Change Your Life By Filing Your Tax Return

2010 Tax Return

Someone who has not filed his 2010 tax return may be a little nervous. The IRS, the most ruthlessly efficient collection agency in the country, tends to take a dim view of people who do not file their tax returns in any year. The organization wants to make sure the government gets the money it feels that it’s owed. Whether or not the taxes are fair or not is an irrelevant issue. The government needs to make sure it has the funds it needs to continue running. This is especially true with the current national debt.  It may seem to be a little clichéd, but filing 2010 tax returns can change your life.

It will not bring the great change promised by certain self-help pundits, but it certainly will bring relief.  A person does not need to lie awake at night wondering if he has filed his taxed properly or if he is going to suffer from any unwanted visits from the IRS agents. He may prefer to think of the agents as men in black, but that is unlikely to bring a person any comfort. Fortunately, the IRS will do its best to make it easy for a person who owes back taxes to give it money, even if the amount it is demanding is not in line with what the person thinks he owes. Filing his 20120 taxes can prevent a larger problem down the road.

Should Millionaires Pay More Taxes?

Taxes are often an hot issue during an election. The 2012 presidential election is not any different than other election seasons. But no candidate has come under fire for his tax return more than Mitt Romney. Up until recently, he was pretty coy on the subject. He did promise to release his tax returns if he became the Republican nominee, and though he hasn’t secured the Republican nomination, he has released his tax returns for 2010, along with his estimates for 2011.

If you want to put your accounting 101 classes to good use, feel free to go through the 500 pages of documents yourself. However, his returns can be broken down into simple terms: Governor Romney has an annual income of approximately $21 million and is taxed at a rate of 13.9 percent. To put that into perspective, Newt Gingrich is taxed at 31 percent. Obama pays somewhere in the middle, about 25 percent.

So how does Mitt Romney get such a tax break every year? It turns out Romney is able to save so much green through his savvy business practices and his unique advantage over other politicians. Romney does not take in a traditional income. Therefore, he pays less in income taxes. Romney makes most of his billions through dividends, interest and investments. Because his money comes from capital gains, he is taxed at a lower rate.

People are understandably confused by the fact that millionaires are taxed at different rates depending on how they make their money. President Obama tackled this issue head on during his State of the Union address. He discussed a tax proposal called the “Buffet Rule”: If you make more than $1 million dollars a year, you pay a 30 percent tax rate.

The proposed tax rule is rightfully named for billionaire Warren Buffet, who has pointed out that he pays a lower tax rate than his secretary. Like Mitt Romney, Buffet benefits from the capital gains tax. However, Buffet doesn’t see his unique monetary status as a result of savvy investing, but more fodder for those with the appropriate accounting courses to tackle complex tax structures. In fact, in the New York Times Buffet published an op-ed aptly titled “Stop Coddling the Super Rich.” In the piece Buffet tackled the issue of taxing the rich head on. He makes the statement that anyone who makes more than 1 million dollars in income should be taxed at a higher rate.

Clearly Warrant Buffet and Mitt Romney have different takes on how the rich should be taxed. Warren Buffet clearly believes that those who rake in significantly more money than the rest independent of whether it’s from income or investments should pay accordingly. However, Mitt Romney is perfectly happy with his tax rate—and wouldn’t raise it if he became president.

Jessica Reedy is a journalist with a degree from the University of Oregon.

Taxes, And A Look At Obama’s And Romney’s Budgets

Budgets are wonderful, and I love them. I love all of the charts, the graphs, the tables and appendixes. Budgets are so fantastic because they make us take a hard, serious look at numbers. We are forced to make priorities, and we are challenged to make tradeoffs on what we can do without, and what we truly need. The budget is the proof in the pudding, and it is what forces the government to be brutally honest with itself, and the American people. With people preparing their 2012 taxes, a short look at some of the differences between President Obama’s budget proposals, and those of Mitt Romney are in order.

Comparing the fiscal plans between Obama and Romney is almost like comparing apples to oranges. The reason is that while Obama is on the hot seat and needs to make his numbers add up, Romney is just running a campaign in the primaries. He can make budget promises without having his feet held to the fire over them, whereas Obama is not afforded that luxury.

However you slice it, though, taxes under both the Romney and Obama plans are lower than they would be if we simply allowed the tax cuts put in place by George Bush to expire and tax rates returned to the rates of the Clinton era.  If that happened, tax rates would be almost 20.4% of the GDP. This, despite the reverence that Democrats have for Bill Clinton‘s former economic policies, and the panic that Republicans are in over Obama’s tax ideas. I suppose that is why I just love budgets. They help everybody keep an eye on everybody else.

Effective Tax Rate: Not As Simple As It Seems

Mitt Romney recently expressed the belief that his effective tax rate is roughly 15 percent. Most people become incredulous upon hearing this claim.

Their initial thought is that most people pay a much higher rate than that.

The reality is that they really don’t, however.

In fact, based on the specific calculation methodology, Mr. Romney’s effective rate is significantly higher than that of most Americans’.

Comprehending why this is true requires understanding that “effective tax rate” does not equate to your maximum income tax bracket. Those rates range between 10 and 35 percent, depending upon gross annual income.

This figure can be calculated in various ways, however, as no single means of defining tax liability exists. For instance, one might consider only federal income taxes or all federal taxes. Income may likewise be measured in more ways than one. It may be expressed in terms of “gross,” “taxable,” or “adjusted gross.”

In truth, it is impossible to arbitrarily ascertain  Romney’s true effective tax rate to any degree of certainty. That can only be accomplished with a detailed review of his reported income and deductions as reflected within his tax returns.

Even if Romney is right, however, a very simple explanation exists for why his effective rate is most likely much higher than most others’:  Effective tax rate is invariably lower than maximum income tax bracket. Moreover, about 80 percent of US taxpayers’ maximum top rate is 15%. This figure is according to Tax Policy Center Senior Fellow Roberton Williams.

Per Williams, four-fifths of all Americans’ effective tax rate is already less than 15 percent.

When income tax liability is considered by itself, taxpayers whose gross annual income is between $40k and $50k per year is only 3.2 percent, per estimates of the Tax Policy Center.

Even households with gross annual incomes that exceed $1,000,000 can expect to pay only 18.9 percent of this amount in 2012 taxes.

This is due to the fact that many high-income households earn much of their money via tax-advantaged investment vehicles like bonds or other sheletered capital gains.