Saturday April 25, 2015

Washington News

Washington Hotline

Obamas and Bidens Publish 2014 Tax Returns

Each year President Obama and Vice President Biden publish their tax returns. For 2014 President and Mrs. Obama paid $93,362 in federal tax on total income of $477,383. The tax rate is approximately 19.6% of their income.

President and Mrs. Obama gave $70,712 to 27 charities. This represents about 14.8% of their adjusted gross income. While most gifts were $1000 or $1500, two charities received larger transfers. The Sidwell Friends School, a private school that daughters Malia and Sasha attended, received a $5,000 gift. The Fisher House, which provides housing for families of injured veterans who are in VA hospitals, received a major gift of $22,012.

Vice President and Mrs. Biden received income from his salary from the federal government and her position on the faculty of Northern Virginia Community College. Their income was $388,844 and the Federal tax paid was $90,506. This was a tax rate of 23.3%.

The Bidens gave $7,380 to charity. This represents about 2% of their adjusted gross income. Their largest gifts were $2,400 to the Annual Catholic Appeal for the Diocese of Wilmington, Delaware, $1,200 to the Northern Virginia Community College Foundation and $2,755 to the USO.

Top 10 Tax Failures

On April 15, Senate Finance Committee ranking member Ron Wyden (D-OR) published his “top ten” failures for the income tax code.

Wyden stated, “As Americans race to meet tonight’s midnight tax filing deadline, we are reminded that it is long-past time to clean up our nightmare tax system. Such a complex code is only dividing taxpayers into two different camps – the fortunate who have extra resources to successfully navigate the system to their benefit and the rest of Americans.”

Wyden explained the top ten tax failures that impact Americans.

1. Unfair Tax Rates – The average wage earner pays a higher tax rate than better-off Americans who have capital gains from asset sales.

2. Tax Code Too Complex – With 74,608 pages in the Internal Revenue Code and references, many Americans fail to understand tax-saving provisions that could benefit them.

3. Too Much Time – Americans spent 6.1 billion hours and paid $168 billion to prepare and file their 2014 tax returns.

4. Family Business Burden – Small businesses spend over 80 hours per year preparing their tax returns. They could use this time much more productively to operate their business and hire more employees.

5. Wrong Retirement Benefits – Most of the current retirement benefits help upper-income Americans. Only 16% of the total retirement benefits are transferred to the lowest 60% of income-earners.

6. IRS Busy Signal – With the cutbacks in IRS customer service, only 4 in 10 taxpayers who call the IRS are actually able to speak to an IRS representative. Wyden noted that “calling the IRS is like shouting into a void.”

7. Scams and Identity Thefts – The Federal Trade Commission (FTC) notes that its top complaint is now tax-related identity theft. In addition, the Federal Communications Commission (FCC) reported that tax-related identity theft over the past four years has increased from 15% to 43% of all its identity theft complaints.

8. Offshore Accounts – Some wealthy Americans transfer funds offshore into various tax havens. The total cost for this tax avoidance is $110 billion per year.

9. Unqualified Tax Preparers – Because there are no basic standards, some preparers are incompetent, unethical or give incorrect advice.

10. Financial Product Loopholes – There are complicated financial products that are designed to lower the taxes paid on investments. These loopholes must be closed because they only benefit a few affluent persons.

Estate Tax Repeal Passed In House

On April 16, the House of Representatives passed the Death Tax Repeal Act of 2015 (H.R. 1105). The Joint Committee on Taxation estimates the cost of estate tax repeal to be $269 billion over the next decade.

The bill would repeal the estate tax, but retains both the step-up in basis and the gift tax. The top gift tax rate is lowered from 40% to 35%.

There were strong opinions on the bill in all sectors of Washington. House Ways and Means Chairman Paul Ryan (R-WI) noted, “The Death Tax can be a nightmare for some Americans – from family farmers to small and minority business owners – who have worked hard to build something to pass on to their children. And when a family is dealing with a loss of a loved one, the last thing they should have to worry about is the Federal Government coming in and undercutting their livelihood.”

Representative Kristi Noem (R-SD) shared the story of the tax burden on her family when her father unexpectedly passed away. She stated, “Shortly after my dad passed away in a farming accident, my family got a letter from the IRS telling us that we owed a tax because he had died. I have never understood why the Federal Government thought it was appropriate to go after families with this double tax – especially in a time of crisis.”

Rep. Jim McDermott (D-WA) is a Ways and Means Committee Member and opposed the repeal. He stated, “The fact of the matter is, the estate tax is only paid by about 5,400 families – or the top 0.2% of estates in this country. Estates worth less than $5.4 million pay nothing. And what is the cost of providing a tax break to the top 5,000 families in the US? $269 billion.”

The White House also opposed the bill and issued a press release in which the President threatened to veto the bill. The White House responded, “Repealing the estate tax exclusively benefits just the wealthiest 1 or 2 estates out of every thousand – which would receive a tax cut averaging more than $3 million each – because current law already exempts more than $5 million of wealth for individuals and more than $10 million of wealth for couples from the tax.”

Editor’s Note: It is unlikely that the estate tax will be repealed during the next two years. The supporters of repeal are positioning the issue for 2017. Following the next election, there could be further action on estate tax repeal.

Applicable Federal Rate of 1.8% for May -- Rev. Rul. 2015-8; 2015-17 IRB 1 (17 Apr 2015)

The IRS has announced the Applicable Federal Rate (AFR) for May of 2015. The AFR under Section 7520 for the month of May will be 1.8%. The rates for April of 2.0% or March of 1.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2015, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

Published April 17, 2015

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