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
- Could Harvard and other universities lose their tax-exempt status? The Trump administration has requested that the IRS take steps to revoke Harvard University’s tax exemption. This is the latest in a standoff between the president and the Ivy League. Trump also recently initiated a freeze on over $2.2 billion in federal grants and $60 million in contracts to Harvard. The funding freeze comes after the university refused the administration’s demands to change its hiring practices and admissions policies. Though the IRS rescinding a school’s tax-exempt status is rare, this has happened when the school’s policies violate certain rules set in place for non-profit organizations. The Trump administration has claimed that Harvard University has done so by allowing political activism on campus that the administration has seemed “antisemitic.” Experts have explained that the first step in the revocation process is for the IRS to inform the school of the audit and request documents for review, followed by an opportunity for the university to defend its position.
- China changes tactics in its “tariff war” with the U.S. After imposing sweeping tariffs on goods from about 90 nations, President Trump announced a 90 day pause on most countries’ imports—with the exception of China which, at the time, faced a 125% tariff on goods sold in the U.S. This kicked off a battle of the tariffs, ending most recently with the U.S. imposing tariffs of up to 245% against China and China levying up to 125% on U.S. imports. However, the Chinese government recently stated that they would ignore future tariff hikes and have instead begun to place restrictive measures on the services sector. For instance, China has widened export controls of critical minerals used in semiconductors, missile-defense systems, and solar cells. The Chinese government is expected to also target travel, legal, consulting, and financial services from the U.S.
- Stocks struggle in the tech sector, especially as companies face new restrictions on sales to China. As the trade war between the U.S. and China continues, the Trump administration is turning its attention to American chip manufacturer Nvidia. The issue in question is that Nvidia previously supplied A.I. chips to Chinese startup DeepSeek. A Congressional committee focused on national security threats also opened an investigation into Nvidia’s sales practices in Asia. DeepSeek recently took the tech world by storm when it introduced its low-cost AI model that threatened to unseat ChatGPT as the leading AI tool. This sparked concerns within the U.S. government about China’s ability to gain greater control over global A.I. networks. Given the new restrictions it faces, Nvidia announced a $5.5 billion quarterly charge for its H20 processors. Nvidia’s stock dropped 6.9% after this announcement.
What's New In The Tax World?
The renewal of Trump’s 2017 tax cuts is facing pushback from within the Republican party
With a GOP majority in Congress, many expected a swift renewal of the expiring tax breaks passed under Trump’s Tax Cuts and Jobs Act (TCJA). However, as lawmakers look for ways to pay for their hefty budget bill, a number of Republican leaders have discussed allowing certain tax breaks to expire, namely those that benefit the wealthy. Though these conversations have taken place in unofficial settings, questions are arising around which tax provisions could sunset at the end of this calendar year.
Why the potential shift in GOP perspective? Political analysts have attributed this to the higher number of low-income voters who leaned Republican in the last election. Among voters who earned less than $50,000 per year, Trump had a 2 point lead over Harris in the presidential race, while voters earning above $100,000 a year preferred Harris by 4 points. This potentially points to a growing split within the Republican party between “populists” who favor higher taxes on millionaires and billionaires versus “traditionalists” who see tax cuts for all as the key to economic growth.
Among the Republican voices in favor of taxing the wealthy is former White House chief strategist Steve Bannon. Senators Kevin Cramer and Chuck Grassley also alluded to this as a possible solution to the budget problem in recent town halls and interviews. However, Senator Ted Cruz and House Majority Leader Steve Scalise have spoken against the idea of any income tax hikes. Senator John Cornyn has added that a higher top income tax rate could end up hurting pass-through businesses that pay personal income tax on their revenue, such as S corporations, LLCs, and sole proprietorships.
Some Republican strategists have expressed concerns that failing to extend the TCJA tax cuts could give Democrats a boost during the midterm elections in 2026. If none of the tax provisions are extended, this would mean a tax increase of approximately $4 trillion. However, lawmakers are more likely to extend certain tax cuts but let others disappear. A major question mark hovers over the top marginal income tax bracket. TCJA decreased the tax rate for high-income earners from 39.6% to 37%. If this provision expires and the rate jumps back up to 39.6%, this would impact Americans earning around $626,350 (as of 2025) or more.
State-By-State Updates
- Florida lawmakers weigh the pros and cons of two budget bills, both proposing over $5 billion in tax cuts. The state House has advanced a bill that would reduce the state sales tax from 6% to 5.25%, resulting in an overall tax cut of about $5.4 billion. A competing bill has been introduced by Governor Ron DeSantis that provides a $1,000 rebate to every homestead property owner in the state, a tax cut totaling about $5 billion. The state Senate is attempting to reconcile the two bills, introducing an alternative plan that would include a sales tax exemption for clothing under $75, free auto registrations for a year, new sales-tax holidays, and a study on the impact of reducing or eliminating property taxes. One major difference between the plans is whether the proposed tax cuts are recurring or designed as one-time relief. DeSantis’ property tax rebates would be a one-time boost, for instance, while many of the sales tax cuts would be permanent.
- Indiana moves ahead with historic property tax cuts. Backed by Senate Republicans, the bill proposes $1.2 billion in property tax reductions over the next three years. The major provision in this bill is a “10% off” credit for every homestead’s tax bill, capped at $300 per property. The downside? Local governments would collectively lose an estimated $1.5 billion in revenue. However, not all governmental units would see a loss—some are projected to see a revenue increase, though a lower one than they would see without the new bill. Opponents to the bill are concerned about the impact on schools and communities and whether they will see budget cuts as a result. The bill also introduces a second tax cut—a cap on local income tax rates for all counties. County income tax limits would be reduced from the current 3.75% to 2.9%, but municipalities would be given new authority to impose taxes of up to 1.2% instead.
- New Jersey awaits a new governor and a controversial new tax cut for senior citizens. The Garden State’s next gubernatorial election is scheduled for November 2025. Of the 11 candidates currently in the race, several object to aspects of the “Stay NJ” program, which offers tax credits to homeowners aged 65 and over. Starting in 2026, senior homeowners who earn less than $500,000 a year can receive tax credits equal to half their property tax bills, not to exceed $6,500. The program is expected to cost the state over $1 billion per year. However, the law does state that the payments cannot be issued unless New Jersey’s surplus revenue amounts to at least 12% of annual spending. Some gubernatorial candidates have expressed concerns that the state cannot currently afford the program. Others have pointed specifically at the income limit and have proposed dropping it as low as $150,000. Another proposed change is to shift the tax credit to a flat amount based on income, not the property tax bill itself.
- Washington lawmakers abandon plans for a new wealth tax and focus on increasing existing taxes. The state Legislature’s latest budget proposal would increase tax revenue by $12 billion over the next four years. Previously, Democratic lawmakers had floated the idea of a new tax on residents whose stocks and other intangible assets were worth $50 million or more. The first of its kind in the U.S., this tax was projected to earn $4 billion per year but was strongly opposed by Governor Bob Ferguson and major local employer Microsoft. The new bill instead proposes increasing capital gains tax and estate tax rates for high-income earners and raising business and occupation taxes for larger companies in particular. The proposal also applies the state sales tax to more service industries and raises the cap on property tax increases to 3% per year.
Tax Planning Tips
Could the federal tax on Social Security income actually be eliminated? During his presidential campaign, Trump included in his platform the idea of eliminating taxes on Social Security benefits. As lawmakers consider the possibility, it raises the question: how is Social Security currently taxed? First, low-income earners do not pay taxes on their benefits. This applies to single filers earning under $25,000 and joint filers earning under $32,000. Those earning up to $34,000 (or $44,000 for couples) pay tax on a portion of their benefits—up to 50%. Finally, higher income earners can be taxed on up to 85% of their Social Security income.
Experts have pointed out problems with the idea of eliminating tax on this type of income. Because of the tax structure, higher-income households would see most of the benefits. Social Security would be financially weakened and could become insolvent by 2031, impacting future generations. The Penn Wharton Budget Model also suggests that eliminating the tax could reduce incentives to save and work.
ChatGPT enters the world of tax preparation. In a partnership with H&R Block, OpenAI is working to create a new tool that aims to help tax professionals. Though OpenAI has stated that the new tool would not replace the human element of tax preparation, the technology could make it easier for tax planners to answer questions and navigate tax code changes. OpenAI reassures taxpayers that its model does not use customer data to train its algorithms. The project is scheduled to be completed and deployed before the 2026 tax season.
This development comes as the Trump administration continues to undertake a major rehaul of the IRS. A recent change is the elimination of the IRS’ free Direct File program, created under former president Joe Biden. The Trump administration has also focused on reducing the staff and budget at the IRS. Thousands of agency employees have lost their jobs, and reports suggest that about half of the 90,000-person staff is likely to be terminated.
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The Succession Plan You Keep Meaning to Write
I have a friend who has been retiring “in about two years” for the last five years. He is 67, runs a successful practice with about 400 returns, and specializes in tax planning. He has never had the practice valued. He also has no succession plan in the event he does not come back from his next fishing trip. This is not unusual. This is typical. The 2020 American Institute of Certified Public Accountants (AICPA) firm succession survey found that only 6% of solo and sole practitioners had a practice continuation agreement in place. Nearly half of those surveyed said they knew they needed one and had no idea how to start. That second figure is the one that gets me, because it is not denial. Our colleagues know exactly what is at stake and are stuck. Let us get unstuck.
Games Industry Lore 101: Basics Tax Practitioners Should Know
When building your book of business, especially small business clients that do the heavy lifting due to their recurring complex tax filings, you might ponder seeking out clients in the video games industry. Salivating at the prospect of capturing just a tiny sliver of that nearly half-trillion market valuation as your social media feeds flood with news and memes from a random indie game you’ve never heard of, you wonder how to attract and retain game developer clients. But there’s several things that tax practitioners should know about how the games industry works, and its innumerable oddities, before diving head-first into taking on game developers as business or individual clients. Ready to press play?
The NIL Tax Playbook
Regardless of where you stand on the issue, student athletes have been able to tap into a new revenue stream since July 1st, 2021. This is when the National Collegiate Athletic Association (NCAA) began to allow students to profit from their name, image, and likeness (NIL). Which leads to new tax implications for a group of taxpayers who may have never filed a tax return before. As this has unfolded, it reminded me of taxpayers who were on the forefront of making money online. It was something new, so not many taxpayers or even tax practitioners knew how to handle it. It was real money, but was it really a business? I’ve loved seeing it evolve. Now, right off the back of COVID-19, we have student athletes who are able to take advantage of their online presence and also make money. But the income people were making 20 years ago online is pennies compared to what some students can make through NIL deals. In 6 short years, students have gone from not being able to profit monetarily from their likeness while competing as a student to now potentially making millions.
