Posted on 01/24/2012 4:42:45 AM PST by SeekAndFind
Newt Gingrich avoided tens of thousands of dollars in Medicare payroll taxes in 2010 by using a technique the Internal Revenue Service has consistently and successfully attacked. Republican Presidential candidate Gingrich and his wife, Callista, treated only $444,327 of what they got from Gingrich Holdings. Inc. and Gingrich Productions as compensation to them, while reporting a whopping $2.4 million of their earnings from these corporations as profits or dividends. Medicare taxes are levied at a rate of 2.9% on an unlimited amount of compensation and self-employment income (say, from a consulting contract, speeches or a book) but not on profits from a business.
“It appears that he is not paying his fair share of Medicare tax,’’ Robert E. McKenzie, a partner in the Chicago law firm of Arnstein & Lehr LLP concluded, in an email to Forbes, after reviewing Gingrich’s 2010 tax return. McKenzie, a past chairman of the Employment Tax Committee of the American Bar Association Tax Section and a member of the IRS’ Advisory Council, added: “There are a multitude of cases where the IRS has successfully challenged the improper tax strategy of this candidate and his accountants. Service businesses are only allowed to distribute a fair return on investment from an S corp. as profits exempt from Medicare taxes. The remainder of profits must be paid as salary subject to a 2.9% Medicare tax levy.”
Since Gingrich released his 2010 tax return Thursday night during the Republican debate, news coverage has focused on his hefty income tax rate—he paid tax equal to 31.5% of his adjusted gross income of $3.14 million.
(Excerpt) Read more at forbes.com ...
This is what makes this a non-starter. Newt paid close to a $million in taxes. People can wrap their heads around that. Meanwhile, Romney paid 15% effective tax rate, and has money in offshore accounts. That does not fly well with middle class voters.
I agree with you to some extent however it’s not exactly a “trick” or “ploy” to properly and legally report income and deductions in such a way as to minimize tax liability. If you are eligible to deduct mortgage interest or business expenses or charitable contributions or categorize investment or dividend income not as salary subject to employment taxes, is it a “ploy” or “trick” for your accountant to advise you to do so?
Of course we are talking about some much more complex tax issues here but there is IMO no easy solution other than eliminating the tax code completely and going to a flat tax with no exemptions or deductions period.
We are ALLOWING our politicians to use tax laws to do social engineering and THAT HAS TO END.
I’m not sure how this relates to Gingrich’s tax return at the time he was not a politician but a private businessman.
“There are a multitude of cases where the IRS has successfully challenged the improper tax strategy of this candidate and his accountants. Service businesses are only allowed to distribute a fair return on investment from an S corp. as profits exempt from Medicare taxes. The remainder of profits must be paid as salary subject to a 2.9% Medicare tax levy.”
The real truth is that you must take a reasonable salary and can not take all of your income as dividends and distribution of profits. In this type of business, if the s corp owns the intellectual property - which I’m sure it did in Newt’s case, a 300K salary was probably fine.
There’s the old gay connection too. Apparently Romney is well endowed in that regard so them and their friends are attacking Gingrich.
The system is set up this way, and we should all strive to do the same thing.....I just finished my state taxes yesterday. My fed taxes are on $69,000 from my retirement, withdrawals from my IRA, interest and a job I took on in October (as a favor). While doing my state taxes I noticed I was eligible for Tax Forgiveness because ONLY the interest and the job were to be reported as “income”. I took it, after being drop jawed, because it’s there. I STILL feel anybody that works and has some income should pay SOME tax on what they make. But, if these idiots enact this stuff I’m not going to overlook it.
“NON-STORY”
bttt
The IRS is on a mission to catch people doing this, and they have tried to close it off. In the 1990’s the IRS proposed a regulation that would have subjected the distributions from S corporations to self employment tax. The speaker of the house sent them a stern rebuke, told them that Congress passes tax laws, not the IRS. That speaker was none other than Newt Gingrich, who seems to have a special affection for that particular loophole.
“That speaker was none other than Newt Gingrich, who seems to have a special affection for that particular loophole.”
It’s not a loophole, it was the intent of the law. It’s in line with investment income not being considered wages. I don’t agree with it - I think a person like Mitt should have to pay tax on his as well, but that’s the way it was set up. (for obvious reasons)
The author is forgetting about corporate tax. The income Gingrich claims as salary can be claimed as an expense to the corporation and thus reduce its corporate income tax. His income claimed as dividends or capital gains is not counted as a business expense. It is thus taxed twice: once as income to the corporation and then a second time as personal income to Mr. Gingrich.
BFD. He is paying more medicare tax than 99% of the people and will receive less in benefit.
Often disliked by the IRS... sure, just another pound of flesh for them to extort from legal tax paying processes.
So Mr. Gingrich followed the law and paid all taxes due.
Meanwhile, Obama pisses away $550 million on Solyndra’s campaign bundlers, which equals the total amount of federal taxes paid by 45,833 average Americans ($60K income at 20% tax rate). Or, the total amount of taxes paid by 550 Newt Gingrich’s.
Wonder you he voted for in '08 (and '04 and '00 etc)
Nah, I really don't.
This is chickensh*t but let's get it out now.
“His income claimed as dividends or capital gains is not counted as a business expense. It is thus taxed twice: once as income to the corporation and then a second time as personal income to Mr. Gingrich.”
You are mistaken. Gingrich is using an S Corporation so the salary or dividend flows to his personal return without tax consequences to the S Corporation. The issue is the additional Medicare payroll tax.
Well said.
Cartman gets a badge.
The (MSM/ GOP elite/ Romney camp) is desperate to throw more mud that will stick, as soon as possible....
...because Gingrich is again in the lead.
WHY is this BREAKING news??
Let me see if I can explain it to the ‘media’: Irony is when you are a pro tax ‘n spend DemonRat and you avoid paying your own taxes. Irony is not when a conservative anti taxer practices what he preaches.
Al Gore or John Kerry did this too, IIRC. Can’t remember whic h.
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