Memo to Timothy Geithner: Moving expenses are deductible. Commuting is not.
That tax tip, among others, could save Geithner, President Barack Obama's nominee to be Secretary of the Treasury, thousands of dollars and some embarrassment when he files his federal returns next year. Geithner is clearly in need of better tax counseling.
It was revealed last week that Geithner had failed to pay nearly $40,000 in taxes since 2001. When he appears before the Senate Finance Committee today for his confirmation hearings, he will be interrogated about his plans to deal with the flailing economy, failing banks and rising foreclosures. But the most disconcerting questions Geithner is likely to face may have to do not with the current financial maelstrom but with his track record with the Internal Revenue Service an agency he would oversee as Treasury Secretary.
Much of Geithner's missing government payments were due to the fact that he did not pay his Social Security and Medicare taxes when he worked as an employee of the International Monetary Fund in the early part of this decade. The IMF is an international organization and does not automatically withhold these taxes on behalf of its employees as U.S. companies do. IMF employees have to pay that portion of their tax bills themselves. Apparently figuring out what is owed is tricky stuff, and at least one accountant reportedly told Geithner he had made all necessary payments.
But tax experts who have reviewed a report written for the Senate Finance Committee on Geithner's missing taxes say at least $4,334 of the back taxes he owed the government was the result of basic errors and possibly some liberal interpretations of the tax code by Geithner, who prepared his taxes during several of the years in question, or by his accountant. Among Geithner's missteps: he claimed that payments made for summer camp for his children were tax deductible because they qualified as dependent-care. But the dependent-care credit is aimed at helping middle-class working parents afford the cost of daily child care, not at helping pay for expensive retreats. An accountant told Geithner in 2006 that overnight camps were not eligible for a tax break, according to the Senate Finance Committee report. Still, Geithner failed to file amended tax returns and pay his back taxes until shortly before being nominated by Obama. (See who's who in Barack Obama's White House.)
"Moves like stretching the definition of 'necessary child care' are so silly because all it is going to save you is a few thousand bucks," says Howard Hook, a financial planner and CPA with Access Wealth Planning in Roseland, N.J. "But that doesn't stop people from trying."