The tax returns of Bernie Sanders
This is the first day I felt "recovered" enough from tax season to look over the ten years of tax returns that were released by Senator Bernie Sanders. Unless otherwise indicated, references to Senator Sanders in the analyses of these tax returns are to both Senator and Mrs. Sanders; who filed jointly.
2009
The tax return was prepared by hand. That probably accounts for the errors I found. The return showed an Adjusted Gross Income (AGI) of $314,742. That figure is too high because Senator Sanders included 100% of the Social Security benefits as taxable income. Only 85% of those benefits should have been taxed. He and his wife would pay tax on $4,139 too much.
He made another error on his itemized deductions, claiming $3,000 in unreimbursed employment expenses, and yet another in not calculating the limitation on the itemized deductions themselves. That limitation, known as the Pease Limitation would have come into play.
What's interesting is that Senator Sanders taxed himself on $4,139 too much in income and then claimed deductions of $4,479 he wasn't entitled to. So the net effect was that he paid tax on a little less income than he should have.
His effective tax rate for 2009 was 17.6%
2010
This return was prepared by a professional, although the identity of that professional was redacted from the return that was released. The errors from the 2009 return were not present.
This return shows that Senator Sanders purchased two rental properties, or put two properties they already owned into service as rental properties. Those rental properties generated a loss of $24,293 which was not allowed. Those losses are carried forward when not allowed due to the AGI being too high. There is a discrepancy in the depreciation claimed for the properties on Schedule E and on Form 4562 where depreciation is reported.
On an AGI of $324,870, Senator Sanders paid an effective tax rate of 18.6%.
2011
Senator Sanders prepared this year's return himself, using an online software program. The Schedule E that would be present if he was continuing to operate one or both of the rental properties from the previous year, and the Form 8582 carrying forward those passive losses are not present.
On an AGI of $324,870, Senator Sanders paid $61,242 in income tax, an effective rate of 18.9%.
2012
Senator Sanders again prepared the tax return using online software. This is an interesting year, based on things from 2010 and 2011.
The 2010 return showed $24,293 in losses from rental income that were not allowed that year and carried into the future. The 2012 return shows only $6,245 in prior year losses that were previously not allowed. There are no entries on the 2011 return showing where the other $18,048 in losses were used.
Then there is an itemized deduction of $56,000 for legal and accounting fees. That kind of deduction is only allowable when it is to keep one's job or to generate taxable income. To illustrate, in 2012 you could deduct legal fees for an accident settlement where the settlement was taxable. If the settlement was not taxable, the legal fees paid were not deductible.
I wondered if those expenses were related to the departure of Jane Sanders from Burlington College, but she'd resigned in September of 2011. I suppose it is possible those expenses were incurred in 2012, but it doesn't make sense. The salary of Senator Sanders was at least $174,000 in 2012 and the amount of wages on line 7 of the tax return was $250,568. Since the salary of Jane Sanders as President of Burlington College was $160,000, it's hard to find any taxable income that would require expending $56,000 on legal and accounting fees.
The AGI for Senator Sanders in 2012 was down, at $280,954 and their effective tax rate that year was 16.1%.
2013
Once again Senator Sanders used online software to prepare the tax return. AGI was down slightly at $278,779. Mrs. Sanders earned $8,475 from her work as an Alternate Commissioner for the Texas Low Level Radioactive Waste Disposal Compact Commission.
The effective tax rate for Senator Sanders was also lower, at 15.6%
2014
AGI was down significantly this year at $205,571. Social Security benefits increased significantly, indicating Mrs. Sanders had begun receiving benefits. The tax return was prepared with online software.
The effective tax rate for Senator Sanders was 13.5%
2015
Senator Sanders apparently sold the last remaining rental property in January of 2015 and realized a gain on the sale in the amount of $36,635. That gain is the only reason AGI was up in 2015 at $240,610.
The effective tax rate for Senator Sanders was up at 14.9%.
2016
This is the year when the income for Senator Sanders increased significantly. His gross income as an author was $840,485 and after allowable expenses came out to $796,858. Senator Sanders took a distribution of $93,065 from a pension plan. That's vastly different from the distribution amounts in prior and subsequent years. It was the only distribution of more than $6,000 from pensions in any other year from 2012 through 2018.
Looking at the pdf itself, the two pages that report the income from writing for Senator Sanders look very different from the other documents in the return. The images below do not show this difference as well as the pdf itself.
Why do those two particular pages look so different? It is unusual.
It is also worth noting that the amount of wages shown on Line 7 of the tax return were only $137,033. Salaries for U.S. Senators in 2016 were $174,000. This tells us that Senator Sanders put over $35,000 of his salary into retirement plans. How many of his constituents earn less than that annually?
On an AGI of $1,062,626 Senator Sanders paid an effective tax rate of 35%.
2017
Both Senator and Mrs. Sanders had income from authoring books in this year. Senator Sanders had $855,631 with only $147 in expenses. Mrs. Sanders had gross receipts of $106,250 and no expenses. Large Schedule C income with no claimed expenses is unusual. So is the fact that a tax return with an AGI of $1,150,891 was self-prepared with online software. Not unheard of, but unusual.
The 2017 return showed much higher itemized deductions, thanks to the ability of Senator Sanders to deduct $189,530 in state income taxes paid during 2017. Their taxable income that year was $889,694 and they paid $299,056 in income taxes. They also paid $37,931 in self-employment taxes and $6,895 in additional Medicare taxes on their self-employment income. Those increased itemized deductions are why the effective tax rate is lower in 2017 than 2016.
Their effective tax rate in 2017 was 30.4%
2018
Income was down in 2018, as the book income was only $382,920. AGI was $561,293. The return was again self-prepared with online software.
Effective tax rate in 2018 was 26%.
Conclusions:
In the two years with the larger amounts of self-employment income the first instinct of a tax pro might be to suggest that Senator Sanders could do what President Obama did in the years 2009 through 2012; make a maximum contribution to a SEP-IRA. But Senator Sanders was over 70 1/2 and therefore ineligible to do so.
But as Forbes contributor Tony Nitti pointed out in 2016 in his evaluation of whether or not President and Secretary Clinton paid too much in income taxes, Senator Sanders might have paid more tax than was required. Every business entity owned by Donald Trump is reportedly an S-Corporation. Using the tax code to pay a lower amount of taxes is not a crime. Assuming of course, one stays within the law as written and subsequently interpreted by the courts.
The Tax Foundation's annual evaluation of IRS income tax data includes the income split points between the top 10% and the top 5% and the top 1%. The income of Senator Sanders in 2012 put them in the top 5% but not the top 1%.
2013 - top 5%
2014 - top 5%
2015 - top 5%
2016 - top 1%
Wanting to know more, I looked at the financial disclosure forms of Senator Sanders. They were only available with detailed information from 2013 forward. While Senator Sanders is no Jared Kushner, he did make five amendments to the 2013 disclosure forms. Because of the way assets and liabilities are valued in large range amounts on these forms, it is almost impossible to accurately calculate when Senator Sanders achieved a net worth of $1 million.
Senator Sanders has levels of income and assets that put his family into a financial position far above that of his supporters. He can sympathize with their situations and he can definitely try to do things to alleviate the inequality of income that is crippling the middle class of our nation. But his experience of living life is no longer the same as those he wants to help.
Senator Sanders prepared this year's return himself, using an online software program. The Schedule E that would be present if he was continuing to operate one or both of the rental properties from the previous year, and the Form 8582 carrying forward those passive losses are not present.
On an AGI of $324,870, Senator Sanders paid $61,242 in income tax, an effective rate of 18.9%.
2012
Senator Sanders again prepared the tax return using online software. This is an interesting year, based on things from 2010 and 2011.
The 2010 return showed $24,293 in losses from rental income that were not allowed that year and carried into the future. The 2012 return shows only $6,245 in prior year losses that were previously not allowed. There are no entries on the 2011 return showing where the other $18,048 in losses were used.
Then there is an itemized deduction of $56,000 for legal and accounting fees. That kind of deduction is only allowable when it is to keep one's job or to generate taxable income. To illustrate, in 2012 you could deduct legal fees for an accident settlement where the settlement was taxable. If the settlement was not taxable, the legal fees paid were not deductible.
I wondered if those expenses were related to the departure of Jane Sanders from Burlington College, but she'd resigned in September of 2011. I suppose it is possible those expenses were incurred in 2012, but it doesn't make sense. The salary of Senator Sanders was at least $174,000 in 2012 and the amount of wages on line 7 of the tax return was $250,568. Since the salary of Jane Sanders as President of Burlington College was $160,000, it's hard to find any taxable income that would require expending $56,000 on legal and accounting fees.
The AGI for Senator Sanders in 2012 was down, at $280,954 and their effective tax rate that year was 16.1%.
2013
Once again Senator Sanders used online software to prepare the tax return. AGI was down slightly at $278,779. Mrs. Sanders earned $8,475 from her work as an Alternate Commissioner for the Texas Low Level Radioactive Waste Disposal Compact Commission.
The effective tax rate for Senator Sanders was also lower, at 15.6%
2014
AGI was down significantly this year at $205,571. Social Security benefits increased significantly, indicating Mrs. Sanders had begun receiving benefits. The tax return was prepared with online software.
The effective tax rate for Senator Sanders was 13.5%
2015
Senator Sanders apparently sold the last remaining rental property in January of 2015 and realized a gain on the sale in the amount of $36,635. That gain is the only reason AGI was up in 2015 at $240,610.
The effective tax rate for Senator Sanders was up at 14.9%.
2016
This is the year when the income for Senator Sanders increased significantly. His gross income as an author was $840,485 and after allowable expenses came out to $796,858. Senator Sanders took a distribution of $93,065 from a pension plan. That's vastly different from the distribution amounts in prior and subsequent years. It was the only distribution of more than $6,000 from pensions in any other year from 2012 through 2018.
Looking at the pdf itself, the two pages that report the income from writing for Senator Sanders look very different from the other documents in the return. The images below do not show this difference as well as the pdf itself.
It is also worth noting that the amount of wages shown on Line 7 of the tax return were only $137,033. Salaries for U.S. Senators in 2016 were $174,000. This tells us that Senator Sanders put over $35,000 of his salary into retirement plans. How many of his constituents earn less than that annually?
On an AGI of $1,062,626 Senator Sanders paid an effective tax rate of 35%.
2017
Both Senator and Mrs. Sanders had income from authoring books in this year. Senator Sanders had $855,631 with only $147 in expenses. Mrs. Sanders had gross receipts of $106,250 and no expenses. Large Schedule C income with no claimed expenses is unusual. So is the fact that a tax return with an AGI of $1,150,891 was self-prepared with online software. Not unheard of, but unusual.
The 2017 return showed much higher itemized deductions, thanks to the ability of Senator Sanders to deduct $189,530 in state income taxes paid during 2017. Their taxable income that year was $889,694 and they paid $299,056 in income taxes. They also paid $37,931 in self-employment taxes and $6,895 in additional Medicare taxes on their self-employment income. Those increased itemized deductions are why the effective tax rate is lower in 2017 than 2016.
Their effective tax rate in 2017 was 30.4%
2018
Income was down in 2018, as the book income was only $382,920. AGI was $561,293. The return was again self-prepared with online software.
Effective tax rate in 2018 was 26%.
Conclusions:
In the two years with the larger amounts of self-employment income the first instinct of a tax pro might be to suggest that Senator Sanders could do what President Obama did in the years 2009 through 2012; make a maximum contribution to a SEP-IRA. But Senator Sanders was over 70 1/2 and therefore ineligible to do so.
But as Forbes contributor Tony Nitti pointed out in 2016 in his evaluation of whether or not President and Secretary Clinton paid too much in income taxes, Senator Sanders might have paid more tax than was required. Every business entity owned by Donald Trump is reportedly an S-Corporation. Using the tax code to pay a lower amount of taxes is not a crime. Assuming of course, one stays within the law as written and subsequently interpreted by the courts.
The Tax Foundation's annual evaluation of IRS income tax data includes the income split points between the top 10% and the top 5% and the top 1%. The income of Senator Sanders in 2012 put them in the top 5% but not the top 1%.
2013 - top 5%
2014 - top 5%
2015 - top 5%
2016 - top 1%
Wanting to know more, I looked at the financial disclosure forms of Senator Sanders. They were only available with detailed information from 2013 forward. While Senator Sanders is no Jared Kushner, he did make five amendments to the 2013 disclosure forms. Because of the way assets and liabilities are valued in large range amounts on these forms, it is almost impossible to accurately calculate when Senator Sanders achieved a net worth of $1 million.
Senator Sanders has levels of income and assets that put his family into a financial position far above that of his supporters. He can sympathize with their situations and he can definitely try to do things to alleviate the inequality of income that is crippling the middle class of our nation. But his experience of living life is no longer the same as those he wants to help.
posted by me at 5:10 PM
