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MONTHLY TAX NEWSLETTERSeptember 2012
Convention season is upon us. And the 2012 Presidential Election is just a few months away. Let's take a look at Mitt Romney's tax policy based on information posted on his campaign's official website, www.mittromney.com.
Extend the Bush Tax Cuts:
If Congress doesn't act by the end of the year, the 2001 Bush tax cuts will expire on December 31st causing tax rates across the board to increase. According to Mitt Romney:
While the entire tax code is in dire need of a fundamental overhaul, Mitt Romney believes in holding the line against increases in marginal tax rates. The goals that President Bush pursued in bringing rates down to their current level— to spur economic growth, encourage savings and investment, and help struggling Americans make ends meet—are just as important today as they were a decade ago. Letting them lapse, as President Obama promises to do in 2012, is a step in precisely the wrong direction. If anything, the lower rates established by President Bush should be regarded as a directional marker on the road to more fundamental reform.
Eliminate Taxes on Investment Income for People Earning Below $200k:
Romney's Tax Policy includes a provision to cut taxes for taxpayers earning less than $200k. Let's see what the Romney Campaign calls the Middle-Class Tax Savings Plan:
As with the marginal income tax rates, Mitt Romney will seek to make permanent the lower tax rates for investment income put in place by President Bush. Another step in the right direction would be a Middle-Class Tax Savings Plan that would enable most Americans to save more for retirement. As president, Romney will seek to eliminate taxation on capital gains, dividends, and interest for any taxpayer with an adjusted gross income of under $200,000, helping Americans to prepare for retirement and enjoy the freedom that accompanies financial security. This would encourage more Americans to save and to invest for the long-term, which would in turn free up capital for investment flowing back into the economy and helping to facilitate economic growth.
Implement Tax Simplification:
Promising tax simplification is nothing new. When I started practicing accounting in 1987, President Reagan had just signed the huge Tax Reform Act of 1986 into law. That Tax Act really complicated the tax code, and it has continued to become increasing more complex over the past 25 years. Remember Steve Forbes? He ran two presidential campaigns on his Flat Tax Platform.
Here is Romney's spin on tax simplification:
In the long run, Mitt Romney will pursue a conservative overhaul of the tax system that includes lower and flatter rates on a broader tax base. The approach taken by the Bowles-Simpson Commission is a good starting point for the discussion. The goal should be a simpler, more efficient, user-friendly, and less onerous tax system. Every American would be readily able to ascertain what they owed and why they owed it, and many forms of unproductive tax gamesmanship would be brought to an end. Conversely, tax reform should not be used as an under-the-radar means of raising taxes. Where reforms that simplify the code or encourage growth have the effect of increasing the tax burden, they should be offset by reductions in marginal rates. Washington’s problem is not too little revenue, but rather too much spending.
Mitt Romney also wants to eliminate the Death Tax and repeal the Alternative Minimum Tax. You can read Mitt Romney's complete Tax Policy at www.mittromney.com/sites/default/files/shared/TaxPolicy.pdf
President Obama's Rebuttal:
There actually isn't very much information about Obama's tax policy on his campaign's official website. Check out The President's Record on Taxes available at: www.barackobama.com/record/taxes?source=issues-nav and all you will find is mention of the Buffett rule and these four bullet points:
President Obama's official campaign site also includes a link to a report that pokes holes in the Romney Tax Policy, available at: www.taxpolicycenter.org/UploadedPDF/1001628-Base-Broadening-Tax-Reform.pdf.
Which Candidate's Tax Policy Makes the Most Sense?
Tough question. What makes it tougher is that the President doesn't write the laws. Instead, the President's job is to sign bills that have been passed by Congress into law. Even so, having an understanding of the tax philosophy of the country's two presidential candidates is probably a prudent idea.
As an interesting exercise, check out President Obama's views on taxes from the prior election cycle in our article called What's The Tax Plan, Man? included in our October 2008 Newsletter, and compare his suggestions from 2008 to what's been enacted during his first term. A few of the items that he proposed during his previous campaign, including raising the Social Security taxes on people earning more than $250k and implementing a "Make Work Pay" tax credit, have come to fruition during his first term in office.
At my firm, we get this question all the time: "How long do I need to keep my tax records?"
Here is the IRS answer to this question:
Well organized records make it easier to prepare a tax return and help provide answers if your return is selected for examination, or to prepare a response if you receive an IRS notice.
There is no period of limitations to assess tax when a return is fraudulent or when no return is filed. If income that you should have reported is not reported, and it is more than 25% of the gross income shown on the return, the time to assess is 6 years from when the return is filed. For filing a claim for credit or refund, the period to make the claim generally is 3 years from the date the original return was filed, or 2 years from the date the tax was paid, whichever is later. For filing a claim for a loss from worthless securities the time to make the claim is 7 years from when the return was due.
For more information from the IRS, check out:
For a more complete listing, please check out this Record Retention Guide Compiled by the Massachusetts Society of CPAs.
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