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Monday, Jan 23 2012

MEMO: Romney’s Taxes – What We’ll Be Looking For

Jan 23, 2012

With the impending release of Mitt Romney’s taxes, we thought it might be helpful to highlight a few of the items we will be looking for in his 1040. It is important to note that no matter what his taxes reveal, it will be an incomplete picture of his finances, which could be clarified by examining his taxes back to his Bain days.

Form 1040

Home Address
— In which state did Romney declare residency?

Line 7 Earnings
— Did Romney earn any wages, or did all of his income come from other sources?
— Did Romney receive K-1 earnings form a partnership in a corporation?

Line 8a Taxable Interest
— How much interest did Romney earn?

Line 8b Tax Exempt Interest
To calculate the percentage of taxes Romney paid, this line must be added to his total income, because it only appears on this line (because it is tax exempt).Although it is not taxable, this is still income.

Line 12 Business Income
— Did Romney claim any business income?
If he owned any businesses it could appear here. His speaking fees could also likely appear here.

Line 13 Capital Gains
— How much income did Romney receive that is taxed at a lower capital gains rate?

Line 21: Other Income
This is where some unknown unknowns should show up. If there is a number here, there will be additional paperwork.

Line 22: Total income
Again, to calculate Romney’s real income, add line 22 + line 8b tax exempt interest.

Line 28:
If a business Romney owned made retirement contributions, it could appear here.

Line 40: Itemized Deduction Total
Romney’s deductions, including charitable giving will be outlined on Schedule A and totaled here.

Line 45: AMT
— Does Romney pay the AMT?

Schedule A: Itemized Deductions
— How much did Romney donate in the form of stock?
This form outlines Romney’s itemized deductions. Things like charitable contributions can be expected here. We could list any number of things for the press to watch out for, for example donations that contradict his values. Important note: Donating stock is a very tax efficient way to make a contribution. If someone owns a stock, and it earns money, they can donate it (and receive a tax deduction) without having to pay capital gains taxes. Unfortunately, Schedule A does not require an indication of a stock contribution, and it will only appear as a financial figure.

Schedule B: Interest and Ordinary Dividends:
— What interest and dividends did Romney earn?
— Did Romney pay U.S. taxes on interest and dividends held in other nations?
This form requires the disclosure of all accounts where interest or dividends were paid. If accounts were held in other countries, then Romney was required by law to also file form TD F 90-22. Form TD F 90-22 is a separate filing and is not filed with a 1040. Did Romney make it public?

Schedule C: Business Profit and Losses
— Did Romney declare a profit or loss from a solely owned business?
It’s possible Romney’s speaking fees appear here.
— How much did Romney spend on travel and hotels during his speaking trips?
These would appear as expenses that contributed towards his business earnings.

Schedule D: Capital Gains
— What did he earn capital gains from?
This should be a very extensive section for Romney and will be relatively self-explanatory.

Schedule E:  Supplemental Income and Loss

Part I: Profits Or Losses From Rental Properties Or Royalties
Romney could have royalty income from any number of investments. It should also be noted that royalties from his book are likely reported under income or self-employment.

Part II: Profit Or Loss From Partnerships And Corporations.
— Is Romney still a member of Bain Capital?
Here is where Romney must declare interests in partnerships and corporations.

Form 1065 Schedule K1
This is where carried interest is listed, but he may not file them with his taxes. However, if he is claiming carried interest, he would need to list himself as a member of Bain capital on Schedule E.

Published: Jan 23, 2012

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