Doin' all right
John McCain's wife, Cindy, finally gave up the first two pages of her most recent federal tax return yesterday. It's her 2006 return; she reportedly hasn't filed 2007 yet.
The beer distributor heiress made about $6 million in income, and she paid about $1.72 million in federal income taxes -- including no self-employment tax. She took a salary of around $300,000, but nothing else she made was subject to Social Security or Medicare taxes. Apparently the family company of which she is an owner is an S corporation, where rich people (including John Edwards) go to avoid paying Medicare taxes on business profits.
In contrast, her husband reported around $339,000 of income that year, on which he paid around $96,000 in taxes. His overall tax rate was 28.4 percent; hers just happened to turn out to be the same, even though they filed separate returns. She also paid around $24,000 in "household employment taxes," which implies some quite hefty butler and maid service. Hey, she can afford it. She also got a credit of nearly $8,700 for taxes paid to unspecified foreign governments.
It's interesting that Ms. McCain got to take a $3,300 deduction for a personal exemption when her adjusted gross income was more than $6 million. That's a function of the Bush tax cuts. Under prior law, once one's income exceeded a much smaller amount (far less than $200,000), no exemption deduction at all was allowed. Perhaps the tax savings from the deduction (around $1,000, I would guess) allowed her to buy the maid a nice Christmas present.
All sorts of revealing schedules and attachments are left out of the newly released document. One wonders if those will ever see the light of day -- John Kerry's wealthy spouse's didn't. In the meantime, one goof is apparent on the top of the first page of Ms. McCain's return: The accountant noted, "EXTENSION GRANTED TO 10/15/06," but he or she meant 10/15/07. The return was signed by the preparer on October 4, 2007; for some reason, the date on which Ms. McCain signed it has been redacted. Did she file late?
The release of the return is a direct flip-flop from the Presidential candidate's earlier refusal to disclose any tax information about his spouse. Last month, the campaign issued a statement that included this:
Since the beginning of their marriage, Senator McCain and Mrs. McCain have always maintained separate finances. As required by federal law and Senate rules, Mrs. McCain has released significant and extensive financial information through Senate and Presidential disclosure forms. In the interest of protecting the privacy of her children, Mrs. McCain will not be releasing her personal tax returns.Two weeks ago, Ms. McCain repeated this position on "The Today Show."
Of course, the change of heart was well timed, to get lost in the Memorial Day weekend. We'll have to remember to link back here on Tuesday. [Via TaxProf Blog.]
| Posted at 3:18 AM | Permalink |
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Comments (12)
What no AMT? Under the AMT, the personal exemption phases out completely. We made more than McCain and 1/22 of Cindy's income and we didn't get to claim any personal exemptions (well, we claimed them but the AMT ate them). I guess it must be that living in a low tax state.
No charitable contributions. No schedule A or B or D.
Posted by mrfearless47 | May 24, 2008 8:30 AM
"Apparently the family company of which she is an owner is an S corporation, where rich people (including John Edwards) go to avoid paying Medicare taxes on business profits."
No Jack, an S-corp is where any business owner with half a brain goes when they own a business. I would hardly call myself rich, but I have several s-corp businesses. It's called tax planning.
Posted by Pdx632 | May 24, 2008 11:53 AM
What no AMT?
Also my first thoughts. Any theories here Jack?
Posted by john rettig | May 24, 2008 1:34 PM
"she paid about $1.72 million in federal income taxes"
Clearly this is not enough.
And with the have-nots needing more from the haves the AMT should be at least doubled.
And as an added equalizer some of the have-nots should be allowed to pilfer her residence.
She's obviously got too much stuff. That's not fair.
Peace
Posted by Howard | May 24, 2008 1:47 PM
It's called tax planning.
Tax avoidance, tax planning -- it's the same thing.
What no AMT?
The AMT doesn't usually hit the super-rich, who wind up in very high brackets under the regular tax. For example, as I recall, the Cheneys don't pay it. It hits upper-middle-class taxpayers the hardest.
Posted by Jack Bog | May 24, 2008 2:58 PM
an S-corp is where any business owner with half a brain goes when they own a business.
Actually, many (if not most) small businesses these days are operated as LLCs, not S corporations. S corporations are advantageous for a couple of particular tax dodges, but in many cases, those with half a brain -- or even a whole brain -- prefer the taxation scheme that one gets with an LLC.
Posted by Jack Bog | May 24, 2008 3:05 PM
"The AMT doesn't usually hit the super-rich, who wind up in very high brackets under the regular tax."
So how come Cindy's marginal tax rate is lower than mine. How come John's marginal rate is higher than Cindy's?
I wanna know what scams she's running to elude any AMT. I'm betting it has something to do with "earned" vs "unearned" income. But that's just a guess. I'm not a tax lawyer. I'm not even a lawyer or an accountant. But my marginal rate in 2007 was between Cindy's and John's. Go figure.
Posted by mrfearless47 | May 24, 2008 4:18 PM
Both the McCains' marginal rates (the tax they paid on their last dollar of income for the year) are the highest under the federal income tax: 35 percent. You hit that level at about $175,000 of taxable income if you're married filing separately.
As I understand the AMT dynamic, it kicks in only if your overall (effective) tax rate -- the average rate over all your income -- drops below a certain level. The AMT is imposed at rates of 26 and 28 percent, with deductions and credits different from those allowed under the regular income tax. If your overall (effective) tax rate under the regular income tax gets up over 28 percent, your chances of having to pay AMT are probably a lot lower than they would be if it were, say, 20 percent.
Posted by Jack Bog | May 24, 2008 4:40 PM
You are right Jack, the LLC is the legal entity you choose. However, you must still choose how you want to be taxed. The choices are: disregarded entity(self employed), C Corp, S Corp, or Partnership. When I said I had several S-corps, I meant they were LLC's taxed as an S-corp.
Posted by Pdx632 | May 24, 2008 4:52 PM
Although that may save you on Medicare taxes (as it did for Edwards and apparently for Ms. McCain), it could have some negative ramifications down the road. If you ever have an appreciated asset that you want to take out of the company, or if you ever want to bring in new money with some sort of preferred equity class, Sub S won't let you do it. Foreign investors are also out.
There's also a way to exploit S corporations with ESOPs, but that one's a little beyond my level of expertise.
(BTW, this comment does not constitute legal, accounting, or tax advice, and reliance on it won't help you avoid penalties with the IRS. See a professional tax advisor!)
Posted by Jack Bog | May 24, 2008 5:29 PM
(BTW, this comment does not constitute legal, accounting, or tax advice, and reliance on it won't help you avoid penalties with the IRS. See a professional tax advisor!)
Since I am an accountant, should I attach those words to any posts where I make an accounting related statement?
Posted by Pdx632 | May 25, 2008 1:45 PM
The complaining over Cindy McCain not paying the AMT is a classic example of people confusing marginal tax rates with the effective tax rate (as Jack Bog references above) and of the tendency to believe that whatever happens,you're getting screwed while the "rich" are making out like bandits.
Cindy McCain didn't pay AMT, while many of us did, because her overall tax rate is already higher than ours--even after her $3,300 personal deduction, thanks to President Bush.
Just imagine how much closer the federal budget would be to balancing if, after the IRS accepted Cindy McCain's check for $1.72 million in taxes, she had graviously said, "Oh, and by the way, here's another $1,000 for what I saved by my personal deduction. I just don't feel right accepting this."
Posted by Jack Roberts | May 27, 2008 7:52 AM