Around the Tax World- August 25, 2022 - Think Outside the Tax Box

Check out what’s happening all around the world of tax!

Twice per month, we post our “Around the Tax World” feature. This highly curated, concisely written feature acts as your own personal aggregator of all the news happening in and around the world of tax. Your days of endless scrolling and combing the internet for the tax stories of the day ends now because we’re doing that work for you!

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World NEWS

The CFO of the Trump Organization confesses to unlawfully taking over $1.7 million in untaxed benefits as a plea bargain in a highly-publicized tax fraud case. Chief Financial Officer Allen Weisselberg faced 15 charges including receiving unreported fringe benefits such as school tuition for his grandchildren, free rent on a New York City apartment, and lease payments for a luxury vehicle. Former President Donald Trump is expected to be called as a witness in the upcoming trial.

Japan’s National Tax Agency announces a controversial alcohol promotion contest to boost the nation’s plummeting alcohol tax revenue. An online contest called “Sake Viva!” invites people ages 20 to 39 to submit a business plan to increase Japan’s sake, beer, and liquor sales. Alcohol consumption nationwide has steadily declined since the 1990s, in part because of government interventions to lessen societal and health problems linked to alcohol. Now the tax agency is concerned about the decrease in pub business and consumer sales.

U.S. NEWS

President Biden signs the $430 billion Inflation Reduction Act along with its provision for a corporate minimum tax

The economic package received majority Democratic support in both the House and Senate and is expected to reduce the deficit by over $300 billion over the course of the next 10 years. Congressional Republicans unanimously opposed the package but to no avail. This bill is a dramatically revised version of Biden’s original $1.75 trillion Build Back Better plan that was spent over a year stalled by congressional arguments over tax credits, funding, and other key issues.

Included in the Inflation Reduction Act is the much-debated 15% corporate minimum tax, which will mainly apply to large corporations that earn more than $1 billion per year. Most retailers already pay much more than 15% in corporate taxes. Of the 170 companies in the S&P 500 that paid less than 15% in taxes last year, analysts predict that no more than half would see a tax increase. This is in part because the new legislation allows companies to use adjusted earnings. Therefore, some analysts have said, the overall impact of these taxes could be fairly minimal.

Business giants—such as the parent companies for Google and Facebook—will also be subject to a 1% excise tax on stock buybacks. In 2021, S&P 500 companies broke an all-time record by purchasing $881.7 billion of their own stock, motivated by unusually low interest rates.

The new legislation also allocates $369 billion to climate and energy initiatives and $64 billion toward lowering health insurance costs. Missing from the package are Biden’s attempts to introduce universal child care and middle-class tax cuts. Overall, the Inflation Reduction Act is expected to raise $737 billion in revenue over the next decade, largely from the corporate minimum tax and stock buyback tax, as well as Medicare drug price reductions. Around $124 billion of that new revenue would result from increased IRS audits for the nation’s wealthiest.

STATE NEWS

Indiana residents are anticipating Automatic Taxpayer Refund checks… that are set to arrive by November 1st. Depending on their filing status, “Hoosiers” will receive $325 (single filers) or $650 (joint filers). These rebates are a combination of an original $125 check and a recently-approved $200 increase.

Taxpayers who qualified for the original rebate will automatically receive the additional amount. To qualify for the refund, taxpayers must have filed a state individual income tax return for 2020 by no later than January 3, 2022. Notably, taxpayers who did not qualify for the initial $125 payment could still qualify for the $200 refund if they received Social Security benefits during 2022 and are not claimed as a dependent on a 2022 state income tax return.

Approximately 1.7 million refund checks are already in the process of being issued by paper check or direct deposit. Those who have not received their checks by November 1st can contact the Indiana Department of Revenue to confirm their mailing and banking information.

The state also warns residents to be wary of potential scams. The Department of Revenue will not require taxpayers to respond to texts, emails, or phone calls in order to receive their funds.

Kentucky’s $1 billion revenue surplus spurs a state income tax cut… according to a new bill passed earlier this year. The General Assembly passed House Bill 8 in April, which includes a provision stating that a revenue surplus automatically triggers a 0.5% reduction in income tax. In this case, the tax cut will take effect in January 2023, lowering Kentucky’s tax rate to 4.5%. The bill was one of 200 new laws that went into effect in Kentucky in 2022.

House Bill 8 was introduced as part of Republicans’ goal to ultimately eliminate the state income tax. In addition to the automatic decrease, the bill requires more incremental reductions in subsequent years depending on total receipts for the state’s general fund. The legislation also introduced new taxes on electric vehicles, ride-sharing services, and other select goods and services. State Democrats largely opposed the bill saying that the measures primarily benefited the wealthy and shifted the tax burden to lower-income residents.

This year’s surplus is the second highest in Kentucky’s history, falling just short of the state’s $1.1 billion surplus in fiscal year 2021.

TAX PLANNING

Taxpayers who earn more than $10 in interest from a savings account are required to pay income tax—with a few exceptions. Unearned income is taxed at your regular federal tax rate, ranging from 10% to 37% depending on your overall income. Fortunately, taxpayers should be alerted to the need to report these earnings when they receive a form 1099-INT from their bank or financial institution.

Keep in mind that this applies to any bank account that earns interest, including checking accounts, money market accounts, and certificates of deposit. Dividends from credit unions, cooperative banks, savings and loans, and mutual savings banks are also taxable. However, unearned income does escape payroll taxes, such as Social Security and Medicare deductions—although some states may charge their own tax in addition to the federal levy.

Not every savings account is subject to income tax. Individual Retirement Accounts (IRA) allow taxpayers to transfer part of their income directly into a savings account. These funds can accrue interest without taxation until the holder makes a withdrawal. Several types of educational savings accounts, such as Coverdell savings accounts and 529 plans, can also earn tax-free interest as long as the funds are only used for educational purposes. Lastly, health savings accounts (HSA) and flexible spending accounts (FSA) are both tax-exempt, but the funds must be used for healthcare expenses.

At least 21 states are currently offering residents economic support through hero pay, stimulus checks, or automatic rebates. With inflation on the rise, many state governments are leveraging recent revenue surpluses to provide relief to taxpayers. Below are the highlights of how some states are responding.

Alaska tops the list by offering an impressive $3,200 per person starting in September to offset fuel costs in particular. The second highest comes from Maryland, although these checks are specifically allocated to low-income households to assist with water bills.

Direct refunds for all taxpayers have been approved in California (up to $1,050 per person), Colorado ($750 per person), Delaware ($300 per person), Georgia ($500 per person), Hawaii (up to $300 per person), Idaho (either $75 or 12% of their 2020 state taxes), Indiana ($325 per person), Massachusetts (an estimated 7% of their 2021 state income tax payment), South Carolina (up to $800 per person), and Virginia (up to $500 per person). For most of these refunds, the criteria is simply that your most recent tax returns were filed on time.

Other states are allotting refunds only to lower-income taxpayers. Maine offers $850 per person making under $100,000 (for single filers), while Illinois is issuing $50 rebates to residents who make less than $200,000 a year. Oregon and New Mexico also implemented their own variation. Additionally, Connecticut, Florida, Illinois, New Jersey, and Vermont have introduced credits for children and dependents that may also vary based on income. In Minnesota, front-line workers will receive $750 bonus checks for their work during the pandemic.

Recent Highlights

Wondering what you missed in our last newsletter? Check out our latest exclusive articles here:

CURRENT EDITION

A Compendium Of Year End Tax Tips

Peter J Reilly CPA

As summer turns to fall, the leaves turn and houses start being decorated, the air becomes crisper and the internet fills with year-end tax tip pieces. I call them tip sheets. I just love reading tip sheets, but I’m retired from active practice. Somebody who doesn’t have time on their hands might look at two or three and figure they have seen it all and didn’t learn anything they didn’t know already. I’m here to tell you that if you keep hunting, you might find some gems. But better than that, I will share what I have found in the event you don’t have the time or inclination to look at another twenty or thirty tip sheets.

CTA on Pause! What Tax Pros Need to Know About the Nationwide Injunction and BOI Reporting

Dominique Molina, CPA MST CTS

On December 3, 2024, a U.S. District Court judge issued a nationwide preliminary injunction prohibiting FinCEN from enforcing the Corporate Transparency Act (CTA) and its associated Reporting Rule. This injunction halts the January 1, 2025, deadline for Beneficial Ownership Information (BOI) reporting, leaving many tax professionals and business entities questioning their compliance obligations. However, this pause is temporary. The government has already filed an appeal, and the injunction could be modified or overturned at any time. FinCEN has acknowledged that reporting companies are not currently required to file BOI reports but may do so voluntarily.

How to Help Your Clients Lower Their Student Loan Payments

Caitlin See, MPA

There are roughly 42.7 million federal student loan borrowers as of Q4 2024, creating an opportunity to provide additional insight to your clients beyond tax preparation. By leveraging certain tax and repayment strategies, you can help your clients reduce their tax liability and lower their student loan payments in one strategic swoop. Here’s how.