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!
WORLD NEWS
Alaska is making plans to tax online car sharing platform Turo… in an effort to change how ecommerce is regulated in the state. The Alaskan government has argued that transactions made through Turo’s website should be subject to the state’s 10% vehicle rental tax. However, Turo has argued that since it does not own its own fleet of cars that the tax should not apply. The issue has come forward because the majority of online car rentals in Alaska now occur through Turo’s platform, which allows users to advertise and rent cars. Since Turo handles transactions itself and pays car owners directly, the company currently has no way of collecting taxes from the renters.
Tesla and Panasonic could receive $1.8 billion through tax credits… created by the Inflation Reduction Act. Production credits are awarded based on the number of batteries and electric vehicles that a company manufactured in the U.S. or other approved countries. These credits can apply to mining, processing raw materials, and making the actual battery components. The income from these credits will allow Tesla to lower its sales price over the next two years, which could further increase the urgency for other automakers like GM, Ford, and Chrysler to ramp up their EV options.
U.S. NEWS
Cities in Tennessee, Texas, and Oklahoma rank as the most tax-friendly for high-income earners
Taxpayers who make $250,000 or more per year rank in the top 7% of U.S. households, but how far that dollar stretches depends on the cities where they live. A study done by SmartAsset compared the after-tax income—adjusted for cost of living—for 76 different U.S. cities. While taxpayers earning $250,000 per year pay an average of 34% in taxes, taxpayers who make $100,000 pay closer to 29% in taxes. On the whole, cities with no state income tax provided the most take-home pay to those earning $250,000 per year, and in 21 cities, they saw a lower tax rate than those earning $100,000.
The top city where $250,000 goes the farthest is Memphis, Tennessee. In Memphis, those earning $250,000 per year will take home an after-tax income of about $175,558. Tennessee has no state income tax, which means that this salary range is taxed at a rate of 29.77%. Rounding out the top five cities are El Paso, Texas; Oklahoma City, Oklahoma; Corpus Christi, Texas; and Lubbock, Texas.
On the opposite end of the spectrum, the five cities where the real value of a $250,000 salary is lowest are New York, New York; Honolulu, Hawaii; San Francisco, California; Los Angeles, California; and Long Beach, California. Portland, Oregon also places steep levies on high income taxpayers. This city has the highest tax increase between those earning $100,000 to those earning $250,000—the tax rate jumps from 7.47% to a whopping 41%.
The study used data from the Council for Community and Economic Research to calculate the cost of living in each city. Cost of living includes the price of groceries, housing, transportation, utilities, and other commonly used goods and services.
Rather than relocate, which may not be practical for many taxpayers, experts advise that six-figure earners apply tax planning strategies to lower their liability. For instance, making the maximum allowed contributions to a 401(k) retirement plan can lower your taxable income by $22,500 in 2023. Similarly, if you have a high deductible health insurance plan, you may be eligible for a health savings account (HSA). In 2023, you can make tax-deductible contributions of up to $3,850 to your HSA, reducing your taxable income.
STATE NEWS
New Jersey debates expanding property tax relief for seniors… as the deadline for a new state budget draws near. Property tax bills have been averaging around $9,500 in the Garden State, and Governor Phil Murphy has been discussing continuing the “Senior Freeze” program. This program remits reimbursement checks to offset property tax increases for eligible seniors.
Meanwhile, other state legislators have been putting together a different proposal that aims to cut property taxes in half for seniors starting in 2025. With all 120 legislative seats on the ballot in this November’s election, representatives have even more incentive to address this and other taxpayer concerns.
As of this spring, New Jersey is spending $3 billion per year to help seniors and other taxpayers with exceptionally high property taxes. About $2 billion of that total goes toward a program called “Anchor,” which provides homeowners with up to $1,500 in benefits and renters with up to $450 in benefits. The actual amount available varies depending on the taxpayer’s income. In its first year, the Anchor program provided aid to about 540,000 seniors and people with disabilities.
California legislators are weighing a proposal to tax short-term rentals… in an effort to increase state funding for affordable housing. This 15% tax would apply to rooms and homes that are rented out for 30 days or less at time, likely through popular companies like Airbnb and Vrbo. The new levy could generate as much as $150 million per year toward low and middle-income housing projects.
Vacation rentals have increased across California since the COVID-19 pandemic, sparking debates over whether state residents are being priced out of certain neighborhoods as a result. The state has already enacted bans, permit caps, and other restrictions as a result. Research completed in 2020 about the impact of home-sharing on housing and rent prices showed that the average neighborhood saw an annual increase of $9 in monthly rent and $1,800 in home prices in connection with short-term rentals.
Opponents of the proposed tax have expressed concern that the tax would give an unfair advantage to hotels over privately-owned rental homes. These short-term rental operators worry that they will be forced to reduce their rates to stay competitive, making it difficult to stay afloat in an already challenging economy.
TAX PLANNING
Taxpayers who withdrew IRA funds during COVID-19 are running out of time to claim a tax refund. Under the CARES Act of 2020, taxpayers were allowed to use funds from individual retirement accounts and employer-sponsored 401(k) plans to deal with financial emergencies brought about by the pandemic. These coronavirus-related distributions (CRDs) came with certain tax benefits. First, the usual 10% tax penalty for early retirement withdrawals was waived. Secondly, taxpayers could receive a refund for any income taxes paid on their withdrawals if they repaid all or part of their CRD within three years. This would essentially make the CRD a kind of tax-free loan.
Since the clock on those three years for repayment began the day the funds were received, many taxpayers are coming up on their deadlines now. Estimates say that hundreds of thousands of Americans took advantage of this provision, but few people have repaid their distributions. Data provided by the Vanguard Group showed that about 6% of retirement account holders took a CRD in 2020, but less than 1% had repaid the funds by the end of 2021.
To claim a tax refund on a CRD, taxpayers need to file an amended tax return. The IRS also allowed taxpayers to spread out the tax liability resulting from a CRD across the past three years—if they did so, they would now need to file an amended tax return for each year that they reported the distribution as income.
President Biden’s tax reform plans may be sunk by the recent debt ceiling deal. The recent deal suspended the country’s $31.4 trillion debt ceiling until the start of 2025. As part of the compromise, discretionary spending would be capped for 2024 and funds previously intended to boost IRS initiatives would be cut. The deal also contains no tax rate changes, possibly blocking Biden’s last chance to fulfill his campaign promises to increase taxes on America’s wealthiest and on major corporations.
Major changes to the tax code are now unlikely to be revisited until the end of 2025 when the provisions of the 2017 Tax Cuts and Jobs Act (TCJA) expire. As the 2024 presidential election season draws closer, tax policy continues to be a key issue. According to recent polls, a majority of Americans on both the left and the right support policies like tax increases for the highest income earners (65% in favor), increasing IRS audits for the wealthy (64% in favor), and increasing the federal minimum wage (63% in favor).
Congressional Democrats and Republicans are expected to offer differing proposals for addressing the federal deficit—liberals are likely to advocate a plan similar to Build Back Better with its focus on the corporate and capital gains tax rates, while conservatives are expected to push to make the TCJA’s individual tax cuts permanent.
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Building a Strong Personal Brand as an Accountant: Strategies for Success
What is a personal brand?
If you asked me that question in 2018, I would not know how to answer it.
As I embarked on my journey to entrepreneurship, I took on any accounting-related project that came my way. I had yet to learn about the meaning of a personal brand. Fast forward to 2020, I launched my CPA firm just before the COVID shutdown. While established CPA firms could sustain or pivot to new services, I still had to figure out how to get clients, build my online presence, and establish trust to create my brand.
I learned on my journey that in today’s competitive landscape, a personal brand has become more critical than ever. Professional success is directly related to one’s brand, especially in service-based industries such as accounting. Surveys show that more business owners and young entrepreneurs are looking for accountants they can rely on for not only their technical skills and qualifications but also for a personal connection. Therefore, creating a solid personal brand distinguishes accountants from the rest of the crowd, enhances their credibility, fosters loyalty, and opens doors for new opportunities.
I will share my experience, dive into the significance of a personal brand for accountants, and provide actionable strategies to help you build a solid personal brand that resonates with your target audience.
Salt Miner’s Run for the Roses Ends with a Big Tax Bill
Judge Mark Holmes of the United States Tax Court expressed admiration for the achievements of Joseph G. Bucci Sr. whose American Rock Salt provides the salt to keep many of the streets in the Northeast passable in the winter. You can learn a bit about that from an interview in New York by Adriane Quinlan . The positive remarks were no help in the ultimate result. Judge Holmes agreed with the IRS that Bucci’s three side hustles — a real estate enterprise, a farm, and some racing horses — were “Activities not engaged in for profit” making losses unallowable. The total tab including accuracy penalties for 2016 and 2017 was $711,980. Judge Holmes explained the result in a bench opinion, which is less formal than a memo decision. The trial began in Buffalo on June 14, 2023.
Injured Spouse Relief
“It feels like a sucker punch to the gut.”
I was on the phone with a client who was a newlywed and filing with their new spouse for the first time. They kept their paycheck withholding as single. So, they were anticipating a larger than usual tax refund.
Like a lot of taxpayers, they spent their refund before they even received it. Each day, they were checking “Where is My Refund ?” and even their IRS account. Then, it happened.
Code 898: Refund applied to non-IRS debt .
It looked as if they wouldn’t receive that refund they already spent. Now, my client did not know what to do. Before getting married, my client’s spouse told them, “I never get a tax refund.”
But they failed to mention why they never got a refund. Honestly, they did not know what their refund was paying for. We later found out that each year the Treasury Department garnished the refund for back child support. My client knew their spouse had child support but did not know they were behind on it.
If you have a client in this situation, all hope is not gone. I could help my client find out what offset the tax refund. We could also get a portion of the refund back.
You can do the same thing for your client. That is assuming that one spouse is not liable for the debt that offset the tax refund. The IRS calls this injured spouse relief.
I’ll walk you through how you can help your client with their refund garnishment sucker punch. Yes, you can help them get their part of the refund back. Let’s start with what injured spouse relief is. Then we’ll look at who qualifies as an injured spouse and how to request injured spouse relief.