If you saw your 2012 tax return splashed all over the internet, you'd probably be pretty unhappy. Maybe you don't want your family, friends, or colleagues to know just how well you did last year. Or maybe you'd want them all to think you had done better than in reality. (Donald Trump is famous for pestering the folks who compile the Forbes 400 list of the richest Americans to rank him higher than they do.) But most of us would rather put our most embarrassing eighth-grade class photo online than our taxes.
Well, President Obama and his family don't have that luxury. Legally, presidential tax returns are as private as anyone else's. However, presidents, vice-presidents, and major party nominees dating back to Richard Nixon have released at least some of their tax return information. The Obamas released their 2012 returns on Friday, and they reveal an intriguing snapshot of presidential finances.
For 2013, the Obamas reported $608,611 in adjusted gross income. This included $400,000 for leading the Free World, $258,772 in book royalties, $11,462 in interest, and a whole $2 in dividends. They also reported $3,000 in long-term capital losses, with an additional $115,516 to carry over to future years or offset future gains. Of course, they enjoy some nifty tax-free perks, too -- helicopters, airplanes, personal chefs and other staff. They also enjoy the use of a 132-room mansion in the heart of Washington, DC, which has been appraised at anywhere from $110 million to $302,021,348.
On the "deduction" side, the Obamas stashed $50,000 into a retirement plan. (That should be reassuring in the event they can't support themselves on the speaking circuit.) They also deducted $45,046 in mortgage interest, $63,305 in state and local tax, and a total of $150,034 in charitable gifts to 33 separate organizations. (The largest single gift, $103,871, went to the Fisher House Foundation, which provides free or low-cost lodging to veterans and military families receiving treatment at military medical centers.)
The Obamas finished up with $335,026 in taxable income. The regular tax on that amount is $87,465, which is more than most voters make in a year. But they got whacked for another $21,221 in Alternative Minimum Tax, plus $6,930 in self-employment tax on the book royalties. Subtract $3,402 in foreign tax credits, and the total bill settles in at $112,214.
What's ahead for next year? Well, if the Obamas report the same income and expenses in 2013, they'll avoid the new 39.6% bracket that kicks in for taxable incomes over $450,000. But they'll lose 3% of their itemized deductions and 2% of their personal exemptions for each dollar of adjusted gross income over a $300,000 threshold. They'll pay an extra 0.9% payroll tax on earned income over $250,000, plus a 3.8% "unearned income Medicare contribution" on their investment income.
Presidents usually find themselves solidly in the "top 1%" that dominated the conversation in last year's election. George W. and Laura Bush reported $784,219 in AGI in the fourth year of his presidency, including nearly $400,000 in interest and dividends. Bill and Hillary Clinton reported $1,065,101 in AGI in the fourth year of his presidency, including $742,852 in Hillary's book royalties that went to charity. And who can forget 1991, when George and Barbara Bush's dog Millie "earned" $889,176 in royalties for "her" memoir, Millie's Book? Of course, the big money comes after leaving office -- these days, Bill Clinton earns as much as $10 million per year from speaking.
We prepare every return to stand up to the same level of scrutiny as the President's. But we understand our real value comes from tax planning. And you don't have to earn a presidential income to take advantage of our proactive approach. So call us when you're ready to pay less!
Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. Counseling Entrepreneurs, Professionals and Select Individuals who are struggling with ever changing tax laws and who are paying too much in taxes. All the while he is protecting his clients from the IRS and other taxing authorities using proactive tax planning strategies, ensuring compliance with minimal tax liability.
Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday between 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.