With the release of Mitt Romney’s 2011 tax return on Friday, there were no bombshells of the type that some opponents may have been hoping for. One thing that did become clear, however, was something that’s really no surprise: the benefit the Romneys have reaped from lower rates on long-term capital gains, which accounted for a large portion of the Romneys’ income for last year.
Bernard Kiely, of Kiely Capital Management in Morristown, N.J., spent some time looking over the Romney returns on Monday and shared what he found with AdvisorOne. “I’ve prepared tax returns greater than $13 million,” said Kiely, “but I’ve never prepared one this complicated.”
That said—the Romney return runs to hundreds of pages—he pointed out a number of interesting entries.
“The first thing that struck me,” said Kiely, “was $1,329 in tax-exempt interest, but taxable interest of $3 million.” Romney should put more of his interest investments into municipal bonds, he suggested.
The Romneys reported $3.6 million in dividends, Kiely said; “of that, $2.2 million were qualified dividends taxed at 15%, and the rest were taxed at ordinary tax rates.” He also pointed to “a possible error” having to do with the alternative minimum tax (AMT), but said that it would take an hour of calculations to determine whether it was, instead, a “technical issue”—Romney had $353,000 in taxable refunds for state and local taxes, said Kiely, “but he paid the AMT in 2010, which means the AMT takes that tax deduction out.”
According to the tax benefit rule, Kiely explained, “If you can get a deduction in one year and save taxes and get a refund, you have to pay the tax back. Now one of the things [the AMT] kicks out is state and local income tax.”
The Romneys paid the ordinary tax rate on Mitt’s income from speaker’s fees and board of directors’ fees of some $450,000. But “the big guy,” as Kiely put it, was $6.8 million in capital gains, left after losses were deducted. “It’s all long-term capital gains, so it’s taxed at 15%,” he said. Income from Schedule D, encompassing partnerships, S corporations, etc., was listed at $9,033,933.
Other “interesting” entries included $1.5 million in real estate taxes, $15,000 for dental work under itemized deductions—it wasn’t high enough to constitute a deduction—and $674,000 in AMT; according to Kiely, “For me, that’s a record. That’s a lot.”
The reason he paid so much in AMT, said Kiely, is that AMT “disallows state and local income taxes, so he got no benefit on state and local and property taxes. Also,” he continued, Romney “had $832,000 in miscellaneous itemized deductions, flowed through from various partnerships, and AMT disallowed that.” Romney also donated $1.3 million in cash, with $1.1 million going to the Church of Latter-Day Saints and $214,000 going to the Tyler Charitable Foundation, a nonprofit funded by the Romneys that supports a wide variety of causes. The Tyler Foundation was also the recipient of $920,000 in stock, for total contributions of $2.2 million.
A lot of Romney’s income, said Kiely, “is foreign-sourced income, and that’s why his tax return is 300 pages long” (379 pages, to be exact). “When you have foreign-sourced income, there are a lot of information returns, forms his CPA had to prepare that basically disclose to the federal government his foreign investments.” Romney paid income tax to foreign governments, “and because of that, he got a credit for $102,000.”
Ann Romney’s dressage horse Rafalca was not listed on the 2011 return as a business, as she had been in 2010. Then, according to a report in the San Francisco Chronicle, Rob Rom Enterprises LLC, as the business was called, garnered a $50 tax deduction on losses that totaled $77,731.
The Romney campaign said in the report, “In 2011, the activities of Rob Rom LLC were considered, for tax purposes, to be personal in nature and as a result the expenses are not reported on the 2011 tax return.”
The Romneys are also getting a refund of $1,498,740, which they will apply to their 2012 estimated tax.