investments plus 2 weeks for his Big4 firm to update/review it and go over with him, plus another 1 week for blacklining and reviewing of blacklines…ultimately, I would say that it will be towards the end of summer. I will go with the Friday before Labor Day….still a dark news weekend. I just can’t imagine that all of his PE/VC K1’s will be done in a month from now…if they are, it is SOLELY because he is the Republican running for president and they are wanting to get it done ASAP. Look at his 2010 return…it is dated October 15th…the last day possible. I doubt that it was done a months prior to then.
In law he have a term called “probative” for evidence that increases the probability of something. His payment on or by April 17 need not be considered conclusive for it to be probative of his being at or near a given income level — and thus of interest.
He may indeed want it to be on Labor Day, given that that’s when many people will probably be driving around with dogs in carriers on their roofs as a tribute to Seamus’s last trip to Canada. That would be a distraction.
Do you really need his tax return to determine that he makes more money that probably all the readers of this blog combined (OK maybe not exactly, but you get the point)?
I would have to imagine that his 2010 tax return that shows AGI of $21.6MM would be probative to his 2011 income level.
Again, I don’t think it will be done much before Labor Day not because of politics but because of logistics. If it is done much before then, I would say that his politics are overcoming the logistics.
No I don’t, but I want to see it for much the same reason that he doesn’t want me to see it: the concrete is more persuasive than the abstract.
Sheesh…with all of the information about receiving an extension on the news and internet over the past few days, I would think everyone would know this, but…Form 4868 allows EVERYONE until mid-October to file their taxes. You can find Form 4868 quite easily on the IRS’ website at http://www.irs.gov Sorry, I don’t have a source for a September filing deadline for investors as there is not one. The September deadline you are referencing is for entities taxed as partnerships or corporations as well as fiduciary returns (i.e. trusts).
OK, so I have named my source for where non-investors (and investors for that matter) get to wait until October (sorry, not Sept) before filings, so now I am hoping you can provide why waiting to file is a “break”.
I’ll ask it again…name the information non-investors get to wait for until September before filing. If you can name a specific piece of information, like the K1 information, that a person with no investments gets to wait until September for in order to file, then I retract my statement.
What don’t you understand in my prior statements? EVERYONE can wait until OCTOBER (not Sept) to file their taxes simply by filing Form 4868 requesting an extension with the IRS. Form 4868 is an official IRS form…heck, the instructions are even attached to the form on the IRS site. Do you really need me to post the actual form? If so, here you go: http://www.irs.gov/pub/irs-pdf/f4868.pdf
A K1 is simply the information form that a passthrough entity provides to its owners. It would be similar to a W2 or a 1099INT. It is used by owners of passthrough entities to report their information. Just as many people get a W2 to report their wages, owners get a K1 that show their share of reportable items.
Hopefully, you now are armed with enough information to retract your statement.
Not quite. A 1099 must be received by the filer from their employer by the end of January. A non-investor doesn’t get to sit there until September waiting for 1099s before they file. On the other hand, the investor is SPECIFICALLY allowed to wait until September for the K1 information. THAT is a privilege NOT afforded to a non-investor. Why do they get that privilege? Because the pship/corp/trust/estate doesn’t have to file that info until April. THAT is a privilege (I used the word break) not afforded to a non-investor.
You are confusing two very different items and this is CRAZINESS that you can’t look at the instructions to the extension form or even just google it. Someone who receives a W2 and a 1099 (or anything else for that matter) can wait until October (why do you keep saying Sept?) if they want to. Some K1’s are filed in February and then those people are able to file without an extension if they choose to. Just because someone has received all of their W2’s and 1099’s does not mean they have to file by the regular tax day. EVERYONE can file an extension. MANY people who have just W2’s and 1099’s do file extensions and file later in the year.
The “investor” and the “wage earner” BOTH can file in October. The “investor” often HAS to file an extension because they don’t have their information. The “wage earner” can CHOOSE to file in October if they want to.
This is craziness that it has to be explained so much. It is as if you think that the “investor” gets to wait until October to PAY their taxes. They don’t…an extension is only an extension to FILE not to PAY. If they pay late, they as well as anyone else, has to pay interest and penalties. Actually, maybe that is where your confusion in thinking that there is a benefit for those who extend…they DO NOT get to pay their taxes any later than mid-April without paying penalties.
Right. “Some” K1s are filed in Feb. And some aren’t. THAT, my friend, enables the investor to more readily file an extension. Why you can’t see that as distinctive from the built-in deadline for 1099s, and how that pushes a non-investor to have LESS of a reason for filing an extension is beyond me. There is a built-in, systemic difference between the two.
EVERYONE can file an extension regardless of whether they have all of their information. What is the “benefit” that someone who receives K1’s in the summer and has to wait to file their returns until after they receive the K1’s bet that someone who only has W2’s does not get? I don’t see any benefit at all.
Both can request an extension. Both have to pay their tax by mid-April. If they don’t, both have to pay penalties and interest. Everyone is on the same level playing field.
The ability to file an extension has NOTHING to do with whether someone has all of their information. I could see how it may if one had to make a statement such as “I don’t have all of my tax documents from the providers” but that is not the case. The extension does not require a stated reason. Heck, it does not even require a signature.
There is no beneficial treatment, with respect to filing due dates, for an investor. If anything, there often can be a detriment in that they do not know what their tax liability is and can sometimes be caught surprised with a higher than expected allocation of income and hence higher than expected tax liability. In order to mitigate this potential for understatement, often someone with K1 income will make an extra large extension payment just in case they are allocated more income than expected. This is an interest free loan from the investor to the government.
“I don’t see any benefit at all”
Yes, you’ve made that clear.
I wonder if Mr. Romney is finding his extension to be a “benefit”?
What benefit is there? Please answer. I would love to know what you think the benefit is? I have indicated why I don’t think there is a benefit to being forced to extend your return, but maybe i am missing something.
I never used the word “benefit”. I used the word “break”. And that’s exactly what the K1 deadline vs. the 1099 deadline affords an investor. It more readily enables them to take more time (file an extension) to file their taxes.
Sorry, yes you used “break”. There is still no break that an investor gets that a wage earner does not get. Both can file an extension. One is forced to do so while the other chooses to do so. The “break” as you see it is that being forced to file an extension because the investor does not have their K1…nice. I would just love to not know how much income I had to pay tax on until the summer…that is such a great “break” that an investor gets.
I wonder if you even know what is involved with a K1…if you did, you would understand that there is no possible way that one would expect that a most other than the simplest K1s would be done by the end of January.
I’ve never received a K1 (that I remember), being mostly a wage and salary earner, so I ask this out of ignorance: does someone who is receiving a K1 still have to have paid their entire tax liability by April 15 (17 this year)? If so, then he knows his estimated tax liability. If not, then he can take longer to pay his tax liability — not “file his taxes,” but pay his tax liability — and that would indeed be a break.
I’m not wading into unfamiliar waters to look it up because I trust that you’ll know the answer without doing so.
“I wonder if you even know what is involved with a K1…if you did, you would understand that there is no possible way that one would expect that a most other than the simplest K1s would be done by the end of January.”
Cue the sound of violins.
BTW, here is your original quote “So what you’re saying is that this K1 issue is yet another break investors get that the rest of us don’t get?”
In summary of all the above, the investor does not get any “break” that is not available to anyone else in terms of the filing deadline. I still would love to know what “break” they get that is not available to all as it relates to my original post. In fact, most would say that getting their information early is the better option. You are implying that the “break” is a good thing for the investor. If it was a good thing, would you like to wait until the summer to get your W2’s and 1099’s? Doubtful.
Cue the violins? Not sure what that means…I love violins and other string instruments. They can be so energizing especially when played well.
Greg, yes, someone who files an extension (regardless of whether it is due to waiting for a K1 or not) will need to have paid in their tax by the original due date (April 17th this year) or will have penalties and interest applied to the short pay. It is only an extension to file not to pay…it is a common mis-perception that an extension allows you to pay late. You can pay late, but then you pay more due to the penalties and interest.
Yes, you can trust me on this and save yourself from wading through tax code or a myriad of tax sites…
By the way, the Sept deadline you keep referring to is the deadline that entities taxed as Partnerships, S Corporation, Trusts, and Estates have to file their tax returns if they applied for an extension with the IRS on Form 7004. Again, that is on the IRS’ website too. So, it is very possible that an owner or beneficiary of one of these entities will not even receive their K1 until late September after the pship/corp/trust/estate’s return is filed with the IRS and then mailed to the owner. It can be quite frustrating for someone who has a K1, has their entire return completed, except for that one piece of information.
It’s been a while since I’ve used Form 4868, but as I recall it’s a four month extension, plus an additional two months is available if you’re out of the country on the day that taxes were due. (Hey, did Romney go to Canada or anything on Tuesday?)
I’d favor Romney getting the extra two months anyway — I want him to release them right around October 15!
Yes, Greg, it has been a while since you used Form 4868 for your extension. They removed the 4 month extension plus the 2nd extension (i.e. combined 6 mos) and replaced it with just one 6 month extension from April to October. You do get an extra 2 months if you are out of the country, but honestly, most US citizens even if they were out of the country on April 17th would still apply for a regular extension just to avoid the hassle of the IRS.
An extension is only an extension to file not to pay. Additionally, quarterly estimates are still due, so most will include their 1st quarter estimate in with their extension payment so as to give a cushion. In my opinion, you will be closer to the actual release date with your “want date” of Oct 15th than your guess of Memorial Day.
Wealthy people don’t pay taxes, they hire people to do that for them.
I hope you are joking on this…if the wealthy have income, they will pay tax. Sometimes someone who has a lot of wealth can pay no tax simply by investing in muni-bonds, so some wealthy folks don’t pay tax although most would.