How Romney Might Have Had Very Low Income Taxes

At Talking Points Memo there's a very good (and accessible) discussion of how Mitt Romney could have had very low (< 10%) income tax due for many years. First, the key here, according to the author (a reader/correspondent with TPM), that Romney may have paid little income tax though he might have paid a lot in other taxes. The income tax might be sheltered by shifting stock in Bain Capital to an IRA (typically tax deferred to pay out, but it depends on the type of IRA, though he does not say that), then selling the stock with the proceeds remaining in the IRA. This not only skirts taxes but IRA contribution rules (since the nominal value of the shares may be less than IRA limits even though when sold they go into the tens of millions of dollars.)
I am always amused when I hear people refer to "standard structuring/gifting, offshore planning, charitable contributions ... ," and the like, which the author does. Let's look at those. 

Gift tax is paid by the recipient of the gift in most cases, with (depending on the year of the gift) 10K to 13K in fair market value of the gift not being taxed and certain types of gifts not taxable. If the gift is to or for himself, Romney has not made a gift. After one determines the amount of the gift subject to tax, then a credit can be taken against income, up to the gift's value, with the amount of credit varying by year. Undervaluing fair market value is a common dodge, but if it is not valued in good faith, that is not tax planning but tax evasion. In any regard, while there are many gift schemes out there to work taxes, in theory you can't save taxes by giving a gift. The theory breaks when the gift is really to yourself and, equally bad, grossly undervalued for tax purposes.

"Offshore planning" is a euphemism for "sheltering" money in an offshore account and not paying tax on it. Let's be clear: putting money in an offshore account is legal in many instances. It is not legal for a US citizen to not report the income. All income of a US citizen is taxable regardless of where earned. An offset is given for taxes paid elsewhere. "Offshore planning" to evade taxes is not legal.

Charitable contributions can lower one's taxable income. The thing here, again, is that in theory this does not save money for the taxpayer because the value of the contribution is supposed to exceed the amount of tax saved (which is a % of the contribution). But if you're making a charitable contribution really to yourself-- you are, after all, your favorite charity -- then the theory falls apart. That's how it's done. Were substantial bona fide contributions made by Romney? I have no idea.

Anyway, read the post: it's interesting.  See also my posts here, here and here.