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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In The Headlines
- A.I. is headed to outer space: Elon Musk closes a record-setting deal as SpaceX acquires startup xAI. Marking the world’s largest merger and acquisition, this deal has created what is now the most valuable private company in the world. SpaceX is rumored to be considering an initial public offering (IPO) later this year, which could value the company at over $1.5 trillion. Why buy xAI? Musk has suggested that space infrastructure will be necessary to support power and computing capacity for A.I. The newly-combined company expects to explore the possibility of space-based data centers powered by solar energy. However, Musk may face roadblocks in the months to come. Because SpaceX holds extremely valuable contracts with NASA, the Department of Defense, and U.S. intelligence agencies, national security risks are a factor. Regulators are expected to look into conflicts of interest, issues of governance, and questions of valuation, especially because of Musk’s leadership over multiple companies.
- The Centers for Medicare & Medicaid Services work to close a tax loophole. CMS recently finalized a rule focused on improving federal oversight of Medicaid provider taxes. The change was spurred on by the One Big Beautiful Bill Act (OBBBA). Medicaid has been the subject of constant debate since the OBBBA brought about significant changes. The bill introduced work requirements for most individuals up to age 64. Now under the new rule, states will be given time to bring provider taxes into alignment with the OBBBA. What are the issues involved? First is a push toward more uniform Medicaid provider taxes across states. The rule requires provider taxes to be broad-based and redistributive. It also puts limits on states’ ability to get a waiver from that requirement. Part of the goal here is to prevent states from unfairly targeting Medicaid providers. Second is a restriction against tax rates based on providers’ Medicaid volume.
- Mickey Mouse has a new boss: Josh D’Amaro is named Disney’s new CEO. The former head of the parks division will officially take over Bob Iger’s role next month. Iger will stay on as a senior adviser and board member until the end of the year. Disney’s last attempt at a transfer of power fell flat. Former parks chief Bob Chapek had been tapped as the new CEO back in 2020, but his run only lasted until 2022. Iger then returned to the helm. Meanwhile, D’Amaro stepped up in 2020 to head Disney Experiences, which includes theme parks and cruises. D’Amaro was a familiar face to super-fans, often touring the parks and highlighting cast members on social media. Disney has poured billions into expanding its parks and adding cruise liners, both of which are considered key to deepening Disney’s fandom.
What's New In The Tax World?
What’s new with the clean fuel tax credit?
The clean fuel production credit itself is not exactly new. The “45Z” program that introduced the credit was originally created under the Biden administration’s Inflation Reduction Act of 2022. As part of the bigger push toward clean energy, this tax credit was meant to incentivize the production of fuels that produce lower greenhouse gas emissions. Transportation fuels like ethanol and biodiesel could enjoy tax credits of $0.20 to $1 per gallon produced. The exact amount available depended on the fuel’s carbon dioxide emissions factor.
Last year, President Trump’s One Big Beautiful Bill Act made a number of changes to the program. A major shift was capping the maximum credit at $1 per gallon for all fuels. Previously, sustainable aviation fuel had a higher maximum of $1.75 per gallon. The credit is now also:
- Available for clean fuel produced and sold by December 31, 2029
- Available to fuel sold through related intermediaries
- Limited to feedstocks grown or produced in the U.S., Canada, or Mexico
- Further restricted when it comes to certain foreign entities
- Protected against double crediting
- No longer available at negative emissions rates (unless the fuel is made from manure)
Recently, the U.S. Treasury Department proposed a new rule to give biofuel producers more clarity on how to qualify. This rule addresses emissions rates, certification requirements, and other key topics. The highlights include:
- Fuel must meets the requirements for sustainability, emissions rate, coprocessing, and prevention of double crediting
- Fuel must be produced at a quality facility in the U.S. or a U.S. territory
- The taxpayer must sell the fuel to an unrelated person during the tax year
- Fuel produced after December 31, 2025, must be derived from a feedstock produced or grown in the U.S., Mexico or Canada
- Fuel must be suitable for use in a highway vehicle or aircraft
- Fuel must have a lifecycle greenhouse gas emissions rate of no more than 50 kilograms of CO2e per mmBtu
To be eligible for the credit, the business must be registered as a producer of clean fuel. Taxpayers can use Form 637, Application for Registration (For Certain Excise Tax Activities) to register.
State-By-State Updates
- California’s proposed mileage tax won’t make it onto the highway just yet. After public pushback, state lawmakers clarified that no new taxes will be introduced. Instead, a recent bill picks up on a conversation legislators have been having for years: the possibility of eventually replacing the state gas tax with a vehicle miles traveled tax (VMT). Why the swap? As Californians increasingly move toward clean-energy vehicles, the state is seeing less revenue from the gas tax, and electric and hybrid vehicle owners are not contributing as much to roadway maintenance and transportation projects. However, the new bill would not make the swap complete. It simply asks for a study to evaluate what a transition could look like. Opponents of the bill are concerned that a study will quickly lead to a VMT bill and that tracking vehicles mile for mile will not be practical. Some lawmakers are focused on ensuring that there is no chance of a double tax if the state does move away from the gas tax.
- Colorado is expecting TABOR refunds this year—but not so much next tax season. Every year, Coloradans anticipate the possibility of a state refund, courtesy of the Taxpayer’s Bill of Rights. When state tax revenue exceeds certain limits, the government is required to return some of that money to the taxpayers. The Colorado legislature gets to decide how the refunds are issued. This tax season, local governments will receive a refund for providing “homestead” property tax exemptions to certain residents—mainly, seniors, veterans with disabilities, and surviving spouses of veterans. Taxpayers will also receive refunds based on their income. Refunds start at $19 for single filers in the lowest tax bracket and peak at $118 for married taxpayers filing jointly in the highest tax bracket. Residents should make the most of this extra cash now: Due to projected revenue shortfalls, TABOR checks are not likely in 2027.
- Michigan may crack down on kids’ technology use with a proposed tax. A new bill would introduce a 32% excise tax on internet-connected devices bought for kids aged 18 and under. A major aim of this bill is to regulate children’s use of social media. Tax revenue would go toward programs supporting children’s mental health and safety. The author of the bill has proposed similar state rules in the past, including a bill that required parental permission for minors to use social media platforms and a bill that bans cell phones in classrooms. The latter is expected to be signed by the governor. Supporters of these bills are concerned about the addictive effects that social media has and how this might impact children’s development. Opponents of the bill say that the tax could harm low-income families that might rely on cell phones for internet access if they cannot afford laptops and tablets. Those who contest the bill argue that regulations should focus on the corporations running social media sites, not consumers.
- Washington takes the next step toward a millionaires’ tax. A pair of Democrat-backed bills would create a 9.9% income tax for those earning over $1 million annually. If approved, the tax would kick in on January 1st, 2028, and the first payments would be due in April 2029. The new tax would generate an estimated $4 billion in revenue each year. The vast majority of tax revenue would go to the state’s General Fund, which means that lawmakers would get to decide where to spend it. A small portion of the revenue would go toward expanding the Working Families Tax Credit, funding a sales and use tax exemption for grooming and hygiene products, doubling the small business tax credit, and supporting the state’s new “County Public Defense Funding Stabilization Account.” Both the House’s and the Senate’s versions of the bill are expected to move forward, though Governor Bob Ferguson recently reversed his position. The governor has previously publicly supported the millionaires’ tax but recently stated that he cannot support the bill in its current form.
Tax Planning Tips
These are the scams to watch out for this tax season
With the end of the free government-run tax filing program, new scams are expected to pop up. Fraudsters use every form of technology to steal personal data, from fake IRS emails promising a refund to urgent text messages claiming that taxpayers need to resolve a problem or face dramatic consequences. Newer scams can be even more intricate. Some redirect taxpayers to fake IRS login pages so they can steal taxpayers’ credentials. Others promote fake tax preparation services, pretending to offer help for a small fee in order to get access to financial information.
If an unexpected message comes through claiming to be from the IRS or other government agency, pause and think it through. Scammers rely on a false sense of urgency to get their victims to take a questionable action. Instead of clicking on any links, go directly to IRS.gov or another trusted website. Type the URL directly into a separate browser, and search for evidence of whatever the message is claiming. Keep in mind that the IRS typically communicates by paper mail. Emails and text messages should immediately raise a red flag, especially if they demand sensitive information right away.
What’s on your tax planning checklist? Make sure you’ve ticked off these boxes by April
Tax season is the time to be proactive. While comprehensive tax planning is a year-round activity, the months leading up to the April 15th filing deadline can be key. If you’ve missed a tax reduction opportunity, there may still be a chance to prepare.
First, look at your retirement contributions. Did you reach the maximum limit for contributions? If you have an IRA or 401(k), look into your records and see what is possible this year—especially if you qualify to deduct them on your tax return. Second, review common tax deductions and credits and double-check what you are eligible to claim. This might include charitable donations, education expenses, and medical costs. Keep in mind that you will need records and receipts to claim some of these deductions.
Third, if you invest, look into harvesting your losses. Do you have investments that have gone down in value? Consider selling them. Lastly, for investors and business owners, determine if your taxes match your income. If you recently saw an uptick in your finances, make sure you have paid enough in your estimated quarterly tax payments and that you have enough set aside for a possible tax bill come April.
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