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
- Will the U.S. become a TikTok-free zone? The House of Representatives has passed a bill that would ban the video hosting app unless its owner, China-based ByteDance, sells its stake. This legislation was spurred by concerns that the app’s ownership poses a threat to data security, since the Chinese government could require ByteDance to provide access to data on American users at any time. TikTok currently has over 170 million U.S.-based users. The bill passed with a large majority of 352 in favor and only 65 against. The next step is the Senate where it is less clear how the votes are likely to fall. President Joe Biden has made a statement that he intends to sign the legislation if it is passed by Congress.
- Airbnb doubles down on privacy for guests by banning indoor security cameras on all rental properties. The online property rental company previously allowed cameras in common areas including hallways and living rooms as long as the presence of cameras was clearly noted in the listing. Now all indoor cameras will be prohibited, and outdoor cameras and devices like noise decibel monitors must be disclosed in property listings. According to the company, the changes will only affect a small subset of properties. Airbnb continues to be a vacationer favorite, hitting a record high of 99 million bookings last quarter. The company also saw stock prices spike earlier this year after announcing a $6 billion share buyback program.
- Why does that voice sound familiar? It could be AI-generated T-Pain, courtesy of YouTube’s Dream Track technology. YouTube debuted this new AI tool at the end of 2023, which allows users to create songs using a celebrity voice. The voices of John Legend, Demi Lovato, and Charlie Puth are also available on the current test version of Dream Track. Meta is launching a similar project that offers AI-generated voices for Tom Brady, Snoop Dogg, and MrBeast, allowing users to create customized content for Facebook and Instagram. Meta also has a chatbot project that has already paid millions of dollars to sign major celebrities. Some have expressed concern over how these companies can develop these technologies without exposing public figures to identity and intellectual property theft or improper use of sound-alike audio.
What's New In The Tax World?
A $78 billion tax bill passes the House but hits walls in the Senate
This bipartisan legislation features an expanded child tax credit and restores three business tax breaks focused on deductions for equipment and machinery purchases, deductions for research and development expenses, and flexibility in how business loans can be deducted. The bill also includes tax credits for the development of low-income housing, disaster victims, and Taiwanese workers and companies operating in the U.S.
After gaining approval in the House, the bill has met opposition from Senate Republicans. Proponents of the bill had hoped to get it signed into law by tax filing season, but the tax package is currently stalled in the Senate as opponents protest key details of the plan. A major concern is the “look-back provision” for the expanded child tax credit. This measure would allow parents to use their previous year’s earnings to claim a larger child tax credit. Opponents argue that this would simply allow parents who earned little or no income in the current year to claim $2,000, disincentivizing them to return to work. Republican lawmakers have also criticized the plan for funding the bill, which involves limiting the employee retention tax credit (ERC). Opponents predict this approach will be ineffective since the ERC has been such a major source of fraudulent claims.
Meanwhile, President Biden’s proposed 2025 budget was recently released, introducing a number of new tax proposals. One proposal would raise the corporate tax rate to 28%. The current rate of 21% was set by the Tax Cuts and Jobs Act—before 2017, the rate was 35%. Another measure would require billionaires to pay at least 25% of their income in taxes. Similarly, the nation’s highest income earners would see an individual income tax rate of 39.6%.
These new taxes would fund a number of other changes, including an expanded earned income tax credit, an expanded child tax credit, a new affordable childcare program for children under age 5, free preschool for 4-year-olds, $10,000 tax credits for first-time homebuyers and owners of “starter homes,” and a permanent premium tax credit for insurance purchased through the Health Insurance Marketplace.
State-By-State Updates
- Colorado residents may be eligible for an $800 refund this tax season. Known as TABOR, taxpayers who have lived in the state for at least a full year can claim this benefit. Qualified residents who are married filing jointly can receive $1,600. Colorado issues these refunds after any year that the total tax revenue exceeds the set limit. To claim a $800 tax-free check this year, most taxpayers need to file a 2023 DR 0104 by April 15, 2024. If you have a Colorado income tax liability, if you claim a refund of wage withholding, or if you are required to file a Colorado return because you are required to file a federal return, you will have until October 15, 2024 to file this dorm.
- Maryland’s sales tax may undergo some dramatic changes this year. The state’s House of Delegates will be voting on House Bill 1515, which would lower the sales tax from 6% to 5%—but the adjustments hardly stop there. The bill also expands the categories that would be subject to sales tax, including services like legal aid, accounting services, dry cleaning, and funerals. The state has been seeing declining sales tax revenue, which could impact the budget available for transportation and education needs. Maryland’s revenue shortfall is currently on track to reach $2.7 billion by 2029, prompting legislators to consider major changes to bring in more revenue.
- Washington lawmakers say a definitive “no” to state income tax. The state Legislature recently approved three new initiatives, including a measure to officially prohibit a state-level personal income tax. Washington has been income-tax-free for almost a century, but this was more of a tradition than an officially codified law. Over the years, lawmakers have introduced about a dozen ballot measures to add an income tax. All but one failed—and that outlier was soon overturned by the state Supreme Court. Washington is one of only nine U.S. states that do not levy a personal income tax. Three other tax-related initiatives are expected to appear directly before voters on the next ballot related to the state’s landmark carbon pricing program, a new tax on the sale of stocks and bonds, and the state’s long-term care insurance program.
- West Virginia passes a budget of almost $5 billion as state senators and delegates finally reach a compromise. Final negotiations inched forward as the Senate advocated for an unemployment benefits bill, and the House stood behind a bill to increase pay for state workers and to phase out state taxes on Social Security. The two proposals backed by the House also had the support of Governor Jim Justice who addressed both in his State of the State address. The pay raise will amount to an average of 5% for state workers and will apply to State Police personnel and public school educators, among others. Eliminating Social Security income taxes is expected to cost the state about $37 million.
Tax Planning Tips
Is your property tax bill astronomical? Consider whether you can appeal your property tax assessment.
Many homeowners have had the experience of shock upon opening their property tax bill. What may not occur to them is that the countdown clock to take action has already started. Property owners typically have between 30 to 45 days after they receive a bill to make an appeal. The first step is to review the bill line by line and ensure that every detail is accurate from the size of the lot to the number of rooms. Any error could be used in an appeal. The notice itself should contain instructions on how to file an appeal.
Property tax assessments are meant to reflect the market value of the property. This often means that your initial tax assessment will match your sales price. In certain regions, such as Maryland or D.C., homeowners can apply for a homestead cap—if the property is your primary residence, your taxes can be capped so that they cannot go up by more than 10% in a year. One of the quickest ways to get a sense of whether your tax assessment is too high is to talk to your realtor and ask for a comparative market analysis before filing your appeal.
Cryptocurrency miners are balking at the possibility of a new 30% energy tax. The Biden administration recently reintroduced a proposal for the Digital Asset Mining Energy (DAME) tax, which would require digital asset miners to pay a 30% excise tax for their electricity consumption. This proposal first appeared in May 2023 and was met with a wave of opposition and was soon discarded. Opponents state that the bill would simply cause crypto miners to relocate outside the U.S., harming the local economy instead of increasing revenue.
Proponents of the tax say that Bitcoin and other miners are not seeing tax consequences for the toll that mining takes on the environment and local communities. If the tax is approved, it would phase in over the course of the next three years, starting at 10%, then rising to 20%, and reaching 30% in its third year. The tax is projected to raise $3.5 billion in revenue over the next ten years. The U.S. currently represents 38% of the global Bitcoin mining industry, the world’s largest share.
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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.”
