The income tax season is upon us again. Here are two very different suggestions involving taxes – one for individuals on Medicare, and another for those who worry about the 1% earning too much.
- For the over 65 year-old types: since 2010, if you have any outside income that you report on your tax return (Schedule C), you can deduct all your Medicare premiums, at least up to your Schedule C income. This includes your spouse’s premiums, too, if you file a joint return. Thus, deductions well over $5,000 are available to shield that amount of income from tax. See this note from the Journal of Accountancy. Score one more for the AARP and the old folk lobby.
- The second suggestion concerns well-off acquaintances who profess profound distress at the iniquity of “the 1%” who enjoy high incomes. Challenge these types to set a good example by foregoing the tax loopholes that disproportionately favor the well-off when they (or their accountants) prepare IRS form 1040. And don’t bring up the Medicare premium deduction.
The loopholes that are mostly used by upper bracket friends, according to the Congressional Research Service, are the preferential tax rates on capital gains and qualified dividends, tax exempt interest on municipal bonds, and deductions for state and local taxes and charitable contributions. If these particular loopholes, technically known as “tax expenditures,” were eliminated, based on CRS estimates federal tax revenues would increase by as much as $234 billion in the current fiscal year.
All of this revenue would come from the upper one-third of taxpayers – those who itemize their deductions – unless tax rates were reduced to cushion the impact (as happened in the Reagan Administration’s 1986 tax reform legislation).
My pet peeve of a loophole is the charitable deduction for conservation easements, a favorite of wealthy Nature Conservancy types. Lost tax revenues from this tax dodge run only about $500 million a year. But more on this animal in a future blog.