A review of President Obama and Governor Romney proposals with respect to taxes reveal that they are surprisingly similar in many areas.  However, even though they have not always clarified in detail all their positions on certain tax issues, below is a brief summary of 10 selected tax issues that we believe may affect many of our clients where the candidates current stated positions are reported to differ:

Individual income tax rates on ordinary income such as wages, interest and business income from pass-through entities, etc.  Current tax rates of 10%, 15%, 25%, 28%, 33% and 35% are scheduled to expire at the end of 2012 and revert to pre-Bush tax cut rates of 15%, 28%, 31%, 36% and 39.6.

D  Obama’s proposal is to continue the current rates for all taxpayers other than ‘high income” taxpayers defined as single taxpayers with incomes over $200,000 and married couples with incomes over $250,000. Under his plan, the top two rates for 2012 would change to 36% and 39.6% leaving other rates the same.

R  Romney’s proposal is to make the 2012 tax rates permanent.

Long-term capital gains and qualified dividends are currently taxed at a maximum rate of 15%.  This preferential rate is set to expire at the end of 2012 with long-term capital gains scheduled to be taxed at a maximum rate of 20% and dividends taxed at ordinary income tax rates.

D  Obama’s proposal is to maintain the current rates for lower and middle income taxpayers but to tax dividends as ordinary income tax rates for taxpayers in his proposed 36% and 39.6% tax brackets and to tax long-term capital gains at a 20% rate for single taxpayers with income over $200,000 and married taxpayers with income over $250,000.

R  Romney’s proposal is to make the 2012 tax rates for dividends and long-term capital gains permanent.  In addition, he proposes to exempt from tax all capital gains for taxpayers earning less than $200,000

The temporary repeal of the general phase-out of exemptions and itemized deductions for high income taxpayers is scheduled to expire at the end of 2012.

D  Obama’s proposal is to reduce the value of the otherwise allowed itemized deductions for single taxpayers with incomes over $200,000 and married taxpayers with incomes over $250,000 to 28% of the tax that would be owed.

R  Romney will make permanent the repeal of the phase out limitations.  However, he proposes to eliminate the ability of higher-income taxpayers, which he has not defined, to deduct mortgage interest on second homes and to limit the tax benefits they will receive from charitable contributions.

Currently the combined maximum estate/gift tax rate is 35% of the excess of the value of a decedent’s estate or gifts over the exemption amount which is approximately $5 million.  In addition, surviving spouse may elect to preserve the unused portion of their previously deceased spouse’s $5 million exemption.  This is known as portability.  These rules are set to expire at the end of 2012 and revert to a maximum rate of 55% of the excess of the value of a decedent’s estate/gifts over $1 million.

D  Obama’s proposal is to set the maximum rate at 45% with an exemption amount of $3.5 million and to extend portability for taxable estates but allow the exemption for taxable gifts to revert to $1 million.

R  Romney’s proposal is to abolish the federal estate and gift tax completely.

The current alternative minimum tax was originally enacted in 1982 to ensure that high income taxpayers paid tax by limiting their deductions and credits.  It provides for a separate exemption amount that is not automatically adjusted for inflation each year.  Consequently, Congress has passed series of patches to temporarily adjust the exemption amount for inflation.  The current patch expired at the end of 2011 and if not renewed will subject an estimated additional 20 million middle income taxpayers to the alternative minimum tax in 2012.

D  Obama has proposed to replace the alternative minimum tax with the “Buffet rule” named after proposals by Warren Buffet.  This would basically subject taxpayers earning over $1 million to a minimum tax rate of at least 30%.

R  Romney’s proposal is to abolish the alternative minimum tax with no replacement.

Qualifying taxpayers are currently allowed to claim the American Opportunities tax credit of up to $2,500 for the cost of up to four years of post-secondary tuition and some other related costs paid for their dependents.  The credit is scheduled to expire at the end of 2012 and revert to the Hope credit which is only available for the first two years of post-secondary education and the Life-time learning credit thereafter with much lower credit amounts available.  Prior to 2012, some taxpayers were also eligible to choose to take a tuition deduction of up to $4,000 in lieu of the credit.  Unless it is extended the tuition deduction expired at the end of 2011.

D  Obama’s proposal is to make the American Opportunities Tax Credit permanent and to extend the tuition deduction.

R  Romney has not addressed either of these items in his current proposals.

Various popular temporary tax deductions or credits for individuals and businesses expired at the end of 2011.  Among these items are the teacher’s classroom expense deduction, the sales tax deduction, qualified mortgage insurance deduction and special rules for contributions of real property for conservation purposes for individuals and the work opportunity credit for businesses.

D  Obama’s proposals include extension of all the individual provisions listed above and to replace the Work Opportunity Credit with a new credit for employers that hire long-term unemployed individuals.

R  Romney has not specifically addressed any of the items listed above.

Qualified taxpayers with oil and gas interests are currently eligible to deduct percentage depletion and have special rules for expensing intangible drilling and development costs.

D  Obama’s proposals are to repeal these special deductions.

R  Romney has not addressed the oil and gas provisions.

Currently the top non-passthrough corporate tax rate is 35%.

D  Obama’s proposals include a reduction of the top corporate tax rate to 28% in return for the elimination or reduction of unspecified tax deductions or credits.  He has also proposed that large passthrough entities (S corporations and partnerships) be taxed as non-passthrough corporations.

R  Romney’s proposals are to eventually reduce the top corporate tax rate to 25%.

On January 1, 2013, two new Medicare taxes included in the Patient Protection and Affordable Care Act (Health Care Act) become effective.  Single individuals with income over $200,000 and married taxpayers with income over $250,000 will be subject to an additional 0.9% tax on earned income and a new 3.8% tax on certain unearned income in excess of the threshold amounts.

D  Obama’s proposals will retain these new Medicare taxes as part of the Health Care Act.

R  Romney proposes to repeal the entire Health Care Act.