Loophole, deduction, exemption, tax credit

Archer and CB I agree, that is a good definition. "loopholes=gray areas that are open or undefined" and exploited by tax experts.

So my next question:

Corporate Jet depreciation - Loophole or business deduction?
Hedge fund LP 15% long term CG rate - Loophole?
Oil company accelerated equipment depreciation - Loophole?
Corporate profits stay overseas/untaxed- Loophole?

My understanding is the above are very specific tax code definitions, not open, undefined loopholes.

I don't know Joe, I have never done corporate taxes, so I have no idea what is defined and what is not. Sometimes I think we use the term loophole wrong, defining it as added tax benefits for large corporations that small businesses dont make enough to qualify for.

C'mon archer, that's a cop out. I am an engineer not an accountant and I am 99% sure those items I listed are tax code laws. This is my point, the word loophole is demagogued most of the time isn't it?

I am not arguing the fairness just the definition.

edit- the one item I think may be a loophole is the hedge fund managers that are not investing their own money, getting a low cap gains rate. To me that is not an investment, its payment for services.

Sorry, It wasn't meant as a cop out.......and I thought I made it clear that yes, I think loophole is used when it isn't accurate. But not having read the tax codes on those issues, and knowing just how convoluted they can be.....I honestly don't know if something like "corporate jet" is spelled out, or if it is being claimed under some other statute that covers transportation for the BOD or CEO and is indeed a loophole. Sometimes a fixed item can be written off at 10% or whatever, but if you list it as something else, re-catagorize it if you will, the write off is 20%....(just pulling those numbers as illustration) Those are loopholes.

It's like the loophole for being able to claim a luxury yacht's mortgage-interest deduction if you only live on it for 14-days out of the year....

Yep... It's a loophole.... Close that sucker.... The corporate jet was a giveaway by the GOP to their corporate masters.... Yep, it's a loophole... Close it.

I see loopholes more as something a industry or single company gets. Like what Aurora is paying that east coast company to build a new stock show setup.

But people can be called terrorists or freedom fighters, depends on who is talking.

Kill the yacht & plane loophole? The unemployed aviation and boat builders thank you for your generous foodstamps and unemployment benefits.

Thank you for your irrelevant hyperbole... Removing those loopholes won't stop one single corporate jet from being sold or one luxury yacht from being sold... (Still got that "10% luxury tax" bullsh*t in your little brain?) We're talking about eliminating an unfair mortgage deduction in one case, and a fat-cat earmark in the other case.

Have fun...

Joe wrote: Archer and CB I agree, that is a good definition. "loopholes=gray areas that are open or undefined" and exploited by tax experts.

So my next question:

Corporate Jet depreciation - Loophole or business deduction?
Hedge fund LP 15% long term CG rate - Loophole?
Oil company accelerated equipment depreciation - Loophole?
Corporate profits stay overseas/untaxed- Loophole?

My understanding is the above are very specific tax code definitions, not open, undefined loopholes.

Figuring this out requires reading and understanding of the tax codes...and I already have prescribed medication that aids in my sleeping...I don't need or want anything else.

SS109 wrote: I see loopholes more as something a industry or single company gets. Like what Aurora is paying that east coast company to build a new stock show setup.

But people can be called terrorists or freedom fighters, depends on who is talking.

Kill the yacht & plane loophole? The unemployed aviation and boat builders thank you for your generous foodstamps and unemployment benefits.

The Yacht 14-day loophole sounds bad, until you compare it to the lakeside vacation home mortgage deduction. Both seem like luxuries. The yacht sailboat could be cheaper and more energy efficient and some retired people live on them for months. You could probably do the same thing with a motor home, or just use a home equity loan.

And I thought the Corp jet loophole was just a shorter depreciation time of 5 years instead of 7, or something like that. Its a capital expense like anything else purchased for business.

My biggest complaint is political demagoguery and twisting of words like loopholes (deductions) and investment (spending).

I'll take a stab at this...

Exemptions only apply to your spouse and qualifying dependents. Generally you you can subtract $3650 from your adjusted gross income for each dependent.

Deductions are items which the federal tax law has determined are not taxable, or only partially taxable. For instance property tax paid is not taxable, but medical expenses are partially taxable assuming you have enough of them (otherwise fully taxable).

Both exemptions and deductions subtract from your adjusted gross income, and result in the calculation of your taxable income. For every $1 of exemptions or deductions you have, you do not save $1 off your taxes. What you save will depend on your tax bracket. For instance if you are in the 25% bracket, you will save 25 cents for every dollar of exemptions or deductions you have.

Credits are tax breaks that the government decides to hand out for various reasons (such as helping out paying for children, or encouraging behavior such as using less energy). Credits are the best of all because they apply to the taxes you owe. For every $1 credit you can claim, you'll generally save $1 off your tax bill. But there are two types of credits, a standard credit and a refundable credit. If you don't owe any taxes before credits, a standard credit will do you no good. You can only apply it to taxes owed. But a refundable credit is the best because you still get it even if you owe zero taxes. The earned income credit is and example of a fully refundable credit.

So far as depreciation goes, that generally applies to a business (but not always) and goes on Schedule C. It's similar to a deduction and lets you reduce the business income you report. Schedule C income is added your regular income and is part of calculating your adjusted gross income.

Capital gains are also added to your income to calculate your adjusted gross income.

I think I'm pretty accurate on the above stuff. In my opinion, a loophole is generally a case where a certain group gets a better deal on their taxes than the regular tax payer. Or someone perceives it that way.

For instance, anyone can claim capital gains if they have the money to invest. But hedge fund managers receive a very large portion of their total income in the form of capital gains. Since cap gains are only taxed at 15% compared to their regular income which is taxed up to 35%, some will consider that a loophole. But it's not clear just when it becomes a loophole (how much cap gains is too much compared to regular income?). Some retired people may recieve a large portion of their income due to cap gains too (maybe a widow inherited a stock portfolio). Is that also a loophole?

The simpliest way to get rid of loopholes would be to eliminate all deductions and credits and lower income tax rates to make up for it. You might keep exemptions so that very low income people don't need to pay tax.