At Around the Tax World, you can find out all about what’s going on in the wonderful, worldwide world of tax. Every month, we’ll feature a few mini-articles on what’s been going on in the world when it comes to tax, and fully available for viewing even if you don’t have a subscription.
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Check out what’s happening all around the world of tax!
In The Headlines
- Spotify is upping their subscription costs—and stock investors are responding favorably. The music streaming service recently announced that its prices would rise between $1 to $3 starting this July with Spotify Premium landing at $11.99 per month and Family plans seeing the biggest increase at $19.99 per month. This comes just a year after the company’s last price hikes. Within hours of the press release, stock prices for Spotify rose by up to 4%. Over the past year, Spotify stock has increased by over 100%, and the company turned a profit in the first quarter of 2024. Along with the price increase, the company has indicated shifts in structure, such as introducing a music-only tier and an audiobook-only tier.
- The Trump campaign reported $34.8 million in donations hours after receiving a guilty verdict in a hush money trial. The former president was recently convicted by a Manhattan Supreme Court of falsifying business records in order to hide a payment to porn star Stormy Daniels around the time of the 2016 presidential election. The judge has set sentencing for July 11—just four days before the Republican National Convention—when it will be determined if the presidential candidate faces prison time. As this story continues to unfold, the Trump campaign reported that it has nearly doubled its single-day fundraising record and that almost 30% of donors were new to the donation site.
- Toyota is ordered to pause automotive shipments as its safety test data is called into question. Japan’s transport ministry has found incorrect or manipulated safety test data in the automakers’ applications for vehicle certifications. Irregularities were also found in applications from Mazda, Honda, Suzuki, and Yamaha. Toyota was already under scrutiny after a safety test scandal came to light at the end of last year. An investigation found that Toyota’s team had measured collision damage on one side of a model’s hood, but safety regulations require the company to measure both sides. No performance problems have been found to-date that violate regulations, but investigators are still looking into possible issues around vehicle fuel efficiency and emissions.
What's New In The Tax World?
Republicans hustle to assemble a new tax package in preparation for the election
With the presidency and congressional seats up for grabs, Republican leaders are readying themselves for the possibility their party wins control of Congress and the White House. The GOP is already educating newer House members about the budget reconciliation process, which the party leveraged to pass the 2017 Tax Cuts and Jobs Act (TCJA). Similarly, Democrats used budget reconciliation to pass the American Rescue Plan for federal pandemic aid in 2021 and the Inflation Reduction Act, focused on tax and clean energy incentives, in 2022. Budget reconciliation allows lawmakers to pass tax and spending changes with simple majorities in both chambers. Otherwise, lawmakers would have to secure a 60-vote majority in the Senate to end a filibuster, which can often delay and even prevent a bill from passing.
Not all types of legislation can be passed by budget reconciliation. Under the “Byrd Rule,” this process is limited to the topics of revenue, spending, and the federal debt limit. The “Byrd Rule” also introduces limitations on how much a bill can increase the deficit outside of the budget window. This is why many of TCJA provisions expire at the end of 2025.
What’s on the agenda for this potential tax package? With many TCJA provisions expiring in 2025, renewals of tax breaks will likely be a priority. This includes the elimination of personal exemptions for taxpayers and dependents, an increased standard deduction, and an increased child tax credit. On the business side, provisions around business investment expenses, cross-border business activity, a 20% deduction for certain business income, and deductions for employer-provided meals are also expiring. Meanwhile, House Majority Leader Steve Scalise has been soliciting input on what Republican Study Committee chairs would want to see in a new tax package.
For budget reconciliation to be effective, Republicans need to agree on how much their tax package will add to the deficit over the budget window. Party infighting has also been a challenge in the past. Individual lawmakers will sometimes threaten to withhold their vote unless a tax package is adjusted to reflect their priorities.
State-By-State Updates
- California lawmakers are debating where online sales tax revenue should be funneled. The state Senate recently considered a bill that would require cities to disclose how much sales tax revenue they allocate to certain corporations in exchange for the companies assigning online sales to their cities. According to the authors of the bill this tit-for-tat arrangement forces cities to compete for favor from large retailers rather than allocating tax money to the jurisdictions where the buyers live. The bill was recently shot down by a majority of state senators. Opponents to the bill argued that the changes were not needed since there was already an agreed-upon to cap on corporate kickbacks and tax-sharing agreements allowed smaller communities to compete with bigger cities by offering big companies tax incentives.
- Illinois residents will see a bigger “standard exemption” tax credit next year. The credit had been reduced for last tax season after lawmakers detached it from inflation. This change was met with criticism as it came at a time when the consumer price index had risen by 8%—the highest inflationary spike since 1981. By leaving the tax credit amount frozen, Illinois was able to redirect $114 million in funds to other budgetary needs. However, this year, alongside the approval of the next state budgets, the credit has once again been tied to inflation. For individual taxpayers, the available exemption is expected to increase from $2,425 to $2,775. This change will cost the state about $172 million.
- An Oregon county issues confusing notices requesting owed taxes for preschool and homeless services. About 12,000 residents of the city of Portland received Notice of Debt letters demanding payment for taxes they believed they had already paid. The confusion stems from the fact that Multnomah County (where Portland is located) recently approved a personal income tax for individuals who make over $125,000 a year or couples earning over $200,000. The funds go to Metro’s Supportive Housing Services tax and Multnomah County’s Preschool for All tax. Oregon’s law requires taxpayers who owe over $1,000 to make quarterly estimated payments. However, some taxpayers did not appear to understand the setup, resulting in unpaid or underpaid tax bills and related penalties and interest.
- Pennsylvania extends the deadline to apply for property tax and rent rebates. Seniors and adults with disabilities will have until December 31 to apply for these benefits—a full 6 months later than the original June 30 deadline. The Property Tax/Rent Rebate program provides rebates of $380 to $1,000 to eligible seniors and people with disabilities, both of whom often live off of fixed incomes. The exact amount varies by taxpayer income. This year, the state received 445,000 rebate applications—about 100,000 more than this time in 2023. Approved rebates will be remitted starting on July 1. Eligible taxpayers can apply for the rebate on the myPATH website.
Tax Planning Tips
Do you qualify for an automatic extended tax filing deadline of June 17th? Make sure you understand which rules apply for you. U.S. citizens or resident aliens living overseas or on duty in the military outside of the U.S. automatically qualify for a two-month extension. Typically, this would push the deadline back to June 15th, but since that date falls on a weekend, the 2024 deadline is set for the following Monday. To use the extension, taxpayers must attach a statement to their tax returns outlining how they qualify.
Taxpayers should note that an extension to file a return does not mean an extension to pay taxes owed. If payment is not remitted by June 17th, penalties will begin to accrue. However, taxpayers living outside the U.S. may qualify for special benefits, such as the Foreign Earned Income Exclusion and the Foreign Tax Credit.
Taxpayers who need additional time to file can request a six-month extension using Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. If you are stationed abroad or in a combat zone during tax season, you may qualify for an 180-day extension.
When it comes to taxes on retirement savings, timing matters. Taxpayers often default to simply delaying tax payments rather than strategically paying them when the rates are lowest. For traditional IRAs and 401(k)s, taxes are deferred, which means that account holders need to be prepared for heftier taxes in retirement. Another option is to convert to a Roth IRA. You have to pay taxes upfront, but this also means you will be able to make tax-free withdrawals during retirement when you may be earning much less. Taxpayers can also consider tax-free options like moving these funds into a life insurance policy.
Taxpayers also need to be conscious of tax breaks with a timeline attached. For instance, a number of tax provisions from the 2017 Tax Cuts and Jobs Act are scheduled to expire at the end of 2025. Taxpayers should consider how they can take advantage of lowered individual tax rates within the next year and a half.
Lastly, retirement account holders who are obligated to take required minimum distributions (RMDs) but do not need the money for living expenses can invest it or give it to charity. With the latter, you can also take advantage of the Qualified Charitable Distribution, which allows you to donate funds from an IRA tax-free.
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CURRENT EDITION
Navigating IRS Penalty Relief and Forgiveness
Yes, the IRS does forgive some tax penalties. The IRS refers to this forgiveness as penalty abatement. Abatement is the act or process of reducing or removing something. In this case it is removing or reducing a penalty. But penalty forgiveness is not a blanket offer that everyone qualifies for the way the radio ads make it seem. There is a process that the IRS has for requesting and granting abatement. It is up to the taxpayer to prove that they qualify for abatement. That’s where you come in.
From The Government And Not There To Help You
The story of James J. Maggard has some interesting and possibly valuable lessons. The one that strikes me as particularly important is that it makes it crystal clear that disproportionate distributions contrary to a corporation’s governing documents will not blow its S election. That does not mean that disproportionate distributions are just fine and that you don’t need to address them. There is a practical lesson about being careful who you take on as fellow shareholders. And there is another slightly odd lesson, that almost makes me want to create a new law of tax planning: Don’t deliberately involve the IRS in your business disputes. Their job is not to help you.
Tax Policy and Reform Considerations for the Next President and 119th Congress
Something we never have a shortage of are proposals to change our tax systems. When it’s election time, we hear even more proposals, as well as how various parts of our tax system are flawed, usually due to actions or inactions of the opposing party. We also hear lots of incomplete statements, promises of tax changes too costly to be enacted, and ideas that will be replaced by the time the winner gets down to crafting a real set of tax and budget proposals. This article describes some of the tax proposals of the two presidential candidates along with suggestions on how we should analyze them against principles supporting effective tax systems, with highlights of some important facts seemingly missing from current tax discussions. These proposals are also relevant to members of Congress as to whether they support any of them and how they align with tax changes that the member would like to see enacted.
