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
- Who will win in the battle between The New York Times and OpenAI? One of the nation’s most popular newspapers is suing OpenAI and Microsoft, the makers of ChatGPT and the Bing chatbot, for copyright infringement. The Times claims that these companies rely on stolen content to train their generative AI tools and create products that directly compete with newspapers. The plaintiff’s lawyers claim that when chatbots are prompted to reference articles from The Times the tool pulls passages from the original text verbatim. Not all newspapers are approaching this problem in the same way, however. For instance, Axel Springer, owner of Business Insider and Politico, is working on a business deal to allow OpenAI to use its content to train its products.
- Uber stocks spiked and Lyft stocks slipped after the company’s latest earnings reports. Uber recently announced that the ride-share company plans to repurchase up to $7 billion of its own shares. Investors responded by snatching up Uber shares, causing the stock to rise by more than 10% in one day. This new program comes after the company outperformed fourth-quarter estimates for 2023. Meanwhile, Lyft experienced a bit of whiplash after its earnings report turned out to have a major error. Lyft’s original press release reported a 5% increase for 2024, but the CFO later updated the number to a 0.5% margin expansion. After the original press release, the company’s stock prices rose by more than 60%, but the correction caused that number to fall to 16% above the previous price.
- Beauty company Forma Brands goes bankrupt, bringing down social media star Jaclyn Hill’s cosmetics company. At the start of this year, Instagram influencer Jaclyn Hill announced that her brand Jaclyn Cosmetics would be shut down. The beauty line was owned by Forma Brands, which filed for bankruptcy last year and soon after parted ways with Ariana Grande’s brand, R.E.M. Beauty. Jaclyn Hill became famous for her YouTube makeup tutorials featuring celebrities like Kim Kardashian. Her first foray into selling cosmetics was in 2015 when she collaborated with Australian brand BECCA on a highlighter that broke sales records within 20 minutes of its launch.
What's New In The Tax World?
The popular EV tax credit has yielded $135 million in reimbursements for automotive dealers this year
The electric vehicle tax credit was introduced to encourage consumers to choose clean energy vehicles, such as plug-in electric vehicles or fuel cell vehicles. So why are auto dealers the ones receiving rebates? Before this year, the $7,500 new EV credit and the $4,000 used EV credit could only be claimed through a tax return. So if a consumer purchased a new electric vehicle in 2023, they would not see the financial benefit until they next filed their taxes in 2024. However, starting in 2024, car buyers are allowed to transfer the credit to the car dealer when they make their purchase to lower the cost of the vehicle on the spot.
This new program is already proving popular with over 11,000 car dealers registered to receive tax credit transfers and 8,000 registered for advance payments. As of February 6th, the federal government has already issued about $135 million in advance point-of-sale tax credit payments. This total reflects about 19,500 sales with advance payment requests—17,500 for new EVs and 2,000 for used EVs.
The electric vehicle tax credit has been a topic of constant conversation due to a steady stream of changing IRS guidelines. In 2024, the number of automotive models that qualify for the tax credit dropped from 43 to only 19 due to stricter rules on battery sourcing. To be eligible, vehicles must be assembled in North America, and battery components used cannot be manufactured or assembled in a “foreign entity of concern”—a list that includes China, Russia, Iran, and North Korea. After this update, vehicles such as the Nissan Leaf, certain Tesla Model 3s, Chevrolet Blazer EV, Cadillac Lyriq, Ford Mach-E, and Ford E-Transit lost eligibility and left automakers scrambling to make supply chain changes and stay competitive.
Taxpayers considering purchasing an electric vehicle this year should note that they must fall under the income limits to qualify for the tax credit. At the time of purchase, buyers must earn no more than $150,000 in adjusted gross income for single filers or $300,000 for married couples filing jointly. As of this year, consumers may also qualify for a credit if they lease an electric vehicle.
State-By-State Updates
- California considers a ballot initiative that would limit local and state governments’ ability to raise taxes. The Taxpayer Protection and Government Accountability Act is currently scheduled to appear on the November 2024 ballot. The initiative would raise the requirements for a tax increase to become law so that two-thirds of each legislative chamber and a majority of voters would need to vote “yes.” The current rule only requires one or the other—either two-thirds in the legislature or a majority of voters. The measure would also retroactively cancel new taxes and fees that were imposed from 2022 onward unless they are renewed by voters. California’s governor, attorney general, and other state leaders have already attempted to have the initiative removed from the ballot. The California Supreme Court is expected to decide on their request early this year.
- A coalition of Colorado leaders back a ballot measure to permanently cut Colorado property taxes starting in 2025. This new alliance is composed of business and political leaders who have not historically been in agreement. Both those who voted for and against Colorado Proposition HH—which aimed to reduce property taxes but would also decrease tax refunds—have come together to propose a solution to Colorado’s rising property taxes. The proposed ballot measure would limit increases in property tax revenue and lower the state property assessment rate. The measure would also protect the state’s education fund and require the legislature to compensate for the loss in revenue for local governments and special districts.
- The Ohio Supreme Court rules that commuters do not qualify for a tax refund for days working from home during the pandemic. The court was asked to examine a state law allowing municipalities to levy income tax on nonresidents. The law was introduced in 2020 as most workers were asked to work from home in light of the COVID-19 pandemic. The idea was that cities should still be permitted to tax employees who lived outside the municipality where their employer was based. Ohio resident Josh Schaad subsequently filed a lawsuit arguing that he was entitled to a refund from the city of Cincinnati, where his employer was based, since he did not work within the city’s limits from June through December 2020. The Ohio Supreme Court upheld the law, meaning that remote workers cannot request a rebate for income tax paid during the pandemic.
- Wisconsin’s state Assembly passes a $2.1 billion tax cut package that may fall flat on the governor’s desk. The package includes four Republican-backed bills that focus on reducing taxes for middle-income taxpayers, parents, married couples, and retirees. The first and widest-reaching is a measure to expand Wisconsin’s second-lowest tax bracket to include 1 million additional residents earning between $19,000 and $150,000 per year. The second and third initiatives would expand tax credits for married filers and for filers with children. The latter gained the most support with 92 lawmakers voting in favor and only 4 voting against it. Lastly, the Assembly passed a measure that would exempt up to $75,000 in income for retirees. The Senate has not scheduled a vote, and Governor Tony Evers has not confirmed his specific stance on the slate of bills.
Tax Planning Tips
If you have long-term care insurance, keep in mind these tax deduction limitations. Taxpayers who are planning for retirement may consider investing in long-term care insurance. To further offset the costs of long-term care, these insurance policies come with tax benefits. In fact, premiums are fully to partially tax-deductible for many taxpayers depending on your age and the size of your premiums.
For the 2023 tax year, insurance policy holders can deduct up to:
- $480 – age 40 or younger
- $890 – ages 41 to 50
- $1,790 – ages 51 to 60
- $4,770 – ages 61 to 70
- $5,960 – ages 71 and older
If your premiums exceed your deduction limits, you can only deduct the maximum amount. However, if you also have a health savings account (HSA), you can use the pre-tax dollars saved in your HSA to pay for your long-term care insurance, further reducing your taxes paid.
This tax season, avoid these red flags that could lead to an IRS tax audit. Since receiving its last budget increase, the IRS has invested millions in improving tax enforcement when it comes to high-income taxpayers, large corporations, and complex partnerships. This also means that the agency intends to up the number of audits it performs overall. How can you sidestep the mistakes that might cause the IRS to flag your tax return?
First, ensure that you have reported all income including earning from freelance work (see Form 1099-NEC) or investments (see Form 1099-B). Since the IRS has copies of these income forms, unreported income will be easier to catch. Second, check that the numbers you have listed are completely accurate, down to the decimal point. Round numbers on large deductions are likely to gain the agency’s attention, so you’ll want to avoid general estimates and make sure you have records of the exact amounts you are eligible to deduct.
When it comes to tax breaks, you will also want to be conscious of claiming more deductions than is standard for your income level. The key here is to have records to substantiate all claims, such as end-of-year statements for any charitable deductions you have made. Lastly, the earned income tax credit has been under intense scrutiny because of the high levels of fraud associated with this refundable credit. Double-check that you meet the qualifications before claiming this credit.
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The Wild West of Employee Retention Credits (ERC): Outlaws, Deputies, and Cowboys
Gather ’round, pardners! The Employee Retention Credit (ERC) has been the latest gold rush in the tax frontier, drawing business owners, tax deputies, and even a few sly outlaws. But as the dust settles, the IRS—our law keeping sheriff—is on the hunt for any who might’ve bent the rules. In this frontier of finance, knowing who’s who can keep you out of trouble as the IRS rounds up dubious claims.
Selected Techniques to Monetize Tax Attributes
In the prior article “Tax Trends in M&A and What It Means for Your Clients,” we had discussed certain techniques to, e.g., maximize net operating loss (“NOL”) and interest expense deduction utilization in the context of M&A transactions. This article examines certain additional strategies to monetize expiring, latent, or otherwise disallowed tax attributes.
Do Those Tricks Really Work?
On the website for Axium Wealth, Charles Dombek tells us that: “Most CPAs are historians that tell their clients how much they make, how much they owe, when and where to file their taxes, and oftentimes how to write large checks at the last minute when you least expect.” When it comes to Axium, though: “We help clients recover dollars they unnecessarily pay in State and Federal income taxes.” Axium also helps clients diversify capital into off-market passive real estate and alternative investments. Before Axium, there was The Optimal-Financial Group LLC. Of course many of the readers of Think Outside The Tax Box are CPAs, or EAs or others who both help their clients be compliant and advise on ways to minimize their liability. When I was practicing I would call the things I might suggest my “bag of tricks.”
