In the News: I he Obamas I axes Gross Income Wages Interest Dividends Tax refund
ID: 2793576 • Letter: I
Question
In the News: I he Obamas I axes Gross Income Wages Interest Dividends Tax refunds Book royalties Capital loss Trust income Deductions $ 52,527 25,742 49,945 245,075 1,382,889 Total allowed 373,289 $ 395,188 State/local taxes 8,066 Property taxes 9,997 Mortgage interest 1,151 Charity (3,000) 1323 Total income $1,795,614 $ 14,600 $1,340,207 $438,949 Exemptions Adjustments Self-employment tax Pension contribution $ 18,518 Taxable income 49 000 Tax $ 67,518 $1,728,096 Adjusted Gross Income Source: The White House (2010 returns) Given the above table of information about President Obama's 2010 taxes, complete the table and answer the question (Note: the highest marginal tax rate in 2010 was 35%, and was effective on incomes for married couples who file jointly above $373,650) 2010 with "loopholes" 2010 without "loopholes" 1,795,614 Total Income 1,795,614 $ Less adjustments deductions, and exemptions 455,407 Taxable Income 1,340,207 How much more income tax would President Obama have paid in 2010 if he had used no loopholes" Hint: (difference in tax) = (difference in taxable income"(marginal rate)Explanation / Answer
Deductions have greatly benefitted Obama because he has itemized his taxes. When you itemize taxes, you can't claim standard deductions too. It's always one of the two. A middle-class taxpayer will not greatly benefit from itemizing because he'd not be giving to charities or paying high property taxes or mortgage payments.
Obama owed $51568 in state and local taxes while they paid the estimated amount of $78269 ($52527 + $25742). They would have received a tax refund of $26701 by State in 2010 but this overpaying reduced the taxable income. This was one of the loopholes.
There is deduction under charity because they made donations to 36 different charities. That they made those donations can be verified but the loophole here is that in itemized deductions gifts to charities can give you a tax break even if you donate an old fridge (non cash item). The market value of such an item can be deducted from the taxable income.
Self-employment tax is again a loophole because these are estimated taxes and can be played with. People holding public offices generally avoid conflict of interest so this tax just looks like a ploy to bring down his taxable income.
To arrive at new taxable income, we must take away Self Employment tax, $26701 of extra taxes paid and $245075 paid to charities. This would increase the taxable income by $290294 ($18518 + $26701 +$245075)
His deductions would be = $455407 - $290294 = $165113
Taxable income would be = $1630501
Tax liability will increase by $290294 * 0.35 = $101602.9