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
- Could Elon Musk be on the next presidential Cabinet? If Donald Trump returns to the White House, he may find a cabinet position or advisory role for the Tesla CEO. Musk publicly endorsed Donald Trump for president last month, marking a shift in the billionaire’s political leanings since the last two elections. Trump has also voiced his intention to change the current tax policies for electric vehicles by eliminating the $7,500 tax credit for EV purchases. The Republican candidate has spoken against the value of tax credits and stated that he would reverse rules that encourage automakers to build EVs and hybrids that meet stricter emissions standards. During his presidency, Trump attempted to repeal the EV tax credit, but the credit remained in place and was later expanded by Joe Biden.
- “C’mon Barbie, let’s start a business!” Actor Simu Liu joins the ranks of celebrities who have launched or helped build up a startup in recent years. Known for his roles as the “rival Ken” in Barbie and as Shang-Chi from the Marvel universe, Simu Liu can also be found working as chief content officer for MìLà, maker of authentic Chinese soup dumplings. Since the company’s $22.5 million fund-raise, the frozen food offering can be found in Costco to Whole Foods stores across the country. Liu started out as an angel investor before joining the C-suite in 2023 and cites fellow actor Ryan Reynolds as his entrepreneurial role model. Reynolds has had stakes in a wireless company, gin brand, Welsh football club, Formula 1 racing team, investment management service, and financial tech company, among other opportunities.
- Netflix stock reaches a record high—and thanks may go to the NFL and the WWE. The streaming service is doubling down on its ad sales, which may explain its rising stock prices. The company reported an 150% spike in upfront ad sales commitments for 2023, particularly from the automotive, consumer goods (CPG), fast food restaurants (QSR), retail, and tech and entertainment industries. Netflix’s ad partners include Amazon, Google, Hilton, L’Oreal, and LVMH, the parent company for luxury brands like Dior, Louis Vuitton, Moët Hennessy, Sephora, and Tiffany & Co. These increased ad sales are likely a result of popular original shows like Squid Game, Wednesday, and Love is Blind, as well as live events like WWE Raw and the Christmas Day NFL games.
What's New In The Tax World?
Harris and Trump disagree on corporate tax rates but agree on eliminating federal taxes on tips
Democratic presidential candidate Kamala Harris recently began outlining her economic plans, clarifying where she and Republican candidate Donald Trump are making similar moves and where they differ drastically. One of the most notable differences is on the topic of corporate taxes. Harris is calling for an increase to the corporate tax rate, which was lowered from 35% to 21% by the Tax Cuts and Jobs Act (TCJA) of 2017, signed by then-president Trump. Harris’ proposal would increase the tax rate to 28% with the aim of raising revenue for new initiatives. The Congressional Budget Office estimates that for every 1% increase to the corporate tax rate will bring in over $100 billion in new revenue over the next decade. Trump, on the other hand, has stated he would advocate for even lower taxes on businesses and to extend the TCJA tax cuts that are set to expire in 2025.
The initiatives Harris would fund include an expanded child tax credit, elimination of medical debt, and tax breaks for first-time home buyers. Though Trump is also advocating for a version of an expanded child tax credit, his platform diverges from Harris in his focus on reducing energy prices by increasing domestic production, replacing the Affordable Care Act, and rerouting education funding to the states as well as closing the Department of Education.
Another policy that both Harris and Trump are backing is eliminating federal taxes for tips. The idea was first floated by Trump in a rally in Nevada, which has the highest concentration of tipped workers in the U.S. Harris’ version of the proposal would likely limit the exemption to service and hospitality workers who earn $75,000 per year or less and would cap the amount of income that workers could claim as tips. Making tips tax-free would impact over 2 million Americans—the estimated number of waiters and waitresses in the country, according to the U.S. Bureau of Labor Statistics. However, many experts are skeptical of both proposals as too costly to the federal government and too complicated to actually enforce. Some have also said that a higher minimum wage or elimination of the tipped minimum wage would be more effective in helping workers.
State-By-State Updates
- Colorado voters have a big decision to make: lower taxes or more affordable housing? This November, Denver residents will decide whether to increase the city’s sales tax by 0.05% to raise $100 million over the next decade to go toward 20,000 new affordable housing units. The Denver City Council recently approved the measure to put the question on the next local ballot. The affordable housing tax has been supported by Mayor Mike Johnston and would become the largest dedicated tax in the city of Denver. Other dedicated sales taxes currently fund parks, climate change initiatives, college scholarships, healthy food for children, homelessness initiatives, and mental health care.
- Massachusetts’ governor signs off on a state tax amnesty. This program will begin in 2025 and provide a 60-day relief period where both individuals and businesses can pay off delinquent taxes without a penalty. Part of the goal is to encourage taxpayers to deal with their unpaid bills and bring in a revenue boost for the state. Analysts estimate the program could generate an extra $100 million in revenue. However, some tax administrators and analysts have expressed concern that the amnesty rewards noncompliance and could encourage those taxpayers to continue delaying their payments in the future. Only three other states have offered a similar amnesty since the COVID-19 pandemic. Connecticut, Illinois, and Nevada collected $186 million, $240 million, and $25 million (respectively) in additional tax revenue through their programs.
- Ohio’s Supreme Court makes the final call on the tax value of a 13-county natural gas pipeline. The court’s recent decision means that the 256-mile pipeline’s final valuation stands at $950 million. The verdict matters for the future of how these valuations can be made. Originally, the tax commissioner set a $1.6 billion assessed value. The dispute began when Nexus Gas Transmission sought to lower that number. Ultimately, the tax commissioner and Nexus reached a settlement that set the value at $950 million. However, a county auditor attempted to appeal this valuation, saying that the tax commissioner did not follow the law in coming to the $950 million value through a settlement. In the end, the court determined that though a county auditor is allowed to make an appeal, the auditor cannot appeal the tax commissioner’s right to enter into a settlement agreement.
- Indiana’s new governor will have to address concerns about rising property taxes. Both the Democratic and Republican gubernatorial candidates have unveiled plans to provide relief to homeowners. Democrat Jennifer McCormick recently announced her $600 million plan that would increase the exemptions homeowners can take on their income taxes from $1,000 to $2,500. This change would cost the state about $333 million a year in revenue and local governments would lose around $173 million. McCormick is also advocating for higher property tax deductions for seniors and veterans with disabilities. Republican candidate Mike Braun’s property tax plan focuses instead on lowering property taxes to the rates residents paid in 2021. Critics of this approach worry about how tax cuts will impact local schools, police, fire departments, and libraries, which are largely funded by property taxes.
Tax Planning Tips
A higher child tax credit may be on the horizon for lower income families. As the presidential race continues to pick up speed, both candidates have voiced support for an expanded version of the child tax credit. The current credit offers $2,000 per child to qualifying families. Parents and guardians who earn no more than $200,000 per year may qualify for the full amount. Democratic nominee Kamala Harris is advocating for a $6,000 tax credit for parents of newborns starting in 2025, a $3,600 credit for other children under six years old, and a $3,000 credit for children older than six.
Republican nominee Donald Trump has not directly addressed the credit, but his vice presidential running mate J.D. Vance has spoken in favor of a $5,000 per child credit increase. This is in keeping with Vance’s support for policies to make childbirth support free and to protect new parents’ income sources. A Trump campaign official also stated that if he wins the election Trump would consider a significant expansion of the credit, possibly making the child tax credit expansion from the 2017 Tax Cuts and Jobs Act permanent.
Regardless of the outcome of the presidential race, the new president would need Congressional support to introduce and enact a new version of this tax credit.
The end of the year is the time to start implementing new tax strategies—before it’s too late. As summer comes to an end, you may be thinking more about Q4 plans and how to close out the year well. But next April will be here before you know it. What actions can you take today to set yourself up well for a stronger financial future?
One simple step is to review your income and deductions. Make sure you are clear on how each income stream will translate to taxes. Similarly, familiarize yourself with ways to deduct from your taxable income, and maximize deductions like mortgage interest, student loan interest, and state and local taxes.
Next, look for opportunities to reduce your taxable income. Consider redirecting some of your paycheck to retirement accounts like 401(k)s or IRAs. If you are eligible, you might also consider enrolling in or contributing more to a Health Savings Account (HSA) or Flexible Spending Account (FSA). Again, these funds become tax-free.
If you have investments and suffered any losses this year, remember that you can deduct up to $3,000 in capital losses each year against ordinary income. If you give regularly to charity, up to $300 in donations can be deducted each year for individual taxpayers (or $600 for married couples). You can also use your yearly gift tax exclusion to give away assets that are not tax-advantageous. Each taxpayer can give up to $18,000 annually (or $36,000 for married couples) without filing a gift tax return or using your lifetime estate and gift tax exemption.
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CURRENT EDITION
IRC Section 121 Exclusion: Nuances That Make a Big Difference
With the sale of a client’s primary residence, many tax professionals are familiar with the Section 121 exclusion, which allows taxpayers to exclude up to $500,000 ($250,000 for single – $500,000 for married filing jointly) on capital gains for the sale. Often, the only criteria mentioned is that the taxpayer must have owned and occupied the home for two of the most recent five years. However, this barely scratches the surface of Section 121; there’s much more money-saving potential in this portion of the tax code.
Exploring the Final 1099-DA (Digital Asset) Regulations
One of the IRS’ favorite ways to entertain itself is to release new and important guidance at 5 pm on a Friday. They self-award bonus points if it is the Friday before a holiday. They hit “publish” and immediately shut down the office before anyone can react. When it comes to digital asset guidance, I speculate they also have access to my vacation calendar to release it at the most inconvenient time possible. Last summer, they released the temporary regulations on 1099 crypto reporting while I was on vacation in South Africa. This year, at 4:45 pm on the Friday before the 4th of July, they released the final regulations. I then had to spend the rest of the summer dodging my editors at TOTTB because this article was really harshing on my vacation plans.
Advising Clients About Prenups
To have and to hold and happily ever after is a nice dream, but into every married life a little reality about money must fall. Enter the prenuptial agreement, aka the prenup. This contract between prospective spouses clarifies the rights and obligations of the parties during their marriage – and during the sometimes-ugly aftermath should they separate, divorce, annul the marriage, or die. Prenups can help couples set financial expectations for the marriage, including whether they’ll have a joint bank account and file taxes together, among many other matters.
Given the sensitive nature of these conversations, it’s important to know how to advise on such an important document. What do your clients need to know?
