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
- Samsung edges out Apple as the top phone maker worldwide. After claiming the number-one spot at the end of 2023, the iPhone is once again taking a backseat to its top competitor, Samsung. Apple saw a 10% decrease in smartphone shipments from January to March of this year. Samsung, which recently released its Galaxy S24 series, shipped over 60 million phones during the same timeframe, giving them a 20.8% market share. Apple’s declining sales are likely linked to the restrictions on iPhone use posed by the Chinese government and Chinese companies.
- A battle between Google and California-based news outlets is brewing. Google recently removed links to California news sites for certain users, drawing backlash and a request from the News/Media Alliance for an official investigation. The link removal was supposedly a reaction to a new bill called the California Journalism Preservation Act that would force Google and similar tech companies to pay a “journalism usage fee” to use news content alongside their digital ads. The News/Media Alliance, which represents over 2,000 news publishers, is now asking authorities to determine if Google’s actions violated federal and state laws.
- AI laptops may be the next wave of the future. Advanced Micro Devices (AMD) released a series of semiconductors for AI-enabled business laptops and desktop computers, which are expected to appear in HP and Lenovo products as early as this year. Special features include the ability to run large-language models and apps directly on the computer, providing content generation capabilities without having to rely on the cloud. AMD shares have slowly been on the rise since this announcement. Competitors Intel and Nvidia have also released AI PC chips within the last six months.
What's New In The Tax World?
Biden publicly releases his tax returns as presidential candidates continue the conversation on tax policy
Earlier this month, President Joe Biden visited his hometown of Scranton, Pennsylvania as part of his campaign route and continued to speak in favor of higher taxes on the rich. At a time when many voters have voiced concerns about ongoing inflation and high interest rates, tax policy is expected to be a key topic for presidential candidates in the coming months. The winner of this year’s election will have to address whether to renew a slew of tax breaks from the Tax Cuts and Jobs Act (signed into law by then-president Trump) that are set to expire in 2025. Trump and Biden agree on keeping tax cuts for households making less than $400,000 annually. However, they disagree on many of the individual and corporate tax cuts, all of which Trump has said he would keep in place. Biden seeks to raise the corporate tax rate from 21% to 28% and to increase the tax rate for the nation’s highest income earners from 37% to 39.6%. He has also advocated for a 25% minimum tax rate for billionaires.
Amid this tax conversation, President Biden made a different type of statement by releasing his annual tax returns on Tax Day. Joe and Jill Biden reported a joint adjusted gross income (AGI) of $619,976 and paid $146,629 in federal income taxes—an effective tax rate of 23.7%. Vice President Kamala Harris and her husband, Douglas Emhoff, also released their 2023 taxes. The couple reported an AGI of $450,299 and paid $88,570 in federal income taxes. Both couples earned most of their income from salaries and also had interest income from investments, which can result in a higher-than-expected tax bill without proactive planning. Tax experts pointed to the executive officials’ use of S corporations to receive some of their wages, reducing their self-employment taxes. Biden and Harris have used this structure to receive payment for their book deals and speaking engagements. S corporation owners are allowed to take distributions without paying Social Security and Medicare taxes.
State-By-State Updates
- Californians living in San Diego County get an extended tax deadline. The Federal Emergency Management Agency has issued a disaster declaration in this region related to the severe storms and flooding that occurred earlier this year. As a result, the IRS has automatically extended the filing date from April 15 to June 17, 2024 for federal individual and business tax returns. This extended deadline also applies to 2023 IRA and health savings account contributions, as well as corporation and fiduciary returns and payments that would normally be due on April 15. To receive more time beyond the new June 17 deadline, California residents can submit a request online.
- Florida’s tourist tax goes toward beach restoration. The tax dollars generated through visitors to the state’s hotels, motels, and other short-term rentals are helping revive local beaches after last year’s storms. Eleven Florida counties impose this 6% tax, and the revenue is restricted to tourism-oriented uses, such as marketing and capital projects to attract visitors. In the St. Petersburg area, this money may soon be reallocated to another cause—building a new baseball stadium for the Tampa Bay Rays. County commissioners and City Council members will each have to vote on whether to contribute to the $1.3 billion project, much of which will be funded by tourism taxes.
- Massachusetts’ new tax reduction for renters provides an extra $50 per taxpayer. An estimated 880,000 residents received this benefit. The expanded tax provision allows renters to deduct half of their yearly rent payments from their taxable income, capped at a maximum of $4,000. However, critics of the tax bill say that the $50 supplement does not go far enough in alleviating living costs in a state where the median monthly rent for a one-bedroom apartment is $2,600. The state already approved a $1 billion package last fall that allocated money toward resolving the affordable housing crisis. Governor Maura Healey has also put forward a $4.1 billion housing bond bill intended to fund and incentivize new affordable housing options and renovate existing properties.
- The Oregon kicker means a $980 tax refund for the average taxpayer. Taxpayers who filed 2022 and 2023 tax returns and who had tax liability in 2022 are eligible for a “kicker,” which refers to money that the state returns to taxpayers when they see a revenue surplus. This year, Oregon will pay out a whopping $5.61 billion to its taxpayers. The kicker will either be included in the taxpayer’s refund or it will reduce the amount of tax owed. On the corporate level, kicker money goes to K-12 public education funding.
Tax Planning Tips
Could the expanded Child Tax Credit still manifest in 2024? The updated version of this benefit is part of the Tax Relief for American Families and Workers Act of 2024, which did not make it through Congress in time for the April 15 tax deadline. If it is passed by the Senate, the expanded credit would raise the maximum amount per child from $1,600 to $1,800 for the 2023 tax year. The amount would gradually increase to $2,000 for the 2025 tax year. Also on the table is a “look back” provision that would allow parents to use their income from a previous year to qualify for the credit and increase the amount they can claim. If the new legislation is approved, the IRS will automatically make the necessary changes on behalf of qualified families. The income limits for this credit are currently set to $200,000 in adjusted gross income for single filers and $400,000 for joint filers.
In the latest tax scam, unscrupulous brokers are switching taxpayers’ health insurance plans. This year, some taxpayers received a rejection after filing their tax return because they failed to provide information on their Affordable Care Act plan. The problem is they never enrolled in said plan—someone else did it for them.
What benefit do scammers get from signing people up for ACA coverage? These rogue brokers have access to online enrollment portals that are integrated with HealthCare.gov. This enables them to open a new policy on behalf of someone else or switch that person to a different policy in order to earn their monthly commissions. Another tactic is to post an ad promising taxpayers a gift card or a government subsidy when they sign up for a new health care plan. Even though new rules were introduced requiring brokers to get written or recorded consent from clients, the scam has persisted.
If you or someone you know may be a victim of one of these scams, they should report it immediately to a federal or state ACA marketplace and request a corrected Form 1095-A.
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CURRENT EDITION
Intentionally Filing a Defective Tax Return
Creativity on a tax return is a natural tendency. Many strategies and behaviors we know are wrong, e.g. not reporting all income. However, is it ever okay to disregard some deductions and pay more tax? At first glance, it would seem that the IRS should like the idea of more reported income and a higher tax liability attached to the additional income. The IRS does not.
Side Hustles and Tax Tussles: Tax in the Gig and Share Economy Part Two
The gig economy involves more than one-off and part-time jobs. It also includes when you share your property in exchange for money. This can be a residential property, a vacation home, or even a vehicle. The gig economy has connected those who need rides and places to stay with owners via online platforms. We refer to this part of the gig economy as the share economy.
Accessing these accommodations is easy with the online platforms. But how the people participating should report their income isn’t quite as straightforward. Last time we looked at how your clients should report gig income, just like any other income made as a sole proprietor.
But making money from renting your property out is different, right? If you have clients with rental properties, you report their income on Schedule E (1040), Supplemental Income and Loss. We know from last time that we report gig economy income on Schedule C (1040), Profit or Loss from Business. So, how does rental income derived from the share economy get reported on a tax return? Every taxpayer’s favorite answer, it depends.
Loose Change in Your Couch and Maybe a Tax Break at Your Kitchen Table
A 2023 Tax Court decision upheld what many small business owners and tax practitioners have wondered about for some time. The court found that shareholders of an S corporation could exclude rental income paid to them by their S corporation for holding planning meetings in their homes. While the IRS and court found that the amounts charged by the shareholders were excessive, the court found the arrangement itself within the bounds of the law.
This article examines this case and underlying law and when and how this is a planning idea worth pursuing, the limitations and unknowns involved, and the policy implications of this long standing exclusion. The case is Sinopoli, TC Memo 2023-105 involving the exclusion at IRC Section 280A(g).