Currently, a company that invests in America has to pay immediate U.S. taxes on its profits from that investment. But if the company instead invests and creates jobs overseas through a foreign subsidiary, it does not have to pay U.S. taxes on its overseas profits until those profits are brought back to the United States, if they ever are. Yet even though companies do not have to pay U.S. taxes on their overseas profits today, they still get to take deductions today on their U.S. tax returns for all of the expenses that support their overseas investment.Let me get this straight. If a company uses its foreign subsidiary to invest and create more overseas jobs, they do not pay US taxes on profits unless they bring those profits back to the United States but they can take an income tax deduction for expenses of that foreign subsidiary immediately off their taxes. That means they can park the profits in their Cayman Island accounts for years and never have to pay a US tax on the profits while at the same time taking a deduction each year for expenses.
Will someone please tell me why this loophole exists in the tax laws because IMHO it is wrong and favors those companies who send jobs and work overseas. Is this another thing Romney is hiding with his tax returns? He keeps saying he paid all taxes required but most regular people would not understand someone not paying tax in the United States but taking off deductions for that entity. I am one of them. Think it is reprehensible that this loophole even exists.
Sen. Marco Rubio (R-FL) introduced a bill earlier this week that would exempt Olympians from taxes on their winnings but looks like the bill is not getting traction. The reason given -- no lobbying efforts to get it passed. IOTW no matter how good a bill is, you have to get the lobbyists behind the bill in order to get it passed? Yet some people will attack you when you say there are a lot of bought and paid for members of Congress from both parties.
Why is the IRS taxing our Olympic Athletes who earn medals? That should be a no brainer with all the work and dedication they have put in over the years that their medals and winnings should be tax exempt.
Something is really wrong with a tax system that goes after US medal winners yet allows corporations doing business overseas to pay no tax on their profits as long as they keep them in offshore accounts but can take deductions off of the income tax for that same entity.
Talk about a screwed up system -- the IRS rules and regulations over the years have led to this mess but the one thing you have seen over the years is changes in the Tax Code have continued to favor the wealthy and their investments while the Middle Class is fed a bone or two to keep them quiet and think they were given a really good deal. Is this why the big donors went to Romney and the Super PACs because they know he will do nothing to change the Tax Code -- same with most Republicans in the Congress? This is all beginning to make sense starting with why Romney won't release his income tax returns. He is correct that most Americans wouldn't understand them. The fallout would hurt him but will guarantee you it would also hurt Republican members of Congress who push low tax rates for all including the wealthy.
The mantra of today is tax the Olympic athletes but don't tax the profits of the wealthy making money overseas. Maybe it is time our Olympic athletes to open Cayman accounts!
How the IRS Takes the Gold After the OlympicsPosted 4:00PM 08/03/12 Posted under: Taxes
Team USA's biggest winner of the London Olympic Games may be the IRS.
Our Olympic medalists will rake in handsome rewards for representing their country, but they will also have to give a chunk back to Uncle Sam in taxes, notes the Americans for Tax Reform Foundation.
Under U.S. tax law, they must include the value of their Olympic medals and prizes in their taxable income. The precious metal in the medals is worth about $675 for gold, $385 for silver and under $5 for bronze. But medalists take in handsome cash prizes, too: $25,000 for gold, $15,000 for silver and $10,000 for bronze.
Assuming they're paying the top U.S. tax rate of 35%, that means Olympians would have to shell out $8,750 for winning gold, $5,250 for silver and $3,500 for bronze.
The British government has waived its right to tax Olympians' winnings, and the ATRF -- research arm for Grover Norquist's ultra-conservative anti-tax group, Americans for Tax Reform -- is publicly taking issue with the idea that U.S. citizens earning money abroad should have to pay U.S. taxes on it, according to Ryan Ellis, tax policy director for the ATR. U.S. policy differs from that of the majority of the world's countries, which don't tax their citizens for income earned abroad.
With increasing globalization and opportunities to earn abroad, that extra tax bite could actually become a disincentive to people returning to the U.S. to contribute to the domestic economy, Ellis suggests.
Already, Ellis says, many corporations with subsidiaries in foreign countries shy away from bringing their profits back to the U.S. because to do so would mean paying U.S. taxes on them.
"You don't have to pay the second tax to the IRS until you actually bring the money back here," Ellis said. "If you leave it overseas, the tax is deferred indefinitely. Our current system incentivizes people to stay overseas."
But Corporations Aren't People
A closer look at this argument reveals a fairly obvious apples-to-oranges comparison being made by Ellis and the ATR: There's a big difference between how individuals and corporations are treated when it comes to taxable foreign income, as the White House's National Economic Council (NEC) makes clear.
An American citizen who earns up to $95,100 overseas pays only the foreign taxes on that income. If he earns more than that, he pays U.S. taxes only on the amount earned above that threshold. More importantly, the taxpayer gets a U.S. tax credit for taxes paid to other governments. The result should be that, at worst, someone earning money overseas should pay no more overall than if all money had been earned here, and all the taxes in question were paid to the IRS. (And, thanks to loopholes in the system, it often works out that those workers pay less, the NEC notes.)
Corporations, by contrast ... well, that's more complicated, but the NEC website concisely explains the issue:
Companies Can Defer Paying Taxes on Overseas Profits Until Later, While Taking Tax Deductions on Their Foreign Expenses Now:
- Currently, a company that invests in America has to pay immediate U.S. taxes on its profits from that investment. But if the company instead invests and creates jobs overseas through a foreign subsidiary, it does not have to pay U.S. taxes on its overseas profits until those profits are brought back to the United States, if they ever are. Yet even though companies do not have to pay U.S. taxes on their overseas profits today, they still get to take deductions today on their U.S. tax returns for all of the expenses that support their overseas investment.
And it's questionable as to whether upholding a "territorial taxation" system -- in which taxes are paid only to the jurisdictions where the money is earned -- would benefit the U.S. economy, the NEC says.
"Pure territorial taxation is a $200 billion tax incentive for increasing jobs overseas, not for creating jobs in America," Principal Deputy NEC Director Jason Furman told DailyFinance.
Right now, an American multinational corporation will pay 12% in taxes in China, for example, and nothing to the U.S. If after five years, it decides to bring those profits back to the U.S., it will pay 23% on the earnings -- equaling the top U.S. tax rate of 35%, and never exceeding it.
"The notion that there's a double tax is completely absurd," Furman said.
And in reality, the NEC says, many U.S. corporations opt for added taxing flexibility by having a subsidiary in the Cayman Islands who will own the intellectual property and allow the company to pay only 2% in taxes. Some corporations will never bring that money back to the U.S.
Excerpt: Read More at Daily Finance