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Have you ever thought about minimising the tax on a watch purchase?

kkt
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The article is interesting, but note the ending: Romney may be paying much MORE taxes by putting the gains in his IRA where he'll have to pay ordinary income tax rates on the mandatory withdrawals starting at age 70 than he would have if he'd just paid capital gains rates. In any case, the article is highly speculative, written by people who don't have access to details of Romney's finances, much less what's in the minds of Romney or the trustee of his blind trust. It's not clear whether putting his gains in his IRA was really a tax dodge that no one the article consulted could explain, or just a mistake. It would be interesting to see a sequel article; that one was from five years ago. Romney turned 70 this year.
 
sevenhelmet
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jakeh417 jakeh417
I would be careful about stating that (please dont take this as a threat, just more of informing you if you didnt know). In California, by law, you are required to pay a "use tax" on those purchases to the California tax authority, the Board of Equalization. You declare it on your California income tax return.

Where is the line on "use tax"? If I buy a coffee thermos in Texas, I pay sales tax at the cashier. Do I then report that I have a $40 coffee thermos when return to CA, and get charged a "use tax" in addition to the tax I already paid? Technically, I should, based on the way the CA FTB website appears to word things. There is no minimum amount or item category specified, which makes this appear to be something that is both very difficult to enforce, and likely to be widely ignored due to its complexity and/or individual unawareness. How do you prove someone owes a use tax? How do you know I wasn't stationed in TX when I bought said thermos? So do I owe taxes on the thermos (and incidentally, everything else I own) when I physically move to CA, since I will be using it there?

Foo2rama Foo2rama
Use tax is fuzzy...

What makes it even fuzzier is that I'm not even a CA resident. I'm stationed there as active duty military, and thus I am legally exempt from paying CA income tax. How is it that CA can tax items not purchased in CA by someone who is not a CA resident? Note that I obviously do pay "use tax" on items I buy in while living in the state (including online purchases), as part of the overall sales tax.

It's all very confusing and convoluted, isn't it? I am not suggesting or condoning tax evasion, merely stating a couple of problems that people may encounter when trying not to evade taxes. It's as if the (federal, state, local) tax code interactions are intentionally set up for people to fail.
Edited:
 
kippyk
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kkt kkt
The article is interesting, but note the ending: Romney may be paying much MORE taxes by putting the gains in his IRA where he'll have to pay ordinary income tax rates on the mandatory withdrawals starting at age 70 than he would have if he'd just paid capital gains rates. In any case, the article is highly speculative, written by people who don't have access to details of Romney's finances, much less what's in the minds of Romney or the trustee of his blind trust. It's not clear whether putting his gains in his IRA was really a tax dodge that no one the article consulted could explain, or just a mistake. It would be interesting to see a sequel article; that one was from five years ago. Romney turned 70 this year.

Romney's lawyers and accountants are working overtime as he is currently 70. I advise him to donate the 200 million dollar IRA to the Mormon Church so he can pre-pay future tithing on his heirs' income. That way, Uncle Sam never sees a penny, and he can complete the greatest tax dodge of all time. Fun fact: members of the Mormon church have to send in their tax returns to the church to stay in good standing. The church expects a full 10%, however it is considered a gray area whether it is 10% of pre or post tax income.

https://www.lds.org/new-era/2008/02...out-or-on-what-i-receive-after-taxes?lang=eng

WWJTAD - What would Jesus' tax attorney do?
 
kkt
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Well', he'd be donating the mandatory distribution from the IRA. If it's still worth $100M, that would be about $3.6M this year.

Does the Mormon church really allow you to pay your tithes in advance, not only for yourself, but for your descendants?

For the record, I don't blame the very wealthy for taking advantage of legal tax loopholes. I am middle class, but I certainly take advantage of what I can: home mortage interest, IRA contributions, educational expenses. I consider the immorality involved to be the fault of the legislators and general public that allow these breaks to be put into the law. Every tax break should have a clear benefit to the public in general, not just to the wealthy.
 
gatorcpa
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kkt kkt
I consider the immorality involved to be the fault of the legislators and general public that allow these breaks to be put into the law. Every tax break should have a clear benefit to the public in general, not just to the wealthy.
Ding! Good answer. Or as they say, don't blame the player, blame the game.

While the concept of "carried interest" is controversial, if anything, Mr. Romney seems to have voluntarily given up a current tax benefit (capital gains at a lower tax rate) in order to receive a tax deferral, albeit at a higher rate.

kippyk kippyk
I advise him to donate the 200 million dollar IRA to the Mormon Church so he can pre-pay future tithing on his heirs' income.
If he kept the IRA, allowed it to grow and donated it to charity upon death, the appreciated value (which may wind up being a lot more than $200M) would be deductible against the estate tax. That savings at 40% might be far in excess of the extra income tax on the distribution at ordinary vs. capital gains rates. I don't think this possibility was raised in the article. If this is correct (and I have no idea whether it is) charity will be the big winner here.

The strategies these people are using are technically available to everyone. However, unless you have an 9-figure estate, the costs to implement sophisticated strategies like this generally outweigh the benefits obtained.

kippyk kippyk
You are quite wrong about me I assure you. I recommend that you do not make such assumptions about people in the future.
May I be afforded the same courtesy by you?

Let's call a truce on this.
gatorcpa
 
gatorcpa
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sevenhelmet sevenhelmet
Where is the line on "use tax"? If I buy a coffee thermos in Texas, I pay sales tax at the cashier. Do I then report that I have a $40 coffee thermos when return to CA, and get charged a "use tax" in addition to the tax I already paid? Technically, I should, based on the way the CA FTB website appears to word things.
That's probably true. I haven't read the CA FTB website.

However, you do get a credit for the sales tax you paid to Texas when you purchased the item. So in essence, you are supposed to pay the difference between the two taxes, if it is in your home state's favor.

Of course, they give you no refund if you paid more sales tax in the other state.
gatorcpa
 
arcadelt
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Wow, I had no idea state tax arrangements in the US were so complicated. The Australian system is far from perfect, but at least it’s mostly federal apart from some duties around real estate transactions and taxes associated with vehicle registrations (maybe a few others?).
 
Taddyangle
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kkt kkt
I am middle class, but I certainly take advantage of what I can: home mortage interest, IRA contributions, educational expenses. I consider the immorality involved to be the fault of the legislators and general public that allow these breaks to be put into the law. Every tax break should have a clear benefit to the public in general, not just to the wealthy.

What you describe is not considered taking advantage. You are simply following the rules.

I get a freaking letter from the IRS every other year questioning my taxes. I deal with them for what seems like months going back and forth with written correspondence. In any case, it sucks dealing with these guys, it's so damn painful. I do end up setting them straight, so far at least. I am really hoping our taxes get easier to complete. Also, my goal is to defer taxes, this works better than trying to not pay taxes. 😀
 
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