News, Tax loopholes seen costing billions annually. (accounting, deduction, taxable)

[JD59]

WASHINGTON (Reuters) - Tax and accounting loopholes that largely benefit rich taxpayers and companies cost the government $20 billion a year even as the pay gap between chief executives and employees has widened, two groups said on Monday.

Tax loopholes seen costing billions annually | U.S. | Reuters

[coldwine]

There is nothing about that article, or the one concerned with transfer pricing, or any of the other dozens of tax loophole arguments I see that successfully crafts an argument in favor of the possibility of an exploited tax loophole.

In the first place, the government limits how much one may deduct for executive compensation as far as tax deductions are concerned. Stock options aren't ever deducted unless you wish to consider the "cost" of issuing them, which the government requires to be amortized over the service term. Because, how do I put this... it really does cost the company to issue that stock. At least, this is what the IRS, FASB and the SEC have agreed upon. It is mandatory that they keep track of the cost of stock options, and I'm honestly at a loss as to where I would begin to explain this to someone who doesn't already have an inkling of how alternative compensation works.

Deferred compensation certainly isn't unlimited. Jesus cristo, it means exactly that: it's deferred because the government won't allow corporations to deduct all of it right now. This isn't a tax loophole, this is a mandatory method of financial accounting to achieve federal tax compliance.

Secondly, comments like this just boggle me:

"It's outrageous that our tax dollars are inflating executive paychecks," said Sarah Anderson, an author of the report. "Surely in these troubled economic times we can find better ways to spend our nation's wealth."

In order for this to be true, it would have to be a case of using tax money already collected to literally pay out corporate executives. Well, um... that's never happened, ever, in the history of the United States. Deferred compensation is a cost allocation method that spreads the cost over multiple periods (read: several years) even before the options become exercisable. In other words, it's a deduction that reduces taxable income. Again, this is the government's method, not corporate America's.

Speaking as someone who has struggled, and outright failed, to understand the laws around compensation, I can only stare in wonder at people as ignorant as Sarah Anderson. There are senior tax partners who spend their entire lives studying how to handle compensation and tax-related matters, and they still don't have definitive answers because of how complex and vague the subject is.

Last but not least, I'd like to point out that this article is only concerned with federal tax law. State tax law can and usually does differ radically state-to-state on how compensation is to be handled. Some states have a strict limit on the deduction, irrespective of how it's handled, while others (New York, for an example) have complex and trying laws regarding said compensation deductions.

[60-minutes-II]

if you believe those 40billion dollars would have been spent well by the gv. than what about the 246billion dollars spent by the government on interest payments for the debt. perhaps the people should be more upset over that than these loopholes.

[Submariner]

Less than 30% of Federal Revenue comes from income taxation.

The topic of taxes is a minor issue when looking at the Federal Budget.

Tax Theory 101: Income taxes are a method of influencing behavior not a primary means of revenue.

[evilnewbie]

The biggest loophole is the U.S. government is having a 10 trillion debt and over 50 trillion liabilities... talk about robbing Americans... how about robbing Social Security as if it was your own personal piggy bank.. all the politicians hands are dirty.. what about THAT loophole