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In The Headlines
- Over 100,000 Americans lost access to their own funds due to the bankruptcy of banking-as-a-service platform Synapse. Many popular finance apps—such as Cash App, PayPal, and Chime—partner with banks to provide customers with checking accounts and debit cards. Between the app and the bank, there was also often a middleman like Synapse that helped tech startups access essential services instead of having to become banks themselves. However, when Synapse went bankrupt this May, the company shut down a critical system used to process transactions, cutting users off from about $265 million in deposits. As the Synapse case makes its way through bankruptcy court, customers are also learning that unfortunately the failure of nonbanks does not trigger FDIC insurance, and their deposits may not be covered.
- The FDA approves a new Alzheimer’s treatment that may delay memory loss and cognitive decline. The new drug, donanemab, comes from pharmaceutical company Eli Lilly and will be sold under the brand name Kisunla. This drug works by targeting amyloid in the brain—when this protein builds up on vital organs, it can cause problems. In clinical trials, Kisunla was shown to slow the progression of Alzheimer’s by about 35% based on measurement of patients’ memory, orientation, judgment and problem solving, engagement in community affairs, engagement with hobbies and home life, and personal care. This is the second FDA-approved Alzheimer’s treatment to hit the market, joining a drug called Leqembi. These drugs are expected to be covered by Medicare.
- How will AI impact the environment? Concerns are raised as Google’s greenhouse gas emissions skyrocket. Over the past five years, the tech giant has expanded its data centers to support the growth of its artificial intelligence systems. As a result, Google’s emissions have increased by about 48%, undermining the company’s goal to reach “net zero” by 2030. Google had signed multiple deals for clean energy, including an agreement to operate 24/7 on carbon-free energy and a project with small-scale solar plants in Japan. The energy needed to build out large language models and the related infrastructure has drawn criticism from environmentalists. Google and Microsoft—whose emissions have risen by almost 30% since 2020—suggest that emissions will eventually drop and that AI will ultimately contribute to climate solutions.
What's New In The Tax World?
The IRS releases its final tax reporting rules for cryptocurrency
After reviewing over 44,000 public comments on proposed regulations, the agency has finalized its requirements for reporting on crypto sales and exchanges. Starting in 2026, investors will be required to report on any proceeds from digital asset sales that occurred in 2025. This means that brokers will need to collect and prepare this information before the 2026 tax season. Taxpayers can now view a draft version of Form 1099-DA, which they will use for filing.
One important step in this process is to establish a cost basis—or original purchase price—to each crypto wallet. Taxpayers will need to do so by the end of 2024. A wallet refers to the application that stores the passkeys used to access digital currency and sign off on transactions. Cryptocurrency holders who use tax software may find that these tools combine wallets to calculate the most beneficial cost basis. Under the new IRS rules, each asset’s basis must be specific to the wallet. If taxpayers fail to establish their cost basis before the deadline of January 1, 2025, the IRS will consider it zero, which will result in a higher profit and higher taxes.
The conversation around taxing cryptocurrency has been fraught with ambiguity for over a decade. In 2014, five years after the advent of Bitcoin, the IRS issued a notice explaining that virtual currency is treated as property for federal income tax purposes. However, compliance has been a struggle for the agency, and the new regulations are part of a larger effort to close loopholes that allow people to hide cryptocurrency income. The new reporting requirements are expected to bring in nearly $28 billion in revenue over a decade.
Experts advise that crypto investors ensure they are collecting and reporting data to the IRS this year, especially their cost basis. Compliance efforts and auditing will only increase once new regulations kick in in 2025. However, to help taxpayers and brokers facing challenges in catching up, the agency is also offering transitional and penalty relief on certain transactions.
State-By-State Updates
- Could rundown properties be subject to extra taxes in Georgia? Atlanta Mayor Andre Dickens recently proposed a new “blight tax” to discourage property owners from neglecting their buildings by taxing them up to 25 times the standard rate. The tax hike would only apply to occupied spaces. The proposal also includes incentives for owners to restore their properties to “productive use.” The mayor’s administration is looking to leverage this new legislation to prevent owners from profiting from substandard housing and showing little concern for tenants.
- Ohio weighs a new tax break for low-income homeowners. The proposed bill would empower local governments to establish residential stability zones. Homeowners in these areas can apply for a partial property tax exemption. The tax break would be equal to the percentage increase of their property assessment—property values rose by more than 30% in Butler County, Greene County, and Montgomery County. Each community would establish its own low-income threshold to determine who qualifies. To qualify, homeowners would also need to have owned their home for at least a year. Residential stability zones would expire after 10 years, but homeowners under age 60 would need to reapply for tax relief every six years.
- Vermont awards affordable housing tax credits to developers across the state. The Vermont Housing Finance Agency is seeking to address higher housing costs by helping fund construction and rehabilitation for 246 rental and for-sale homes. The agency is also providing support to the Manufactured Housing Downpayment Program, which will assist with downpayment costs for 41 Zero Energy Modular and energy-efficient manufactured homes. The Vermont State Affordable Housing Tax Credit is expected to help 200 first-time home buyers by providing $10,000 in assistance this year alone.
- West Virginia Governor Jim Justice advocates for an additional income tax cut. The governor signed a 21.25% income tax reduction in 2023. However, as the state ends the fiscal year with $826 million in excess revenue, the governor plans to call lawmakers back into a special session to discuss how to allocate these funds. The second reduction would likely take place next January and could amount to a 3 to 4% tax cut. The governor may also take this opportunity to reintroduce a proposed child care tax credit. In March, legislators passed on a tax break to make child care more affordable for families and sustain child care programs that were affected by the loss of federal subsidies provided during the pandemic.
Tax Planning Tips
Will Biden’s corporate tax proposals make the cut? The president continues to advocate for a higher corporate tax rate and a 21% corporate minimum tax rate with the aim of leveling the playing field for large and small businesses alike. Overall, Biden’s proposed tax increases for corporations would yield as much as $5 trillion in additional revenue.
Pushback has come from some well-known names, including Shark Tank’s Kevin O’Leary who recently stated that a 28% corporate tax rate would make the U.S. “the least competitive country in the G7.” O’Leary lists concerns that tax hikes would limit economic growth and reduce job creation.
Other tax initiatives include quadrupling the 1% excise tax on corporate stock buybacks and increasing taxes on fuel for corporate and private jets, as well as nixing a tax break for corporate jet purchases. The Biden administration also proposed eliminating corporate deductions for compensation for employees earning over $1 million. Current tax law only blocks deductions for a company’s top executives.
Tax-advantaged savings accounts are about to change—and experts say now is the time to take action. As provisions from the Tax Cuts and Jobs Act expire at the end of 2025, retirement account holders may need to adjust their investment strategy to match suit. First, if you have a 401(k), traditional IRA, or other tax-deferred account, you will have to take required minimum distributions (RMDs), which counts as taxable income. Taxpayers may be tempted to delay taking RMDs until they are required at age 73. However, once you are at retirement age, you may find yourself being taxed for RMDs and Social Security without any regular income to pay that tax bill. Investors should consider taking RMDs early depending on their current tax circumstances.
Secondly, retirement account holders might consider converting to a Roth IRA—another way to pay taxes upfront rather than defer them until retirement. Roth IRAs are not subject to RMDs, and investors can make withdrawals without penalty once they are over 59 ½ years of age.
Lastly, investors can transfer funds into a health savings account (HSA). Once again, these accounts do not have RMDs, and funds earned on these investments are tax-free. If you use the funds for qualified medical expenses, the withdrawals are also tax-free and penalty-free.
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The Wild West of Employee Retention Credits (ERC): Outlaws, Deputies, and Cowboys
Gather ’round, pardners! The Employee Retention Credit (ERC) has been the latest gold rush in the tax frontier, drawing business owners, tax deputies, and even a few sly outlaws. But as the dust settles, the IRS—our law keeping sheriff—is on the hunt for any who might’ve bent the rules. In this frontier of finance, knowing who’s who can keep you out of trouble as the IRS rounds up dubious claims.
Selected Techniques to Monetize Tax Attributes
In the prior article “Tax Trends in M&A and What It Means for Your Clients,” we had discussed certain techniques to, e.g., maximize net operating loss (“NOL”) and interest expense deduction utilization in the context of M&A transactions. This article examines certain additional strategies to monetize expiring, latent, or otherwise disallowed tax attributes.
Do Those Tricks Really Work?
On the website for Axium Wealth, Charles Dombek tells us that: “Most CPAs are historians that tell their clients how much they make, how much they owe, when and where to file their taxes, and oftentimes how to write large checks at the last minute when you least expect.” When it comes to Axium, though: “We help clients recover dollars they unnecessarily pay in State and Federal income taxes.” Axium also helps clients diversify capital into off-market passive real estate and alternative investments. Before Axium, there was The Optimal-Financial Group LLC. Of course many of the readers of Think Outside The Tax Box are CPAs, or EAs or others who both help their clients be compliant and advise on ways to minimize their liability. When I was practicing I would call the things I might suggest my “bag of tricks.”
